File No. 33-39564
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No._____
Post-Effective Amendment No. 21
and
REGISTRATION STATEMENT UNDER
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)(Zip Code)
(212) 816-6474
(Registrant's Telephone Number, Including Area Code)
Christina T. Sydor
388 Greenwich Street, New York, New York 10013 (22nd floor)
(Name and Address of Agent For Service)
Continuous
(Approximate Date of Public Offering)
It is proposed that this filing will become effective
(check appropriate box)
Immediately upon filing pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) (1) of Rule 485
75 days after filing pursuant to paragraph (a) (2) of Rule 485
On (date) pursuant to paragraph (b) of Rule 485
_____ On (date) pursuant to paragraph (a) (1) of Rule 485
XXX On December 14, 1998 pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
_____ This post-effective amendment designates a new effective
date for a previously filed post-effective amendment
Title of Securities Being Registered: Shares of Common Stock
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 A
PROSPECTUS
SMITH BARNEY
WORLD FUNDS, INC.
The Amstel
Hudson
Equity Fund
DECEMBER 9, 1998
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
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Prospectus December 14, 1998
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Smith Barney World Funds, Inc.
The Amstel Hudson Equity Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The Amstel Hudson Equity Fund (the "Portfolio") is one of the investment
portfolios that currently comprise Smith Barney World Funds, Inc. (the "Fund").
The Portfolio seeks long-term capital appreciation through investments primarily
in equity securities. The Portfolio seeks to achieve its objective by investing
at least 65% of its assets in a diversified portfolio of equity securities of
United States issuers.
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 27, 1998, as amended August 27, 1998,
December 14, 1998 and 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.
CFBDS, INC.
Distributor
MUTUAL MANAGEMENT CORP.
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.
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Table of Contents
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Prospectus Summary 3
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Investment Objective and Management Policies 9
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Valuation of Shares 16
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Dividends, Distributions and Taxes 17
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Purchase of Shares 19
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Exchange Privilege 28
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Redemption of Shares 31
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Minimum Account Size 34
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Performance 34
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Management of the Fund 35
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Distribution 36
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Additional Information 37
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No person has been authorized to give any information or to make any
representation 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 Fund or
the Distributor. This Prospectus does not constitute an offer by the Fund 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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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 long-term capital appreciation
through investment in equity securities. The Portfolio seeks to achieve its
objective by investing at least 65% of its assets in a diversified portfolio of
equity securities of United States issuers. 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 L
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 $1,000,000. In
addition, a fifth Class, Class Z shares, which is offered pursuant to a separate
prospectus, is offered exclusively to tax-exempt employee benefit and retirement
plans of Salomon Smith Barney Inc. ("Smith Barney") and its affiliates. 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 5.00% 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 of $500,000
or more 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 5.00% of redemption proceeds, declining by 1.00% each year after
the date of purchase 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 0.75% 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 Dividend
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Prospectus Summary (continued)
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Shares") will be converted at that time. See "Purchase of Shares -- Deferred
Sales Change Alternatives."
Class L Shares. Class L shares are sold at net asset value plus an initial
sales charge of 1.00%. They are subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the average daily net assets of the Class L
shares, and investors pay a CDSC of 1.00% if they redeem Class L shares within
12 months of purchase. The CDSC may be waived for certain redemptions. The Class
L 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 L 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 $15,000,000. 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 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, Class L shares which have a lower upfront sales charge but are subject
to higher distribution fees than Class A shares, are suitable for investors who
are investing or intending to invest an amount which would receive a substantive
sales charge discount and who have a short-term or undetermined time frame.
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.
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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 of $500,000 or more 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 investment may be met by adding the purchase
to the net asset value of all Class A shares offered with a sales charge held in
funds sponsored by 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 L 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 L 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. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class L shares are available without sales
charge as investment alternatives under both of these programs. See "Purchase of
Shares -- Smith Barney 401(k) and ExecChoice(TM) 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
other institutional investors, may purchase shares directly from the Fund
through the Fund's transfer agent, First Data Investor Services Group, Inc.
