File No. 33-39564
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 18
TO THE
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AND
THE INVESTMENT COMPANY ACT OF 1940
SMITH BARNEY WORLD FUNDS, INC.
(Formerly, Smith Barney Worldwide Funds, Inc.)
(Exact name of Registrant as specified
in the Articles of Incorporation)
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices)
(212) 816-6474
(Registrant's telephone number)
Christina T. Sydor
388 Greenwich Street, New York, New York 10013 (22nd floor)
(Name and address of agent for service)
Rule 24f-2(a)(1) Declaration:
The common stock of Smith Barney World Funds, Inc. previously
registered hereunder as an indefinite number of shares of Common
Stock is classified as Global Government Bond Portfolio Shares,
International Equity Portfolio Shares, Pacific Portfolio Shares,
European Portfolio Shares, International Balanced Portfolio Shares
and the Emerging Markets Portfolio Shares.
Registrant expects to file its Rule 24f-2 Notice on or about December
30, 1996 for its most recent fiscal year ended October 31, 1996.
It is proposed that this Post-Effective Amendment will become
effective on February 28, 1997 pursuant to paragraph (a) of Rule
485.
CROSS REFERENCE SHEET
(as required by Rule 495(a))
Part A of
Form N-1A Location in Part A
1. Cover Page cover page
2. Synopsis "Prospectus Summary"
3. Condensed Financial Information "Financial Highlights"
4. General Description of Registrant "Additional Information"
cover page
"Investment Objective
and Management Policies"
5. Management of the Fund "Management of the Fund
"Purchase of Shares"
"Prospectus Summary"
6. Capital Stock and Other Securities "Additional Information"
cover page
"Dividends, Distributions
and Taxes"
7. Purchase of Securities Being Offered "Purchase of Shares"
"Prospectus Summary"
"Management of the Fund"
"Valuation of Shares"
"Exchange Privilege"
8. Redemption or Repurchase "Redemption of Shares"
"Minimum Account Size"
9. Pending Legal Proceedings not applicable
Part B of Statement of Additional
Form N-1A Information Caption
10. Cover Page cover page
11. Table of Contents "Table of Contents"
12. General Information and History not applicable
13. Investment Objectives and Policies cover page
"Investment Policies"
"Investment Restrictions"
14. Management of the Fund "Directors and Officers"
15. Control Persons and Principal
Holders of Securities See Prospectus -
"Additional
Information"
16. Investment Advisory and Other
Services See Prospectus -
"Management
of the Fund"
"Directors and Officers"
"Independent Auditors"
"Custodian"
17. Brokerage Allocation and Other
Practices See Prospectus -
"Management
of the Fund"
"Investment Management
Agreement and other
Services"
18. Capital Stock and Other Securities See Prospectus -
"Additional
Information"
"Voting Rights"
19. Purchase, Redemption and Pricing
of Securities Being Offered See Prospectus -
"Exchange
Privilege"
See Prospectus -
"Purchase of
Shares"
"Determination of Net
Asset
Value"
See Prospectus -
"Valuation of Shares"
See Prospectus -
"Redemption
of Shares"
"Financial Statements"
20. Tax Status See Prospectus -
"Dividends,
Distributions and Taxes"
"Additional Tax
Information"
21. Underwriters See Prospectus -
"Management
of the Fund"
See Prospectus -
"Purchase of
Shares"
"Investment Management
Agreement and Other Services"
22. Calculation of Performance Data See Prospectus -
"Performance"
"Performance
Information"
23. Financial Statements "Financial Statements"
Part C of
Form N-1A
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Post-Effective Amendment
to the Registration Statement.
PROSPECTUS
SMITH BARNEY
WORLD
FUNDS, INC.
Global
Government
Bond
Portfolio
February
28, 1997
Prospectus begins on
page one
[Logo]Smith Barney Mutual Funds
Investing for your future.
Every day
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
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Prospectus February
28, 1997
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388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Global Government Bond Portfolio (the "Portfolio") is one of the
investment portfolios that currently comprise Smith Barney World Funds,
Inc.
(the "Fund"). The Portfolio seeks as high a level of current income and
capital
appreciation as is consistent with its policy of investing principally
in high
quality bonds of the United States and foreign governments.
This Prospectus sets forth concisely certain information about the
Fund and
the Portfolio, including sales charges, distribution and service fees
and
expenses, that prospective investors will find helpful in making an
investment
decision. Investors are encouraged to read this Prospectus carefully and
retain
it for future reference.
Additional information about the Portfolio is contained in a
Statement of
Additional Information dated February 28, 1997, as amended or
supplemented from
time to time, that is available upon request and without charge by
calling or
writing the Fund at the telephone number or address set forth above or
by
contacting a Smith Barney Financial Consultant. The Statement of
Additional
Information has been filed with the Securities and Exchange Commission
(the
"SEC") and is incorporated by reference into this Prospectus in its
entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
1
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Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
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Table of Contents
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Prospectus Summary
3
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Financial Highlights
10
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Investment Objective and Management Policies
14
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Valuation of Shares
23
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Dividends, Distributions and Taxes
25
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Purchase of Shares
27
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Exchange Privilege
33
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Redemption of Shares
40
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Minimum Account Size
43
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Performance
44
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Management of the Portfolio
45
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Distributor
46
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Additional Information
47
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========
No person has been authorized to give any information or to make any
representations in connection with this offering other than those
contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Portfolio or the Distributor. This Prospectus does not constitute an
offer by
the Portfolio or the Distributor to sell or a solicitation of an offer
to buy
any of the securities offered hereby in any jurisdiction to any person
to whom
it is unlawful to make such offer or solicitation in such jurisdiction.
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========
2
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Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
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Prospectus Summary
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The following summary is qualified in its entirety by detailed
information
appearing elsewhere in this Prospectus and in the Statement of
Additional
Information. Cross references in this summary are to headings in the
Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio is an open-end, management
investment
company whose investment objective is to seek as high a level of current
income
and capital appreciation as is consistent with its policy of investing
principally in high quality bonds of the United States and foreign
governments.
See "Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Portfolio offers several
classes of
shares ("Classes") to investors designed to provide them with the
flexibility of
selecting an investment best suited to their needs. The general public
is
offered three Classes of shares: Class A shares, Class B shares and
Class C
shares, which differ principally in terms of sales charges and rate of
expenses
to which they are subject. A fourth Class of shares, Class Y shares, is
offered
only to investors meeting an initial investment minimum of $5,000,000.
See
"Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an
initial
sales charge of up to 4.50% and are subject to an annual service fee of
0.25% of
the average daily net assets of the Class. The initial sales charge may
be
reduced or waived for certain purchases. Purchases of Class A shares,
which when
combined with current holdings of Class A shares offered with a sales
charge
equal or exceed $500,000 in the aggregate, will be made at net asset
value with
no initial sales charge, but will be subject to a contingent deferred
sales
charge ("CDSC") of 1.00% on redemptions made within 12 months of
purchase. See
"Prospectus Summary-- Reduced or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value
subject to a
maximum CDSC of 4.50% of redemption proceeds, declining by 0.50% the
first year
after purchase and by 1.00% each year thereafter to zero. This CDSC may
be
waived for certain redemptions. Class B shares are subject to an annual
service
fee of 0.25% and an annual distribution fee of 0.50% of the average
daily net
assets of the Class. The Class B shares' distribution fee may cause that
Class
to have higher expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value,
eight years
after the date of the original purchase. Upon conversion, these shares
will no
longer be subject to an annual distribution fee. In addition, a certain
portion
of Class B shares that have been acquired through the reinvestment of
dividends
and distributions ("Class B
3
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Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
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Prospectus Summary (continued)
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Dividend Shares") will be converted at that time. See "Purchase of
Shares --
Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no
initial
sales charge. They are subject to an annual service fee of 0.25% and an
annual
distribution fee of 0.45% of the average daily net assets of the Class C
shares,
and investors pay a CDSC of 1.00% if they redeem Class C shares within
12 months
of purchase. The CDSC may be waived for certain redemptions. The Class C
shares'
distribution fee may cause that Class to have higher expenses and pay
lower
dividends than Class A shares. Purchases of Portfolio shares, which when
combined with current holdings of Class C shares of the Portfolio equal
or
exceed $500,000 in the aggregate, should be made in Class A shares at
net asset
value with no sales charge, and will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors
meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net
asset
value with no initial sales charge or CDSC. They are not subject to any
service
or distribution fees.
In deciding which Class of Portfolio shares to purchase, investors
should
consider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares
is more
beneficial to an investor depends on the amount and intended length of
his or
her investment. Shareholders who are planning to establish a program of
regular
investment may wish to consider Class A shares; as the investment
accumulates
shareholders may qualify for reduced sales charges and the shares are
subject to
lower ongoing expenses over the term of the investment. As an
alternative, Class
B and Class C shares are sold without any initial sales charge so the
entire
purchase price is immediately invested in the Portfolio. Any investment
return
on these additional invested amounts may partially or wholly offset the
higher
annual expenses of these Classes. Because the Portfolio's future return
cannot
be predicted, however, there can be no assurance that this would be the
case.
Finally, investors should consider the effect of the CDSC period
and any
conversion rights of the Classes in the context of their own investment
time
frame. For example, while Class C shares have a shorter CDSC period than
Class B
shares, they do not have a conversion feature, and therefore, are
subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive
than Class
C shares to investors with longer term investment outlooks.
4
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Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
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Prospectus Summary (continued)
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Reduced or No Initial Sales Charge. The initial sales charge on
Class A
shares may be waived for certain eligible purchasers, and the entire
purchase
price will be immediately invested in the Portfolio. In addition, Class
A share
purchases, which when combined with current holdings of Class A shares
offered
with a sales charge equal or exceed $500,000 in the aggregate, will be
made at
net asset value with no initial sales charge, but will be subject to a
CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000
aggregate
investment may be met by aggregating the purchase to the net asset value
of all
Class A shares offered with a sales charge held in funds sponsored by
Smith
Barney Inc. ("Smith Barney") listed under "Exchange Privilege." Class A
share
purchases also may be eligible for a reduced initial sales charge. See
"Purchase
of Shares." Because the ongoing expenses of Class A shares may be lower
than
those for Class B and Class C shares, purchasers eligible to purchase
Class A
shares at net asset value or at a reduced sales charge should consider
doing so.
Smith Barney Financial Consultants may receive different
compensation for
selling different Classes of shares. Investors should understand that
the
purpose of the CDSC on the Class B and Class C shares is the same as
that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a
complete
description of the sales charges and service and distribution fees for
each
Class of shares and "Valuation of Shares," "Dividends, Distributions and
Taxes"
and "Exchange Privilege" for other differences between the Classes of
shares.
SMITH BARNEY 401(k) AND EXECCHOICE(TM) PROGRAMS Investors may be
eligible
to participate in the Smith Barney 401(k) Program, which is generally
designed
to assist plan sponsors in the creation and operation of retirement
plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), as
well as other types of participant directed, tax-qualified employee
benefit
plans. Other investors may be eligible to participate in the Smith
Barney
ExecChoice(TM) Program. Class A and Class C shares are available without
sales
charge as investment alternatives under both of these programs. See
"Purchase of
Shares -- Smith Barney 401(k) and ExecChoice Programs."
PURCHASE OF SHARES Shares may be purchased through a brokerage
account
maintained by Smith Barney. Shares may also be purchased through a
broker that
clears securities transactions through Smith Barney on a fully disclosed
basis
(an "Introducing Broker") or an investment dealer in the selling group.
In
addition, certain investors, including qualified retirement plans and
certain
institutional investors, may purchase shares directly from the Fund made
through
the Fund's transfer agent, First Data Investor Services Group, Inc.
("First
Data"). See "Purchase of Shares."
5
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Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
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Prospectus Summary (continued)
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INVESTMENT MINIMUMS Investors in Class A, Class B and Class C
shares may
open an account by making an initial investment of at least $1,000 for
each
account, or $250 for an individual retirement account ("IRA") or a Self-
Employed
Retirement Plan. Investors in Class Y shares may open an account for an
initial
investment of $5,000,000. Subsequent investments of at least $50 may be
made for
all Classes. For participants in retirement plans qualified under
Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes of shares is $25. For minimum
investment
requirements for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes through the Systematic Investment
Plan
see below. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio offers shareholders a
Systematic
Investment Plan under which they may authorize the automatic placement
of a
purchase order each month or quarter for Portfolio shares. The minimum
initial
and subsequent investment for shareholders purchasing shares through the
Systematic Investment Plan on a monthly basis is $25 and a quarterly
basis is
$50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New
York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares"
and
"Redemption of Shares."
MANAGEMENT OF THE PORTFOLIO Smith Barney Mutual Funds Management
Inc. (the
"Manager") serves as the Portfolio's investment manager. The Manager is
a wholly
owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Holdings is
a
wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a
diversified
financial services holding company engaged, through its subsidiaries,
principally in four business segments: Investment Services, Consumer
Finance
Services, Life Insurance Services and Property & Casualty Insurance
Services.
See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of
the
same Class of certain other funds of the Smith Barney Mutual Funds at
the
respective net asset values next determined. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Portfolio for the prior
day
generally is quoted daily in the financial section of most newspapers
and is
also available from a Smith Barney Financial Consultant. See "Valuation
of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends are paid monthly from net
investment
income. Distributions of net realized capital gains, if any, are paid
annually.
See "Dividends, Distributions and Taxes."
6
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Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
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Prospectus Summary (continued)
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REINVESTMENT OF DIVIDENDS Dividends and distributions paid on
shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset
value.
Shares acquired by dividend and distribution reinvestments will not be
subject
to any sales charge or CDSC. Class B shares acquired through dividend
and
distribution reinvestments will become eligible for conversion to Class
A shares
on a pro rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance
that the
Portfolio's investment objective will be achieved. The value of the
Portfolio's
investments, and thus the net asset value of the Portfolio's shares,
will
fluctuate in response to changes in market and economic conditions, as
well as
the financial condition and prospects of issuers in which the Portfolio
invests.
The Fund will invest in foreign securities. Investments in foreign
securities
incur higher costs than investments in U.S. securities, including higher
costs
in making securities transactions as well as foreign government taxes
which may
reduce the investment return of the Portfolio. In addition, foreign
investments
may include additional risks associated with currency exchange rates,
less
complete financial information about individual companies, less market
liquidity
and political instability. See "Investment Objective and Management
Policies."
7
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Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
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Prospectus Summary (continued)
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THE PORTFOLIO'S EXPENSES The following expense table lists the
costs and
expenses an investor will incur either directly or indirectly as a
shareholder
of the Portfolio, based on the maximum sales charge or maximum CDSC that
may be
incurred at the time of purchase or redemption and the Portfolio's
operating
expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
Class A Class B
Class C Class Y
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<S> <C> <C>
<C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) ........... 4.50% None
None None
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower) ...... None* 4.50%
1.00% None
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management fees ................................. 0.75% 0.75%
0.75% 0.75%
12b-1 fees** .................................... 0.25 0.75
0.70 --
Other expenses*** ............................... -- --
- -- --
---- ----
- ---- ----
Total Portfolio Operating Expenses ................. -- % -- %
- -- % -- %
==== ====
==== ====
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</TABLE>
*Purchases of Class A shares, which when combined with current
holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in
the
aggregate, will be made at net asset value with no sales charge, but
will be
subject to a CDSC of 1.00% on redemptions made within 12 months.
**Upon conversion of Class B shares to Class A shares, such shares will
no
longer be subject to a distribution fee. Class C shares do not have a
conversion
feature and, therefore, are subject to an ongoing distribution fee. As a
result,
long-term shareholders of Class C shares may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the
National
Association of Securities Dealers, Inc.
***The Portfolio has earned credits from the custodian which reduce
service fees
incurred. If the credits are taken into consideration, the ratios of
expenses to
average net assets for Class A, B, C and Y would be --%, --%, --% and --
%,
respectively.
Class A shares of the Portfolio purchased through the Smith Barney
AssetOne
Program will be subject to an annual asset-based fee, payable quarterly,
in lieu
of the initial sales charge. The fee will vary to a maximum of 1.50%,
depending
on the amount of assets held through the Program. For more information,
please
call your Smith Barney Financial Consultant.
The sales charge and CDSC set forth in the above table are the
maximum
charges imposed on purchases or redemptions of Portfolio shares and
investors
may actually pay lower or no charges, depending on the amount purchased
and, in
the case of Class B shares, Class C shares and certain Class A shares,
the
length of time the shares are held and whether the shares are held
through the
Smith Barney 401(k) and ExecChoice(TM) Programs. See "Purchase of
Shares" and
"Redemption of Shares." Smith Barney receives an annual 12b-1 service
fee of
0.25% of the value of average
8
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Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
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Prospectus Summary (continued)
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daily net assets of Class A shares. Smith Barney also receives with
respect to
Class B shares an annual 12b-1 fee of 0.75% of the value of average
daily net
assets of that Class, consisting of a 0.50% distribution fee and a 0.25%
service
fee. For Class C shares, Smith Barney receives an annual 12b-1 fee of
0.70% of
the value of average daily net assets of this Class, consisting of a
0.45%
distribution fee and a 0.25% service fee. "Other expenses" in the above
table
include fees for shareholder services, custodial fees, legal and
accounting
fees, printing costs and registration fees.
EXAMPLE
The following example is intended to assist an investor in
understanding
the various costs that an investor in the Portfolio will bear directly
or
indirectly. The example assumes payment by the Portfolio of operating
expenses
at the levels set forth in the table above. See "Purchase of Shares,"
"Redemption of Shares" and "Management of the Fund."
1 Year 3 Years 5 Years
10 Years*
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An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5.00% annual
return and (2) redemption at the end of each
time period:
Class A.................................... $-- $-- $--
$--
Class B.................................... -- -- --
- --
Class C.................................... -- -- --
- --
Class Y.................................... -- -- --
- --
An investor would pay the following expenses on
the same investment, assuming the same annual
return and no redemption:
Class A.................................... $-- $-- $--
$--
Class B.................................... -- -- --
- --
Class C.................................... -- -- --
- --
Class Y.................................... -- -- --
- --
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*Ten-year figures assume conversion of Class B shares to Class A shares
at the
end of the eighth year following the date of purchase.
The example also provides a means for the investor to compare
expense
levels of funds with different fee structures over varying investment
periods.
To facilitate such comparison, all funds are required to utilize a 5.00%
annual
return assumption. However, the Portfolio's actual return will vary and
may be
greater or less than 5.00%. This example should not be considered a
representation of past or future expenses and actual expenses may be
greater or
less than those shown.
9
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Smith Barney World Funds --
Global Government Bond Portfolio
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Financial Highlights
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The following information for the three-year period ended December
31, 1993
and for the three-year period ended October 31, 1996 has been audited in
conjunction with the annual audits of the financial statements of Smith
Barney
World Funds, Inc. by KPMG Peat Marwick LLP, independent auditors. The
1996
financial statements and the independent auditors' report thereon appear
in the
October 31, 1996 Annual Report to Shareholders.
For a share of each class of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
Period Ended December 31,
Class A Shares 1996 1995 1994(1)
1993 1992 1991(2)
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- ----------------------------------
<S> <C> <C> <C>
<C> <C> <C>
Net Asset Value,
Beginning of Period $-- $ 11.68 $ 12.92 $
11.84 $ 12.90 $ 12.00
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- ----------------------------------
Income from Operations:
Net Investment Income## -- 0.92 0.69
0.83 1.00 0.35
Net Realized and Unrealized Gain
(Loss) on Investments -- 0.48 (1.28)
1.36 (0.90) 1.12
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- ----------------------------------
Total Income (Loss) from Operations-- 1.40 (0.59)
2.19 0.10 1.47
========================================================================
==================================
Less Distributions From:
Net Investment Income -- (0.78) (0.23)
(0.52) (0.97) (0.44)
Net Realized Gains(3) -- -- --
(0.59) (0.19) (0.13)
Capital -- -- (0.42)
- -- -- --
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- ----------------------------------
Total Distributions -- (0.78) (0.65)
(1.11) (1.16) (0.57)
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- ----------------------------------
Net Asset Value, End of Period $-- $ 12.30 $ 11.68 $
12.92 $ 11.84 $ 12.90
Total Return# --% 12.40% (4.64)%++
19.13% 0.93% 12.42%++
Net Assets, End of Period (000)'s $-- $123,917 $ 77,961
$107,415 $107,609 $ 99,855
Ratios to Average Net Assets:
Expenses(5) --% 1.38% 1.32%+
1.30% 1.36% 1.15%+
Net Investment Income -- 7.44 6.57+
6.67 7.72 8.26+
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- ----------------------------------
Portfolio Turnover Rate --% 195.40% 179.29%
119.06% 177.06% 63.46%
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==================================
</TABLE>
(1) For the period from January 1, 1994 to October 31, 1994.
(2) For the period from July 22, 1991 (inception date) to December 31,
1991.
(3) Net short term gains, if any, are included and reported as ordinary
income
for income tax purposes.
(4) During the period ended October 31, 1995, the Portfolio earned
credits from
the custodian which reduce service fees incurred. If the credits
are taken
into consideration, the ratio of expenses to average net assets for
Class A
would be 1.32%; prior year numbers have not been restated to
reflect these
credits.
## Includes realized gains and losses from foreign currency
transactions.
++ Total return is not annualized, as it may not be representative of
the
total return for the year.
+ Annualized.
# Total returns do not reflect any applicable sales loads or
contingent
deferred sales charges.
10
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Financial Highlights (continued)
- ------------------------------------------------------------------------
- --------
Class B Shares 1996 1995(1)
- ------------------------------------------------------------------------
- --------
Net Asset Value, Beginning of Period $-- $11.57
- ------------------------------------------------------------------------
- --------
Income from Operations:
Net Investment Income## -- 0.78
Net Realized and Unrealized Gain -- 0.57
- ------------------------------------------------------------------------
- --------
Total Income from Operations -- 1.35
========================================================================
========
Less Distributions From:
Net Investment Income -- (0.66)
- ------------------------------------------------------------------------
- --------
Total Distributions -- (0.66)
- ------------------------------------------------------------------------
- --------
Net Asset Value, End of Period $-- $12.26
Total Return# --% 11.97%++
Net Assets, End of Period (000)'s $-- $35,159
Ratios to Average Net Assets:
Expenses(2) --% 1.92%+
Net Investment Income -- 6.65+
- ------------------------------------------------------------------------
- --------
Portfolio Turnover Rate --% 195.40%
========================================================================
========
(1) For the period from November 18, 1994 (inception date) to October
31, 1995.
(2) During the period ended October 31, 1995, the Portfolio earned
credits from
the custodian which reduce service fees incurred. If the credits
are taken
into consideration, the ratio of expenses to average net assets for
Class B
would be 1.86%.+
## Includes realized gains and losses from foreign currency
transactions.
++ Total return is not annualized, as it may not be representative of
the
total return for the year.
+ Annualized.
# Total return does not reflect any applicable sales loads or
contingent
deferred sales charges.
11
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Financial Highlights (continued)
- ------------------------------------------------------------------------
- --------
Class C Shares(a) 1996 1995 1994(b)
1993(c)
- ------------------------------------------------------------------------
- --------
Net Asset Value, Beginning of Period $-- $11.68 $12.93
$11.83
- ------------------------------------------------------------------------
- --------
Income (Loss) from Operations:
Net Investment Income## -- 0.85 0.90
0.79
Net Realized and Unrealized Gain
(Loss) on Investments -- 0.42 (1.55)
1.37
- ------------------------------------------------------------------------
- --------
Total Income (Loss) from Operations -- 1.27 (0.65)
2.16
========================================================================
========
Less Distributions From:
Net Investment Income -- (0.72) (0.21)
(0.47)
Net Realized Gains(1) -- -- --
(0.59)
Capital -- -- (0.39)
- --
- ------------------------------------------------------------------------
- --------
Total Distributions -- (0.72) (0.60)
(1.06)
- ------------------------------------------------------------------------
- --------
Net Asset Value, End of Period $-- $12.23 $11.68
$12.93
Total Return# --% 11.25% (5.33)%++
18.89%++
Net Assets, End of Period (000)'s $-- $4,141 $5,835
$4,972
Ratios to Average Net Assets:
Expenses(2) --% 1.84% 1.80%+
1.74%+
Net Investment Income -- 7.15 6.05+
6.28+
- ------------------------------------------------------------------------
- --------
Portfolio Turnover Rate --% 195.40% 179.29%
119.06%
========================================================================
========
(a) On November 7, 1994, the former Class B Shares were renamed Class C
Shares.
(b) For the period from January 1, 1994 to October 31, 1994.
(c) For the period from January 4, 1993 (inception date) to December
31, 1993.
(1) Net short term gains, if any, are included and reported as ordinary
income
for income tax purposes.
(2) During the year ended October 31, 1995, the Portfolio earned
credits from
the custodian which reduce service fees incurred. If the credits
are taken
into consideration, the ratio of expenses to average net assets for
Class C
would be 1.78%; prior year numbers have not been restated to
reflect these
credits.
+ Annualized.
++ Total return is not annualized, as it may not be representative of
the
total return for the year.
# Total returns do not reflect any applicable sales loads or
contingent
deferred sales charges.
## Includes realized gains and losses from foreign currency
transactions.
12
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Financial Highlights (continued)
- ------------------------------------------------------------------------
- --------
Class Y Shares(1) 1996 1995 1994(a)
1993(b)
- ------------------------------------------------------------------------
- --------
Net Asset Value, Beginning of Period $-- $11.68 $12.93
$11.97
- ------------------------------------------------------------------------
- --------
Income (Loss) from Operations:
Net Investment Income## -- 0.78 0.76
0.69
Net Realized and Unrealized Gain
(Loss) on Investments -- 0.49 (1.35)
1.23
- ------------------------------------------------------------------------
- --------
Total Income (Loss) from Operations -- 1.27 (0.59)
1.92
========================================================================
========
Less Distributions From:
Net Investment Income -- (0.81) (0.23)
(0.37)
Net Realized Gains(2) -- -- --
(0.59)
Capital -- -- (0.43)
- --
- ------------------------------------------------------------------------
- --------
Total Distributions -- (0.81) (0.66)
(0.96)
- ------------------------------------------------------------------------
- --------
Net Asset Value, End of Period $-- $12.14 $11.68
$12.93
Total Return# --% 11.27% (4.86)%++
16.49%++
Net Assets, End of Period (000)'s $-- $ 62 $3,202 $
371
Ratios to Average Net Assets:
Expenses(3) --% 0.98% 1.23%+
1.20%+
Net Investment Income -- 6.38 6.76+
6.73+
- ------------------------------------------------------------------------
- --------
Portfolio Turnover Rate --% 195.40% 179.29%
119.06%
========================================================================
========
(a) For the period from January 1, 1994 to October 31, 1994. Effective
October
1, 1994, the Fund changed its fiscal year end to October 31.
(b) For the period from February 19, 1993 (inception date) to December
31,
1993.
(1) On November 7, 1994, the former Class C shares were renamed Class Y
shares.
(2) Net short term gains, if any, are included and reported as ordinary
income
for income tax purposes.
(3) During the year ended October 31, 1995, the Portfolio earned
credits from
the custodian which reduce service fees incurred. If the credits
are taken
into consideration, the ratio of expenses to average net assets for
Class Y
would be 0.93%; prior year numbers have not been restated to
reflect these
credits.
+ Annualized.
++ Total return is not annualized, as it may not be representative of
the
total return for the year.
# Total returns do not reflect any applicable sales loads or
contingent
deferred sales charges.
## Includes realized gains and losses from foreign currency
transactions.
13
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies
- ------------------------------------------------------------------------
- --------
The investment objective of the Portfolio is to provide as high a
level of
current income and capital appreciation as is consistent with its policy
of
investing principally in high quality bonds of the United States and
foreign
governments. There can be no assurance that the investment objective of
the
Portfolio will be achieved.
Under normal market conditions, the Portfolio invests at least 65%
of its
total assets in bonds issued or guaranteed by the United States or
foreign
governments (including foreign states, provinces, cantons and
municipalities) or
their agencies, authorities, or instrumentalities denominated in various
currencies, including U.S. dollars, or in multinational currency units,
such as
the European Currency Unit ("ECU"). Except with respect to government
securities
of less developed countries (see below), the Portfolio invests in
foreign
government securities only if the issue or the issuer thereof is rated
in the
two highest rating categories by Moody's Investors Service, Inc.
("Moody's") or
Standard & Poor's Ratings Group ("S&P") (see "Appendix -- Ratings of
Debt
Obligations" in the Statement of Additional Information), or if unrated,
are of
comparable quality in the determination of the investment adviser.
Consistent with its investment objective, under normal
circumstances the
Portfolio may invest up to 35% of its total assets in debt obligations
(including debt obligations convertible into common stock) of United
States or
foreign corporations and financial institutions and supranational
entities.
Supranational entities are international organizations, organized or
supported
by government entities to promote economic reconstruction or development
and by
international banking institutions and related government agencies. The
supranational entities in which the Portfolio may invest are the World
Bank, The
Asian Development Bank, the European Economic Community, the European
Investment
Bank, the European Coal and Steel Community, Eurofima, Euratom, Council
of
Europe, the European Bank for Construction and Development, the
International
Finance Corporation and the Nordic Investment Bank. Any non-government
investment would be limited to issues that are rated A or better by
Moody's or
S&P, or if not rated, are determined by the investment adviser to be of
comparable quality. For certain risks associated with investments in
foreign
issues, see "Risk Factors."
The Portfolio is organized as a non-diversified series and
currently
contemplates investing primarily in obligations of the U.S. and of
developed
nations (i.e., industrialized countries) which the investment adviser
believes
to pose limited credit risks. These countries currently are Australia,
Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan,
Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland and The United Kingdom. The Portfolio also will invest in
securities
denominated in the
14
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
currencies of such countries or in multinational currency units. Under
normal
market conditions the Portfolio invests at least 65% of its assets in
issues of
not less than three different countries; issues of any one country
(other than
the United States) will represent no more than 45% of the Portfolio's
total
assets.
In seeking to achieve its investment objective of high current
income, the
investment adviser considers and compares the relative yields of
obligations of
various developed nations; whereas, in seeking to achieve its objective
of
capital appreciation, it considers all of the following factors,
especially
changes in currency values against the U.S. dollar. The investment
manager
allocates the Portfolio's assets among securities of countries and in
currency
denominations where opportunities for meeting the Portfolio's investment
objective are expected to be the most attractive. The investment manager
selects
securities of particular issuers on the basis of its views as to the
best values
then currently available in the marketplace. Such values are a function
of
yield, maturity, issue classification and quality characteristics,
coupled with
expectations regarding the local and world economies, movements in the
general
level and term of interest rates, currency values, political
developments, and
variations of the supply of funds available for investment in the world
bond
market relative to the demands placed upon it. The investment manager
generally
evaluates currencies on the basis of fundamental economic criteria
(e.g.,
relative inflation and interest rate levels and trends, growth rate
forecasts,
balance of payments status and economic policies) as well as technical
and
political data. If the currency in which a security is denominated
appreciates
against the U.S. dollar, the dollar value of the security will increase,
and
conversely, a decline in the exchange rate of the currency normally
would
adversely affect the value of the security expressed in dollars.
Similarly, a
decline in interest rates on debt obligations generally increases the
value of
debt obligations, and conversely, an increase in interest rates
generally
decreases the value of such obligations.
Investments may be made from time to time in government securities,
including loan assignments and loan participations, of less developed
countries.
Such countries currently include Argentina, Brazil, Bulgaria, Czech
Republic,
Ecuador, Hungary, Indonesia, Lithuania, Malaysia, Mexico, Peru,
Philippines,
Poland, Russia, Slovakia, South Africa, Thailand, Turkey, Uruguay and
Venezuela.
Countries may be added to or deleted from this list as economic and
political
conditions warrant. Historical experience indicates that the markets of
less
developed countries have been more volatile than the markets of the more
mature
economies of developed countries; however, such markets often provide
rates of
return to investors commensurate with the credit and market risks. The
investment adviser does not intend to invest more than 10% of the
Portfolio's
assets in the government securities of less developed countries and will
not
invest more than 5% of the Portfolio's assets in the government
15
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
securities of any one such country. Such investments may be unrated or
rated
below investment grade or may be in default. Securities rated below
investment
grade (and comparable unrated securities) are the equivalent of high
yield, high
risk bonds. Such securities are regarded as predominantly speculative
with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk
exposure to
adverse business, financial, economic, and political conditions, whether
or not
occurring within the issuers' borders.
During times when the investment manager believes a temporary
defensive
posture in the market is warranted, including times involving
international
political or economic uncertainty, the Portfolio may hold cash (U.S.
dollars and
foreign currencies) and/or invest any portion or all of its assets in
high
quality money market instruments. It is impossible to predict when or
for how
long the Portfolio will employ defensive strategies. The Portfolio also
may
temporarily hold cash (U.S. dollars and foreign currencies) and may,
pending
investment of proceeds from new sales of Portfolio shares, invest all or
a
portion of its assets in high quality money market instruments or, to
meet
ordinary daily cash needs, also invest in the latter, but only up to 35%
of its
assets. High quality money market instruments in which the Portfolio may
invest
include, but are not limited to, the following instruments of U.S. or
foreign
issuers that are rated in one of the two highest ratings categories of
Moody's
or S&P (see "Appendix of Debt Obligations" in the Statement of
Additional
Information), or if unrated, are of comparable quality in the
determination of
the investment adviser: short-term government securities; commercial
paper; bank
certificates of deposit; time deposits; and bankers' acceptances; and
repurchase
agreements related to any of the foregoing.
When-Issued and Delayed Delivery Securities. The Portfolio may
purchase or
sell securities on a when-issued or delayed delivery basis. When-issued
or
delayed delivery transactions arise when securities are purchased or
sold by the
Portfolio with payment and delivery taking place in the future in order
to
secure what is considered to be an advantageous price and yield to the
Portfolio
at the time of entering into the transaction. The Fund's Custodian will
maintain, in a segregated account of the Portfolio, cash, U.S.
Government
securities or other liquid, high-grade debt obligations having a value
equal to
or greater than the Portfolio's purchase commitments; the Custodian will
likewise segregate securities sold on a delayed basis. The payment
obligations
and the interest rates that will be received are each fixed at the time
the
Portfolio enters into the commitment and no interest accrues to the
Portfolio
until settlement. Thus, it is possible that the market value at
16
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
the time of settlement could be higher or lower than the purchase price
if the
general level of interest rates has changed.
Repurchase Agreements. The Portfolio may on occasion enter into
repurchase
agreements, wherein the seller agrees to repurchase a security from the
Portfolio at an agreed-upon future date, normally the next business day.
The
resale price is greater than the purchase price, which reflects the
agreed-upon
rate of return for the period the Portfolio holds the security and which
is not
related to the coupon rate on the purchased security. The Portfolio
requires
continual maintenance of the market value of the collateral in amounts
at least
equal to the resale price, thus risk is limited to the ability of the
seller to
pay the agreed-upon amount on the delivery date; however, if the seller
defaults, realization upon the collateral by the Portfolio may be
delayed or
limited or the Portfolio might incur a loss if the value of the
collateral
securing the repurchase agreement declines and might incur disposition
costs in
connection with liquidating the collateral. The Portfolio will only
enter into
repurchase agreements with broker/dealers or other financial
institutions that
are deemed creditworthy by the Manager under guidelines approved by the
Board of
Directors. It is the policy of the Fund not to invest in repurchase
agreements
that do not mature within seven days if any such investment together
with any
other illiquid assets held by the Portfolio amount to more than 10% of
the
Portfolio's total assets.
Securities Lending. The Portfolio may seek to increase its
investment
income by lending its securities to unaffiliated brokers, dealers and
other
financial institutions, provided such loans are callable at any time and
are
continuously secured by cash, U.S. Government securities or other
liquid,
high-grade debt securities equal to no less than the market value,
determined
daily, of the securities loaned. Management will limit such lending to
not more
than one-third of the value of the Portfolio's total assets. The risks
in
lending portfolio securities, as with other extensions of secured
credit,
consist of possible delay in receiving additional collateral or in the
recovery
of the securities or possible loss of rights in the collateral should
the
borrower fail financially. Loans will only be made to borrowers whom the
investment adviser deems to be of good standing and will not be made
unless, in
the judgment of the investment adviser, the consideration to be earned
from such
loans would justify the risk.
Loan Participations and Assignments. The Portfolio may invest a
portion of
its assets in loan participations ("Participations"). By purchasing a
Participation, the Portfolio acquires some or all of the interest of a
bank or
other lending institution in a loan to a corporate or government
borrower. The
Participations typically will result in the Portfolio having a
contractual
relationship only with the lender not the
17
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
borrower. The Portfolio will have the right to receive payments of
principal,
interest and any fees to which it is entitled only from the lender
selling the
Participation and only upon receipt by the lender of the payments from
the
borrower. In connection with purchasing Participations, the Portfolio
generally
will have no right to enforce compliance by the borrower with the terms
of the
loan agreement relating to the loan, nor any rights of set-off against
the
borrower, and the Portfolio may not directly benefit from any collateral
supporting the loan in which it has purchased the Participation. As a
result,
the Portfolio will assume the credit risk of both the borrower and the
lender
that is selling the Participation. In the event of the insolvency of the
lender
selling a Participation, the Portfolio may be treated as a general
creditor of
the lender and may not benefit from any set-off between the lender and
the
borrower. The Portfolio will acquire Participations only if the lender
interpositioned between the Portfolio and the borrower is determined by
management to be creditworthy.
The Portfolio may also invest in assignments of portions of loans
from
third parties ("Assignments"). When it purchases Assignments from
lenders, the
Portfolio will acquire direct rights against the borrower on the loan.
However,
since Assignments are arranged through private negotiations between
potential
assignees and assignors, the rights and obligations acquired by the
Portfolio as
the purchaser of an Assignment may differ from, and be more limited
than, those
held by the assigning lender.
The Portfolio may have difficulty disposing of Assignments and
Participations. The liquidity of such securities is limited and, the
Portfolio
anticipates that such securities could be sold only to a limited number
of
institutional investors. The lack of a liquid secondary market could
have an
adverse impact on the value of such securities and on the Portfolio's
ability to
dispose of particular Assignments or Participations when necessary to
meet the
Portfolio's liquidity needs or in response to a specific economic event,
such as
a deterioration in the creditworthiness of the borrower. The lack of a
liquid
secondary market for Assignments and Participations also may make it
more
difficult for the Portfolio to assign a value to those securities for
purposes
of valuing the Portfolio's portfolio and calculating its net asset
value.
Options, Futures and Currency Strategies. The Portfolio may use
forward
currency contracts and certain options and futures strategies to attempt
to
hedge its portfolio, i.e., reduce the overall level of investment risk
normally
associated with the Portfolio. There can be no assurance that such
efforts will
succeed. These hedging techniques are described below and are further
detailed
in the Statement of Additional Information.
18
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
In order to assure that the Portfolio will not be deemed to be a
"commodity
pool" for purposes of the Commodity Exchange Act, regulations of the
Commodity
Futures Trading Commission ("CFTC") require that the Portfolio enter
into
transactions in futures contracts and options on futures contracts only
(i) for
bona fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and
premiums on
such non-hedging positions does not exceed 5% of the liquidation value
of the
Portfolio's assets. The Portfolio, however, does not intend to use such
instruments for non-hedging purposes.
To attempt to hedge against adverse movements in exchange rates
between
currencies, the Portfolio may enter into forward currency contracts for
the
purchase or sale of a specified currency at a specified future date.
Such
contracts may involve the purchase or sale of a foreign currency against
the
U.S. dollar or may involve two foreign currencies. The Portfolio may
enter into
forward currency contracts either with respect to specific transactions
or with
respect to its portfolio positions. For example, when the Portfolio
anticipates
making a purchase or sale of a security, it may enter a forward currency
contract in order to set the rate (either relative to the U.S. dollar or
another
currency) at which a currency exchange transaction related to the
purchase or
sale will be made ("transaction hedging"). Further, when the investment
manager
believes that a particular currency may decline compared to the U.S.
dollar or
another currency, the Portfolio may enter into a forward contract to
sell the
currency the investment manager expects to decline in an amount
approximating
the value of some or all of the Portfolio's securities denominated in
that
currency, or when the investment manager believes that one currency may
decline
against a currency in which some or all of the portfolio securities held
by the
Portfolio are denominated, it may enter into a forward contract to buy
the
currency expected to decline for a fixed amount ("position hedging"). In
this
situation, the Portfolio may, in the alternative, enter into a forward
contract
to sell a different currency for a fixed amount of the currency expected
to
decline where the investment manager believes that the value of the
currency to
be sold pursuant to the forward contract will fall whenever there is a
decline
in the value of the currency in which portfolio securities of the
Portfolio are
denominated ("cross hedging"). The Fund's custodian places cash or U.S.
Government securities or other high-quality debt securities denominated
in
certain currencies in a separate account of the Portfolio having a value
equal
to the aggregate amount of the Portfolio's commitments under forward
contracts
entered into with respect to position hedges and cross-hedges. If the
value of
the securities placed in a separate account declines, additional cash or
securities are placed in the account on a daily
19
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
basis so that the value of the account will equal the amount of the
Portfolio's
commitments with respect to such contracts.
For hedging purposes, the Portfolio may write covered call options
and
purchase put and call options on currencies to hedge against movements
in
exchange rates and on debt securities to hedge against the risk of
fluctuations
in the prices of securities held by the Portfolio or which the
investment
manager intends to include in its portfolio. The Portfolio also may use
interest
rate futures contracts and options thereon to hedge against changes in
the
general level of interest rates.
The Portfolio may write call options on securities and currencies
only if
they are covered, and such options must remain covered so long as the
Portfolio
is obligated as a writer. A call option written by the Portfolio is
"covered" if
the Portfolio owns the securities or currency underlying the option or
has an
absolute and immediate right to acquire that security or currency
without
additional cash consideration (or for additional cash consideration held
in a
segregated account by its custodian) upon conversion or exchange of
other
securities or currencies held in its portfolio. A call option is also
covered if
the Portfolio holds on a share-for-share basis a call on the same
security or
holds a call on the same currency as the call written where the exercise
price
of the call held is equal to or less than the exercise price of the call
written
or greater than the exercise price of the call written if the difference
is
maintained by the Portfolio in cash, Treasury bills or other high-grade,
short-term obligations in a segregated account with its custodian.
Although the Portfolio might not employ the use of forward currency
contracts, options and futures, the use of any of these strategies would
involve
certain investment risks and transaction costs to which it might not
otherwise
be subject. These risks include: dependence on the investment manager's
ability
to predict movements in the prices of individual debt securities,
fluctuations
in the general fixed-income markets and movements in interest rates and
currency
markets; imperfect correlation between movements in the price of
currency,
options, futures contracts or options thereon and movements in the price
of the
currency or security hedged or used for cover; the fact that skills and
techniques needed to trade options, futures contracts and options
thereon or to
use forward currency contracts are different from those needed to select
the
securities in which the Portfolio invests; lack of assurance that a
liquid
market will exist for any particular option, futures contract or option
thereon
at any particular time and the possible need to defer or accelerate
closing out
certain options, futures contracts and options thereon in order to
continue to
qualify for the beneficial tax treatment afforded "regulated investment
companies" under the Internal Revenue Code of 1986, as amended (the
"Code"). See
"Dividends, Distributions and Taxes."
20
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
The Portfolio's investment objective may be changed only by the
"vote of a
majority of the outstanding voting securities" as defined in the
Investment
Company Act of 1940 (the "1940 Act"). The Portfolio's investment
policies are
non-fundamental and, as such, may be changed by the Board of Directors,
provided
such change is not prohibited by the investment restrictions (which are
set
forth below and in the Statement of Additional Information) or
applicable law,
and any such change will first be disclosed in the then current
prospectus.
RISK FACTORS
The Portfolio's net asset value will fluctuate, reflecting
fluctuations in
the market value of its portfolio positions. The value of the fixed-
income
securities held by the Portfolio generally fluctuates inversely with
interest
rate movements. The Portfolio normally will invest in a substantial
number of
issuers; however, the Portfolio has registered under the 1940 Act as a
"non-diversified" fund so that it will be able to invest more than 5% of
its
assets in high quality, fixed-income obligations of an issuer. Since, as
a
"non-diversified" fund, the Portfolio is permitted to invest a greater
proportion of its assets in the securities of a smaller number of
issuers, the
Portfolio may be subject to greater credit risk with respect to its
individual
portfolio than a fund that is more broadly diversified.
According to Smith Barney Global Capital Management, Inc. ("Global
Capital"), which will furnish the investment manager with advice with
respect to
investments in the Portfolio (see "Management of the Fund"), as of
October 31,
1996 over --% of the value of all outstanding government debt
obligations
throughout the world was represented by obligations denominated in
currencies
other than the U.S. dollar. Moreover, from time to time, primarily
because of
the U.S. dollar--domestic currency exchange rate and differing demand--
supply
relationships, the debt securities of issuers located outside the U.S.
have
substantially outperformed the debt obligations of U.S. issuers in U.S.
dollar
terms. Accordingly, the investment manager believes that the Portfolio's
policy
of investing in debt securities of issuers throughout the world may
enable it to
produce U.S. dollar-based returns greater than those produced by funds
investing
solely in domestic debt securities.
Nonetheless, foreign investing does entail certain risks, such as
the
Portfolio's income may be subject to foreign withholding taxes (see
"Dividends,
Distributions and Taxes"), foreign brokerage fees generally are higher
than in
the United States, and the potential difficulty in enforcing contractual
obligations outside the U.S. The securities of non-U.S. issuers
generally will
not be registered with, nor will the issuers thereof be subject to, the
reporting requirements of the U.S. Securities and
21
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
Exchange Commission. Accordingly, there may be less publicly available
information about foreign securities and issuers than is available about
domestic securities and issuers. With respect to some foreign countries,
there
is the possibility of expropriation or confiscatory taxation,
limitations on the
removal of funds or other assets of the Portfolio, political or social
instability, or diplomatic developments that could affect the
Portfolio's
investments in those countries. In addition, foreign companies generally
are not
subject to uniform accounting, auditing and financial reporting
standards,
practices and requirements comparable to those applicable to domestic
companies.
Securities of some foreign companies are less liquid and their prices
may be
more volatile than securities of comparable domestic companies.
Moreover,
individual foreign economies may differ favorably or unfavorably from
the United
States economy in such respects as growth of gross national product,
rate of
inflation, rate of savings and capital reinvestment, resource self-
sufficiency
and balance of payments positions. Global Capital will rely on its
worldwide
financial and investment expertise to attempt to limit these risks.
Since the Portfolio may invest substantially in securities
denominated in
currencies other than the U.S. dollar, and since the Portfolio may hold
foreign
currencies, the Portfolio will be affected favorably or unfavorably by
exchange
control regulations or changes in the exchange rates between such
currencies and
the U.S. dollar. Changes in currency exchange rates will influence the
value of
the Portfolio's shares and also may affect the value of dividends and
interest
earned by the Portfolio and gains and losses it realizes. Exchange rates
are
determined by the forces of supply and demand in the foreign exchange
markets.
These forces are affected by the international balance of payments and
other
economic and financial conditions, government intervention and
speculation.
PORTFOLIO TURNOVER
Although it is anticipated that most investments of the Portfolio
will be
long-term in nature, the rate of portfolio turnover will depend upon
market and
other conditions, and it will not be a limiting factor when the
investment
manager believes that portfolio changes are appropriate. It is expected
that the
Portfolio's annual turnover rate will not exceed 100% in normal
circumstances.
Investors should realize that risk of loss is inherent in the ownership
of any
securities and that shares of the Portfolio will fluctuate with the
market value
of its securities.
INVESTMENT RESTRICTIONS
The following investment restrictions and those described in the
Statement
of Additional Information are fundamental policies of the Portfolio that
may be
changed
22
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
only by the "vote of a majority of the outstanding securities" as
defined in the
1940 Act. The Portfolio may not: 1. Borrow money, except from banks for
temporary or emergency purposes not in excess of 3311/43% of the value
of the
Portfolio's total assets. Whenever such borrowings exceed 5% of the
value of the
Portfolio's total assets, the Portfolio will not make any additional
investments. This restriction shall not prevent the Portfolio from
entering into
reverse repurchase agreements, provided that reverse repurchase
agreements and
any other transactions constituting borrowing by the Portfolio may not
exceed
one-third of the Portfolio's total assets. In the event that the asset
coverage
falls below 300%, the Portfolio would reduce, within three days
(excluding
Saturdays, Sundays and holidays), the amount of its borrowings in order
to
provide for 300% asset coverage; and 2. Acquire securities subject to
restrictions on disposition or securities for which there is no readily
available market; enter into repurchase agreements, or purchase time
deposits or
variable amount master demand notes, if any of the foregoing have a term
or
demand feature of more than seven days; or purchase OTC options or set
aside
assets to cover OTC options written by the Portfolio if, immediately
after and
as a result, the value of such securities would exceed, in the
aggregate, 10% of
the Portfolio's total assets. Subject to this limitation, the Fund's
Board of
Directors has authorized the Portfolio to invest in restricted
securities if
such investment is consistent with the Portfolio's investment objective
and has
authorized such securities to be considered to be liquid to the extent
the
investment adviser determines on a daily basis that there is a liquid
institutional market for such securities. The Board of Directors retains
ultimate ongoing responsibility for the determination that a restricted
security
is liquid. To the extent the Portfolio invests in restricted securities
that are
deemed liquid, the general level of illiquidity in the Portfolio may be
increased if qualified institutional buyers become uninterested in
purchasing
these securities or the market for these securities contracts. To the
extent
such restricted securities revert to illiquid status subsequent to the
Portfolio's purchase, the Board of Directors will consider appropriate
remedies
to maximize the Portfolio's liquidity and its ability to meet redemption
demands.
- ------------------------------------------------------------------------
- --------
Valuation of Shares
- ------------------------------------------------------------------------
- --------
The Portfolio's net asset value per share is determined as of the
close of
regular trading on the NYSE, on each day that the NYSE is open, by
dividing the
value of the Portfolio's net assets attributable to each Class by the
total
number of shares of the Class outstanding.
Securities owned by the Portfolio for which market quotations are
readily
available are valued at current market value or, in their absence, at
fair
value. Securities
23
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Valuation of Shares (continued)
- ------------------------------------------------------------------------
- --------
traded on an exchange are valued at last sales prices on the principal
exchange
on which each such security is traded, or if there were no sales on that
exchange on the valuation date, the last quoted sale, up to the time of
valuation, on the other exchanges. If instead there were no sales on the
valuation date with respect to these securities, such securities are
valued at
the mean of the latest published closing bid and asked prices. Over-the-
counter
securities are valued at last sales price or, if there were no sales
that day,
at the mean between the bid and asked prices. Options, futures contracts
and
options thereon that are traded on exchanges are also valued at last
sales
prices as of the close of the principal exchange on which each is listed
or if
there were no such sale on the valuation date, the last quoted sale, up
to the
time of valuation, on the other exchanges. In the absence of any sales
on the
valuation date, valuation shall be the mean of the latest closing bid
and asked
prices. Securities with a remaining maturity of 60 days or less are
valued at
amortized cost where the Board has determined that amortized cost is
fair value.
Premiums received on the sale of call options will be included in the
Portfolio's net assets, and current market value of such options sold by
the
Portfolio will be subtracted from the Portfolio's net assets. Any other
investments of the Portfolio, including restricted securities and listed
securities for which there is a thin market or that trade infrequently,
(i.e.,
securities for which prices are not readily available) are valued at a
fair
value determined by the Board of Directors in good faith. This value
generally
is determined as the amount that the Portfolio could reasonably expect
to
receive from an orderly disposition of these assets over a reasonable
period of
time but in no event more than seven days. The value of any security or
commodity denominated in a currency other than U.S. dollars will be
converted
into U.S. dollars at the prevailing market rate as determined by the
investment
adviser.
Foreign securities trading may not take place on all days on which
the NYSE
is open. Further, trading takes place in various foreign markets on days
on
which the NYSE is not open. Accordingly, the determination of the net
asset
value of the Portfolio may not take place contemporaneously with the
determination of the prices of investments held by such Portfolio.
Events
affecting the values of investments that occur between the time their
prices are
determined and 4:00 P.M. on each day that the NYSE is open will not be
reflected
in the Portfolio's net asset value unless the investment adviser, under
the
supervision of the Fund's Board of Directors, determines that the
particular
event would materially affect net asset value. As a result, the
Portfolio's net
asset value may be significantly affected by such trading on days when a
shareholder has no access to the Portfolio.
24
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Dividends, Distributions and Taxes
- ------------------------------------------------------------------------
- --------
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays monthly income dividends on shares of
the
Portfolio and makes annual distributions of capital gains, if any, on
such
shares.
If a shareholder does not otherwise instruct, dividends and capital
gain
distributions will be reinvested automatically in additional shares of
the same
Class at net asset value, subject to no sales charge or CDSC.
Income dividends and capital gain distributions that are invested
are
credited to shareholders' accounts in additional shares at the net asset
value
as of the close of business on the payment date. A shareholder may
change the
option at any time by notifying his or her Smith Barney Financial
Consultant.
Accounts held directly by First Data should notify First Data in writing
at
least five business days prior to the payment date to permit the change
to be
entered in the shareholder's account.
The per share dividends on Class B and Class C shares of the
Portfolio may
be lower than the per share dividends on Class A and Class Y shares
principally
as a result of the distribution fee applicable with respect to Class B
and Class
C shares. The per share dividends on Class A shares of the Portfolio may
be
lower than the per share dividends on Class Y shares principally as a
result of
the service fee applicable to Class A shares. Distributions of capital
gains, if
any, will be in the same amount for Class A, Class B, Class C and Class
Y
shares.
TAXES
The Portfolio intends to qualify as a regulated investment company
under
Subchapter M of the Code to be relieved of Federal income tax on that
part of
its net investment income and realized capital gains which it pays out
to its
shareholders. To qualify, the Portfolio must meet certain tests,
including
distributing at least 90% of its investment company taxable income, and
deriving
less than 30% of its gross income from the sale or other disposition of
certain
investments held for less than three months.
Dividends from net investment income and distributions of realized
short-term capital gains on the sale of securities, whether paid in cash
or
automatically invested in additional shares of the Portfolio, are
taxable to
shareholders as ordinary income. The Portfolio's dividends will not
qualify for
the dividends received deduction for corporations. Dividends and
distributions
declared by the Portfolio may also be subject to state and local taxes.
Distributions out of net long-term capital gains (i.e., net long-term
capital
gains in excess of net short-term capital losses) are taxable to
shareholders as
long-term capital gains. Information as to the tax status of dividends
paid or
deemed paid in each calendar year will be mailed to shareholders as
early in the
succeeding year as practical but not later than January 31.
25
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Dividends, Distributions and Taxes (continued)
- ------------------------------------------------------------------------
- --------
Under Internal Revenue Code sections 988 and 1256, unrealized gains
(losses) from certain foreign currency positions are treated as ordinary
income
(loss) at year end. Due to the uncertainty during the taxable year
surrounding
the amount that might ultimately be treated as a net ordinary loss under
these
rules, dividends made during the year may have to be reclassified as
distributions of short-term capital gain at the end of the year.
Distributions
of short-term capital gain and net investment income will generally be
treated
as ordinary income to shareholders for tax purposes.
Income received by the Portfolio from sources within foreign
countries may
be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce
or
eliminate such taxes. It is impossible to determine the rate of foreign
tax in
advance since the amount of the Portfolio's assets to be invested in
various
countries is not known. Such foreign taxes would reduce the income of
the
Portfolio distributed to shareholders.
If, at the end of the Portfolio's taxable year, more than 50% of
the value
of the Portfolio's total assets consists of stock or securities of
foreign
corporations, the Portfolio may make an election pursuant to which
foreign
income taxes paid by it will be treated as paid directly by its
shareholders.
Because, under normal market conditions, the Portfolio will invest at
least 65%
of its total assets in securities issued or guaranteed by the United
States or
foreign governments or their agencies, authorities or instrumentalities,
it is
not likely that the Portfolio will be eligible to make this election. If
the
Portfolio were entitled to and did make such an election, the amount of
such
foreign taxes would be included in the income of shareholders, and a
shareholder
other than a foreign corporation or non-resident alien individual could
claim
either a credit or, provided the shareholder itemizes deductions, a
deduction
for U.S. federal income tax purposes for such foreign taxes. The amount
of
foreign taxes for which a shareholder can claim a credit in any year is
generally subject to limitation, including a separate limitation for
"passive
income," which includes, among other items, dividends, interest and
certain
foreign currency gains.
In determining gain or loss, a shareholder who redeems or exchanges
shares
in the Portfolio within 90 days of the acquisition of such shares will
not be
entitled to include in tax basis the sales charges incurred in acquiring
such
shares to the extent of any subsequent reduction in sales charges for
investing
in the Portfolio or a different Portfolio of the Fund, such as pursuant
to the
rights discussed in "Exchange Privilege."