("First Data"). See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class L 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
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Prospectus Summary (continued)
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Plan. Investors in Class Y shares may open an account for an initial investment
of $1,000,000. 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 L shares and the subsequent investment requirement
for all Classes of shares is $25. The minimum investment requirements for
purchases of Portfolio shares through the Systematic Investment Plan are
described 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
investment requirement for Class A, Class B and Class L shares and the
subsequent investment requirement for all Classes for shareholders purchasing
shares through the Systematic Investment Plan on a monthly basis is $25 and on 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 Mutual Management Corp. (formerly, Smith
Barney Mutual Funds Management Inc.) (the "Manager") serves as the Portfolio's
investment manager. The Manager is a wholly owned subsidiary of Salomon 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, including Asset Management, 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 from net investment income and
distributions of net realized capital gains, if any, are declared and paid
annually. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales
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Prospectus Summary (continued)
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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 Portfolio 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."
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>
The Amstel Hudson Equity Fund Class A Class B Class L 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) ........... 5.00% None 1.00% None
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower) ...... None* 5.00% 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 1.00 1.00 --
Other expenses .................................. 0.45 0.45 0.45 0.35
---- ---- ---- ----
Total Portfolio Operating Expenses ................. 1.45% 2.20% 2.20% 1.10%
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</TABLE>
*Purchases of Class A shares of $500,000 or more 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 of purchase.
**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.
Class A shares of the Portfolio purchased through the Smith Barney
AssetOne(SM) Program will be subject to an annual asset-based fee, payable
quarterly, in lieu of
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Prospectus Summary (continued)
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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, Class L 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)
or 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 daily net assets of Class A shares. Smith Barney also receives with
respect to Class B and Class C shares an annual 12b-1 fee of 1.00% of the value
of average daily net assets of the respective Classes, consisting of a 0.75%
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."
Amstel Hudson Equity Portfolio 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 ...................... $64 $94 $125 $215
Class B ...................... 72 99 128 234
Class L ...................... 42 78 127 261
Class Y ...................... 11 35 61 134
An investor would pay the following
expenses on the same investment,
assuming the same annual return
and no redemption:
Class A ...................... $64 $94 $125 $215
Class B ...................... 22 69 118 234
Class L ...................... 32 78 127 261
Class Y ...................... 11 35 61 134
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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.
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Prospectus Summary (continued)
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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.
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Investment Objective and Management Policies
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The investment objective of the Portfolio is to provide long term capital
appreciation through investments in equities. The Portfolio seeks to
achieve its objective by investing at least 65% of its assets in a diversified
portfolio of equity securities of U.S. issuers. There can be no assurance that
the investment objective of the Portfolio will be achieved.
Under normal market conditions, the Portfolio invests 65% of its assets in
a diversified portfolio of U.S. securities consisting of common stocks,
preferred stocks, warrants, rights and securities convertible into common
stocks. Up to 35% of the Portfolio's assets may be invested in the
securities of non-U.S. issuers.
The Portfolio may hold the securities of blue chip companies as
well as the securities of companies with prospects of earnings growth
and/or companies with a cyclical earnings record if it is felt these offer
attractive investment opportunities. The Portfolio invests largely in
middle- and larger-sized companies, though it does invest in smaller
companies. The Portfolio's investments are spread broadly among different
industries. In analyzing securities for investment, the Manager considers
many different factors, including past growth records, management capability,
future earnings propsects and technological innovation, as well as general
market and economic factors which can influence the price of securities.
While the Manager may consider dividend potential in selecting investments,
current income for distribution to shareholders is secondary to the Portfolio's
investment objective of long term capital appreciation.
When the Manager believes that the total return on debt securities
may exceed the return on common stocks, the Portfolio may invest up to 10%
in fixed-income securities, including obligations of U.S. and non-U.S.
corporations and of the U.S. and non-U.S. governments and their political
subdivisions.
9
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ernments and their political subdivisions.
9
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Investment Objective and Management Policies (continued)
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Under normal market conditions, the Fund may also invest in U.S. or
foreign short-term money market instruments for cash management purposes. When
the Manager believes that market conditions warrant, the Fund may increase its
investment in short-term money market instruments, or engage in repurchase
agreement transactions with respect to the securities it is authorized to hold
(as described below) and may temporarily invest all or a major portion of its
assets in U.S. government securities. To the extent the Fund's assets are
invested for temporary defensive purposes, such assets will not be invested in a
manner designed to achieve the Fund's investment objective.
The Fund may also engage in certain investment techniques, including
repurchase agreements; reverse repurchase agreements; when-issued,
delayed-delivery and forward commitment transactions; lending of securities;
options on securities and securities indexes; and futures contracts and options
on futures contracts.
INVESTMENT PRACTICES
The Portfolio may utilize from time to time one or more of the investment
practices described below to assist it in reaching its investment objective.
These practices involve potential risks which are summarized below. In addition,
the Statement of Additional Information contains more detailed or additional
information about certain of these practices, the potential risks and/or the
limitations adopted by the Portfolio to reduce such risks.
In order to protect the dollar equivalent value of its portfolio
securities against declines resulting from currency value fluctuations and
changes in interest rate or other market changes, the Portfolio may enter into
the following hedging transactions: forward foreign currency contracts, interest
rate and currency swaps and financial instrument and market index futures
contracts and related options contracts. The Portfolio may also use leverage,
enter into repurchase transactions and lend its portfolio securities.
Currency Transactions. The Portfolio may enter into various currency
transactions, i.e., forward foreign currency contracts, currency swaps, foreign
currency or currency index futures contracts and put and call options on such
contracts or on currencies. A forward foreign currency contract involves an
obligation to purchase or sell a specific currency for a set price at a future
date. A currency swap is an arrangement whereby each party exchanges one
currency for another on a particular date and agrees to reverse the exchange on
a later date at a specific exchange rate. Forward foreign currency contracts and
currency swaps are established in the interbank market conducted directly
between currency traders (usually large commercial banks or other financial
institutions) on behalf of their customers. Futures contracts are similar to
forward contracts except that they are traded on an organized exchange and the
obligations thereunder may be offset by taking an equal but opposite position to
the original contract, with profit or loss determined by the relative
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Investment Objective and Management Policies (continued)
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prices between the opening and offsetting positions. The Portfolio may enter
into these currency contracts and swaps in primarily the following
circumstances: to "lock in" the U.S. dollar equivalent price of a security the
Portfolio is contemplating buying or selling that is denominated in a non-U.S.
currency; or to protect against a decline against the U.S. dollar of the
currency of a particular country to which the Portfolio has exposure.
nterest Rate Transactions. The Portfolio may enter into various
interest rate transactions, i.e., futures contracts in various financial
instruments and
interest rate related indices, put and call options on such futures contracts
and on such financial instruments and interest rate swaps. The Portfolio will
enter into these transactions primarily to "lock in" a return or spread on a
particular investment or portion of its portfolio and to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. Interest rate swaps involve the exchange by the Portfolio with
another party of their respective commitment to pay or receive interest, e.g.,
an exchange of floating-rate payments for fixed-rate payments. The Portfolio
will not enter into an interest rate swap transaction in which its interest
commitment is greater or measured differently than the interest receivable on
specific portfolio securities. Interest rate swaps may be combined with currency
swaps to take advantage of rate differentials in different markets on the same
or similar securities.
The Portfolio may enter into futures contracts and options on futures
contracts for non-hedging purposes, subject to applicable law.
Market Index Transactions. The Portfolio may also enter into various
market index contracts, i.e., index futures contracts on particular non-U.S.
securities markets or industry segments and related put and call options. These
contracts are used primarily to protect the value of the Portfolio's securities
against a decline in a particular market or industry in which it is invested.
General. The Portfolio may engage in the foregoing transactions primarily
as a means to hedge risks associated with management of its portfolio.