The Fund is required to withhold and remit to the U.S. Treasury 31%
of
dividends, distributions and redemption proceeds to shareholders who
fail to
provide a correct taxpayer identification number (the Social Security
number in
the case of an
26
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Dividends, Distributions and Taxes (continued)
- ------------------------------------------------------------------------
- --------
individual) or to make the required certifications, or who have been
notified by
the Internal Revenue Service that they are subject to backup withholding
and who
are not otherwise exempt. The 31% withholding tax is not an additional
tax, but
is creditable against a shareholder's federal income tax liability.
Prior to investing in shares of the Portfolio, investors should
consult
with their tax advisors concerning the federal, state and local tax
consequences
of such an investment.
- ------------------------------------------------------------------------
- --------
Purchase of Shares
- ------------------------------------------------------------------------
- --------
GENERAL
The Portfolio offers four Classes of shares. Class A shares are
sold to
investors with an initial sales charge and Class B and Class C shares
are sold
without an initial sales charge but are subject to a CDSC payable upon
certain
redemptions. Class Y shares are sold without an initial sales charge or
CDSC and
are available only to investors investing a minimum of $5,000,000
(except for
purchases of Class Y shares by Smith Barney Concert Series Inc., for
which there
is no minimum purchase amount). See "Prospectus Summary-Alternative
Purchase
Arrangements" for a discussion of factors to consider in selecting which
Class
of shares to purchase.
Purchases of Portfolio shares must be made through a brokerage
account
maintained with Smith Barney, an Introducing Broker or an investment
dealer in
the selling group. In addition, certain investors, including qualified
retirement plans and certain institutional investors, may purchase
shares
directly from the Fund through First Data. When purchasing shares of the
Portfolio, investors must specify whether the purchase is for Class A,
Class B,
Class C or Class Y shares. No maintenance fee will be charged by the
Fund in
connection with a brokerage account through which an investor purchases
or holds
shares.
Investors in Class A, Class B and Class C shares may open an
account by
making an initial investment of at least $1,000 for each account, or
$250 for an
IRA or a Self-Employed Retirement Plan in the Portfolio. Investors in
Class Y
shares may open an account by making an initial investment of
$5,000,000.
Subsequent investments of at least $50 may be made for all Classes. For
participants in retirement plans qualified under Section 403(b)(7) or
Section
401(a) of the Code, the minimum initial investment requirement for Class
A,
Class B and Class C shares and the subsequent investment requirement for
all
Classes in the Portfolio is $25. For
27
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
shareholders purchasing shares of the Portfolio through the Systematic
Investment Plan on a monthly basis, the minimum initial investment
requirement
for Class A, Class B and Class C shares and the minimum subsequent
investment
requirement for all Classes is $25. For shareholders purchasing shares
of the
Portfolio through the Systematic Investment Plan on a quarterly basis,
the
minimum initial investment requirement for Class A, Class B and Class C
shares
and the subsequent investment requirement for all Classes is $50. There
are no
minimum investment requirements in Class A shares for employees of
Travelers and
its subsidiaries, including Smith Barney, Directors or Trustees of any
of the
Smith Barney Mutual Funds, and their spouses and children. The Fund
reserves the
right to waive or change minimums, to decline any order to purchase its
shares
and to suspend the offering of shares from time to time. Shares
purchased will
be held in the shareholder's account by the Fund's transfer agent, First
Data.
Share certificates are issued only upon a shareholder's written request
to First
Data.
Purchase orders received by the Fund or Smith Barney prior to the
close of
regular trading on the NYSE, on any day the Portfolio calculates its net
asset
value, are priced according to the net asset value determined on that
day (the
"trade date"). Orders received by dealers or Introducing Brokers prior
to the
close of regular trading on the NYSE on any day the Portfolio calculates
its net
asset value, are priced according to the net asset value determined on
that day,
provided the order is received by the Fund or Smith Barney prior to
Smith
Barney's close of business. For shares purchased through Smith Barney or
Introducing Brokers purchasing through Smith Barney, payment for
Portfolio
shares is due on the third business day (the "settlement date") after
the trade
date. In all other cases, payments must be made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by
purchasing
shares through a service known as the Systematic Investment Plan. Under
the
Systematic Investment Plan, Smith Barney or First Data is authorized
through
preauthorized transfers of $25 or $50 or more to charge the regular bank
account
or other financial institution indicated by the shareholder on a monthly
or
quarterly basis, respectively, to provide systematic additions to the
shareholder's Portfolio account. A shareholder who has insufficient
funds to
complete the transfer will be charged a fee of up to $25 by Smith Barney
or
First Data. The Systematic Investment Plan also authorizes Smith Barney
to apply
cash held in the shareholder's Smith Barney brokerage account or redeem
the
shareholder's shares of a Smith Barney money market fund to make
additions to
the account. Additional information is available from the Fund or a
Smith Barney
Financial Consultant.
28
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
INITIAL SALES CHARGE ALTERNATIVE - CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the
Portfolio are as follows:
Dealers'
Sales Charge
Reallowance
% of % of as
% of
Amount of Investment Offering Price Amount Invested
Offering Price
- ------------------------------------------------------------------------
- -------
Less than $25,000 4.50% 4.71%
4.00%
$ 25,000 -- 49,999 4.00 4.17
3.60
50,000 -- 99,999 3.50 3.63
3.15
100,000 -- 249,999 2.50 2.56
2.25
250,000 -- 499,999 1.50 1.52
1.35
500,000 and over * *
*
- ------------------------------------------------------------------------
- --------
* Purchases of Class A shares, which when combined with current holdings
of
Class A shares offered with a sales charge equal or exceed $500,000 in
the
aggregate, will be made at net asset value without any initial sales
charge, but
will be subject to a CDSC of 1.00% on redemptions made within 12 months
of
purchase. The CDSC on Class A shares is payable to Smith Barney, which
compensates Smith Barney Financial Consultants and other dealers whose
clients
make purchases of $500,000 or more. The CDSC is waived in the same
circumstances
in which the CDSC applicable to Class B and Class C shares is waived.
See
"Deferred Sales Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive up to 90% of the sales
charge and
may be deemed to be underwriters of the Fund as defined in the
Securities Act of
1933, as amended.
The reduced sales charges shown above apply to the aggregate of
purchases
of Class A shares of the Portfolio made at one time by "any person,"
which
includes an individual, his or her spouse and children, or a trustee or
other
fiduciary of a single trust estate or single fiduciary account. The
reduced
sales charge minimums may also be met by aggregating the purchase with
the net
asset value of all Class A shares offered with a sales charge held in
funds
sponsored by Smith Barney that are listed under "Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without
a sales
charge in the following circumstances: (a) sales to (i) Board Members
and
employees of Travelers and its subsidiaries and any of the Smith Barney
Mutual
Funds (including retired Board Members and employees); the immediate
families of
such persons (including the surviving spouse of a deceased Board Member
or
employee); and to a pension, profit-sharing or other benefit plan for
such
persons and (ii) employees of members of the National Association of
Securities
Dealers,
29
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
Inc., provided such sales are made upon the assurance of the purchaser
that the
purchase is made for investment purposes and that the securities will
not be
resold except through redemption or repurchase; (b) offers of Class A
shares to
any other investment company in connection with the combination of such
company
with the Portfolio by merger, acquisition of assets or otherwise; (c)
purchases
of Class A shares by any client of a newly employed Smith Barney
Financial
Consultant (for a period up to 90 days from the commencement of the
Financial
Consultant's employment with Smith Barney), on the condition the
purchase of
Class A shares is made with the proceeds of the redemption of shares of
a mutual
fund which (i) was sponsored by the Financial Consultant's prior
employer, (ii)
was sold to the client by the Financial Consultant and (iii) was subject
to a
sales charge; (d) shareholders who have redeemed Class A shares in the
Portfolio
(or Class A shares of another fund of the Smith Barney Mutual Funds that
are
offered with a sales charge equal to or greater than the maximum sales
charge of
the Portfolio) and who wish to reinvest their redemption proceeds in the
Portfolio, provided the reinvestment is made within 60 calendar days of
the
redemption; (e) accounts managed by registered investment advisory
subsidiaries
of Travelers; (f) direct rollovers by plan participants of distributions
from a
401(k) plan enrolled in the Smith Barney 401(k) Program (Note:
subsequent
investments will be subject to the applicable sales charge); (g)
purchases by
separate accounts used to fund certain unregistered variable annuity
contracts;
and (h) purchases by investors participating in a Smith Barney fee-based
assignment. In order to obtain such discounts, the purchaser must
provide
sufficient information at the time of purchase to permit verification
that the
purchase would qualify for the elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Portfolio may be purchased by "any person"
(as
defined above) at a reduced sales charge at net asset value determined
by
aggregating the dollar amount of the new purchase and the total net
asset value
of all Class A shares of the Portfolio and of funds sponsored by Smith
Barney
which are offered with a sales charge listed under "Exchange Privilege"
then
held by such person and applying the sales charge applicable to such
aggregate.
In order to obtain such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification that the
purchase
qualifies for the reduced sales charge. The right of accumulation is
subject to
modification or discontinuance at any time with respect to all shares
purchased
thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales
charge or
purchase at net asset value will also be available to employees (and
partners)
of the
30
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
same employer purchasing as a group, provided each participant makes the
minimum
initial investment required. The sales charge applicable to purchases by
each
member of such a group will be determined by the table set forth above
under
"Initial Sales Charge Alternative -- Class A Shares," and will be based
upon the
aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a
sales charge to, and share holdings of, all members of the group. To be
eligible
for such reduced sales charges or to purchase at net asset value, all
purchases
must be pursuant to an employer- or partnership-sanctioned plan meeting
certain
requirements. One such requirement is that the plan must be open to
specified
partners or employees of the employer and its subsidiaries, if any. Such
plan
may, but is not required to, provide for payroll deductions, IRAs or
investments
pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney
may also offer a reduced sales charge or net asset value purchase for
aggregating related fiduciary accounts under such conditions that Smith
Barney
will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class
A shares
at the reduced sales charge applicable to the group as a whole. The
sales charge
is based upon the aggregate dollar value of Class A shares offered with
a sales
charge that have been previously purchased and are still owned by the
group,
plus the amount of the current purchase. A "qualified group" is one
which (a)
has been in existence for more than six months, (b) has a purpose other
than
acquiring Portfolio shares at a discount and (c) satisfies uniform
criteria
which enables Smith Barney to realize economies of scale in its costs of
distributing shares. A qualified group must have more than 10 members,
must be
available to arrange for group meetings between representatives of the
Portfolio
and the members, and must agree to include sales and other materials
related to
the Portfolio in its publications and mailings to members at no cost to
Smith
Barney. In order to obtain such reduced sales charge or to purchase at
net asset
value, the purchaser must provide sufficient information at the time of
purchase
to permit verification that the purchase qualifies for the reduced sales
charge.
Approval of group purchase reduced sales charge plans is subject to the
discretion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more
provides
an opportunity for an investor to obtain a reduced sales charge by
aggregating
investments over a 13 month period, provided that the investor refers to
such
Letter when placing orders. For purposes of a Letter of Intent, the
"Amount of
Investment" as referred to in the preceding sales charge table includes
purchases of all Class A shares of the Portfolio and other funds of the
Smith
Barney Mutual Funds offered
31
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
with a sales charge over the 13 month period based on the total amount
of
intended purchases plus the value of all Class A shares previously
purchased and
still owned. An alternative is to compute the 13 month period starting
up to 90
days before the date of execution of a Letter of Intent. Each investment
made
during the period receives the reduced sales charge applicable to the
total
amount of the investment goal. If the goal is not achieved within the
period,
the investor must pay the difference between the sales charges
applicable to the
purchases made and the charges previously paid, or an appropriate number
of
escrowed shares will be redeemed. Please contact a Smith Barney
Financial
Consultant or First Data to obtain a Letter of Intent application.
Class Y Shares. A Letter of Intent may also be used as a way for
investors
to meet the minimum investment requirement for Class Y shares. Such
investors
must make an initial minimum purchase of $1,000,000 in Class Y shares of
the
Portfolio and agree to purchase a total of $5,000,000 of Class Y shares
of the
same Portfolio within six months from the date of the Letter. If a total
investment of $5,000,000 is not made within the six-month period, all
Class Y
shares purchased to date will be transferred to Class A shares, where
they will
be subject to all fees (including a service fee of 0.25%) and expenses
applicable to the Portfolio's Class A shares, which may include a CDSC
of 1.00%.
Please contact a Smith Barney Financial Consultant or First Data for
further
information.
DEFERRED SALES CHARGE ALTERNATIVES
CDSC Shares are sold at net asset value next determined without an
initial
sales charge so that the full amount of an investor's purchase payment
may be
immediately invested in the Portfolio. A CDSC, however, may be imposed
on
certain redemptions of these shares. "CDSC Shares" are: (a) Class B
shares; (b)
Class C shares; and (c) Class A shares which when combined with Class A
shares
offered with a sales charge currently held by an investor equal or
exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on an amount equal to the
lesser of
the original cost of the shares being redeemed or their net asset value
at the
time of redemption. CDSC Shares that are redeemed will not be subject to
a CDSC
to the extent that the value of such shares represents: (a) capital
appreciation
of Portfolio assets; (b) reinvestment of dividends or capital gain
distributions; (c) with respect to Class B shares, shares redeemed more
than
five years after their purchase; or (d) with respect to Class C shares
and Class
A shares that are CDSC Shares, shares redeemed more than 12 months after
their
purchase.
Class C shares and Class A shares that are CDSC Shares are subject
to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in
which
the
32
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
CDSC is imposed on Class B shares, the amount of the charge will depend
on the
number of years since the shareholder made the purchase payment from
which the
amount is being redeemed. Solely for purposes of determining the number
of years
since a purchase payment, all purchase payments made during a month will
be
aggregated and deemed to have been made on the last day of the preceding
Smith
Barney statement month. The following table sets forth the rates of the
charge
for redemptions of Class B shares by shareholders, except in the case of
Class B
shares held under the Smith Barney 401(k) Program, as described below.
See
"Purchase of Shares -- Smith Barney 401(k) and ExecChoice(TM) Programs."
Year Since Purchase
Payment Was Made CDSC
- ------------------------------------------------------------------------
- --------
First
4.50%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
Class B shares will convert automatically to Class A shares eight
years
after the date on which they were purchased and thereafter will no
longer be
subject to any distribution fees. There will also be converted at that
time such
proportion of Class B Dividend Shares owned by the shareholder as the
total
number of his or her Class B Dividend Shares converting at the time
bears to the
total number of outstanding Class B shares (other than Class B Dividend
Shares)
owned by the shareholder. Shareholders who held Class B shares of Smith
Barney
Shearson Short-Term World Income Fund (the "Short-Term World Income
Fund") on
July 15, 1994 and who subsequently exchange those shares for Class B
shares of
the Portfolio will be offered the opportunity to exchange all such Class
B
shares for Class A shares of the Portfolio four years after the date on
which
those shares were deemed to have been purchased. Holders of such Class B
shares
will be notified of the pending exchange in writing approximately 30
days before
the fourth anniversary of the purchase date and, unless the exchange has
been
rejected in writing, the exchange will occur on or about the fourth
anniversary
date. See "Prospectus Summary -- Alternative Purchase Arrangements --
Class B
Shares Conversion Feature."
In determining the applicability of any CDSC, it will be assumed
that a
redemption is made first of shares representing capital appreciation,
next of
shares representing the reinvestment of dividends and capital gain
distributions
and finally of other shares held by the shareholder for the longest
period of
time. The length
33
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
of time that CDSC Shares acquired through an exchange have been held
will be
calculated from the date that the shares exchanged were initially
acquired in
one of the other Smith Barney Mutual Funds, and Portfolio shares being
redeemed
will be considered to represent, as applicable, capital appreciation or
dividend
and capital gain distribution reinvestments in such other funds. For
Federal
income tax purposes, the amount of the CDSC will reduce the gain or
increase the
loss, as the case may be, on the amount realized on redemption. The
amount of
any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B
shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired
5
additional shares through dividend reinvestment. During the fifteenth
month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value
had
appreciated to $12 per share, the value of the investor's shares would
be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the
amount which
represents appreciation ($200) and the value of the reinvested dividend
shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260)
would
be charged at a rate of 4.00% (the applicable rate for Class B shares)
for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per
month of
the value of the shareholder's shares at the time the withdrawal plan
commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that
automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the
value of the
shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within
twelve
months following the death or disability of the shareholder; (d)
redemption of
shares made in connection with qualified distributions from retirement
plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and
(f)
redemptions of shares in connection with a combination of the Portfolio
with any
investment company by merger, acquisition of assets or otherwise. In
addition, a
shareholder who has redeemed shares from other funds of the Smith Barney
Mutual
Funds may, under certain circumstances, reinvest all or part of the
redemption
proceeds within 60 days and receive pro rata credit for any CDSC imposed
on the
prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith
Barney in
the case of shareholders who are also Smith Barney clients or by First
Data in
the case of all other shareholders) of the shareholder's status or
holdings, as
the case may be.
34
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
SMITH BARNEY 401(k) AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k)
Program
or the Smith Barney ExecChoice(TM) Program. To the extent applicable,
the same
terms and conditions, which are outlined below, are offered to all plans
participating ("Participating Plans") in these programs.
The Portfolio offers to Participating Plans Class A and Class C
shares as
investment alternatives under the Smith Barney 401(k) and ExecChoice(TM)
Programs. Class A and Class C shares acquired through the Participating
Plans
are subject to the same service and/or distribution fees as the Class A
and
Class C shares acquired by other investors; however, they are not
subject to any
initial sales charge or CDSC. Once a Participating Plan has made an
initial
investment in the Portfolio, all of its subsequent investments in the
Portfolio
must be in the same Class of shares, except as otherwise described
below.
Class A Shares. Class A shares of the Portfolio are offered without
any
sales charge or CDSC to any Participating Plan that purchases $1,000,000
or more
of Class A shares of one or more funds of the Smith Barney Mutual Funds.
Class C Shares. Class C shares of the Portfolio are offered without
any
sales charge or CDSC to any Participating Plan that purchases less than
$1,000,000 of Class C shares of one or more funds of the Smith Barney
Mutual
Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996.
If, at
the end of the fifth year after the date the Participating Plan enrolled
in the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program,
a
Participating Plan's total Class C holdings in all non-money market
Smith Barney
Mutual Funds equal at least $1,000,000, the Participating Plan will be
offered
the opportunity to exchange all of its Class C shares for Class A shares
of the
Portfolio. (For Participating Plans that were originally established
through a
Smith Barney retail brokerage account, the five year period will be
calculated
from the date the retail brokerage account was opened.) Such
Participating Plans
will be notified of the pending exchange in writing within 30 days after
the
fifth anniversary of the enrollment date and, unless the exchange offer
has been
rejected in writing, the exchange will occur on or about the 90th day
after the
fifth anniversary date. If the Participating Plan does not qualify for
the five
year exchange to Class A shares, a review of the Participating Plan's
holdings
will be performed each quarter until either the Participating Plan
qualifies or
the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the
date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if its
total
Class C holdings in all non-money market Smith Barney Mutual Funds equal
at
least
35
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
$500,000 as of the calendar year-end, the Participating Plan will be
offered the
opportunity to exchange all of its Class C shares for Class A shares of
the
Portfolio. Such Plans will be notified in writing within 30 days after
the last
business day of the calendar year and, unless the exchange offer has
been
rejected in writing, the exchange will occur on or about the last
business day
of the following March.
Any Participating Plan in the Smith Barney 401(k) Program that has
not
previously qualified for an exchange into Class A shares will be offered
the
opportunity to exchange all of its Class C shares for Class A shares of
the
Portfolio; regardless of asset size, at the end of the eighth year after
the
date the Participating Plan enrolled in the Smith Barney 401(k) Program.
Such
Plans will be notified of the pending exchange in writing approximately
60 days
before the eighth anniversary of the enrollment date and, unless the
exchange
has been rejected in writing, the exchange will occur on or about the
eighth
anniversary date. Once an exchange has occurred, a Participating Plan
will not
be eligible to acquire additional Class C shares of the Fund but instead
may
acquire Class A shares of the Fund. Any Class C shares not converted
will
continue to be subject to the distribution fee.
Participating Plans wishing to acquire shares of the Portfolio
through the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program
must
purchase such shares directly from the Transfer Agent. For further
information
regarding these Programs, investors should contact a Smith Barney
Financial
Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares
of the
Portfolio are not available for purchase by Participating Plans opened
on or
after June 21, 1996, but may continue to be purchased by any
Participating Plan
in the Smith Barney 401(k) Program opened prior to such date and
originally
investing in such Class. Class B shares acquired are subject to a CDSC
of 3.00%
of redemption proceeds, if the Participating Plan terminates within
eight years
of the date the Participating Plan first enrolled in the Smith Barney
401(k)
Program.
At the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) Program, the Participating Plan will
be
offered the opportunity to exchange all of its Class B shares for Class
A shares
of the Portfolio. Such Participating Plan will be notified of the
pending
exchange in writing approximately 60 days before the eighth anniversary
of the
enrollment date and, unless the exchange has been rejected in writing,
the
exchange will occur on or about the eighth anniversary date. Once the
exchange
has occurred, a Participating Plan will not be eligible to acquire
additional
Class B shares of the Portfolio but instead may acquire Class A shares
of the
Portfolio. If the Participating Plan elects not to exchange all of its
Class B
shares at that time, each Class B share held by the Participating Plan
will have
the same conversion feature as Class B shares held by other investors.
See
"Purchase of Shares -- Deferred Sales Charge Alternatives."
36
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Redemption of Shares (continued)
- ------------------------------------------------------------------------
- --------
No CDSC is imposed on redemptions of Class B shares to the extent
that the
net asset value of the shares redeemed does not exceed the current net
asset
value of the shares purchased through reinvestment of dividends or
capital gain
distributions, plus the current net asset value of Class B shares
purchased more
than eight years prior to the redemption, plus increases in the net
asset value
of the shareholder's Class B shares above the purchase payments made
during the
preceding eight years. Whether or not the CDSC applies to the redemption
by a
Participating Plan depends on the number of years since the
Participating Plan
first became enrolled in the Smith Barney 401(k) Program, unlike the
applicability of the CDSC to redemptions by other shareholders, which
depends on
the number of years since those shareholders made the purchase payment
from
which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in
connection with
lump-sum or other distributions made by a Participating Plan as a result
of: (a)
the retirement of an employee in the Participating Plan; (b) the
termination of
employment of an employee in the Participating Plan; (c) the death or
disability
of an employee in the Participating Plan; (d) the attainment of age
5911/42 by
an employee in the Participating Plan; (e) hardship of an employee in
the
Participating Plan to the extent permitted under Section 401(k) of the
Code; or
(f) redemptions of shares in connection with a loan made by the
Participating
Plan to an employee.
- ------------------------------------------------------------------------
- --------
Exchange Privilege
- ------------------------------------------------------------------------
- --------
Except as otherwise noted below, shares of each Class may be
exchanged for
shares of the same Class in the following funds of the Smith Barney
Mutual
Funds, to the extent shares are offered for sale in the shareholder's
state of
residence. Exchanges of Class A, Class B and Class C shares are subject
to
minimum investment requirements and all shares are subject to the other
requirements of the fund into which exchanges are made.
Fund Name
- ------------------------------------------------------------------------
- --------
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Special Equities Fund
37
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Exchange Privilege (continued)
- ------------------------------------------------------------------------
- --------
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Equity Income Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
* Smith Barney Funds, Inc. -- Income Return Account Portfolio
+++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities
Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
* Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
38
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Exchange Privilege (continued)
- ------------------------------------------------------------------------
- --------
Smith Barney Concert Series Inc.
Smith Barney Concert Series Inc. -- Balanced Portfolio
Smith Barney Concert Series Inc. -- Conservative Portfolio
Smith Barney Concert Series Inc. -- Growth Portfolio
Smith Barney Concert Series Inc. -- High Growth Portfolio
Smith Barney Concert Series Inc. -- Income Portfolio
Money Market Funds
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc. -- Cash Portfolio
++ Smith Barney Money Funds, Inc. -- Government Portfolio
*** Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
+++ Smith Barney Muni Funds -- California Money Market Portfolio
+++ Smith Barney Muni Funds -- New York Money Market Portfolio
- ------------------------------------------------------------------------
- --------
* Available for exchange with Class A, Class C and Class Y shares of
the
Portfolio.
** Available for exchange with Class A, Class B and Class Y shares of
the
Portfolio. In addition, shareholders who own Class C shares of the
Portfolio through the Smith Barney 401(k) Program may exchange
those shares
for Class C shares of this fund.
*** Available for exchange with Class A shares of the Portfolio.
+ Available for exchange with Class B and Class C shares of the
Portfolio.
++ Available for exchange with Class A and Class Y shares of the
Portfolio. In
addition, shareholders who own Class C shares of the Portfolio
through the
Smith Barney 401(k) and ExecChoice(TM) Programs may exchange those
shares
for Class C shares of this fund.
+++ Available for exchange with Class A and Class Y shares of the
Portfolio.
Class B Exchanges. In the event a Class B shareholder (unless such
shareholder was a Class B shareholder of the Short-Term World Income
Fund on
July 15, 1994) wishes to exchange all or a portion of his or her shares
in any
of the funds imposing a higher CDSC than that imposed by the Portfolio,
the
exchanged Class B shares will be subject to the higher applicable CDSC.
Upon an
exchange, the new Class B shares will be deemed to have been purchased
on the
same date as the Class B shares of the Portfolio that have been
exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be
deemed
to have been purchased on the same date as the Class C shares of the
Portfolio
that have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of
the
Portfolio who wish to exchange all or a portion of their shares for
shares of
the
39
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Exchange Privilege (continued)
- ------------------------------------------------------------------------
- --------
respective Class in any of the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although
the
exchange privilege is an important benefit, excessive exchange
transactions can
be detrimental to the Portfolio's performance and its shareholders. The
Manager
may determine that a pattern of frequent exchanges is excessive and
contrary to
the best interests of the Portfolio's other shareholders. In this event,
the
Fund may, at its discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination, the Fund will
provide
notice in writing or by telephone to the shareholder at least 15 days
prior to
suspending the exchange privilege and during the 15 day period the
shareholder
will be required to (a) redeem his or her shares in the Portfolio or (b)
remain
invested in the Portfolio or exchange into any of the funds of the Smith
Barney
Mutual Funds ordinarily available, which position the shareholder would
be
expected to maintain for a significant period of time. All relevant
factors will
be considered in determining what constitutes an abusive pattern of
exchanges.
Certain shareholders may be able to exchange shares by telephone.
See
"Redemption of Shares -- Telephone Redemption and Exchange Program."
Exchanges
will be processed at the net asset value next determined. Redemption
procedures
discussed below are also applicable for exchanging shares, and exchanges
will be
made upon receipt of all supporting documents in proper form. If the
account
registration of the shares of the fund being acquired is identical to
the
registration of the shares of the fund exchanged, no signature guarantee
is
required. A capital gain or loss for tax purposes will be realized upon
the
exchange, depending upon the cost or other basis of shares redeemed.
Before
exchanging shares, investors should read the current prospectus
describing the
shares to be acquired. The Portfolio reserves the right to modify or
discontinue
exchange privileges upon 60 days' prior notice to shareholders.
- ------------------------------------------------------------------------
- --------
Redemption of Shares
- ------------------------------------------------------------------------
- --------
The Fund is required to redeem the shares of the Portfolio tendered
to it,
as described below, at a redemption price equal to their net asset value
per
share next determined after receipt of a written request in proper form
at no
charge other than any applicable CDSC. Redemption requests received
after the
close of regular trading on the NYSE are priced at the net asset value
next
determined.
If a shareholder holds shares in more than one Class, any request
for
redemption must specify the Class being redeemed. In the event of a
failure to
specify
40
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Redemption of Shares (continued)
- ------------------------------------------------------------------------
- --------
which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's
transfer
agent receives further instructions from Smith Barney, or if the
shareholder's
account is not with Smith Barney, from the shareholder directly. The
redemption
proceeds will be remitted on or before the third business day following
receipt
of proper tender, except on days on which the NYSE is closed or as
permitted
under the 1940 Act in extraordinary circumstances. Generally, if the
redemption
proceeds are remitted to a Smith Barney brokerage account, these funds
will not
be invested for the shareholder's benefit without specific instruction
and Smith
Barney will benefit from the use of temporarily uninvested funds.
Redemption
proceeds for shares purchased by check, other than a certified or
official bank
check, will be remitted upon clearance of the check, which may take up
to ten
days or more.
Shares held by Smith Barney as custodian must be redeemed by
submitting a
written request to a Smith Barney Financial Consultant. Shares other
than those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group
or by
submitting a written request for redemption to:
Smith Barney World Funds, Inc./Global Government Bond Portfolio
Class A,B,C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or
dollar
amount of shares to be redeemed, (b) identify the shareholder's account
number
and (c) be signed by each registered owner exactly as the shares are
registered.
If the shares to be redeemed were issued in certificate form, the
certificates
must be endorsed for transfer (or be accompanied by an endorsed stock
power) and
must be submitted to First Data together with the redemption request.
Any
signature appearing on a share certificate, stock power or written
redemption
request in excess of $2,000 must be guaranteed by an eligible guarantor
institution, such as a domestic bank, savings and loan institution,
domestic
credit union, member bank of the Federal Reserve System or member firm
of a
national securities exchange. Written redemption requests of $2,000 or
less do
not require a signature guarantee unless more than one such redemption
request
is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. First Data may require additional
supporting
documents for redemptions made by corporations, executors,
administrators,
trustees or guardians. A redemption request will not be deemed properly
received
until First Data receives all required documents in proper form.
41
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Redemption of Shares (continued)
- ------------------------------------------------------------------------
- --------
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an automatic cash withdrawal
plan, under
which shareholders who own shares with a value of at least $10,000 may
elect to
receive cash payments of at least $50 monthly or quarterly. Retirement
plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an
account
value of at least $5,000. The withdrawal plan will be carried over on
exchanges
between funds or Classes of the Portfolio. Any applicable CDSC will not
be
waived on amounts withdrawn by a shareholder that exceed 1.00% per month
of the
value of the shareholder's shares subject to the CDSC at the time the
withdrawal
plan commences. (With respect to withdrawal plans in effect prior to
November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do
not exceed
2.00% per month of the value of the shareholder's shares subject to the
CDSC.)
For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be
eligible
to redeem and exchange Fund shares by telephone. To determine if a
shareholder
is entitled to participate in this program, he or she should contact
First Data
at 1-800-451-2010. Once eligibility is confirmed, the shareholder must
complete
and return a Telephone/Wire Authorization Form, along with a signature
guarantee, that will be provided by First Data upon request.
(Alternatively, an
investor may authorize telephone redemptions on the new account
application with
the applicant's signature guarantee when making his/her initial
investment in
the Fund.)
Redemptions. Redemption requests of up to $10,000 of any class or
classes of
the Fund's shares, may be made by eligible shareholders by calling First
Data at
1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00
p.m. (New
York City time) on any day the NYSE is open. Redemptions of shares (i)
by
retirement plans or (ii) for which certificates have been issued are not
permitted under this program.
A shareholder will have the option of having the redemption proceeds
mailed
to his/her address of record or wired to a bank account predesignated by
the
shareholder. Generally, redemption proceeds will be mailed or wired, as
the case
may be, on the next business day following the redemption request. In
order to
use the wire procedures, the bank receiving the proceeds must be a
member of the
Federal Reserve System or have a correspondent relationship with a
member bank.
The Fund reserves the right to charge shareholders a nominal fee for
each wire
42
<PAGE>
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Redemption of Shares (continued)
- ------------------------------------------------------------------------
- --------
redemption. Such charges, if any, will be assessed against the
shareholder's
account from which shares were redeemed. In order to change the bank
account
designated to receive redemption proceeds, a shareholder must complete a
new
Telephone/Wire Authorization Form and, for the protection of the
shareholder's
assets, will be required to provide a signature guarantee and certain
other
documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if
the
account registration of the shares of the fund being acquired is
identical to
the registration of the shares of the fund exchanged. Such exchange
requests may
be made by calling First Data at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m.
(New York City time) on any day on which the NYSE is open.
Additional Information regarding Telephone Redemption and Exchange
Program.
Neither the Fund nor its agents will be liable for following
instructions
communicated by telephone that are reasonably believed to be genuine.
The Fund
and its agents will employ procedures designed to verify the identity of
the
caller and legitimacy of instructions (for example, a shareholder's name
and
account number will be required and phone calls may be recorded). The
Fund
reserves the right to suspend, modify or discontinue the telephone
redemption
and exchange program or to impose a charge for this service at any time
following at least seven (7) days prior notice to shareholders.
- ------------------------------------------------------------------------
- --------
Minimum Account Size
- ------------------------------------------------------------------------
- --------
The Fund reserves the right to involuntarily liquidate any
shareholder's
account in the Portfolio if the aggregate net asset value of the shares
held in
the Portfolio account is less than $500. (If a shareholder has more than
one
account in this Portfolio, each account must satisfy the minimum account
size.)
The Fund, however, will not redeem shares based solely on market
reductions in
net asset value. Before the Fund exercises such right, shareholders will
receive
written notice and will be permitted 60 days to bring accounts up to the
minimum
to avoid involuntary liquidation.
43
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Performance
- ------------------------------------------------------------------------
- --------
From time to time the Portfolio may advertise its total return,
average
annual total return and yield in advertisements. In addition, in other
types of
sales literature the Fund may include the Portfolio's current dividend
return.
These figures are computed separately for Class A, Class B, Class C and
Class Y
shares of the Portfolio. These figures are based on historical earnings
and are
not intended to indicate future performance. Total return is computed
for a
specified period of time assuming deduction of the maximum sales charge,
if any,
from the initial amount invested and reinvestment of all income
dividends and
capital gain distributions on the reinvestment dates at prices
calculated as
stated in this Prospectus, then dividing the value of the investment at
the end
of the period so calculated by the initial amount invested and
subtracting 100%.
The standard average annual total return, as prescribed by the SEC is
derived
from this total return, which provides the ending redeemable value. Such
standard total return information may also be accompanied with
nonstandard total
return information for differing periods computed in the same manner but
without
annualizing the total return or taking sales charges into account. The
yield of
a Portfolio class refers to the net investment income earned by
investments in
the class over a thirty-day period. This net investment income is then
annualized, i.e., the amount of income earned by the investments during
that
30-day period is assumed to be earned each 30-day period for twelve
periods and
is expressed as a percentage of the investments. The yield is calculated
according to a formula prescribed by the SEC to facilitate comparison
with
yields quoted by other investment companies. The Portfolio calculates
current
dividend return for each Class by annualizing the most recent monthly
distribution and dividing by the net asset value or the maximum public
offering
price (including sales charge) on the last day of the period for which
current
dividend return for a Portfolio class is presented. The current dividend
return
for each Class may vary from time to time depending on market
conditions, the
composition of its investment portfolio and operating expenses. These
factors
and possible differences in the methods used in calculating current
dividend
return should be considered when comparing a Class' current return to
yields
published for other investment companies and other investment vehicles.
The
Portfolio may also include comparative performance information in
advertising or
marketing its shares. Such performance information may include data from
Lipper
Analytical Services, Inc. and other financial publications.
44
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Management of the Portfolio
- ------------------------------------------------------------------------
- --------
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the
Portfolio
rests with the Fund's Board of Directors. The Directors approve all
significant
agreements between the Fund and the companies that furnish services to
the Fund
and the Portfolio, including agreements with the Fund's distributor,
investment
manager, custodian and transfer agent. The day-to-day operations of the
Portfolio are delegated to the Portfolio's investment manager. The
Statement of
Additional Information contains background information regarding each
Director
and executive officer of the Fund.
MANAGER
The Manager manages the day-to-day operations of the Portfolio
pursuant to
a management agreement entered into by the Fund on behalf of the
Portfolio under
which the Manager offers the Portfolio advice and assistance with
respect to the
acquisition, holding or disposal of securities and recommendations with
respect
to other aspects and affairs of the Portfolio and furnishes the
Portfolio with
bookkeeping, accounting and administrative services, office space and
equipment,
and the services of the officers and employees of the Fund. By written
agreement, Global Capital, a U.S. registered investment adviser located
at 10
Piccadilly, London, England, furnishes the Manager with information,
advice and
assistance and is available for consultation on the Portfolio, thus
Global
Capital may also be considered an investment adviser to the Fund. Global
Capital
currently manages the portfolios of clients in the international
securities
markets, particularly in the fixed income area. Global Capital's
services are
paid for by the Manager; there is no charge to the Fund for such
services. Also,
by written agreement, Research and other departments and staff of Smith
Barney
furnish the Manager with information, advice and assistance and are
available
for consultation on the Fund's Portfolios, thus Smith Barney may also be
considered an investment adviser to the Fund. Smith Barney's services
are paid
for by the Manager on the basis of direct and indirect costs to Smith
Barney of
performing such services; there is no charge to the Fund for such
services. For
the Portfolio's last fiscal year the management fee was 0.75% of the
Portfolio's
average net assets and the total operating expenses were --% for Class A
shares,
- --% for Class B shares, --% for Class C shares and --% for Class Y
shares.
The Manager was incorporated on March 12, 1968 under the laws of
Delaware.
As of November 30, 1996, the Manager had aggregate assets under
management of
approximately $-- billion. The Manager, Smith Barney and Holdings are
each
located at 388 Greenwich Street, New York, New York 10013. The term
45
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Management of the Portfolio (continued)
- ------------------------------------------------------------------------
- --------
"Smith Barney" in the title of the Fund has been adopted by permission
of Smith
Barney and is subject to the right of Smith Barney to elect that the
Fund stop
using the term in any form or combination of its name.
PORTFOLIO MANAGEMENT
Victor S. Filatov and Simon R. Hildreth are responsible for
management of
the Portfolio within the investment framework described above. Mr.
Filatov and
Mr. Hildreth are Vice Presidents of the Fund, Managing Directors of
Smith Barney
and members of the Investment Policy Committee of Global Capital. Prior
to
joining Smith Barney in 1993, Mr. Filatov was a Vice President at J.P.
Morgan
Securities, Inc. Prior to joining Smith Barney in 1994, Mr. Hildreth was
Director of Mercury Asset Management, a fund manager located in the
United
Kingdom.
Management's discussion and analysis and additional performance
information
regarding the Portfolio during the fiscal year ended October 31, 1996 is
included in the Annual Report dated October 31, 1996. A copy of the
Annual
Report may be obtained upon request and without charge from a Smith
Barney
Financial Consultant or by writing or calling the Fund at the address or
phone
number listed on page one of this Prospectus.
- ------------------------------------------------------------------------
- --------
Distributor
- ------------------------------------------------------------------------
- --------
Smith Barney distributes shares of the Portfolio as principal
underwriter
and as such conducts a continuous offering pursuant to a "best efforts"
arrangement requiring Smith Barney to take and pay for only such
securities as
may be sold to the public. Pursuant to a plan of distribution adopted by
the
Portfolio under Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney
is paid
a service fee with respect to Class A, Class B and Class C shares of the
Portfolio at the annual rate of 0.25% of the average daily net assets
attributable to these Classes. Smith Barney is also paid a distribution
fee with
respect to Class B and Class C shares at the annual rate of 0.50% and
0.45%,
respectively, of the average daily net assets attributable to these
Classes.
Class B shares that automatically convert to Class A shares eight years
after
the date of original purchase will no longer be subject to a
distribution fee.
The fees are used by Smith Barney to pay its Financial Consultants for
servicing
shareholder accounts and, in the case of Class B and Class C shares, to
cover
expenses primarily intended to result in the sale of those shares. These
expenses include: advertising expenses; the cost of printing and mailing
prospectuses to potential investors; payments to and expenses of Smith
Barney
Financial Consultants and other persons who provide support services in
connection with the distribution
46
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Distributor (continued)
- ------------------------------------------------------------------------
- --------
of shares; interest and/or carrying charges; and indirect and overhead
costs of
Smith Barney associated with the sale of Portfolio shares, including
lease,
utility, communications and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling
shares of a
Class include a commission or fee paid by the investor or Smith Barney
at the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a
shareholder
remains a holder of that Class. Smith Barney Financial Consultants may
receive
different levels of compensation for selling different Classes of
shares.
Payments under the Plan with respect to Class B and Class C shares
are not
tied exclusively to the distribution and shareholder services expenses
actually
incurred by Smith Barney and the payments may exceed distribution
expenses
actually incurred. The Fund's Board of Directors will evaluate the
appropriateness of the Plan and its payment terms on a continuing basis
and in
so doing will consider all relevant factors, including expenses borne by
Smith
Barney, amounts received under the Plan and proceeds of the CDSC.
- ------------------------------------------------------------------------
- --------
Additional Information
- ------------------------------------------------------------------------
- --------
The Fund, an open-end investment company, was incorporated in
Maryland on
March 22, 1991. The Fund has an authorized capital of 1,000,000,000
shares with
a par value of $.001 per share. The Board of Directors has authorized
the
issuance of six series of shares, each representing shares in one of six
separate Portfolios and may authorize the issuance of additional series
of
shares in the future. Class A, Class B, Class C and Class Y shares of
the
Portfolio represent interests in the assets of the Portfolio and have
identical
voting, dividend, liquidation and other rights on the same terms and
conditions
except that expenses related to the distribution of each Class of shares
are
borne solely by each Class and each Class of shares has exclusive voting
rights
with respect to provisions of the Fund's Rule 12b-1 distribution plan
which
pertain to a particular Class. As described under "Voting" in the
Statement of
Additional Information, the Fund ordinarily will not hold meetings of
shareholders annually; however, shareholders have the right to call a
meeting
upon a vote of 10% of the Fund's outstanding shares for the purpose of
voting to
remove directors, and the Fund will assist shareholders in calling such
a
meeting as required by the 1940 Act. Shares do not have cumulative
voting rights
or preemptive rights and are fully paid, transferable and nonassessable
when
issued for payment as described in this Prospectus.
47
<PAGE>
Smith Barney World Funds --
Global Government Bond Portfolio
- ------------------------------------------------------------------------
- --------
Additional Information (continued)
- ------------------------------------------------------------------------
- --------
The Chase Manhattan Bank, located at 4 Chase Metrotech Center,
Brooklyn,
New York 11245, serves as custodian of the Portfolio's investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109,
serves
as the Fund's transfer agent.
The Fund sends shareholders a semi-annual report and an audited
annual
report, which include listings of the investment securities held by the
Fund at
the end of the period covered. In an effort to reduce the Fund's
printing and
mailing costs, the Fund plans to consolidate the mailing of its semi-
annual and
annual reports by household. This consolidation means that a household
having
multiple accounts with the identical address of record will receive a
single
copy of each report. In addition, the Fund also plans to consolidate the
mailing
of its Prospectus so that a shareholder having multiple accounts (that
is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will
receive a
single Prospectus annually. Shareholders who do not want this
consolidation to
apply to their account should contact their Smith Barney Financial
Consultant or
the Fund's transfer agent.
48
<PAGE>
SMITH
BARNEY
-----
- -------
A member of
TravelersGroup [Logo]
Smith Barney
World
Funds, Inc.
Global
Government
Bond
Portfolio
388
Greenwich Street
New York, New
York 10013
FD
0666 12/96
Part B
SMITH BARNEY WORLD FUNDS, INC.
388 Greenwich Street
New York, New York 10013
STATEMENT OF ADDITIONAL INFORMATION
February 28, 1997
Shares of Smith Barney World Funds, Inc. (the "Fund") are offered
with a choice of six Portfolios:
The Global Government Bond Portfolio seeks as high a level of
current income and capital appreciation as is consistent with
its policy of investing principally in high quality bonds of
the United States and foreign governments.
The International Equity Portfolio seeks a total return on
its assets from growth of capital and income. The Portfolio
seeks to achieve its objective principally through a
diversified portfolio of equity securities of established
non-United States issuers.
The Pacific Portfolio seeks long-term capital appreciation by
investing primarily in a diversified portfolio of equity
securities of companies in the Asian Pacific Countries.
The European Portfolio seeks long-term capital appreciation
by investing primarily in equity securities of issuers based
in countries of Europe.
The International Balanced Portfolio seeks a competitive
total return on its assets from growth of capital and income
through a portfolio invested primarily in securities of
established non-United States issuers.
The Emerging Markets Portfolio seeks long term capital
appreciation on its assets through a portfolio invested
primarily in securities of emerging country issuers. The
Emerging Markets Portfolio is not currently available for
investment.
The Fund offers three classes of shares which may be purchased at the
next determined net asset value per share plus a sales charge which, at
the election of the investor, may be imposed (i) at the time of purchase
(Class A shares) or (ii) on a deferred basis (Class B and Class C
shares). A fourth class of shares (the Class Y shares) is sold at net
asset value and is available only to investors investing a minimum of
$5,000,000. A fifth class of shares of the International Equity
Portfolio (the Class Z shares) are offered only to tax-exempt retirement
plans of Smith Barney Inc. These alternatives permit an investor to
choose the method of purchasing shares that is most beneficial given the
amount of the purchase, the length of time the investor expects to hold
the shares and other circumstances.
This Statement of Additional Information is not a prospectus. It is
intended to provide more detailed information about Smith Barney World
Funds, Inc. as well as matters already discussed in the Prospectus of
the applicable Portfolio and therefore should be read in conjunction
with each Prospectus dated February 28, 1997 for the International
Equity Portfolio, the Global Government Bond Portfolio, the Pacific
Portfolio, the European Portfolio, the International Balanced Portfolio
and the Emerging Markets Portfolio, which may be obtained from the Fund
or your Smith Barney Financial Consultant.
TABLE OF CONTENTS
Page
Directors and Officers 3
Investment Policies 5
Investment Restrictions 14
Additional Tax Information 17
IRA and Other Prototype Retirement Plans 19
Performance Information 20
Determination of Net Asset Value 27
Redemption of Shares 27
Investment Management Agreement and Other Services 27
Custodian 31
Independent Auditors 31
Voting 31
Financial Statements 34
Appendix - Ratings of Debt Obligations 35
DIRECTORS, ADVISORY DIRECTOR AND OFFICERS
VICTOR K. ATKINS, Director
Retired; 120 Montgomery Street, San Francisco, CA. Former President of
Lips Propellers, Inc. Director of two investment companies associated
with Smith Barney; 75.
ALGER B. CHAPMAN, Director
Chairman and Chief Executive Officer, Chicago Board of Options Exchange;
400 S. LaSalle, Chicago, Il. Director of seven investment companies
associated with Smith Barney; 65.
ROBERT A. FRANKEL, Director
Managing Partner of Robert A. Frankel Managing Consultants, 108 Grand
Street, Croton-on-Hudson, NY. Director of seven investment companies
associated with Smith Barney. Former Vice President of The Readers
Digest; 69.
RAINER GREEVEN, Director
Partner of the law firm of Greeven & Ercklentz; 630 Fifth Avenue, New
York, NY. Director of two investment companies associated with Smith
Barney; 61.
SUSAN M. HEILBRON, Director
Attorney; 411 West End Avenue, New York, NY. Prior to November 1990,
Vice President and General Counsel of MacMillan, Inc. and Executive Vice
President of The Trump Organization. Director of two investment
companies associated with Smith Barney; 52.
*BRUCE D. SARGENT, Vice President and Director
Managing Director of Smith Barney Inc. ("Smith Barney ") and Vice
President and Director of Smith Barney Mutual Fund Management, Inc. (the
"Manager"), and four investment companies associated with Smith Barney;
53.
JAMES M. SHUART, Director
President, Hofstra University; 1000 Fulton Avenue, Hempstead, NY.
Director of European American Bank; Director of Long Island Tourism and
Convention Commission; and Director of Association of Colleges and
Universities of the State of New York. Director of two investment
companies associated with Smith Barney; 65.
*HEATH P. McLENDON, Chairman of the Board and Chief Executive Officer
Managing Director of Smith Barney; Director of forty-one investment
companies associated with Smith Barney; President of the Manager;
Chairman of Smith Barney Strategy Advisers Inc.; prior to July 1993,
Senior Executive Vice President of Shearson Lehman Brothers, Inc., and
Vice Chairman of Shearson Asset Management; 63.
*JESSICA BIBLIOWICZ, Director and President
Executive Vice President of Smith Barney, Director of twelve investment
companies and President of forty investment companies associated with
Smith Barney; prior to January, 1994, Director of Sales and Marketing of
Prudential Mutual Funds; prior to September, 1991, Assistant Portfolio
Manager to Shearson Lehman Brothers; 37.
*MAURITS E. EDERSHEIM, Chairman of the Fund and Advisory Director
Deputy Chairman of Smith Barney International Incorporated; Director
and President of Amstel Hudson Management Corp. (offshore investment
management); Director Esfinco NV (U.S. subsidiary of Spanish
Construction Company). Formerly Deputy Chairman and Director of Drexel
Burnham Lambert Incorporated, The Drexel Burnham Lambert Group Inc., and
various of their subsidiaries; 78.
*LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Smith Barney , and Senior Vice President and
Treasurer of forty-one investment companies associated with Smith
Barney; and Director and Senior Vice President of the Manager. Prior to
January 1990, Senior Vice President and Chief Financial Officer of
Cortland Financial Group, Inc. and Vice President and Treasurer of its
associated investment companies and subsidiary broker-dealer; 39.
*JAMES B. CONHEADY, Vice President
Managing Director of Smith Barney. Formerly First Vice President of
Drexel Burnham Lambert Incorporated; 61.
*JEFFREY RUSSELL, Vice President
Managing Director of Smith Barney. Formerly Vice President of Drexel
Burnham Lambert Incorporated; 39.
*REIN VAN DER DOES, Vice President
Managing Director of Smith Barney. Formerly Vice President of Drexel
Burnham Lambert Incorporated; 57.
*VICTOR S. FILATOV, Vice President
Managing Director of Smith Barney , President and Director of Smith
Barney Global Capital Management Inc. Formerly Vice President of J.P.
Morgan Securities Inc; 45.
*SIMON R. HILDRETH, Vice President
Senior Vice President of Smith Barney , Managing Director of Smith
Barney Global Capital Management Inc. Formerly Director of Mercury
Asset Management Ltd; 45.
*DENIS P. MANGAN, Vice President
Vice President of Smith Barney Global Capital Management Inc. Formerly
Vice President of J.P. Morgan and Citibank; 46.
*IRVING DAVID, Controller
Vice President of the Manager. Formerly Assistant Treasurer of First
Investment Management Company; 36.
*CHRISTINA T. SYDOR, Secretary
Managing Director of Smith Barney and Secretary of forty-one investment
companies associated with Smith Barney; Secretary and General Counsel of
the Manager; 46.
* Designates an "interested person" as defined in the Investment
Company Act of 1940, as amended (the "1940 Act") whose business address
is 388 Greenwich Street, New York, New York 10013. Such person is not
separately compensated for services as a Fund officer or director.
On February 2, 1997 directors and officers owned, in the aggregate,
less than 1% of the outstanding shares of the International Equity
Portfolio, the Global Government Bond Portfolio, the International
Balanced Portfolio and the Emerging Markets Portfolio. As of February
2, 1997, the directors and officers as a group owned, in the aggregate,
___% and ___% of the outstanding Class A shares of the European and
Pacific Portfolios, respectively.
The following table shows the compensation paid by the Fund to
each director during the Fund's last fiscal year. None of the officers
of the Fund received any compensation from the Fund for such period.
Officers and interested directors of the Fund are compensated by Smith
Barney.
COMPENSATION TABLE
Name of Person
Aggregate
Compensation
from the Fund
Total
Pension
or
Retirement
Benefits
Accrued as
Part of
Fund
Expenses
Compensatio
n from Fund
and
Complex
Paid
to
Directors
Number of
Funds for
Which
Director
Serves
Within
Fund
Complex
Victor Atkins
$15,180
0
$27,400
2
Jessica
Bibliowicz
0
0
0
12
Alger B.
Chapman
15,180
0
83,900
7
Robert A.
Frankel
15,180
0
72,875
7
Ranier Greeven
15,180
0
27,400
2
Susan M.
Heilbron
15,180
0
27,400
2
Heath B.
McLendon
0
0
0
41
Bruce D.
Sargent
0
0
0
3
James M. Shuart
15,180
0
27,400
2
INVESTMENT POLICIES
Except as described under "INVESTMENT RESTRICTIONS," the investment
policies described in the Prospectuses and in this Statement of
Additional Information are not fundamental and the Board of Directors
may change such policies without shareholder approval.
The Fund effects transactions with a view towards attaining each
Portfolio's investment objective, and although it is not limited by a
predetermined rate of portfolio turnover, it is expected that the annual
turnover rate for each of the International Equity Portfolio, the Global
Government Bond Portfolio, the European Portfolio, the Pacific Portfolio
and the equity portion of each of the International Balanced Portfolio
and the Emerging Markets Portfolio will not exceed 100% in normal
circumstances and that the annual turnover rate for the debt portion of
each of the International Balanced Portfolio and the Emerging Markets
Portfolio will not exceed 200% in normal circumstances. A high
portfolio turnover results in correspondingly greater transaction costs
in the form of brokerage commissions or dealer spreads that a Portfolio
will bear directly, and may result in the realization of net capital
gains which are taxable when distributed to shareholders. See
"Investment Management Agreement and Other Services -Portfolio
Transactions" in this Statement of Additional Information.
Each of the following investment policies is subject to the
limitations set forth under "Investment Restrictions."
Repurchase Agreements. As described in the applicable Prospectus, each
Portfolio may enter into repurchase agreements. A repurchase agreement
is a contract under which a Portfolio acquires a security for a
relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the Portfolio to resell such
security at a fixed time and price (representing the Portfolio's cost
plus interest). It is each Portfolio's present intention to enter into
repurchase agreements only upon receipt of fully adequate collateral and
only with commercial banks (whether U.S. or foreign) and registered
broker-dealers. Repurchase agreements may also be viewed as loans made
by a Portfolio which are collateralized primarily by the securities
subject to repurchase. A Portfolio bears a risk of loss in the event
that the other party to a repurchase agreement defaults on its
obligations and the Portfolio is delayed or prevented from exercising
its rights to dispose of the collateral securities. Pursuant to
policies established by the Board of Directors, the investment adviser
monitors the creditworthiness of all issuers with which each Portfolio
enters into repurchase agreements.
Reverse Repurchase Agreements. The Fund does not currently intend to
commit more than 5% of a Portfolio's net assets to reverse repurchase
agreements. The Fund 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 a Portfolio 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
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 Portfolio 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 Portfolio. The use of reverse repurchase agreements
may exaggerate any interim increase or decrease in the value of the
participating Portfolio's assets. The Fund's custodian bank will
maintain a separate account for the Portfolio with securities having a
value equal to or greater than such commitments.
Restricted Securities. Each Portfolio may invest in securities the
disposition of which is subject to legal or contractual restrictions.
The sale of restricted securities often requires more time and results
in higher brokerage charges or dealer discounts and other selling
expenses than does the sale of securities eligible for trading on a
national securities exchange that are not subject to restrictions on
resale. Restricted securities often sell at a price lower than similar
securities that are not subject to restrictions on resale.
Securities Lending. Each Portfolio may seek to increase its net
investment income by lending its securities provided such loans are
callable at any time and are continuously secured by cash or U.S.
Government Obligations equal to no less than the market value,
determined daily, of the securities loaned. Each Portfolio will receive
amounts equal to dividends or interest on the securities loaned. It
will also earn income for having made the loan because cash collateral
pursuant to these loans will be invested in short-term money market
instruments. In connection with lending of securities the Fund may pay
reasonable finders, administrative and custodial fees. Management will
limit such lending to not more than one-third of the value of the total
assets of each Portfolio. Where voting or consent rights with respect
to loaned securities pass to the borrower, management will follow the
policy of calling the loan, in whole or in part as may be appropriate,
to permit the exercise of such voting or consent rights if the issues
involved have a material effect on the Portfolio's investment in the
securities loaned. Apart from lending its securities and acquiring debt
securities of a type customarily purchased by financial institutions, no
Portfolio will make loans to other persons.
Commercial Bank Obligations. For the purposes of each Portfolio'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 non-U.S. securities in general,
investments in the obligations of foreign branches of U.S. banks and of
foreign banks may subject the Portfolio to investment risks that are
different in some respects from those of investments in obligations of
domestic issuers. Although a Portfolio 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 Portfolio. 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.
Commercial Paper. Commercial paper consists of short-term (usually from
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 Portfolios, 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 Portfolio, therefore, may
not invest in a master demand note, if as a result more than 15% of the
value of the Portfolio's total assets would be invested in such notes
and other illiquid securities.
Writing Covered Call Options. Each Portfolio may write (sell) covered
call options for hedging purposes. Covered call options will generally
be written on securities and currencies which, in the opinion of the
investment adviser, are not expected to make any major price moves in
the near future but which, over the long term, are deemed to be
attractive investments for the Portfolio.
A call option gives the holder (buyer) the right to purchase a
security or currency at a specified price (the exercise price) at any
time until a certain date (the expiration date). So long as the
obligation of the writer of a call option continues, he may be assigned
an exercise notice by the broker-dealer through whom such option was
sold, requiring him to deliver the underlying security or currency
against payment of the exercise price. This obligation terminates upon
the expiration of the call option, or such earlier time at which the
writer effects a closing purchase transaction by purchasing an option
identical to that previously sold. The Manager and the Fund believe
that writing of covered call options is less risky than writing
uncovered or "naked" options, which the Portfolios will not do.