Investment in these contracts requires the Portfolio to deposit with the
applicable exchange or other specified financial intermediary as a good faith
deposit for its obligations an amount of cash or specified debt securities which
initially is 1-5% of the face amount of the contract and which thereafter
fluctuates on a periodic basis as the value of the contract fluctuates.
Risks. All of the foregoing transactions present certain risks. In
particular, the variable degree of correlation between price movements of
futures contracts and dollar equivalent price movements in the currency or
security being hedged creates the possibility that losses on the hedge may be
greater than gains in the value of the Portfolio's securities. In addition,
these instruments may not be liquid in all circumstances and are generally
closed out by entering into offsetting
11
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
transactions rather than by disposing of the Portfolio's obligations. As a
result, in volatile markets, the Portfolio may not be able to close out a
transaction without incurring losses. Although the contemplated use of these
contracts should tend to minimize the risk of loss due to a decline in the value
of the hedged currency or security, at the same time they tend to limit any
potential gain which might result from an increase in the value of such currency
or security. The successful use of futures and options is dependent upon the
ability of the Manager to predict changes in interest rates. Finally, the daily
deposit requirements in futures contracts create an ongoing greater potential
financial risk than do option purchase transactions, where the exposure is
limited to the cost of the premium for the option. Transactions in futures and
options on futures for non-hedging purposes involve greater risks and could
result in losses which are not offset by gains on other portfolio assets.
With respect to interest rate swaps, the Portfolio recognizes that such
arrangements are relatively illiquid and will include the principal amount of
the obligations owed to it under a swap as an illiquid security for purposes of
the Portfolio's investment restrictions except to the extent a third party (such
as a large commercial bank) has guaranteed the Portfolio's ability to offset the
swap at any time.
Options. The Portfolio may purchase put and call options on securities
which are traded on an exchange in other markets, on currencies and, as
developed from time to time, various futures contracts on market indexes and
other instruments. Purchasing options may increase investment flexibility and
improve total return, but may also subject the Portfolio to the risk of loss of
the option premium if an asset the Portfolio has the option to buy declines in
value or if an asset the Portfolio has the option to sell increases in value. 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.
Leverage. The Portfolio may borrow from banks, on a secured or unsecured
basis, up to 25% of the value of its assets. If the Portfolio borrows and uses
the proceeds to make additional investments, income and appreciation from such
investments will improve its performance if they exceed the associated borrowing
costs but impair its performance if they are less than such borrowing costs.
This speculative factor is known as "leverage."
Leverage creates an opportunity for increased returns to shareholders of
the Portfolio but, at the same time, creates special risk considerations. For
example,
12
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
leverage may exaggerate changes in the net asset value of the Portfolio's shares
and in the Portfolio's yield. Although the principal or stated value of such
borrowings will be fixed, the Portfolio assets may change in value during the
time the borrowing is outstanding. Leverage will create interest or dividend
expenses for the Portfolio which can exceed the income from the assets retained.
To the extent the income or other gain derived from securities purchased with
borrowed funds exceeds the interest or dividends the Portfolio will have to pay
in respect thereof, the Portfolio's net income or other gain will be greater
than if leverage had not been used. Conversely, if the income or other gain from
the incremental assets is not sufficient to cover the cost of leverage, the net
income or other gain of the Portfolio will be less than if leverage had not been
used. If the amount of income from the incremental securities is insufficient to
cover the cost of borrowing, securities might have to be liquidated to obtain
required funds. Depending on market or other conditions, such liquidations could
be disadvantageous to the Portfolio.
Repurchase Agreements and Lending Securities. The Portfolio may enter into
repurchase agreements up to 25% of its assets and may lend for a fee portfolio
securities amounting to up to 15% of its assets. These transactions must be
fully collateralized at all times, and the Manager will monitor the value of the
collateral, which will be marked to the market daily, to determine that the
value is at least 100% of the agreed upon sum to be paid to the Portfolio.