Portfolio securities or currencies on which call options may be
written will be purchased solely on the basis of investment
considerations consistent with each Portfolio's investment objective.
When writing a covered call option, the Portfolio, in return for the
premium, gives up the opportunity for profit from a price increase in
the underlying security or currency above the exercise price and retains
the risk of loss should the price of the security or currency decline.
Unlike one who owns securities or currencies not subject to an option,
the Portfolio has no control over when it may be required to sell the
underlying securities or currencies, since the option may be exercised
at any time prior to the option's expiration. If a call option which
the Portfolio has written expires, the Portfolio will realize a gain in
the amount of the premium; however, such gain may be offset by a decline
in the market value of the underlying security or currency during the
option period. If the call option is exercised, the Portfolio will
realize a gain or loss from the sale of the underlying security or
currency. The security or currency covering the call option will be
maintained in a segregated account of the Portfolio's custodian. The
Portfolio does not consider a security or currency covered by a call
option to be "pledged" as that term is used in the Portfolio's policy
which limits the pledging or mortgaging of its assets.
The premium the Portfolio receives for writing a call option is
deemed to constitute the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among
other things, the current market price of the underlying security or
currency, the relationship of the exercise price to such market price,
the implied price volatility of the underlying security or currency, and
the length of the option period. In determining whether a particular
call option should be written on a particular security or currency, the
Manager will consider the reasonableness of the anticipated premium and
the likelihood that a liquid secondary market will exist for those
options. The premium received by the Portfolio for writing covered call
options will be recorded as a liability in the Portfolio's statement of
assets and liabilities. This liability will be adjusted daily to the
option's current market value, which will be calculated as described in
"Determination of Net Asset Value" in the Prospectus. The liability
will be extinguished upon expiration of the option or delivery of the
underlying security or currency upon the exercise of the option. The
liability with respect to a listed option will also be extinguished upon
the purchase of an identical option in a closing transaction.
Closing transactions will be effected in order to realize a profit
or to limit losses on an outstanding call option, to prevent an
underlying security or currency from being called, or to permit the sale
of the underlying security or currency. Furthermore, effecting a
closing transaction will permit the Portfolio to write another call
option on the underlying security or currency with either a different
exercise price, expiration date or both. If the Portfolio desires to
sell a particular security or currency from its portfolio on which it
has written a call option or purchases a put option, it will seek to
effect a closing transaction prior to, or concurrently with, the sale of
the security or currency. There is no assurance that the Portfolio will
be able to effect such closing transactions at a favorable price. If
the Portfolio cannot enter into such a transaction, it may be required
to hold a security or currency that it might otherwise have sold, in
which case it would continue to be a market risk with respect to the
security or currency.
Each Portfolio will pay transaction costs in connection with the
writing of options and in entering into closing purchase contracts.
Transaction costs relating to options activity are normally higher than
those applicable to purchases and sales of portfolio securities.
Call options written by each Portfolio, other than the International
Balanced Portfolio, will normally have expiration dates of less than
nine months from the date written. Call options written by the
International Balanced Portfolio will normally have expiration dates of
less than twelve months from the date written. The exercise price of
the options may be below, equal to or above the current market values of
the underlying securities or currencies at the time the options are
written. From time to time, the Portfolio may purchase an underlying
security or currency for delivery in accordance with the exercise of an
option, rather than delivering such security or currency from its
portfolio. In such cases, additional costs will be incurred.
Each Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more,
respectively, than the premium received from the writing of the option.
Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security or
currency, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Portfolio.
See "Additional Tax Information" for a discussion of federal income
tax treatment of covered call options.
Purchasing Put Options. Each Portfolio may purchase put options. As
the holder of a put option, the Portfolio has the right to sell the
underlying security or currency at the exercise price at any time during
the option period. The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them
to expire.
Each Portfolio may purchase a put option on an underlying security
or currency (a "protective put") owned by the Portfolio as a hedging
technique in order to protect against an anticipated decline in the
value of the security or currency. Such hedge protection is provided
only during the life of the put option when the Portfolio, as the holder
of the put option, is able to sell the underlying security or currency
at the put exercise price regardless of any decline in the underlying
security's market price or currency's exchange value. For example, a
put option may be purchased in order to protect unrealized appreciation
of a security or currency when the Manager deems it desirable to
continue to hold the security or currency because of tax considerations.
The premium paid for the put option and any transaction costs would
reduce any capital gain otherwise available for distribution when the
security or currency is eventually sold.
Each Portfolio may also purchase put options at a time when the
Portfolio does not own the underlying security or currency. By
purchasing put options on a security or currency it does not own, the
Portfolio seeks to benefit from a decline in the market price of the
underlying security or currency. If the put option is not sold when it
has remaining value, and if the market price of the underlying security
or currency remains equal to or greater than the exercise price during
the life of the put option, the Portfolio will lose its entire
investment in the put option. In order for the purchase of a put option
to be profitable, the market price of the underlying security or
currency must decline sufficiently below the exercise price to cover the
premium and transaction costs, unless the put option is sold in a
closing sale transaction.
The premium paid by a Portfolio when purchasing a put option will be
recorded as an asset in the Portfolio's statement of assets and
liabilities. This asset will be adjusted daily to the option's current
market value, which will be calculated as described in "Determination of
Net Asset Value" in the Prospectus. The asset will be extinguished upon
expiration of the option or the delivery of the underlying security or
currency upon the exercise of the option. The asset with respect to a
listed option will also be extinguished upon the writing of an identical
option in a closing transaction.
Purchasing Call Options. Each Portfolio may purchase call options. As
the holder of a call option, a Portfolio has the right to purchase the
underlying security or currency at the exercise price at any time during
the option period. The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them
to expire. Call options may be purchased by the Portfolio for the
purpose of acquiring the underlying security or currency for its
portfolio. Utilized in this fashion, the purchase of call options
enables the Portfolio to acquire the security or currency at the
exercise price of the call option plus the premium paid. At times the
net cost of acquiring the security or currency in this manner may be
less than the cost of acquiring the security or currency directly. This
technique may also be useful to the Portfolio in purchasing a large
block of securities that would be more difficult to acquire by direct
market purchases. So long as it holds such a call option rather than
the underlying security or currency itself, the Portfolio is partially
protected from any unexpected decline in the market price of the
underlying security or currency and in such event could allow the call
option to expire, incurring a loss only to the extent of the premium
paid for the option.
Each Portfolio may also purchase call options on underlying
securities or currencies it owns in order to protect unrealized gains on
call options previously written by it. A call option would be purchased
for this purpose where tax considerations make it inadvisable to realize
such gains through a closing purchase transaction. Call options may
also be purchased at times to avoid realizing losses that would result
in a reduction of the Portfolio's current return.
Interest Rate and Currency Futures Contracts. Each Portfolio may enter
into interest rate or currency futures contracts ("Futures" or "Futures
Contracts") as a hedge against changes in prevailing levels of interest
rates or currency exchange rates in order to establish more definitely
the effective return on securities or currencies held or committed to be
acquired by the Portfolio. A Portfolio's hedging may include holding
Futures as an offset against anticipated changes in interest or currency
exchange rates. A Portfolio may also enter into Futures Contracts based
on financial indices including any index of U.S. Government securities,
foreign government securities or corporate debt securities. The
International Equity Portfolio and the Pacific Portfolio and the
International Balanced Portfolio may also enter into Futures Contracts
for non-hedging purposes, subject to applicable law.
A Futures Contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument or currency for a specified price at a designated date, time
and place. The purchaser of a Futures Contract on an index agrees to
take or make delivery of an amount of cash equal to the difference
between a specified dollar multiple of the value of the index on the
expiration date of the contract ("current contract value") and the price
at which the contract was originally struck. No physical delivery of
the debt securities underlying the index is made. Brokerage fees are
incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times that the Futures Contract is
outstanding.
Although techniques other than sales and purchases of Futures
Contracts could be used to reduce the Portfolio's exposure to interest
rate and currency exchange rate fluctuations, the Portfolio may be able
to hedge its exposure more effectively and at a lower cost through using
Futures Contracts.
Although Futures Contracts typically require future delivery of and
payment for financial instruments or currencies, Futures Contracts are
usually closed out before the delivery date. Closing out an open
Futures Contract sale or purchase is effected by entering into an
offsetting Futures Contract purchase or sale, respectively, for the same
aggregate amount of the identical financial instrument or currency and
the same delivery date. If the offsetting purchase price is less than
the original sale price, the Portfolio realizes a gain; if it is more,
the Portfolio realizes a loss. Conversely, if the offsetting sale price
is more than the original purchase price, the Portfolio realizes a gain;
if it is less, the Portfolio realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance,
however, that the Portfolio will be able to enter into an offsetting
transaction with respect to a particular Futures Contract at a
particular time. If the Portfolio is not able to enter into an
offsetting transaction, the Portfolio will continue to be required to
maintain the margin deposits of the underlying financial instrument or
currency on the relevant delivery date. The Fund intends to enter into
futures transactions only on exchanges or boards of trade where there
appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist for a particular contract at a
particular time.
As an example of an offsetting transaction, the contractual
obligations arising from the sale of one Futures Contract of September
Treasury Bills on an exchange may be fulfilled at any time before
delivery under the Futures Contract is required (i.e., on a specific
date in September, the "delivery month") by the purchase of another
Futures Contract of September Treasury Bills on the same exchange. In
such instance the difference between the price at which the Futures
Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the
Portfolio.
Persons who trade in Futures Contracts may be broadly classified as
"hedgers" and "speculators." Hedgers, whose business activity involves
investment or other commitment in securities or other obligations, use
the Futures markets to offset unfavorable changes in value that may
occur because of fluctuations in the value of the securities and
obligations held or committed to be acquired by them or fluctuations in
the value of the currency in which the securities or obligations are
denominated. Debtors and other obligers may also hedge the interest
cost of their obligations. The speculator, like the hedger, generally
expects neither to deliver nor to receive the financial instrument
underlying the Futures Contract, but, unlike the hedger, hopes to profit
from fluctuations in prevailing interest rates or currency exchange
rates.
Each Portfolio's Futures transactions will be entered into for
traditional hedging purposes; that is, Futures Contracts will be sold to
protect against a decline in the price of securities or currencies that
the Portfolio owns, or Futures Contracts will be purchased to protect a
Portfolio against an increase in the price of securities or currencies
it has committed to purchase or expects to purchase. The International
Equity Portfolio, the Pacific Portfolio, the International Balanced
Portfolio and the Emerging Market Portfolio may each also enter into
Futures transactions for non-hedging purposes, subject to applicable
law.
"Margin" with respect to Futures Contracts is the amount of funds
that must be deposited by the Portfolio with a broker in order to
initiate Futures trading and to maintain the Portfolio's open positions
in Futures Contracts. A margin deposit made when the Futures Contract
is entered into ("initial margin") is intended to assure the Portfolio's
performance of the Futures Contract. The margin required for a
particular Futures Contract is set by the exchange on which the Futures
Contract is traded, and may be significantly modified from time to time
by the exchange during the term of the Futures Contract. Futures
Contracts are customarily purchased and sold on margins, which may be 5%
or less of the value of the Futures Contract being traded.
If the price of an open Futures Contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the
loss on the Futures Contract reaches a point at which the margin on
deposit does not satisfy margin requirements, the broker will require an
increase in the margin deposit ("variation margin"). If, however, the
value of a position increases because of favorable price changes in the
Futures Contract so that the margin deposit exceeds the required margin,
it is anticipated that the broker will pay the excess to the Portfolio.
In computing daily net asset values, the Portfolio will mark to market
the current value of its open Futures Contracts. Each Portfolio expects
to earn interest income on its margin deposits.
Risks of Using Futures Contracts. The prices of Futures Contracts are
volatile and are influenced, among other things, by 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. For
example, if at the time of purchase, 10% of the value of the Futures
Contract is deposited as margin, a subsequent 10% decrease in the value
of the Futures Contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account
were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Futures Contract were closed
out. Thus, a purchase or sale of a Futures Contract may result in
losses in excess of the amount invested in the Futures Contract. A
Portfolio, however, would presumably have sustained comparable losses
if, instead of the Futures Contract, it had invested in the underlying
financial instrument and sold it after the decline. Where a Portfolio
enters into Futures transactions for non-hedging purposes, it will be
subject to greater risks and could sustain losses which are net offset
by gains on other portfolio assets.
Furthermore, in the case of a Futures Contract purchase, in order to
be certain that each Portfolio has sufficient assets to satisfy its
obligations under a Futures Contract, the Portfolio segregates and
commits to back the Futures Contract an amount of cash, U.S. Government
securities and other liquid, high-grade debt securities equal in value
to the current value of the underlying instrument less the margin
deposit.
Most United States 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.
See "Additional Tax Information" for a discussion of federal tax
treatment of Futures Contracts.
Options on Futures Contracts. Options on Futures Contracts are similar
to options on securities or currencies except that options on Futures
Contracts give the purchaser the right, in return for the premium paid,
to assume a position in a Futures Contract (a long position if the
option is a call and a short position if the option is a put), rather
than to purchase or sell the Futures Contract, at a specified exercise
price at any time during the period of the option. Upon exercise of the
option, the delivery of the Futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's Futures margin account which
represents the amount by which the market price of the Futures Contract,
at exercise, exceeds (in the case of a call) or is less than (in the
case of a put) the exercise price of the option on the Futures Contract.
If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in
cash equal to the difference between the exercise price of the option
and the closing level of the securities or currencies upon which the
Futures Contracts are based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date
suffer a loss of the premium paid.
As an alternative to purchasing call and put options on Futures,
each Portfolio may purchase call and put options on the underlying
securities or currencies themselves (see "Purchasing Put Options" and
"Purchasing Call Options" above). Such options would be used in a
manner identical to the use of options on Futures Contracts.
To reduce or eliminate the leverage then employed by the Portfolio
or to reduce or eliminate the hedge position then currently held by the
Portfolio, the Portfolio may seek to close out an option position by
selling an option covering the same securities or currency and having
the same exercise price and expiration date. The ability to establish
and close out positions on options on Futures Contracts is subject to
the existence of a liquid market. It is not certain that this market
will exist at any specific time.
In order to assure that the Portfolios will not be deemed to be
"commodity pools" for purposes of the Commodity Exchange Act,
regulations of the Commodity Futures Trading Commission ("CFTC") require
that each Portfolio enter into transactions in Futures Contracts and
options on Futures Contracts only (i) for bona fide hedging purposes (as
defined in CFTC regulations), or (ii) for non-hedging purposes, provided
that the aggregate initial margin and premiums on such non-hedging
positions does not exceed 5% of the liquidation value of the Portfolio's
assets. The Global Government Bond Portfolio and the European Portfolio
will enter into transactions in Futures Contracts and options on Futures
Contracts only for hedging purposes.
Forward Currency Contracts and Options on Currency. A forward currency
contract is an obligation to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A
Portfolio may either accept or make delivery of the currency at the
maturity of the forward contract or, prior to maturity, enter into a
closing transaction involving the purchase or sale of an offsetting
contract. Each Portfolio engages in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange
rates. A Portfolio might sell a particular foreign currency forward,
for example, when it holds bonds denominated in that currency but
anticipates, and seeks to be protected against, decline in the currency
against the U.S. dollar. Similarly, a Portfolio might sell the U.S.
dollar forward when it holds bonds denominated in U.S. dollars but
anticipates, and seeks to be protected against, a decline in the U.S.
dollar relative to other currencies. Further, a Portfolio might
purchase a currency forward to "lock in" the price of securities
denominated in that currency which it anticipates purchasing.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not be
precise. In addition, a Portfolio may not always be able to enter into
foreign currency forward contracts at attractive prices and this will
limit the Portfolio's ability to use such contract to hedge or cross-
hedge its assets. Also, with regard to a Portfolio's use of cross-
hedges, there can be no assurance that historical correlations between
the movement of certain foreign currencies relative to the U.S. dollar
will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying the
Portfolio's cross-hedges and the movements in the exchange rates of the
foreign currencies in which the Portfolio's assets that are the subject
of such cross-hedges are denominated.
Forward contracts are traded in an interbank market conducted
directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit
requirement and is consummated without payment of any commission. Each
Portfolio, however, may enter into forward contracts with deposit
requirements or commissions.
A put option gives a Portfolio, as purchaser, the right (but not the
obligation) to sell a specified amount of currency at the exercise price
until the expiration of the option. A call option gives a Portfolio, as
purchaser, the right (but not the obligation) to purchase a specified
amount of currency at the exercise price until its expiration. A
Portfolio might purchase a currency put option, for example, to protect
itself during the contract period against a decline in the value of a
currency in which it holds or anticipates holding securities. If the
currency's value should decline, the loss in currency value should be
offset, in whole or in part, by an increase in the value of the put. If
the value of the currency instead should rise, any gain to the Portfolio
would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation
of, or to protect against, a rise in the value of a currency in which
the Portfolio anticipates purchasing securities.
Each Portfolio's ability to establish and close out positions in
foreign currency options is subject to the existence of a liquid market.
There can be no assurance that a liquid market will exist for a
particular option at any specific time. In addition, options on foreign
currencies are affected by all of those factors that influence foreign
exchange rates and investments generally.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options.
Exchange markets for options on foreign currencies exist but are
relatively new, and the ability to establish and close out positions on
the exchanges is subject to maintenance of a liquid secondary market.
Closing transactions may be effected with respect to options traded in
the over-the-counter ("OTC") markets (currently the primary markets for
options on foreign currencies) only by negotiating directly with the
other party to the option contract or in a secondary market for the
option if such market exists. Although each Portfolio intends to
purchase only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market
will exist for any particular option at any specific time. In such
event, it may not be possible to effect closing transactions with
respect to certain options, with the result that the Portfolio would
have to exercise those options which it has purchased in order to
realize any profit. The staff of the Securities and Exchange Commission
has taken the position that, in general, purchased OTC options and the
underlying securities used to cover written OTC options are illiquid
securities. However, a Portfolio may treat as liquid the underlying
securities used to cover written OTC options, provided it has
arrangements with certain qualified dealers who agree that the Portfolio
may repurchase any option it writes for a maximum price to be calculated
by a predetermined formula. In these cases, the OTC option itself would
only be considered illiquid to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
Swap Agreements. Among the hedging transactions into which the
Portfolios may enter are interest rate swaps and the purchase or sale of
interest rate caps and floors. Each Portfolio expects to enter into
these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against
any increase in the price of securities the Portfolio anticipates
purchasing at a later date. Each Portfolio intends to use these
transactions as a hedge and not as a speculative investment. Each
Portfolio will not sell interest rate caps or floors that it does not
own. Interest rate swaps involve the exchange by a Portfolio with
another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate
payments. The purchase of an interest rate cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party
selling such interest rate floor.
A Portfolio may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending on whether it
is hedging its assets or its liabilities, and will usually enter into
interest rate swaps on a net basis, i.e., the two payment streams are
netted but, with the Portfolio receiving or paying, as the case may be,
only the net amount of the two payments. Inasmuch as these hedging
transactions are entered into for good faith hedging purposes, the
investment adviser and the Portfolios believe such obligations do not
constitute senior securities and, accordingly will not treat them as
being subject to its borrowing restrictions. The net amount of the
excess, if any, of a Portfolio's obligations over its entitlement with
respect to each interest rate swap will be accrued on a daily basis and
an amount of cash or liquid securities having an aggregate net asset
value at least equal to the accrued excess will be maintained in a
segregated account by a custodian that satisfies the requirements of the
Investment Company Act of 1940. The Portfolios will not enter into any
interest rate swap, cap or floor transaction unless the unsecured senior
debt or the claims-paying ability of the other party thereto is rated in
the highest rating category of at least one nationally recognized rating
organization at the time of entering into such transaction. If there is
a default by the other party to such a transaction, a Portfolio will
have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both as
principals and as agents utilizing swap documentation. As a result, the
swap market has become relatively liquid. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps.
New options and futures contracts and various combinations thereof
continue to be developed and the Portfolios may invest in any such
options and contracts as may be developed to the extent consistent with
its investment objective and regulatory requirements applicable to
investment companies.
The Articles of Incorporation of the Fund permit the Board of
Directors to establish additional Portfolios of the Fund from time to
time. The investment objectives, policies and restrictions applicable
to additional Portfolios would be established by the Board of Directors
at the time such Portfolios were established and may differ from those
set forth in the Prospectus and this Statement of Additional
Information.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions and fundamental
policies that cannot be changed without approval by a "vote of a
majority of the outstanding voting securities" of each Portfolio
affected by the change as defined in the Investment Company Act of 1940
(the "Act") and Rule 18f-2 thereunder (see "Voting").
Without the approval of a majority of its outstanding voting
securities, the Global Government Bond Portfolio may not:
1. Change its subclassification as an open-end fund; 2. Change its
subclassification as a non-diversified company; 3. Invest more than 25%
of its total assets in a particular industry, except that this
limitation shall not apply to securities issued or guaranteed as to
principal and interest by the U.S. Government or any of its agencies or
instrumentalities; 4. Purchase any securities on margin, provided that
the Portfolio may obtain such short-term credits as may be necessary for
the clearance of purchases and sales of securities; except that it may
make margin deposits in connection with futures contracts subject to
Investment Restriction 14. below; 5. Make short sales of securities or
maintain a short position in securities unless at all times when a short
position in securities is open, the Portfolio owns or has the right to
obtain, at no added cost, securities identical to those sold short; 6.
Buy or sell real estate (including real estate limited partnerships) and
real estate mortgage loans, commodities or commodity contracts, or issue
senior securities; however, the Portfolio may invest in debt securities
secured by real estate or interests therein or issued by companies that
invest in real estate or interest therein, including real estate
investment trusts, provided such securities are readily marketable and
may purchase or sell currencies (including forward currency contracts),
futures contracts and related options generally as described in the
Prospectus and this Statement of Additional Information and subject to
Investment Restriction 14. below; 7. Invest in securities of another
investment company except as permitted by Section 12(d) (1)(A) of the
Investment Company Act of 1940 or as part of a merger, consolidation, or
acquisition; 8. Have more than 15% of its total assets at any time
invested in or subject to puts, calls or combinations thereof; 9. Borrow
money, except from banks for temporary or emergency purposes not in
excess of 33 1/3% of the value of the Portfolio's total assets.
Whenever such borrowings exceed 5% of the value of the Portfolio's total
assets, the Portfolio will not make any additional investments. This
restriction shall not prevent the Portfolio from entering into reverse
repurchase agreements, provided that reverse repurchase agreements and
any other transactions constituting borrowing by the Portfolio may not
exceed one-third of the Portfolio's total assets. In the event that the
asset coverage for the Portfolio's borrowings falls below 300%, the
Portfolio would reduce, within three days (excluding Saturdays, Sundays
and holidays), the amount of its borrowings in order to provide for 300%
asset coverage; 10. Pledge, mortgage or hypothecate its assets other
than (i) in connection with the investment strategies described in
Investment Restriction 9. above, (ii) to secure letters of credit solely
for purposes of participating in a captive insurance company sponsored
by the Investment Company Institute to provide fidelity and directors
and officers liability insurance, or (iii) in connection with short
sales and collateral arrangements with respect to options and Futures
Contracts including deposits of initial and variation margin; 11. Make
loans, except the Portfolio may purchase debt obligations, enter into
repurchase agreements and lend its securities; 12. Acquire securities
subject to restrictions on disposition or securities for which there is
no readily available market; enter into repurchase agreements, or
purchase time deposits or variable amount master demand notes, if any of
the foregoing have a term or demand feature of more than seven days; or
purchase OTC options or set aside assets to cover OTC options written by
the Portfolio if, immediately after and as a result, the value of such
securities would exceed, in the aggregate, 10% of the Portfolio's total
assets; 13. Engage in the business of underwriting securities of other
issuers, except to the extent that the disposal of an investment
position may technically cause it to be considered an underwriter as
that term is defined under the Securities Act of 1933; 14. Enter into a
futures contract or a commodity option other than for bona fide hedging
purposes and, if, as a result thereof, more than 5% of the Portfolio's
total assets (taken at market value at the time of entering into the
contract or commodity option) would be committed to initial margin on
futures contracts and premiums on commodity options all within the
meaning of Regulation 4.5 of the Commodity Futures Trading Commission;
and 15. Invest in companies for the purpose of exercising control or
management.
In order to comply with certain state statutes and policies, the
Global Government Bond Portfolio also will not, as a matter of operating
policy:
1. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Portfolio may invest in, or sponsor such programs; 2. Invest more than
5% of its total assets in securities of companies having, together with
their predecessors, a record of less than three years of continuous
operation; 3. Purchase or retain the securities of any issuer, if those
individual officers and directors of the issuer, its investment adviser,
or distributor, each owning beneficially more than 1/2 of 1% of the
securities of such issuer, together own more than 5% of the securities
of such issuer; and 4. Purchase puts, calls, straddles, spreads, and any
combination, thereof if by reason, thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its total
assets.
A further investment policy of the Global Government Bond Portfolio,
which may be changed by action of the Fund's Board of Directors without
shareholder approval, is that the Portfolio shall not invest in
securities of an issuer if the investment would cause the Portfolio to
own more than 10% of any class of securities of any one issuer.
Without the approval of a majority of its outstanding voting
securities, the International Equity Portfolio, the Pacific Portfolio,
the European Portfolio, the International Balanced Portfolio and the
Emerging Markets Portfolio each may not:
1. Purchase the securities of issuers conducting their principal
business activities in the same industry if immediately after a
particular purchase the value of the Portfolio's investments in such
industry would exceed 25% of the value of its total assets; 2. (a) With
respect to the International Equity Portfolio only, purchase the
securities of any one issuer, if immediately after such purchase (i)
more than 5% of the value of the total assets of the Portfolio would be
invested in securities of such issuer, provided that such limitation
does not apply to the U.S. Government, its agencies or
instrumentalities, or (ii) the Portfolio would own more than 10% of the
outstanding voting securities of such issuer; (b) With respect to 75% of
the value of the total assets of each of the European Portfolio and the
Pacific Portfolio, purchase the securities of any one issuer, if
immediately after such purchase (i) more than 5% of the value of the
total assets of the Portfolio would be invested in securities of such
issuer, provided that such limitation does not apply to the U.S.
Government, its agencies or instrumentalities, or (ii) the Portfolio
would own more than 10% of the outstanding voting securities of such
issuer (under the 1940 Act, each Portfolio may not, under any
circumstance, own more than 10% of the outstanding voting securities of
an issuer); (c) With respect to 50% of the value of the total assets of
the International Balanced Portfolio, purchase the securities of any one
issuer, if immediately after such purchase more than 5% of the value of
the total assets of the Portfolio would be invested in securities of
such issuer, provided that such limitation does not apply to the U.S.
Government, its agencies or instrumentalities, or (ii) the Portfolio
would own more than 10% of the outstanding voting securities of such
issuer (under the 1940 Act, the Portfolio may not, under any
circumstance, own more than 10% of the outstanding voting securities of
an issuer); (d) With respect to 50% of the value of the total assets of
the Emerging Markets Portfolio, purchase the securities of any one
issuer, if immediately after such purchase more than 5% of the value of
the total assets of the Portfolio would be invested in securities of
such issuer, provided that such limitation does not apply to the U.S.
Government, its agencies or instrumentalities; (e) with respect to the
Emerging Markets Portfolio, purchase more than 10% of the outstanding
voting securities of any issuer); 3. Invest in real estate or real
estate mortgage loans, real estate limited partnerships, commodities or
commodity contracts, or interests in oil, gas and/or mineral exploration
or development programs (including mineral leases), except for purchases
of currencies and futures and options and other related contracts as
described in the Prospectus from time to time and except for the
purchase of marketable securities issued by companies that have such
interests; 4. Purchase securities of any other registered investment
company, except in connection with a merger, consolidation,
reorganization or acquisition of assets; provided, however, that each of
the European, Pacific, International Balanced and Emerging Markets
Portfolios may also purchase shares of other investment companies
pursuant to Section 12(d)(1)(A) of the Investment Company Act of 1940;
5. Make investments in securities for the purpose of exercising control
over or managing the issuer; 6. Make loans, except, to the extent any of
such transactions may be deemed to be loans, for (a) the purchase of
publicly distributed debt securities, (b) entry into repurchase
agreements or (c) the lending of its securities; 7. Purchase securities
of any issuer (including any predecessor) which has been in operation
for less than three years if immediately after such purchase more than
5% of the value of the total assets of the Portfolio would be invested
in such securities; 8. Sell securities short, unless at all times when a
short position is open the Portfolio owns an equal amount of the
securities or of securities convertible into, or exchangeable without
payment of any further consideration for, securities of the same issue
as the securities sold short; 9. Issue securities senior to its common
stock or borrow money, except that the Portfolio may borrow money from
banks to provide greater liquidity or to make additional portfolio
investments so long as the aggregate amount borrowed does not exceed 10%
of the value of the European Portfolio's total assets (including the
proceeds of the borrowing) or 25% of the value of each of the
International Equity Portfolio's, the Pacific Portfolio's or the
Emerging Markets Portfolio's total assets, or 33-1/3% of the
International Balanced Portfolio's total assets, as the case may be,
(including the proceeds of the borrowing) immediately after the
borrowing and so long as the Portfolio maintains asset coverage ratios
specified in the Act. This restriction shall not prevent a Portfolio
from entering into reverse repurchase agreements, provided that reverse
repurchase agreements and any transactions constituting borrowing by the
Portfolio may not exceed one-third of the Portfolio's total assets. 10.
Mortgage or pledge any assets except to secure borrowings permitted
under the previous restriction; 11. Purchase the securities of an issuer
if, at the time of such purchase, one or more of the directors or
officers of the Fund or the investment adviser individually own
beneficially more than .5% of the outstanding securities of such issuer
and together such trustees, directors and officers owning more than .5%
own beneficially more than 5% of such securities; 12. Purchase a
security which is not readily marketable, which is subject to legal or
contractual restrictions, including repurchase agreements and interest
rate swaps having more than seven days remaining to maturity, if, as a
result, more than 5% of total assets with respect to the International
Equity Portfolio and more than 15% of total assets with respect to each
of the Pacific Portfolio, the European Portfolio, the International
Balanced Portfolio and the Emerging Markets Portfolio would consist of
such securities; provided that each of the Pacific, European, and
International Balanced Portfolios will not invest more than 5% of its
assets in securities that are restricted from sale to the public until
they have been registered under the Securities Act of 1933; or act as an
underwriter, except in connection with the resale of portfolio
securities; or 13. Purchase any securities on margin, provided that the
Portfolio may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities and except that it may
make margin deposits in connection with futures contracts.
In order to comply with certain state statutes and policies, the
International Equity Portfolio, the Pacific Portfolio, the European
Portfolio, the International Balanced Portfolio and the Emerging Markets
Portfolio each may not:
1. Purchase warrants if as a result the Portfolio would then have more
than 5% of its net assets (determined at the time of investment)
invested in warrants. Warrants will be valued at the lower of cost or
market and investment in warrants which are not listed on the New York
Stock Exchange or American Stock Exchange will be limited to 2% of the
Portfolio's net assets (determined at the time of investment). For the
purpose of this limitation, warrants acquired in units or attached to
securities are deemed to be without value.
ADDITIONAL TAX INFORMATION
The following summary addresses the principal United States income
tax considerations regarding the purchase, ownership and disposition of
shares in a Portfolio of the Fund.
General
Each Portfolio intends to qualify and elect to be treated for each
taxable year as a "regulated investment company" under Sections 851-855
of the Code. To so qualify, a Portfolio must, among other things, (i)
derive at least 90% of its gross income in each taxable year from
dividends, interest, proceeds from loans of stock and securities, gains
from the sale or other disposition of stock, securities or foreign
currency, or certain other income (including but not limited to gains
from options, futures and forward contracts) derived from its business
of investing in stock, securities or currency; (ii) derive less than 30%
of its gross income in each taxable year from the sale or other
disposition of any of the following which was held for less than three
months: (a) stocks or securities, (b) options, futures or forward
contracts (other than options, futures or forward contracts on foreign
currency), or (c) foreign currency (or options, futures or forward
contracts on foreign currency), but only if such currency (or options,
futures or forward contracts) is not directly related to the Portfolio's
principal business of investing in stock or securities (or options or
futures with respect to stock or securities); and (iii) diversify its
holdings so that, at the end of each quarter of its taxable year, the
following two conditions are met: (a) at least 50% of the market value
of the Portfolio's total assets is represented by cash, U.S. Government
securities, securities of other regulated investment companies and other
securities, with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the Portfolio's assets and
not more than 10% of the outstanding voting securities of such issuer;
and (b) not more than 25% of the value of the Portfolio's assets is
invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies). The
diversification requirements described above may limit the Portfolio's
ability to engage in hedging transactions by writing or buying options
or by entering into futures or forward contracts.
Foreign currency gains that are not directly related to a
Portfolio's principal business of investing in stock or securities, or
options or forward contracts thereon, might be excluded by regulations
from income that counts toward the 90% gross income requirement
described above.
As a regulated investment company, each Portfolio will not be
subject to U.S. federal income tax on net investment income and net
long-term capital gains distributed to shareholders if, as is intended,
the Portfolio distributes at least 90% of its ordinary income and net
short-term capital gains to the Portfolio's shareholders each year.
Each Portfolio, however, will generally be subject to a
nondeductible excise tax of 4% to the extent that it does not meet
certain minimum distribution requirements as of the end of each calendar
year. Each Portfolio intends to make timely distributions of its income
(including any net capital gains) in compliance with these requirements.
As a result, it is anticipated that each Portfolio will not be subject
to the excise tax.
For federal income tax purposes, dividends declared by each
Portfolio in October, November or December as of a record date in such
month and which are actually paid in January of the following year will
be treated as if they were paid on December 31. These dividends will be
taxable to shareholders in the year declared, and not in the year in
which shareholders actually receive the dividend.
Gains or losses that a Portfolio recognizes upon the sale or other
disposition of stock or securities will be treated as long-term capital
gains or losses if the securities have been held by it for more than one
year, except in certain cases where the Portfolio sells the stock or
security short or acquires a put or writes a call thereon. Other gains
or losses on the sale of stock or securities will be short-term capital
gains or losses. Gains and losses on the sale, lapse or other
termination of options on stock or securities will generally be treated
as gains and losses from the sale of stock or securities. If an option
written for a Portfolio lapses or is terminated through a closing
transaction the Portfolio may realize a short-term capital gain or loss,
depending on whether the premium income is greater or less than the
amount paid in the closing transaction. If a Portfolio sells stock or
securities pursuant to the exercise of a call option written by it, the
Portfolio will add the premium received to the sale price of the stock
or securities delivered in determining the amount of gain or loss on the
sale. The requirement that a Portfolio derive less than 30% of its
gross income from gains from the sale of stock or securities held for
less than three months may limit the Portfolio's ability to acquire put
options or make short sales.
Under the Code, gains or losses attributable to foreign currency
contracts, or to fluctuations in exchange rates between the time a
Portfolio accrues income or receivables or expenses or other liabilities
denominated in a foreign currency and the time the Portfolio actually
collects such income or pays such liabilities, are treated as ordinary
income or ordinary loss. Similarly, gains or losses on the disposition
of debt securities held by the Portfolio denominated in foreign
currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates, are also treated as
ordinary income or loss.
Forward currency contracts, options and futures contracts entered
into by a Portfolio may create "straddles" for federal income tax
purposes and this may affect the character and timing of gains or losses
realized by the Portfolio on such contracts or options or on the
underlying securities. Under regulations yet to be issued, straddles
may also result in the loss of the holding period of underlying
property, and therefore, the Portfolio's ability to enter into forward
currency contracts, options and futures contracts may be limited by the
30% of gross income test described above.
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each fiscal year will be required to be "marked
to market" for federal income tax purposes; that is, treated as having
been sold at market value. Sixty percent of any capital gain or loss
recognized on these deemed sales and on actual dispositions will be
treated as long-term capital gain or loss, and the remainder will be
treated as short-term capital gain or loss regardless of how long the
Portfolio has held such options or contracts.
If a Portfolio purchases shares in certain foreign investment
entities, referred to as "passive foreign investment companies," the
Portfolio itself may be subject to U.S. federal income tax and an
additional charge in the nature of interest on a portion of any "excess
distribution" from such company or gain from the disposition of such
shares, even if the distribution or gain is distributed by the Portfolio
to its shareholders in a manner that satisfies the requirements
described above. If the Portfolio were able and elected to treat a
passive foreign investment company as a "qualified electing fund," in
lieu of the treatment described above, the Portfolio would be required
each year to include in income, and distribute to shareholders in
accordance with the distribution requirements described above, the
Portfolio's pro rata share of the ordinary earnings and net capital
gains of the company, whether or not actually received by the Portfolio.
Distributions.
If the net asset value of shares of a Portfolio is reduced below a
shareholder's cost as a result of distribution by the Portfolio, such
distribution will be taxable even though it represents a return of
invested capital.
Redemption of Shares.
Any gain or loss realized on the redemption or exchange of Portfolio
shares by a shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the shares have been held
for more than one year, and otherwise as short-term capital gain or
loss.
However, any loss realized by a shareholder upon the redemption or
exchange of Portfolio shares held six months or less will be treated as
long-term capital loss to the extent of any long-term capital gain
distributions received by the shareholder with respect to such shares.
Additionally, any loss realized on a redemption or exchange of Portfolio
shares will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before and ending
30 days after such disposition, such as pursuant to reinvestment of
dividends in Portfolio shares.
IRA AND OTHER PROTOTYPE RETIREMENT PLANS
Copies of the following plans with custody or trust agreements have
been approved by the Internal Revenue Service and are available from the
Fund or Smith Barney ; investors should consult with their own tax or
retirement planning advisors prior to the establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension - IRA
The Tax Reform Act of 1986 (the "Tax Reform Act") changed the
eligibility requirements for participants in Individual Retirement
Accounts ("IRAs"). Under the Tax Reform Act's new provisions, if you or
your spouse have earned income and neither you nor your spouse is an
active participant in an employer-sponsored retirement plan, each of you
may establish an IRA and make maximum annual contributions equal to the
lesser of earned income or $2,000. If your spouse is not employed, you
may contribute and deduct on your joint return a total of $2,250 between
two IRAs.
If you or your spouse is an active participant in an employer-
sponsored retirement plan, a deduction for contributions to an IRA might
still be allowed in full or in part, depending on your combined adjusted
gross income. For married couples filing jointly, a full deduction for
contributions to an IRA will be allowed where the couples' adjusted
gross income is below $40,001 ($25,001 for an unmarried individual); a
partial deduction will be allowed when adjusted gross income is between
$40,001 - $50,000 ($25,001-$35,000 for an unmarried individual); and no
deduction when adjusted gross income is $50,000 ($35,000 for an
unmarried individual). Shareholders should consult their tax advisors
concerning the effects of the Tax Reform Act on the deductibility of
their IRA contributions.
A Rollover IRA is available to defer taxes on lump sum payments and
other qualifying rollover amounts (no maximum) received from another
retirement plan.
An employer who has established a Simplified Employee Pension - IRA
("SEP-IRA") on behalf of eligible employees may make a maximum annual
contribution to each participant's account of 15% (up to $30,000) of
each participant's compensation.
In addition, certain small employers (those who have 25 or fewer
employees) can establish a Simplified Employee Pension Plan - Salary
Reduction Plan ("SEP - Salary Reduction Plan") under which employees can
make elective pre-tax contributions of up to $9,240 of gross income.
Consult your tax advisor for special rules regarding establishing either
type of SEP. An ERISA disclosure statement providing additional details
is included with each IRA application sent to participants.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and non-corporate
entities may purchase shares of the Fund through the Smith Barney
Prototype Paired Defined Contribution Plan. The prototype permits
adoption of profit-sharing provisions, money purchase pension
provisions, or both, to provide benefits for eligible employees and
their beneficiaries. The prototype provides for a maximum annual tax
deductible contribution on behalf of each Participant of up to 25% of
compensation, but not to exceed $30,000 (provided that a money purchase
pension plan or both a profit-sharing plan and a money purchase pension
plan are adopted thereunder).
PERFORMANCE INFORMATION
From time to time the Fund may advertise a Portfolio's total return,
average annual total return and yield in advertisements. In addition, in
other types of sales literature the Fund may include a Portfolio's
current dividend return. These figures are based on historical earnings
and are not intended to indicate future performance. The total return
shows what an investment in the Portfolio would have earned over a
specified period of time (one, five or ten years) assuming the payment
of the maximum sales load when the investment was first made, that all
distributions and dividends by the Portfolio were invested on the
reinvestment dates during the period less all recurring fees. The
average annual total return is derived from this total return, which
provides the ending redeemable value. The Fund may also quote the
Portfolio's total return for present shareholders that eliminates the
sales charge on the initial investment. The following chart reflects
the financial performance of the Portfolios through the period ended
October 31, 1995 for the one and five year periods and since inception:
Average Annual Total Returns
SEC Returns
5 Year Since Inception
Name of Portfolio Class 1 Year Annualized Cumulative Annualized Cumulative
International Equity1
inception: 2-18-86 A ____% ____% ____% ____% ___%
inception: 11-7-94 B ____% - - ____% ___%
inception: 1-4-93 C ___% - - ___% ___%
inception: 6-16-94 Y ____% - - ___% -
Global Government Bond
inception: 7-22-91 A ___% - - ___% ___%
inception: 11-18-94 B - - - ____% ____%
inception: 1-4-93 C ____% - - ___% ____%
inception: 2-19-93 Y ____% - - ____% ____%
International Balanced
inception: 8-25-94 A ____% - - ____% ____%
inception: 11-7-94 B - - - ____% ____%
inception: 8-25-94 C ___% - - ____% ____%
inception: 11-7-94 Y - - - - -
Pacific
inception: 2-7-94 A ____% - - ___% %
inception: 11-7-94 B - - - ____% ___%
inception: 2-14-94 C ____% - - ___% ____%
inception: 11-7-94 Y - - - - -
European
inception: 2-7-94 A ____% - - _____%
___%
inception: 11-7-94 B - - - _____%
____%
inception: 2-14-94 C ____% - - _____%
____%
inception: 11-7-94 Y - - - - -
Emerging Markets
inception: 5-11-95 A - - - _____%
_____%
inception: 5-11-95 B - - - ____% _____%
inception: 5-11-95 C - - - _____%
_____%
inception: 5-11-95 Y - - - - -
1The International Equity Portfolio's performance record includes
the performance of the Fenimore International Fund through November 22,
1991. The shareholders of Fenimore International Fund approved a
reorganization with the Portfolio at their October 31, 1991 shareholders
meeting. As a result, all shares of Fenimore International Fund were
exchanged at the close of business on November 22, 1991 for shares of
the Portfolio. Prior to November 22, 1991 the Portfolio had not made an
offering of its shares.
Note that, prior to November 7, 1994, (i) with respect to each
Portfolio, Class C shares were designated as Class B shares; and (ii)
with respect to Global Government Bond Portfolio, Class Y shares
were designated as Class C shares. Note further, that effective October
3, 1994, with respect to the International Equity, International
Balanced, European and Pacific Portfolios, Class C shares of each such
Portfolio were reclassified as additional Class A shares.
The Global Government Bond Portfolio's yield is computed by dividing
the net investment income per share earned during a specified thirty day
period by the maximum offering price per share on the last day of such
period and analyzing the result. For purposes of the yield calculation,
interest income is determined based on a yield to maturity percentage
for each long-term debt obligation in the portfolio; income on short-
term obligations is based on current payment rate.
The Fund calculates current dividend return for each Portfolio by
dividing the dividends from investment income declared during the most
recent twelve months by the net asset value or the maximum public
offering price (including sales charge) on the last day of the period
for which current dividend return is presented. From time to time, the
Fund may include the Portfolio's current dividend return in information
furnished to present or prospective shareholders and in advertisements.
Each Portfolio's current dividend return may vary from time to time
depending on market conditions, the composition of its investment
portfolio and operating expenses. These factors and possible
differences in the methods used in calculating current dividend return
should be considered when comparing the Portfolio's current dividend
return to yields published for other investment companies and other
investment vehicles. Current dividend return should also be considered
relative to changes in the value of the Portfolio's shares and to the
risks associated with the Portfolio's investment objective and policies.
For example, in comparing current dividend returns with those offered by
Certificates of Deposit ("CDs"), it should be noted that CDs are insured
(up to $100,000) and offer a fixed rate of return.
Performance information may be useful in evaluating a Portfolio and
for providing a basis for comparison with other financial alternatives.
Since the performance of the Portfolio changes in response
to fluctuations in market conditions, interest rates and Portfolio
expenses, no performance quotation should be considered a representation
as to the Portfolio's performance for any future period.
A Portfolio may from time to time compare its investment results
with the following:
(1) Various Salomon Brothers World Bond Indices and J.P. Morgan
Global Bond Indices, which measure the total return performance
of high-quality securities in major sectors of the worldwide
bond markets.
(2) The Shearson Lehman Government/Corporate Bond Index, which
is a comprehensive measure of all public obligations of the U.S.
Treasury (excluding flower bonds and foreign targeted issues),
all publicly issued debt of agencies of the U.S. Government
(excluding mortgage backed securities), and all public, fixed
rate, non-convertible investment grade domestic corporate debt
rated at least Baa by Moody's Investors Service or BBB by
Standard and Poor's Corporation, or, in the case of nonrated
bonds, BBB by Fitch Investors Service (excluding Collateralized
Mortgage Obligations).
(3) Average of Savings Accounts, which is a measure of all kinds
of savings deposits, including longer-term certificates (based
on figures supplied by the U.S. League of Savings Institutions).
Savings accounts offer a guaranteed rate of return on principal,
but no opportunity for capital growth. During a portion of the
period, the maximum rates paid on some savings deposits were
fixed by law.
(4) The Consumer Price Index, which is a measure of the average
change in prices over time in a fixed market basket of goods and
services (e.g., food, clothing, shelter, fuels, transportation
fares, charges for doctors' and dentists' services, prescription
medicines, and other goods and services that people buy for day-
to-day living).
(5) Data and mutual fund rankings published or prepared by
Lipper Analytical Services, Inc., which ranks mutual funds by
overall performance, investment objectives and assets.
(6) Ibbottson Associates International Bond Index, which
provides a detailed breakdown of local market and currency
returns since 1960.
(7) Standard & Poor's "500" Index ("S&P 500") which is a widely
recognized index composed of the capitalization-weighted average
of the price of 500 of the largest publicly traded stocks in the
U.S.
(8) Salomon Brothers Broad Investment Grade Index which is a
widely used index composed of U.S. domestic government,
corporate and mortgage-back fixed income securities.
(9) Dow Jones Industrial Average.
(10) Financial News Composite Index.
(11) Morgan Stanley Capital International World Indices,
including, among others, the Morgan Stanley Capital
International Europe, Australia, Far East Index ("EAFE Index").
The EAFE index is an unmanaged index of more than 800 companies
of Europe, Australia and the Far East.
(12) Data and comparative performance rankings published or
prepared by CDA Investment Technologies, Inc.
(13) Data and comparative performance rankings published or
prepared by Wiesenberger Investment Company Service.
Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc., Merrill Lynch, Pierce, Fenner &
Smith, Inc., Bear Stearns & Co., Inc., Morgan Stanley, and Ibbottson
Associates may be used, as well as information provided by the Federal
Reserve Board. In addition, performance rankings and ratings reported
periodically in national financial publications, including but not
limited to Money Magazine, Forbes, Business Week, The Wall Street
Journal and Barron's may also be used.
World Market Capitalization
In 1970 U.S. securities represented two-thirds of the world's stock
market capitalization. Ten years later, the U.S. percentage had dropped
to roughly 50 percent. As of January 1, 1993, companies outside the
U.S. comprised approximately 67% of the world's stock market
capitalization, according to Morgan Stanley Capital International.
Diversification
A study of world markets showed that diversification into overseas
markets over the last ten years not only reduced risk but also increased
returns. The S&P 500, representing the U.S. stock market, and EAFE
Index, representing the markets of Europe, Australia and the Far East,
were used as measures of U.S. and non-U.S. market performance.
Portfolios of the indices were combined in varying proportions to
determine the optimum risk/return relationship. This showed that the
least volatile investment portfolio would have been composed of 70% U.S.
equities and 30% foreign equities.
Since 1985 the U.S. stock market has not ranked among the five best
performers.
The chart below illustrates how $10,000 invested on January 1, 1985
in international equities, as measured by the EAFE Index, would have
grown to $51,872 as of December 31, 1994 - and outpaced the major
benchmark averages for common stocks, U.S. Government Bonds and
inflation.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Portfolio's shares will be determined on
any day that the New York Stock Exchange ("NYSE") is open. The NYSE is
closed on the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
REDEMPTION OF SHARES
In conformity with applicable rules of the Securities and Exchange
Commission, redemptions may be paid in portfolio securities, in cash or
any combination of both, as the Board of Directors may deem advisable;
however, payments shall be made wholly in cash unless the Board of
Directors believes that economic conditions exist that would make such a
practice detrimental to the best interests of the Fund and its remaining
shareholders. If a redemption is paid in portfolio securities, such
securities will be valued in accordance with the procedures described
under "Determination of Net Asset Value" in the Prospectus and a
shareholder would incur brokerage expenses if these securities were then
converted to cash.
INVESTMENT MANAGEMENT AGREEMENT AND OTHER SERVICES
Manager
The Management Agreement for the Global Government Bond Portfolio
provides for an annual fee calculated at the rate of 0.75% of the
Portfolio's average daily net assets, paid monthly; each of the
Management Agreements for the International Equity Portfolio, the
Pacific Portfolio, the European Portfolio and the International Balanced
Portfolio provides for an annual fee calculated at the rate of 0.85% of
the Portfolio's average daily net assets, paid monthly; and the
Management Agreement for the Emerging Markets Portfolio provides for an
annual fee calculated at the rate of 1.00% of the Portfolio's average
daily net assets, paid monthly.
For the fiscal years 1994, 1995 and 1996, the management fees
for each Portfolio were as follows:
Portfolio 1994 1995 1996
International Equity $5,320,716 $8,452,273 ___
Global Gov't Bond 615,294 901,693 ___
European- 34,637 202,500 ____
Pacific - 58,231 74,052 ____
International Balanced- 33,036 213,800 ____
Emerging Markets - 69,254 ____
For the fiscal period ending October 31, 1994, the manager waived
$34,637, $25,439 and $29,801 of management fees for the European,
Pacific and International Balanced Portfolios, respectively, and
reimbursed the European Portfolio for expenses in the amount of $10,344.
For the year ended October 31, 1995, the manager waived $8,684, $74,052,
$87,233 and $64,107 of management fees for European, Pacific,
International Balanced and Emerging Markets Portfolios, respectively,
and has agreed to reimburse the Pacific Portfolio for expenses in the
amount of $30,862.
Each Management Agreement further provides that all other expenses
not specifically assumed by the Manager under the Management Agreement
on behalf of the Portfolio are borne by the Fund. Expenses payable by
the Fund include, but are not limited to, all charges of custodians
(including sums as custodian and sums for keeping books and for
rendering other services to the Fund) and shareholder servicing agents,
expenses of preparing, printing and distributing all prospectuses, proxy
material, reports and notices to shareholders, all expenses of
shareholders' and directors' meetings, filing fees and expenses relating
to the registration and qualification of the Fund's shares and the Fund
under Federal or state securities laws and maintaining such
registrations and qualifications (including the printing of the Fund's
registration statements), fees of auditors and legal counsel, costs of
performing portfolio valuations, out-of-pocket expenses of directors and
fees of directors who are not "interested persons" as defined in the
Act, interest, taxes and governmental fees, fees and commissions of
every kind, expenses of issue, repurchase or redemption of shares,
insurance expense, association membership dues, all other costs incident
to the Fund's existence and extraordinary expenses such as litigation
and indemnification expenses. Direct expenses are charged to each
Portfolio; general corporate expenses are allocated on the basis of the
relative net assets. Smith Barney Mutual Funds Management Inc., the
investment manager of the Fund, also acts as investment adviser to
numerous other open-end investment companies. Smith Barney serves as
investment manager of The Inefficient-Market Fund, Inc., a closed-end
investment company. Smith Barney also advises profit-sharing and
pension accounts. Smith Barney and its affiliates may in the future act
as investment advisers for other accounts.
One of the states in which the shares of the Fund are qualified for
sale imposes limitations on the expenses of the Fund. Although there
is no certainty that the state limitation will be in effect in the
future, these limitations on an annual basis are currently 2.5% of the
first $30 million of average daily net assets, 2% of the next $70
million of average daily net assets and 1.5% of the average daily net
assets in excess of $100 million.
Distributor
For the year ended October 31, 1995, the table below represents the
fees which have been accrued and/or paid to Smith Barney under the Plans
of Distribution pursuant to Rule 12b-1 for the Fund's Portfolios. The
distribution expenses for 1995 included compensation of Financial
Consultants and printing costs of prospectuses and marketing materials.
Pursuant to a Plan of Distribution adopted by the Fund on behalf
of each Portfolio under Rule 12b-1 under the Act (the "Plan"), Smith
Barney incurs the expenses of distributing the Fund's Class A, Class B
and Class C shares. See "Management of the Fund-- Distributor" in the
Prospectus.
Portfolio Class A Class B Class C Total
Int'l Equity $1,242,420 $725,837 $2,532,126 $4,500,383
Global Gov't 242,291 124,076 33,315 399,682
European 21,781 134,916 14,254 170,951
Pacific 14,078 6,954 23,852 44,884
International Balanced 47,170 19,968 42,859 109,997
Emerging Markets 7,608 32,458 5,967 46,033
During the fiscal years 1994, 1995 and 1996 aggregate sales
commissions of $8,638,000, $1,929,000 and $_______, respectively, were
paid to Smith Barney by the purchasers of Fund shares. A contingent
deferred sales charge ("CDSC") may be imposed on certain redemptions of
Class A, Class B shares and Class C shares. The amount of the CDSC will
depend on the number of years since the shareholder made the purchase
payment from which the amount is being redeemed. For Class B shares, for
each of the Fund's Portfolios except the Global Government Bond
Portfolio, the maximum CDSC is 5.00% of redemption proceeds, declining
by 1.00% each year after the date of purchase to zero. For Class B
shares of each of the Global Government Bond Portfolio the maximum CDSC
is 4.50% of redemption proceeds, declining by 0.50% the first year after
purchase and by 1.00% each year thereafter to zero. A CDSC of 1.00% is
imposed on redemptions of Class A which when combined with Class A
shares offered with a sales charge currently held by an investor equal
or exceed $500,000 in the aggregate and Class C shares if such
redemptions occur within 12 months from the date such investment was
made. Any sales charge imposed on redemptions is paid to the
distributor of the Fund shares.
Smith Barney will pay for the printing, at printer's overrun cost, of
prospectuses and periodic reports after they have been prepared, set in
type and mailed to shareholders, and will also pay the cost of
distributing such copies used in connection with the offering to
prospective investors and will also pay for supplementary sales
literature and other promotional costs. Such expenses incurred by Smith
Barney are distribution expenses within the meaning of the Plan and may
be paid from amounts received by Smith Barney from the Fund under the
Plan.
Brokerage and Portfolio Transactions
The Manager is responsible for allocating the Fund's brokerage.
Orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Smith Barney . No Portfolio will
deal with Smith Barney in any transaction in which Smith Barney acts as
principal.
The Fund attempts to obtain the most favorable execution of each
portfolio transaction in the International Equity Portfolio, the Pacific
Portfolio, the European Portfolio, the International Balanced Portfolio
and the Emerging Markets Portfolio, that is, the best combination of
net price and prompt reliable execution. In the opinion of the Manager,
however, it is not possible to determine in advance that any particular
broker will actually be able to effect the most favorable execution
because, in the context of a constantly changing market, order execution
involves judgments as to price, commission rates, volume, the direction
of the market and the likelihood of future change. In making its
decision as to which broker or brokers are most likely to provide the
most favorable execution, the management of the Fund takes into account
the relevant circumstances. These include, in varying degrees, the size
of the order, the importance of prompt execution, the breadth and trends
of the market in the particular security, anticipated commission rates,
the broker's familiarity with such security including its contacts with
possible buyers and sellers and its level of activity in the security,
the possibility of a block transaction and the general record of the
broker for prompt, competent and reliable service in all aspects of
order processing, execution and settlement.
Commissions are negotiated and take into account the difficulty
involved in execution of a transaction, the time it took to conclude,
the extent of the broker's commitment of its own capital, if any, and
the price received. Anticipated commission rates are an important
consideration in all trades and are weighed along with the other
relevant factors affecting order execution set forth above. In
allocating brokerage among those brokers who are believed to be capable
of providing equally favorable execution, the Fund takes into
consideration the fact that a particular broker may, in addition to
execution capability, provide other services to the Fund such as
research and statistical information. It is not possible to place a
dollar value on such services nor does their availability reduce the
Manager's expenses in a determinable amount. These various services
may, however, be useful to the Manager or Smith Barney in connection
with its services rendered to other advisory clients and not all such
services may be used in connection with the Fund.