Repurchase agreements and lending of portfolio securities involve some credit
risk to the Portfolio, if the other party defaults on its obligations, since the
Portfolio could be delayed or prevented from recovering the collateral. The
Portfolio currently does not expect that it will enter into repurchase
agreements on more than 5% of its assets.
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, Chase
Manhattan Bank (the "Custodian") will maintain, in a segregated account of the
Portfolio, cash, debt securities of any grade or equity securities, having a
value equal to or greater than the Portfolio's purchase commitments, provided
such securities have been determined by the Manager to be liquid and
unencumbered, and are marked to market daily, pursuant to guidelines established
by the Directors. 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 the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed.
13
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND TURNOVER
Purchases and sales of securities, futures or options on futures on an
exchange (including a board of trade), and options on securities may be effected
through securities brokers or futures commission merchants that charge a
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Smith Barney. In
order for Smith Barney to effect any such transaction for the Fund, the
commissions, fees or other remuneration received by Smith Barney must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities, futures or options on futures being purchased or sold on an exchange
during a comparable period of time. This standard would allow Smith Barney to
receive no more than the remuneration that would be expected to be received by
an unaffiliated broker in a commensurate arms-length transaction. Furthermore,
the Board of Directors of the Fund, including a majority of the Directors who
are not "interested" Directors, has adopted procedures that are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Smith Barney are consistent with the foregoing standard. Brokerage transactions
with Smith Barney are also subject to such fiduciary standards as may be imposed
upon Smith Barney by applicable law.
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 Manager believes
that portfolio changes are appropriate. It is expected that the Portfolio's
annual turnover rate will not exceed 100% in normal circumstances. Higher
portfolio turnover rates can result in corresponding increases in brokerage
commissions for the Portfolio. See "Financial Highlights" for the Portfolio's
annual turnover rate during each year since inception.
RISK FACTORS
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.
Non-U.S. Securities. Investments in securities of non-U.S. issuers involve
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include fluctuations in foreign exchange rates,
future political and economic developments, and the possible imposition of
exchange controls or other foreign governmental laws or restrictions. In
addition, with respect to certain countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could adversely affect investments in those
countries.
There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting,
14
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
auditing, and financial reporting standards and requirements comparable to or as
uniform as those of U.S. companies. Non-U.S. securities markets, while growing
in volume, have, for the most part, substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S. companies. Transaction costs on
non-U.S. securities markets are generally higher than in the U.S. There is
generally less government supervision and regulation of exchanges, brokers and
issuers than there is in the U.S. The Fund might have greater difficulty taking
appropriate legal action in non-U.S. courts.
Dividend and interest income from non-U.S. securities will generally be
subject to withholding taxes by the country in which the issuer is located and
may not be recoverable by the Portfolio or the investors.
Securities of Developing Countries. A developing country generally is
considered to be a country that is in the initial stages of its
industrialization cycle. Investing in the equity and fixed-income markets of
developing countries involves exposure to economic structures that are generally
less diverse and mature, and to political systems that can be expected to have
less stability, than those of developed countries. Historical experience
indicates that the markets of developing countries have been more volatile than
the markets of the more mature economies of developed countries; however, such
markets often have provided higher rates of return to investors.
One or more of the risks discussed above could affect adversely the
economy of a developing market or the Portfolio's investments in such a market.
In Eastern Europe, for example, upon the accession to power of Communist regimes
in the past, the governments of a number of Eastern European countries
expropriated a large amount of property. The claims of many property owners
against those of governments may remain unsettled. There can be no assurance
that any investments that the Portfolio might make in such emerging markets
would not be expropriated, nationalized or otherwise confiscated at some time in
the future. In such an event, the Portfolio could lose its entire investment in
the market involved. Moreover, changes in the leadership of policies of such
markets could halt the expansion or reverse the liberalization of foreign
investment policies now occurring in certain of these markets and adversely
affect existing investment opportunities.