The Board of Directors of the Fund has adopted certain policies and
procedures incorporating the standard of Rule 17e-1 issued by the
Securities and Exchange Commission under the Act which requires that the
commissions paid to Smith Barney must be "reasonable and fair compared
to the commission fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time." The Rule and the
policy and procedures also contain review requirements and require the
Manager to furnish reports to the Board of Directors and to maintain
records in connection with such reviews.
In placing orders for the Global Government Bond Portfolio's
transactions, the Manager seeks to obtain the best net results. The
Manager has no agreement or commitment to place orders with any broker-
dealer. Debt securities are generally traded on a "net" basis with a
dealer acting as principal for its own account without stated
commission, although the price of the security usually includes a profit
to the dealer. U.S. and foreign government securities and money market
instruments are generally traded in the over-the-counter ("OTC")
markets. In underwritten offerings, securities are usually purchased at
a fixed price which includes an amount of compensation to the
underwriter. On occasion, securities may be purchased directly from an
issuer, in which case no commissions or discounts are paid. Dealers may
receive commissions on futures, currency and options transactions
purchased on behalf of the Portfolio. Commissions or discounts in
foreign securities exchanges or OTC markets typically are fixed and
generally are higher than those in U.S. securities exchanges or OTC
markets.
Shown below are the total brokerage fees paid by the Fund on behalf
of the International Equity Portfolio, European Portfolio, Pacific
Portfolio, International Balanced Portfolio and the Emerging Markets
Portfolio during 1994, 1995 and 1996. Also shown is the portion paid to
Smith Barney and the portion paid to other brokers for the execution of
orders allocated in consideration of research and statistical services
or solely for their ability to execute the order. During fiscal year
1996, the total amount of commissionable transactions was $_____ (____%)
of which $_____ (____%) was directed to Smith Barney and executed by
unaffiliated brokers and $____ (____%) of which was directed to other
brokers.
Commissions
For Execution Only
Total To Smith Barney To Others
1994 $ 3,703,484 133,558* 3.61
3,569,926 96.39
1995 2,907,454 38,786* 1.33
2,868,668 98.67
1996 ________ _____ ___
_______ ___%
* Directed to Smith Barney and executed by unaffiliated brokers.
CUSTODIAN
Portfolio securities and cash owned by the Fund are held in the
custody of The Chase Manhattan Bank, Chase Metrotech Center, Brooklyn,
New York 11245
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154,
have been selected as the Fund's independent auditors for the Fund to
examine and report on the financial statements and financial highlights
of the Fund for its fiscal year ending October 31, 1996.
VOTING
As permitted by Maryland law, there will normally be no meetings of
shareholders for the purpose of electing directors unless and until such
time as less than a majority of the directors holding office have been
elected by shareholders. At that time, the directors then in office
will call a shareholders' meeting for the election of directors. The
directors must call a meeting of shareholders for the purpose of voting
upon the question of removal of any director when requested in writing
to do so by the record holders of not less than 10% of the outstanding
shares of the Fund. At such a meeting, a director may be removed after
the holders of record of not less than a majority of the outstanding
shares of the Fund have declared that the director be removed either by
declaration in writing or by votes cast in person or by proxy. The Fund
will assist shareholders in calling such a meeting as required by the
Act. Except as set forth above, the directors shall continue to hold
office and may appoint successor directors.
As used in the Prospectus and this Statement of Additional
Information, a "vote of a majority of the outstanding voting securities"
means the affirmative vote of the lesser of (a) more than 50% of the
outstanding shares of the Fund (or the affected Portfolio or class) or
(b) 67% or more of such shares present at a meeting if more than 50% of
the outstanding shares of the Fund (or the affected Portfolio or class)
are represented at the meeting in person or by proxy.
Following are the names, addresses and percent of ownership of each
person who owns of record or is known by the Fund to own of record of
beneficially 5% or more of any Class of the European Portfolio as of
January 31, 1995: Smith Barney Mutual Fund Management, Inc., Attn: Tom
Reynolds, 388 Greenwich Street, 22nd Fl., New York, New York 10013 owned
of record 119,116.926 shares (30.66%) of the outstanding Class A shares;
Betty Comer Yoe, 2844 Shook Hill Rd., Birmingham, AL 35223-2617
beneficially owned 40,916.530 shares (10.53%) of the outstanding Class
A; Dr. Juda Jona and Susan R. Jona JTWROS, 2525 N. Terrace, Milwaukee,
WI 53211-3821 beneficially owned 7,742.520 shares (6.72%) of the Class C
shares; Patrick D. Broe, Cust FBO, Sean Patrick Broe, 252 Clayton
Street, 4th Floor, Denver, CO 80206-4814, beneficially owned 10,328.223
shares (8.96%) of the outstanding Class C shares; Frontier Trust Company
as TTEE, Orthopedic Therapy Inc. 401(k) in Care of the Barclay Group,
Springhouse Corporate Center II, 323 Norristown Road, Ambler, PA 19002,
beneficially owned 2, 230.583 shares (33.51%) of the outstanding Class B
shares; Frontier Trust Company as TTEE, Gay Gillen Travel, Inc. 401(K),
1709 Rio Grande, Austin, TX, 78701, beneficially owned 1, 840.502 shares
(27.65%) of the outstanding Class B shares; Tom T. Marumoto, 3037 11th
Avenue, Los Angeles, CA, 90018-3334, beneficially owned 635.737 shares
(9.55%) of the outstanding Class B shares; Mariaro F. Sanito, Smith
Barney Inc. IRA Custodian, 27629 North 72 Place, Scottsdale, AZ, 85255-
1102, beneficially owned 633.914 shares (9.52%) of the outstanding Class
B; M.G. Parfett Consulting Inc., Smith Barney Prototype MP Plan, Michael
G. Parfett Trustee, 17 Grandview Drive, Holmdel, NJ 07733-2007,
beneficially owned 617.899 shares (9.28%) of the outstanding Class B
shares;
Fred W. Copley, Smith Barney Inc. IRA Custodian, 2627 Route 75, Kenova,
WV, 25530-9791, beneficially owned 410.172 shares (6.16%) of the
outstanding Class B shares; and Dr. Juda Jona, Smith Barney Inc.
Rollover Cust., 3057 N. Lake Drive, Milwaukee, WI, 53211-3403,
beneficially owned 7,674.786 shares (6.66%) of the outstanding Class C
shares.
Following are the names, addresses and percent of ownership of each
person who owns of record or is known by the Fund to own of record or
beneficially 5% or more of any Class of the International Balanced
Portfolio as of January 31, 1995: Ouzinkie Native Corporation, Attn:
William Anderson, Box 89, Ouzinkie, AK, 99644-0089, beneficially owned
21,115.911 shares (14.49%) of the outstanding Class B shares and Sharon
Sackin, Smith Barney Inc. Rollover Cust., 3030 Brookdale Road, Studio
City, CA 91604-4217, beneficially owned 10,434.525 shares (7.16%) of the
outstanding Class B shares.
Following are the names, addresses and percent of ownership of each
person who owns of record or is known by the Fund to own of record or
beneficially 5% or more of any Class of the Pacific Portfolio as of
January 31, 1995: BSDT Custodian, Orcutt Union School District 403-B-7
A/C William E. Eyler, 4641 Brandon Ct., Santa Maria, CA, 93455,
beneficially owned 2,153.316 shares (11.08%) of the outstanding Class B
shares; Xavier J. Padilla, Smith Barney Inc. Rollover Cust., 14436 Emory
Drive, Whittier, CA, 90605-1111, beneficially owned 2,030.869 shares
(10.45%) of the outstanding Class B shares; Eugene W. Kinaman Succ TTEE,
FBO Nell V. Kinaman, UAD 11/09/88 Irrevocable Trust, Special Account,
2912 Via Pacheco, Palos Verdes Estates, CA, 90274, beneficially owned
1,418.353 shares (7.30%) of the outstanding Class B shares; Dr. Chaeryle
R. Hart, Smith Barney Inc. Sep. Custodian, U/P/O Dr. Cheryle R. Hart,
11525 Sunview Circle, Spokane, WA, 99206-5722, beneficially owned
1,323.919 shares (6.81%) of the outstanding Class B shares; Gary Tanouye
and Alyce Tanouye Ten in Com., 10950 Owensmouth Ave., Chatsworth, CA,
91311-1342, beneficially owned 1,028.639 shares (5.30%) of the
outstanding Class B shares; and Smith Barney Mutual Fund Management,
Inc., Attn: Tom Reynolds, 388 Greenwich Street, New York, NY 10013
owned of record 77,355 shares (14.75%) of the Class A shares.
Following are the names, addresses and percent of ownership of each
person who owns of record or is known by the Fund to own of record or
beneficially 5% or more of any Class of the Global Government Bond
Portfolio as of January 31, 1995: Algemeen Pensionfords Van de
Nederlandse Antillen, Attn. Dr. E. Profet, P.O. Box 502, Willemstad,
Curacao, The Netherlands Antilles beneficially owned 248,157.972 shares
(98.09%) of the outstanding Class Y shares; SRS. of Providence
Community, Support Trust - Int'l Inv., Generalate - Finance Office,
Owens Hall, St. Mary of the W in 47876-1096, beneficially owned
314,440.235 shares (5.11%) of the outstanding Class A shares; Mr.
Raymond M. Bdaz, Smith Barney Inc. IRA Custodian, 34 Oliver Court,
Signal Mountain, TN 37377-2317, beneficially owned 3,914.729 shares
(31.20%) of the outstanding Class B shares; George E. Meyers TTEE,
George E. Meyers REV LIV Trust, D/T/D 01/26/94, FBO George E. Meyers,
9441 West Butte Road, Live Oak, CA, 95953-9522, beneficially owned
3,305.891 shares (26.35%) of the outstanding Class B shares; Phillip B.
Swain TTEE, FBO Georgian D. Ireland, U/A/D 06/30/76, FBO Michael D.
Ireland, 109 Mahanolia Hill Road, Bethlehem, CT, 06751-1812,
beneficially owned 1,296.451 shares (10.33%) of the outstanding Class B
shares; Harriet Eisner & Ilene Egert & Steven Haas, JTWROS, 2801 N.E.
183RD Street, Apt.#1807, No. Miami Beach, FL, 33160-2133, beneficially
owned 1,291.990 shares (10.30%) of the outstanding Class B shares; and
Vicki Osborne Hulet, TTEE, U/A/D 9/26/94, FBO Marie Sunshine Osborne,
P.O. Box 2334, Idaho Falls, ID, 83403-2334, beneficially owned 1,172.059
shares (9.34%) of the outstanding Class B shares.
Following are the names, addresses and percent of ownership of each
person who owns of record or is known by the Fund to own of record or
beneficially 5% or more of any Class of the International Equity
Portfolio as of January 31, 1995: Northern Trust As Trustee, FBO USAA
Retirement Plan, P.O. Box 92956, Chicago, IL 60675, beneficially owned
979,488.447 shares (19.40%) of the outstanding Class Y shares; Grand
Lodge of Free & Accepted, Masons of Pennsylvania, c/o Smith Barney,
Inc., 1345 Ave. of the Americans, Attn: Robert Barrel, New York, New
York, 10105, beneficially owned 700,031.334 shares (13.87%) of the
outstanding Class Y shares; Northern Trust As Trustee, FBO USAA, Savings
& Investment Plan Trust, P.O. Box 92956, beneficially owned 637,565.730
shares (12.63%) of the outstanding Class Y shares; The Phoenix Insurance
Co., One Tower Square, Hartford, CT 06183-2030, beneficially owned
554,937.778 shares (10.99%) of the outstanding Class Y shares; Blue
Cross of Washington and Alaska, 7001 - 220th Street SW, Mountlake
Terrace, WA, 98043-2124, beneficially owned 551,025.526 shares (10.91%)
of the outstanding Class Y shares; Memphis Light Gas & Water, Division
Retirement & Pension System, 220 S Main P.O. Box 430, Memphis, TN,
38101, beneficially owned 529,262.069 shares (10.48%) of the outstanding
Class Y shares; American Bar Endowment, Attn: Tom Rogers, 750 North Lake
Shore Drive, Chicago, IL, 60611, beneficially owned 345,609.207 shares
(6.85%) of the outstanding Class Y shares; 8 Calmont & Company, & Wells
Fargo Bank NA, FDS ACCTG MAC# 0103-174, Attn: Brigid Breen, 525 Market
Street, San Francisco, CA, 94163, beneficially owned 335,679.532 shares
(6.65%) of the outstanding Class Y shares; and 1 Citibank NA TRUSTEE,
Smith Barney Harris Upham & Co. Inc., 401 K Savings Plan, 111 Wall
Street, 20th Floor, Attn: N. Kronenberg, New York, NY, 10043,
beneficially owned 4,375,043.123 shares (100%) of the outstanding Class
Y shares.
FINANCIAL STATEMENTS
The following financial information is hereby incorporated by
reference to the indicated pages of the Fund's 1994 Annual Report to
Shareholders, copies of which are furnished with this Statement of
Additional Information.
Page(s) in Page(s) in Page(s) in
Annual Report Annual Report Annual Report
(Int'l Equity) (Global Gov't) (European,
Pacific &
Int'l Bal'd)
Average Annual Total Return 3 3 4-8
Line Graph Showing Growth of
$10,000 Investment . 4 4 5-9
Statement of Assets and Liabilities 13 6 19
Statement of Operations 14 7 20
Statement of Changes in Net Assets 15 8 21
Notes to Financial Statements 16-19 9-13 22-27
Financial Highlights 20-22 14-15 28-30
Independent Auditors' Report 23 16 31
APPENDIX - RATINGS OF DEBT OBLIGATIONS
BOND (AND NOTE) RATINGS
Moody's Investors Service, Inc.
Aaa - Bonds that are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected
by a large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make the long term
risks appear somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to
impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect
to principal or interest.
Ca - Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked short-comings.
C - Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation
AAA - Debt rated "AAA" has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small
degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B and CCC - Bonds rated BB and B are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
represents a lower degree if speculation than B and CCC the highest
degree of speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C - The rating C is reserved for income bonds on which no interest
is being paid.
D - Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major
rating categories, except in the AAA-Prime Grade category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial
charges and high internal cash generation; well-established access to a
range of financial markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Standard & Poor's Corporation
A-1 - This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics will be
denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as high as for
issues designated A-1.
PART C Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Location in:
Part A Part B
Annual
Report
Statements of Assets and Liabilities -- *
Statements of Operations -- *
Statements of Changes in Net Assets -- *
Notes to Financial Statements -- *
* The Registrant's Annual Reports for the fiscal year ended October 31,
1995 and the Reports of Independent Accountants dated December 28, 1995
are incorporated by reference to the N-30D filed on January 10, 1996 as
Accession # 0000091155-96-14.
All other statements and schedules are omitted because they are not
applicable or the required information will be shown in the financial
statements or notes thereto.
(b) Exhibits
(1) (a) Articles of Incorporation (1)
(b) Articles Supplementary to Articles of Incorporation
for International Equity Portfolio (2)
(c) Articles of Amendment to the Articles of
Incorporation for the Fund dated November 10, 1992
(3)
(d) Articles Supplementary to Articles of Incorporation
for the Fund dated December 8, 1992 (3)
(e) Articles Supplementary to Articles of Incorporation
for Pacific Portfolio and European Portfolio(10)
(f) Articles Supplementary to Articles of Incorporation
for International Balanced Portfolio (11)
(g) Form of Articles Supplementary to Articles of
Incorporation for Emerging Markets Portfolio(12)
(h) Articles of Amendment to the Articles of
Incorporation for the Fund dated June 4, 1991(13)
(i) Articles Supplementary to Articles of Incorporation
for the Fund dated July 13, 1994 (13)
(j) Articles of Amendment to Articles of Incorporation
for the Fund dated November 3, 1994(13)
(k) Articles of Amendment to Articles of Incorporation
for the Fund dated November 3, 1994(13)
(l) Articles Supplementary to Articles of Incorporation
for the Fund dated November 3, 1994(13)
(m) Articles Supplementary to Articles of Incorporation
for Emerging Markets Portfolio dated November 10,
1994(13)
(2) Bylaws (4)
(3) None
(4) Form of Stock Certificates for the
International Equity Portfolio, the Global
Government Bond Portfolio, the Pacific
Portfolio and the European Portfolio (9)
(5) Form of Management Agreement
(a) --Global Government Bond Portfolio (4)
(b) --International Equity Portfolio (5)
(c) --Pacific Portfolio (11)
(d) --European Portfolio (11)
(e) --International Balanced Portfolio (11)
(f) --Emerging Markets Portfolio(12)
(g) Form of Subadvisory Agreement (4)
(6) (i) Form of Distribution Agreement (5)
(ii) Form of Selling Group Agreement (5)
(7) Not applicable
(8) (i) Form of Custodian Agreement (*)
(ii) Form of Transfer Agency Agreement (4)
(9) Not applicable
(10) Opinion and Consent of Counsel (6)
(11) (i) Auditor's Report (See the Annual Report to
Shareholders which is incorporated by reference in
the Statement of Additional Information)
(ii) Auditors' Consent
(12) Not applicable
(13) Form of Subscription Agreement (4)
(14) IRA Agreement (6)
(15) Rule 12b-1 Plan of Distribution
(a) Global Government Bond Portfolio (4)
(b) International Equity Portfolio (5)
(c) Rule 12b-1 Plan of Distribution for the Fund on
behalf of the Global Government Bond Portfolio (7)
(d) Rule 12b-1 Plan of Distribution for the Fund on
behalf of the International Equity Portfolio (7)
(e) Rule 12b-1 Plan of Distribution for the Fund on
behalf of the Pacific Portfolio (11)
(f) Rule 12b-1 Plan of Distribution for the Fund on
behalf of the European Portfolio (11)
(g) Rule 12b-1 Plan of Distribution for the Fund on
behalf of the International Balanced Portfolio (11)
(h) Rule 12b-1 Plan of Distribution for the Fund on
behalf of the Emerging Markets Portfolio(12)
(16) Schedule of Performance Quotations (8)
(1) Previously filed on March 25, 1991.
(2) Previously filed on September 24, 1992.
(3) Previously filed on December 21, 1992.
(4) Previously filed on May 27, 1991.
(5) Previously filed on August 8, 1991.
(6) Previously filed on June 17, 1991.
(7) Previously filed on April 30, 1993.
(8) Previously filed on January 17, 1992.
(9) Previously filed on November 5, 1993.
(10)Previously filed on January 4, 1994.
(11)Previously filed on July 27, 1994.
(12)Previously filed on October 31, 1994.
(13)Previously filed on February 28, 1995.
*Filed herewith.
Item 25. Persons Controlled by or under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
Number of Record holders
Title of Class On February 2, 1997
Global Government Bond Portfolio _______
International Equity Portfolio _______
Pacific Portfolio _______
European Portfolio _______
International Balanced Portfolio _______
Emerging Markets Portfolio _______
Item 27. Indemnification
Reference is made to Article IX, or Registrant's Articles
of Incorporation for a complete statement of its terms.
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 Smith, Barney Mutual Funds
Management, Inc. (Registrant's Adviser) and affiliated
investment companies.
Item 28. Business and other Connections of Investment Adviser
See the material under the caption "Management of the Fund"
included in Part A (Prospectus) of this Registration Statement
and the material appearing under the caption "Management Agreement"
included in Part B (Statement of Additional Information) of this
Registration Statement.
Information as to the Directors and Officers of Smith Barney Mutual
Funds Management Inc. is included in its Form ADV (File No. 801-
8314), filed with the Commission, which is incorporated herein by
reference thereto.
Item 29. Principal Underwriters
(a) Smith Barney Inc. ("Smith Barney ") also acts as
principal underwriter for Smith Barney Money Funds, Inc.; Smith Barney
Muni Funds; Smith Barney Funds, Inc., Smith Barney Variable Account
Funds; Smith Barney Intermediate Municipal Fund, Inc., Smith Barney
Municipal Fund, Inc., High Income Opportunity Fund Inc.,
Travelers Series Fund Inc., , Greenwich Street California
Municipal Fund Inc., The Inefficient-Market Fund, Inc., Smith Barney
Adjustable Rate Government Income Fund, Smith Barney Equity Funds, Smith
Barney Income Funds, Smith Barney Massachusetts Municipals Fund, Zenix
Income Fund Inc., Smith Barney Arizona Municipals Fund Inc., Smith
Barney Principal Return Fund, Municipal High Income Fund Inc., The Trust
for TRAK Investments, Smith Barney Series Fund, Smith Barney
Investment Trust, Smith Barney Oregon Municipals Fund Inc.,
Smith Barney Municipal Money Market Fund, Inc., Smith Barney Aggressive
Growth Fund Inc., Smith Barney Appreciation Fund Inc., Smith Barney
California Municipals Fund Inc., Smith Barney Fundamental Value Fund
Inc., Smith Barney Managed Governments Fund Inc., Smith Barney Managed
Municipals Fund Inc., Smith Barney New Jersey Municipals Fund Inc.,
Smith Barney Natural Resources Fund Inc., Smith Barney Investment Funds
Inc., Smith Barney Institutional Cash Management Fund Inc. , The
Italy Fund Inc., Smith Barney Telecommunications Trust, Managed
Municipals Portfolio Inc., Managed Municipals Portfolio II Inc., Smith
Barney Concert Series Inc., Managed High Income Portfolio Inc. and
Greenwich Street Municipal fund Inc.
(b) The information required by this Item 29 with respect to each
director and officer of Smith Barney is incorporated by reference to
Schedule A of Form BD filed by Smith Barney pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-8177)
(c) Not applicable
Item 30. Location of Accounts and Records
The Chase Manhattan Bank of New York, 4 Chase Metrotech
Center, Brooklyn, New York 11245 , and First Data
Investor Services Group, Inc., 53 State Street, Boston,
Massachusetts 02109, will maintain the custodian and the
shareholder servicing agent records, respectively, required
by Section 31(a).
All other records required by Section 31 (a) are
maintained at the offices of the Registrant at 388 Greenwich
Street, New York, New York 10013 (and preserved for the
period specified by Rule 31a-2).
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) Not applicable
(b) Registrant undertakes, if requested to do so by holders
of at least 10% of Registrant's outstanding shares, to call a
meeting of shareholders for the purpose of voting upon the
questions of removal of a director or directors and to assist
in communications with other shareholders as required by
Section 16(c).
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest
report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets
all of the requirements for effectiveness of this Post-Effective
Amendment to the Registration Statement pursuant to Rule 485 (a)
under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by
the undersigned, and where applicable, the true and lawful attorney-in-
fact, thereto duly authorized, in the City of New York and State of New
York on the 27th day of December, 1996.
SMITH BARNEY WORLD FUNDS, INC.
BY /s/ Heath B. McLendon
Heath B. McLendon,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the date
indicated.
Signatures Title
Date
/s/ Heath B. McLendon Director, and
(Heath B. McLendon) Chief Executive Officer
12/27/96
/s/ Jessica M. Bibliowicz President and Director
(Jessica Bibliowicz)
Victor Atkins* Director
(Victor Atkins)
Robert Belfer* Director
(Robert Belfer)
Alger Chapman* Director
(Alger Chapman)
Robert Frankel* Director
(Robert Frankel)
Rainer Greeven* Director
(Rainer Greeven)
Susan M. Heilbron * Director
(Susan M. Heibron)
Bruce D. Sargent* Director
(Bruce D. Sargent)
James M. Shuart* Director
(James M. Shuart)
/s/ Lewis E. Daidone Treasurer and Principal
12/27/96
(Lewis E. Daidone) Financial Officer
*By:/s/ Christina T. Sydor 12/27/96
Christina T. Sydor
Pursuant to Power of Attorney
g:\funds\sbwf\1997\secdocs\sai.doc
g:\funds\sbwf\1996\secdocs\pea18.doc
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective ___________________, 199_, and is
between THE CHASE MANHATTAN BANK ("Bank") and
("Customer").
1. Customer Accounts.
Bank shall establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of Customer ("Custody
Account") for any and all stocks, shares, bonds, debentures, notes,
mortgages or other obligations for the payment of money, bullion, coin
and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the same or
evidencing or representing any other rights or interests therein and
other similar property whether certificated or uncertificated as may be
received by Bank or its Subcustodian (as defined in Section 3) for the
account of Customer ("Securities"); and
(b) A deposit account in the name of Customer ("Deposit
Account") for any and all cash in any currency received by Bank or its
Subcustodian for the account of Customer, which cash shall not be
subject to withdrawal by draft or check.
Customer warrants its authority to: 1) deposit the cash and
Securities ("Assets") received in the Accounts and 2) give Instructions
(as defined in Section 11) concerning the Accounts. Bank may deliver
securities of the same class in place of those deposited in the Custody
Account.
Upon written agreement between Bank and Customer, additional
Accounts may be established and separately accounted for as additional
Accounts hereunder.
2. Maintenance of Securities and Cash at Bank and Subcustodian
Locations.
Unless Instructions specifically require another location
acceptable to Bank:
(a) Securities shall be held in the country or other
jurisdiction in which the principal trading market for such Securities
is located, where such Securities are to be presented for payment or
where such Securities are acquired; and
(b) Cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular
currency. To the extent Instructions are issued and Bank can comply
with such Instructions, Bank is authorized to maintain cash balances on
deposit for Customer with itself or one of its "Affiliates" at such
reasonable rates of interest as may from time to time be paid on such
accounts, or in non-interest bearing accounts as Customer may direct, if
acceptable to Bank. For purposes hereof, the term "Affiliate" shall
mean an entity controlling, controlled by, or under common control with,
Bank.
If Customer wishes to have any of its Assets held in the custody
of an institution other than the established Subcustodians as defined in
Section 3 (or their securities depositories), such arrangement must be
authorized by a written agreement, signed by Bank and Customer.
3. Subcustodians and Securities Depositories.
Bank may act hereunder through the subcustodians listed in
Schedule A hereof with which Bank has entered into subcustodial
agreements ("Subcustodians"). Customer authorizes Bank to hold Assets
in the Accounts in accounts which Bank has established with one or more
of its branches or Subcustodians. Bank and Subcustodians are authorized
to hold any of the Securities in their account with any securities
depository in which they participate.
Bank reserves the right to add new, replace or remove
Subcustodians. Customer shall be given reasonable notice by Bank of any
amendment to Schedule A. Upon request by Customer, Bank shall identify
the name, address and principal place of business of any Subcustodian of
Customer's Assets and the name and address of the governmental agency or
other regulatory authority that supervises or regulates such
Subcustodian.
4. Use of Subcustodian.
(a) Bank shall identify the Assets on its books as belonging to
Customer.
(b) A Subcustodian shall hold such Assets together with assets
belonging to other customers of Bank in accounts identified on such
Subcustodian's books as custody accounts for the exclusive benefit of
customers of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be
subject only to the instructions of Bank or its agent. Any Securities
held in a securities depository for the account of a Subcustodian shall
be subject only to the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for
holding Bank's customers' assets shall provide that such assets shall
not be subject to any right, charge, security interest, lien or claim of
any kind in favor of such Subcustodian except for safe custody or
administration, and that the beneficial ownership of such assets shall
be freely transferable without the payment of money or value other than
for safe custody or administration. The foregoing shall not apply to
the extent of any special agreement or arrangement made by Customer with
any particular Subcustodian.
5. Deposit Account Transactions.
(a) Bank or its Subcustodians shall make payments from the
Deposit Account upon receipt of Instructions which include all
information required by Bank.
(b) In the event that any payment to be made under this Section
5 exceeds the funds available in the Deposit Account, Bank, in its
discretion, may advance Customer such excess amount which shall be
deemed a loan payable on demand, bearing interest at the rate
customarily charged by Bank on similar loans.
(c) If Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit
Account, with interest, dividends, redemptions or any other amount due,
Customer shall promptly return any such amount upon oral or written
notification: (i) that such amount has not been received in the ordinary
course of business or (ii) that such amount was incorrectly credited.
If Customer does not promptly return any amount upon such notification,
Bank shall be entitled, upon oral or written notification to Customer,
to reverse such credit by debiting the Deposit Account for the amount
previously credited. Bank or its Subcustodian shall have no duty or
obligation to institute legal proceedings, file a claim or a proof of
claim in any insolvency proceeding or take any other action with respect
to the collection of such amount, but may act for Customer upon
Instructions after consultation with Customer.
6. Custody Account Transactions.
(a) Securities shall be transferred, exchanged or delivered by
Bank or its Subcustodian upon receipt by Bank of Instructions which
include all information required by Bank. Settlement and payment for
Securities received for, and delivery of Securities out of, the Custody
Account may be made in accordance with the customary or established
securities trading or securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs, including,
without limitation, delivery of Securities to a purchaser, dealer or
their agents against a receipt with the expectation of receiving later
payment and free delivery. Delivery of Securities out of the Custody
Account may also be made in any manner specifically required by
Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on
a contractual settlement date with cash or Securities with respect to
any sale, exchange or purchase of Securities. Otherwise, such
transactions shall be credited or debited to the Accounts on the date
cash or Securities are actually received by Bank and reconciled to the
Account.
(i) Bank may reverse credits or debits made to the
Accounts in its discretion if the related transaction fails to
settle within a reasonable period, determined by Bank in its
discretion, after the contractual settlement date for the related
transaction.
(ii) If any Securities delivered pursuant to this Section 6
are returned by the recipient thereof, Bank may reverse the
credits and debits of the particular transaction at any time.
7. Actions of Bank.
Bank shall follow Instructions received regarding assets held in
the Accounts. However, until it receives Instructions to the contrary,
Bank shall:
(i) Present for payment any Securities which are called,
redeemed or retired or otherwise become payable and all coupons
and other income items which call for payment upon presentation,
to the extent that Bank or Subcustodian is actually aware of such
opportunities.
(ii) Execute in the name of Customer such ownership and
other certificates as may be required to obtain payments in
respect of Securities.
(iii) Exchange interim receipts or temporary Securities for
definitive Securities.
(iv) Appoint brokers and agents for any transaction
involving the Securities, including, without limitation,
Affiliates of Bank or any Subcustodian.
(v) Issue statements to Customer, at times mutually agreed
upon, identifying the Assets in the Accounts.
Bank shall send Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices
or notifications shall indicate the identity of the entity having
custody of the Assets. Unless Customer sends Bank a written exception
or objection to any Bank statement within sixty (60) days of receipt,
Customer shall be deemed to have approved such statement. In such event,
or where Customer has otherwise approved any such statement, Bank shall,
to the extent permitted by law, be released, relieved and discharged
with respect to all matters set forth in such statement or reasonably
implied therefrom as though it had been settled by the decree of a court
of competent jurisdiction in an action where Customer and all persons
having or claiming an interest in Customer or Customer's Accounts were
parties.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk
of Customer. Bank shall have no liability for any loss occasioned by
delay in the actual receipt of notice by Bank or by its Subcustodians of
any payment, redemption or other transaction regarding Securities in the
Custody Account in respect of which Bank has agreed to take any action
hereunder.
8. Corporate Actions; Proxies; Tax Reclaims.
(a) Corporate Actions. Whenever Bank receives information
concerning the Securities which requires discretionary action by the
beneficial owner of the Securities (other than a proxy), such as sub-
scription rights, bonus issues, stock repurchase plans and rights
offerings, or legal notices or other material intended to be transmitted
to securities holders ("Corporate Actions"), Bank shall give Customer
notice of such Corporate Actions to the extent that Bank's central
corporate actions department has actual knowledge of a Corporate Action
in time to notify its customers.
When a rights entitlement or a fractional interest resulting from
a rights issue, stock dividend, stock split or similar Corporate Action
is received which bears an expiration date, Bank shall endeavor to
obtain Instructions from Customer or its Authorized Person, but if
Instructions are not received in time for Bank to take timely action, or
actual notice of such Corporate Action was received too late to seek
Instructions, Bank is authorized to sell such rights entitlement or
fractional interest and to credit the Deposit Account with the proceeds
or take any other action it deems, in good faith, to be appropriate in
which case it shall be held harmless for any such action.
(b) Proxy Voting. Bank shall provide proxy voting services, if
elected by Customer, in accordance with the terms of the proxy voting
services rider hereto. Proxy voting services may be provided by Bank
or, in whole or in part, by one or more third parties appointed by Bank
(which may be Affiliates of Bank).
(c) Tax Reclaims.
(i) Subject to the provisions hereof, Bank shall apply for
a reduction of withholding tax and any refund of any tax paid or
tax credits which apply in each applicable market in respect of
income payments on Securities for the benefit of Customer which
Bank believes may be available to such Customer.
(ii) The provision of tax reclaim services by Bank is
conditional upon Bank receiving from the beneficial owner of
Securities (A) a declaration of its identity and place of
residence and (B) certain other documentation (pro forma copies of
which are available from Bank). Customer acknowledges that, if
Bank does not receive such declarations, documentation and
information, additional United Kingdom taxation shall be deducted
from all income received in respect of Securities issued outside
the United Kingdom and that U.S. non-resident alien tax or U.S.
backup withholding tax shall be deducted from U.S. source income.
Customer shall provide to Bank such documentation and information
as it may require in connection with taxation, and warrants that,
when given, this information shall be true and correct in every
respect, not misleading in any way, and contain all material
information. Customer undertakes to notify Bank immediately if
any such information requires updating or amendment.
(iii) Bank shall not be liable to Customer or any third
party for any tax, fines or penalties payable by Bank or Customer,
and shall be indemnified accordingly, whether these result from
the inaccurate completion of documents by Customer or any third
party, or as a result of the provision to Bank or any third party
of inaccurate or misleading information or the withholding of
material information by Customer or any other third party, or as a
result of any delay of any revenue authority or any other matter
beyond the control of Bank.
(iv) Customer confirms that Bank is authorized to deduct
from any cash received or credited to the Deposit Account any
taxes or levies required by any revenue or governmental authority
for whatever reason in respect of the Securities or Cash Accounts.
(v) Bank shall perform tax reclaim services only with
respect to taxation levied by the revenue authorities of the
countries notified to Customer from time to time and Bank may, by
notification in writing, at its absolute discretion, supplement or
amend the markets in which the tax reclaim services are offered.
Other than as expressly provided in this sub-clause, Bank shall
have no responsibility with regard to Customer's tax position or
status in any jurisdiction.
(vi) Customer confirms that Bank is authorized to disclose
any information requested by any revenue authority or any
governmental body in relation to Customer or the Securities and/or
Cash held for Customer.
(vii) Tax reclaim services may be provided by Bank or, in
whole or in part, by one or more third parties appointed by Bank
(which may be Affiliates of Bank); provided that Bank shall be
liable for the performance of any such third party to the same
extent as Bank would have been if it performed such services
itself.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of Bank, Subcustodian or securities
depository, as the case may be. Bank may without notice to Customer
cause any such Securities to cease to be registered in the name of any
such nominee and to be registered in the name of Customer. In the event
that any Securities registered in a nominee name are called for partial
redemption by the issuer, Bank may allot the called portion to the
respective beneficial holders of such class of security in any manner
Bank deems to be fair and equitable. Customer shall hold Bank,
Subcustodians, and their respective nominees harmless from any liability
arising directly or indirectly from their status as a mere record holder
of Securities in the Custody Account.
10. Authorized Persons.
As used herein, the term "Authorized Person" means employees or
agents including investment managers as have been designated by written
notice from Customer or its designated agent to act on behalf of
Customer hereunder. Such persons shall continue to be Authorized
Persons until such time as Bank receives Instructions from Customer or
its designated agent that any such employee or agent is no longer an
Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized
Person received by Bank, via telephone, telex, facsimile transmission,
bank wire or other teleprocess or electronic instruction or trade
information system acceptable to Bank which Bank believes in good faith
to have been given by Authorized Persons or which are transmitted with
proper testing or authentication pursuant to terms and conditions which
Bank may specify. Unless otherwise expressly provided, all Instructions
shall continue in full force and effect until canceled or superseded.
Any Instructions delivered to Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which
confirmation may bear the facsimile signature of such Person), but Cus-
tomer shall hold Bank harmless for the failure of an Authorized Person
to send such confirmation in writing, the failure of such confirmation
to conform to the telephone instructions received or Bank's failure to
produce such confirmation at any subsequent time. Bank may
electronically record any Instructions given by telephone, and any other
telephone discussions with respect to the Custody Account. Customer
shall be responsible for safeguarding any testkeys, identification codes
or other security devices which Bank shall make available to Customer or
its Authorized Persons.
12. Standard of Care; Liabilities.
(a) Bank shall be responsible for the performance of only such
duties as are set forth herein or expressly contained in Instructions
which are consistent with the provisions hereof as follows:
(i) Bank shall use reasonable care with respect to its
obligations hereunder and the safekeeping of Assets. Bank shall
be liable to Customer for any loss which shall occur as the result
of the failure of a Subcustodian to exercise reasonable care with
respect to the safekeeping of such Assets to the same extent that
Bank would be liable to Customer if Bank were holding such Assets
in New York. In the event of any loss to Customer by reason of
the failure of Bank or its Subcustodian to utilize reasonable
care, Bank shall be liable to Customer only to the extent of
Customer's direct damages, to be determined based on the market
value of the property which is the subject of the loss at the date
of discovery of such loss and without reference to any special
conditions or circumstances. Bank shall have no liability
whatsoever for any consequential, special, indirect or speculative
loss or damages (including, but not limited to, lost profits)
suffered by Customer in connection with the transactions
contemplated hereby and the relationship established hereby even
if Bank has been advised as to the possibility of the same and
regardless of the form of the action. Bank shall not be
responsible for the insolvency of any Subcustodian which is not a
branch or Affiliate of Bank.
(ii) Bank shall not be responsible for any act, omission,
default or the solvency of any broker or agent which it or a
Subcustodian appoints unless such appointment was made negligently
or in bad faith.
(iii) Bank shall be indemnified by, and without liability
to Customer for any action taken or omitted by Bank whether
pursuant to Instructions or otherwise within the scope hereof if
such act or omission was in good faith, without negligence. In
performing its obligations hereunder, Bank may rely on the
genuineness of any document which it believes in good faith to
have been validly executed.
(iv) Customer shall pay for and hold Bank harmless from any
liability or loss resulting from the imposition or assessment of
any taxes or other governmental charges, and any related expenses
with respect to income from or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for Customer) on all matters
and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
(vi) Bank need not maintain any insurance for the benefit
of Customer.
(vii) Without limiting the foregoing, Bank shall not be
liable for any loss which results from: 1) the general risk of
investing, or 2) investing or holding Assets in a particular
country including, but not limited to, losses resulting from
malfunction, interruption of or error in the transmission of
information caused by any machines or system or interruption of
communication facilities, abnormal operating conditions,
nationalization, expropriation or other governmental actions;
regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions
which prevent the orderly execution of securities transactions or
affect the value of Assets.
(viii) Neither party shall be liable to the other for
any loss due to forces beyond their control including, but not
limited to strikes or work stoppages, acts of war (whether
declared or undeclared) or terrorism, insurrection, revolution,
nuclear fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of
this Section 12, it is specifically acknowledged that Bank shall have no
duty or responsibility to:
(i) question Instructions or make any suggestions to
Customer or an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise Customer or an Authorized Person regarding any
default in the payment of principal or income of any security
other than as provided in Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person
regarding the financial condition of any broker, agent or other
party to which Securities are delivered or payments are made
pursuant hereto; and
(v) review or reconcile trade confirmations received from
brokers. Customer or its Authorized Persons (as defined in
Section 10) issuing Instructions shall bear any responsibility to
review such confirmations against Instructions issued to and
statements issued by Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding
that Bank or any of its divisions or Affiliates may have a material
interest in a transaction, or circumstances are such that Bank may have
a potential conflict of duty or interest including the fact that Bank or
any of its Affiliates may provide brokerage services to other customers,
act as financial advisor to the issuer of Securities, act as a lender to
the issuer of Securities, act in the same transaction as agent for more
than one customer, have a material interest in the issue of Securities,
or earn profits from any of the activities listed herein.
13. Fees and Expenses.
Customer shall pay Bank for its services hereunder the fees set
forth in Schedule B hereto or such other amounts as may be agreed upon
in writing, together with Bank's reasonable out-of-pocket or incidental
expenses, including, but not limited to, legal fees. Bank shall have a
lien on and is authorized to charge any Accounts of Customer for any
amount owing to Bank under any provision hereof
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the
administration of Customer's trading and investment activity, Bank is
authorized to enter into spot or forward foreign exchange contracts with
Customer or an Authorized Person for Customer and may also provide
foreign exchange through its subsidiaries, Affiliates or Subcustodians.
Instructions, including standing instructions, may be issued with
respect to such contracts but Bank may establish rules or limitations
concerning any foreign exchange facility made available. In all cases
where Bank, its subsidiaries, Affiliates or Subcustodians enter into a
foreign exchange contract related to Accounts, the terms and conditions
of the then current foreign exchange contract of Bank, its subsidiary,
Affiliate or Subcustodian and, to the extent not inconsistent, this
Agreement shall apply to such transaction.
(b) Certification of Residency, etc. Customer certifies that it
is a resident of the United States and shall notify Bank of any changes
in residency. Bank may rely upon this certification or the
certification of such other facts as may be required to administer
Bank's obligations hereunder. Customer shall indemnify Bank against all
losses, liability, claims or demands arising directly or indirectly from
any such certifications.
(c) Access to Records. Bank shall allow Customer's independent
public accountant reasonable access to the records of Bank relating to
the Assets as is required in connection with their examination of books
and records pertaining to Customer's affairs. Subject to restrictions
under applicable law, Bank shall also obtain an undertaking to permit
Customer's independent public accountants reasonable access to the
records of any Subcustodian which has physical possession of any Assets
as may be required in connection with the examination of Customer's
books and records.
(d) Governing Law; Successors and Assigns, Captions THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN NEW YORK and shall
not be assignable by either party, but shall bind the successors in
interest of Customer and Bank. The captions given to the sections and
subsections of this Agreement are for convenience of reference only and
are not to be used to interpret this Agreement.
(e) Entire Agreement; Applicable Riders. Customer represents
that the Assets deposited in the Accounts are (Check one):
Employee Benefit Plan or other assets subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA");
Investment Company assets subject to certain U.S.
Securities and Exchange Commission rules
and regulations;
Neither of the above.
This Agreement consists exclusively of this document together with
Schedules A and B, Exhibits I - _______ and the following Rider(s)
[Check applicable rider(s)]:
ERISA
INVESTMENT COMPANY
__ PROXY VOTING
SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this Agreement supersedes
any other agreements, whether written or oral, between the parties. Any
amendment hereto must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions
hereof are held invalid, illegal or unenforceable in any respect on the
basis of any particular circumstances or in any jurisdiction, the
validity, legality and enforceability of such provision or provisions
under other circumstances or in other jurisdictions and of the remaining
provisions shall not in any way be affected or impaired.
(g) Waiver. Except as otherwise provided herein, no failure or
delay on the part of either party in exercising any power or right
hereunder operates as a waiver, nor does any single or partial exercise
of any power or right preclude any other or further exercise, or the
exercise of any other power or right. No waiver by a party of any
provision hereof, or waiver of any breach or default, is effective
unless in writing and signed by the party against whom the waiver is to
be enforced.
(h) Representations and Warranties. (i) Customer hereby
represents and warrants to Bank that: (A) it has full authority and
power to deposit and control the Securities and cash deposited in the
Accounts; (B) it has all necessary authority to use Bank as its
custodian; (C) this Agreement is its legal, valid and binding
obligation, enforceable in accordance with its terms; (D) it shall have
full authority and power to borrow moneys and enter into foreign
exchange transactions; and (E) it has not relied on any oral or written
representation made by Bank or any person on its behalf, and
acknowledges that this Agreement sets out to the fullest extent the
duties of Bank. (ii) Bank hereby represents and warrants to Customer
that: (A) it has the power and authority to perform its obligations
hereunder, (B) this Agreement constitutes a legal, valid and binding
obligation on it; enforceable in accordance with its terms; and (C)
that it has taken all necessary action to authorize the execution and
delivery hereof.
(i) Notices. All notices hereunder shall be effective when
actually received. Any notices or other communications which may be
required hereunder are to be sent to the parties at the following
addresses or such other addresses as may subsequently be given to the
other party in writing: (a) Bank: The Chase Manhattan Bank, 4 Chase
MetroTech Center, Brooklyn, NY 11245, Attention: Global Custody
Division; and (b) Customer:
,
,
(j) Termination. This Agreement may be terminated by Customer
or Bank by giving sixty (60) days written notice to the other, provided
that such notice to Bank shall specify the names of the persons to whom
Bank shall deliver the Assets in the Accounts. If notice of termination
is given by Bank, Customer shall, within sixty (60) days following
receipt of the notice, deliver to Bank Instructions specifying the names
of the persons to whom Bank shall deliver the Assets. In either case
Bank shall deliver the Assets to the persons so specified, after
deducting any amounts which Bank determines in good faith to be owed to
it under Section 13. If within sixty (60) days following receipt of a
notice of termination by Bank, Bank does not receive Instructions from
Customer specifying the names of the persons to whom Bank shall deliver
the Assets, Bank, at its election, may deliver the Assets to a bank or
trust company doing business in the State of New York to be held and
disposed of pursuant to the provisions hereof, or to Authorized Persons,
or may continue to hold the Assets until Instructions are provided to
Bank.
(k) Money Laundering. Customer warrants and undertakes to Bank
for itself and its agents that all Customer's customers are properly
identified in accordance with U.S. Money Laundering Regulations as in
effect from time to time.
(l) Imputation of certain information. Bank shall not be held
responsible for and shall not be required to have regard to information
held by any person by imputation or information of which Bank is not
aware by virtue of a "Chinese Wall" arrangement. If Bank becomes aware
of confidential information which in good faith it feels inhibits it
from effecting a transaction hereunder Bank may refrain from effecting
it.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first-above written.
CUSTOMER
By:____________________________________________
Title:
Date:
THE CHASE MANHATTAN BANK
By:____________________________________________
Title:
Date:
78111
STATE OF )
: ss.
COUNTY OF )
On this day of
, 199 , before me personally came
, to me
known, who being by me duly sworn, did depose and say that he/she
resides in at
, that he/she
is of
, the entity
described in and which executed the foregoing instrument; that he/she
knows the seal of said entity, that the seal affixed to said instrument
is such seal, that it was so affixed by order of said entity, and that
he/she signed his/her name thereto by like order.
Sworn to before me this
day of , 199 .
Notary
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this day of
, 199 , before me personally came
, to me known, who being by me duly sworn, did
depose and say that he/she resides in
at
; that he/she is a Vice President of THE CHASE
MANHATTAN BANK, the corporation described in and which executed the
foregoing instrument; that he/she knows the seal of said corporation,
that the seal affixed to said instrument is such corporate seal, that it
was so affixed by order of the Board of Directors of said corporation,
and that he/she signed his/her name thereto by like order.
Sworn to before me this
day of , 199 .
Notary
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
_________________________________________
effective __________________
Customer represents that the Assets being placed in Bank's custody
are subject to the Investment Company Act of 1940, as amended (the "1940
Act"), as the same may be amended from time to time.
Except to the extent that Bank has specifically agreed to comply
with a condition of a rule, regulation, interpretation promulgated by or
under the authority of the Securities and Exchange Commission ("SEC") or
the Exemptive Order applicable to accounts of this nature issued to Bank
(1940 Act, Release No. 12053, November 20, 1981), as amended, or unless
Bank has otherwise specifically agreed, Customer shall be solely
responsible to assure that the maintenance of Assets hereunder complies
with such rules, regulations, interpretations or exemptive order
promulgated by or under the authority of the Securities Exchange
Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used herein
shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are
further defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as
defined in Rule 17f-5 under the 1940 Act;
(b) "eligible foreign custodian" shall mean (i) a banking
institution or trust company, incorporated or organized under the
laws of a country other than the United States, that is regulated
as such by that country's government or an agency thereof and that
has shareholders' equity in excess of $200 million in U.S.
currency (or a foreign currency equivalent thereof) as of the
close of its fiscal year most recently completed prior to the date
hereof, (ii) a majority owned direct or indirect subsidiary of a
qualified U.S. bank or bank holding company that is incorporated
or organized under the laws of a country other than the United
States and that has shareholders' equity in excess of $100 million
in U.S. currency (or a foreign currency equivalent thereof) as of
the close of its fiscal year most recently completed prior to the
date hereof, (iii) a banking institution or trust company
incorporated or organized under the laws of a country other than
the United States or a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that
is incorporated or organized under the laws of a country other
than the United States which has such other qualifications as
shall be specified in Instructions and approved by Bank; or (iv)
any other entity that shall have been so qualified by exemptive
order, rule or other appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a
securities depository or clearing agency, incorporated or
organized under the laws of a country other than the United
States, which operates (i) the central system for handling
securities or equivalent book-entries in that country, or (ii) a
transnational system for the central handling of securities or
equivalent book-entries.
Customer represents that its Board of Directors has approved each
of the Subcustodians listed in Schedule A hereto and the terms of the
subcustody agreements between Bank and each Subcustodian, which are
attached as Exhibits I through of Schedule A, and further
represents that its Board has determined that the use of each
Subcustodian and the terms of each subcustody agreement are consistent
with the best interests of the Fund(s) and its (their) shareholders.
Bank shall supply Customer with any amendment to Schedule A for
approval. Customer has supplied or shall supply Bank with certified
copies of its Board of Directors resolution(s) with respect to the
foregoing prior to placing Assets with any Subcustodian so approved.
Section 11. Instructions.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made
pursuant to Section 5 and 6 hereof may be made only for the
purposes listed below. Instructions must specify the purpose for
which any transaction is to be made and Customer shall be solely
responsible to assure that Instructions are in accord with any
limitations or restrictions applicable to Customer by law or as
may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at
prices as confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise
become payable;
(c) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into
other securities;
(e) Upon exercise of subscription, purchase or other similar
rights represented by Securities;
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses;
(g) In connection with any borrowings by Customer requiring a
pledge of Securities, but only against receipt of amounts
borrowed;
(h) In connection with any loans, but only against receipt of
adequate collateral as specified in Instructions which shall
reflect any restrictions applicable to Customer;
(i) For the purpose of redeeming shares of the capital stock of
Customer and the delivery to, or the crediting to the account of,
Bank, its Subcustodian or Customer's transfer agent, such shares
to be purchased or redeemed;
(j) For the purpose of redeeming in kind shares of Customer
against delivery to Bank, its Subcustodian or Customer's transfer
agent of such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any
agreement among Customer, Bank and a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of The
National Association of Securities Dealers, Inc., relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by Customer;
(l) For release of Securities to designated brokers under covered
call options, provided, however, that such Securities shall be
released only upon payment to Bank of monies for the premium due
and a receipt for the Securities which are to be held in escrow.
Upon exercise of the option, or at expiration, Bank shall receive
from brokers the Securities previously deposited. Bank shall act
strictly in accordance with Instructions in the delivery of
Securities to be held in escrow and shall have no responsibility
or liability for any such Securities which are not returned
promptly when due other than to make proper request for such
return;
(m) For spot or forward foreign exchange transactions to
facilitate security trading, receipt of income from Securities or
related transactions;
(n) For other proper purposes as may be specified in Instructions
issued by an officer of Customer which shall include a statement
of the purpose for which the delivery or payment is to be made,
the amount of the payment or specific Securities to be delivered,
the name of the person or persons to whom delivery or payment is
to be made, and a certification that the purpose is a proper
purpose under the instruments governing Customer; and
(o) Upon the termination hereof as set forth in Section 14(j).
Section 12. Standard of Care; Liabilities.
Add the following at the end of Section as 12:
(d) Bank hereby warrants to Customer that in its opinion, after
due inquiry, the established procedures to be followed by each of
its branches, each branch of a qualified U.S. Bank, each eligible
foreign custodian and each eligible foreign securities depository
holding Customer's Securities pursuant hereto afford protection
for such Securities at least equal to that afforded by Bank's
established procedures with respect to similar securities held by
Bank and its securities depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from Customer, Bank shall furnish Customer
such reports (or portions thereof) of Bank's system of internal
accounting controls applicable to Bank's duties hereunder. Bank
shall endeavor to obtain and furnish Customer with such similar
reports as it may reasonably request with respect to each
Subcustodian and securities depository holding Assets.
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
____________________________________
dated 199_.
1. Global Proxy Services ("Proxy Services") shall be provided for the
countries listed in the procedures and guidelines ("Procedures")
furnished to Customer, as the same may be amended by Bank from
time to time on prior notice to Customer. The Procedures are
incorporated by reference herein and form a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications")
by Bank to Customer of the dates of pending shareholder meetings,
resolutions to be voted upon and the return dates as may be
received by Bank or provided to Bank by its Subcustodians or third
parties, and (b) voting by Bank of proxies based on Customer
Directions. Original proxy materials or copies thereof shall not
be provided. Notifications shall generally be in English and,
where necessary, shall be summarized and translated from such non-
English materials as have been made available to Bank or its
Subcustodian. In this respect Bank's only obligation is to
provide information from sources it believes to be reliable and/or
to provide materials summarized and/or translated in good faith.
Bank reserves the right to provide Notifications, or parts
thereof, in the language received. Upon reasonable advance
request by Customer, backup information relative to Notifications,
such as annual reports, explanatory material concerning
resolutions, management recommendations or other material relevant
to the exercise of proxy voting rights shall be provided as
available, but without translation.
3. While Bank shall attempt to provide accurate and complete
Notifications, whether or not translated, Bank shall not be liable
for any losses or other consequences that may result from reliance
by Customer upon Notifications where Bank prepared the same in
good faith.
4 Notwithstanding the fact that Bank may act in a fiduciary capacity
with respect to Customer under other agreements or otherwise under
the Agreement, in performing Proxy Services Bank shall be acting
solely as the agent of Customer, and shall not exercise any
discretion with regard to such Proxy Services.
5. Proxy voting may be precluded or restricted in a variety of
circumstances, including, without limitation, where the relevant
Securities are: (i) on loan; (ii) at registrar for registration or
reregistration; (iii) the subject of a conversion or other
corporate action; (iv) not held in a name subject to the control
of Bank or its Subcustodian or are otherwise held in a manner
which precludes voting; (v) not capable of being voted on account
of local market regulations or practices or restrictions by the
issuer; or (vi) held in a margin or collateral account.
6 Customer acknowledges that in certain countries Bank may be unable
to vote individual proxies but shall only be able to vote proxies
on a net basis (e.g., a net yes or no vote given the voting
instructions received from all customers).
7. Customer shall not make any use of the information provided
hereunder, except in connection with the funds or plans covered
hereby, and shall in no event sell, license, give or otherwise
make the information provided hereunder available, to any third
party, and shall not directly or indirectly compete with Bank or
diminish the market for Proxy Services by provision of such
information, in whole or in part, for compensation or otherwise,
to any third party.
8. The names of Authorized Persons for Proxy Services shall be
furnished to Bank in accordance with section 10 of the Agreement. Proxy
Services fees shall be as set forth in section 13 of the Agreement or as
separately agreed.
SPECIAL TERMS AND CONDITIONS RIDER
GLOBAL CUSTODY AGREEMENT
WITH
___________________________________
DATE
___________________________________
DOMESTIC ONLY
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the latter if
held in DTC), the following provisions shall apply rather than the
provisions of Section 8 of the Agreement and the Global Proxy Service
rider:
Bank shall send to Customer or the Authorized Person for a
Custody Account, such proxies (signed in blank, if issued in
the name of Bank's nominee or the nominee of a central
depository) and communications with respect to Securities in
the Custody Account as call for voting or relate to legal
proceedings within a reasonable time after sufficient copies
are received by Bank for forwarding to its customers. In
addition, Bank shall follow coupon payments, redemptions,
exchanges or similar matters with respect to Securities in
the Custody Account and advise Customer or the Authorized
Person for such Account of rights issued, tender offers or
any other discretionary rights with respect to such
Securities, in each case, of which Bank has received notice
from the issuer of the Securities, or as to which notice is
published in publications routinely utilized by Bank for
this purpose.
Fees
The fees referenced in Section 13 hereof cover only domestic and
euro-dollar holdings. There shall be no Schedule A hereto, as there are
no foreign assets in the Accounts.
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the latter if
held in DTC), the following provisions shall apply rather than the
pertinent provisions of Section 8 of the Agreement and the Global Proxy
Service rider:
Bank shall send to Customer or the Authorized Person for a
Custody Account, such proxies (signed in blank, if issued in
the name of Bank's nominee or the nominee of a central
depository) and communications with respect to Securities in
the Custody Account as call for voting or relate to legal
proceedings within a reasonable time after sufficient copies
are received by Bank for forwarding to its customers. In
addition, Bank shall follow coupon payments, redemptions,
exchanges or similar matters with respect to Securities in
the Custody Account and advise Customer or the Authorized
Person for such Account of rights issued, tender offers or
any other discretionary rights with respect to such
Securities, in each case, of which Bank has received notice
from the issuer of the Securities, or as to which notice is
published in publications routinely utilized by Bank for
this purpose.
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