Year 2000. The investment management services provided to the Portfolio by
the Manager and the services provided to shareholders by Smith Barney, the
Fund's Distributor, depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the Portfolio's
operations, including the handling of securities trades, pricing and account
services. The Manager and Smith Barney have advised the Portfolio that they have
been
15
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the the year 2000 and expect that their
systems will be compliant before that date. In addition, the Manager has been
advised by the Portfolio's custodian, transfer agent and accounting service
agent that they are also in the process of modifying their systems with the same
goal. There can, however, be no assurance that the Manager, Smith Barney or any
other service provider will be successful, or that interaction with other
non-complying computer systems will not impair Portfolio services at that time.
- --------------------------------------------------------------------------------
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 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 Manager.
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Valuation of Shares (continued)
- --------------------------------------------------------------------------------
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 Manager, 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.
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Dividends, Distributions and Taxes
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays income dividends at least annually 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 L 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
L 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 L and Class Y
shares.
TAXES
The Portfolio intends to continue 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.
17
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Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
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.
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.
The Portfolio will make this election only if it deems the election to be in the
best interests of shareholders, and will notify shareholders in writing each
year if it makes the election and the amount of foreign taxes to be treated as
paid by the shareholders. If the Portfolio makes 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.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholders' U.S. tax (determined without regard to the availability of the
credit) attributable to their total foreign source taxable income. For this
purpose, the portion of dividends and distributions paid by the Portfolio from
its foreign source income will be treated as foreign source income. The
Portfolio's gains and losses from the sale of securities and from certain
foreign currency gains and losses will generally be treated as derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source "passive income," such as the portion of dividends received from
the Portfolio that qualifies as foreign source income. In addition, the foreign
tax credit is allowed to offset only 90% of the alternative minimum tax imposed
on corporations and individuals. Because of these limitations, shareholders may
be unable to claim a credit for the full amount of their proportionate share of
the foreign income taxes paid by the Portfolio.
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Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
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 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.
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Purchase of Shares
- --------------------------------------------------------------------------------
SALES CHARGE ALTERNATIVES
The following Classes of shares are available for purchase through this
Prospectus. See "Prospectus Summary -- Alternative Purchase Arrangements" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
Class A Shares. Class A shares are sold to investors at the public
offering price, which is the net asset value plus an initial sales charge as
follows:
Sales Charge Dealers
Sales Charge as a % of Reallowance
as a % of Amount as % of
Amount of Investment Transaction Invested Offering Price
- --------------------------------------------------------------------------------
Less than $25,000 5.00% 5.26% 4.50%
$ 25,000 - $ 49,999 4.00 4.17 3.60
$ 50,000 - $ 99,999 3.50 3.63 3.15
$100,000 - $249,999 3.00 3.09 2.70
$250,000 - $499,999 2.00 2.04 1.80
$500,000 and over * * *
================================================================================
* Purchases of Class A shares of $500,000 or more will be made at net asset
value without any initial sales charge, but will be subject to a 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 L 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
19
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
may be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended (the "1933 Act"). The reduced sales charges shown above apply
to the aggregate of purchases of Class A shares of the Fund made at one time by
"any person," which includes an individual and his or her immediate family, or a
trustee or other fiduciary of a single trust estate or single fiduciary account.
Class B Shares. Class B shares are sold without an initial sales charge
but are subject to a CDSC payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial sales charge of 1%
(which is equal to 1.01% of the amount invested) and are subject to a CDSC
payable upon certain redemptions. See "Deferred Sales Charge Provisions" below.
Until June 25, 1999 purchases of Class L shares by investors who were holders of
Class C shares of the Fund on June 12, 1998 will not be subject to the 1%
front-end sales charge.
Class Y Shares. Class Y shares are sold without an initial sales charge or
CDSC and are available only to investors investing a minimum of $15,000,000
(except purchase of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount).
GENERAL
Purchases of Portfolio shares must by made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A, Class B, Class L or Class Y shares. Smith
Barney and other broker/dealers may charge their customers an annual account
maintenance fee in connection with a brokerage account through which an investor
purchases or holds shares. Accounts held directly at the Fund's transfer agent
are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account in
the Fund by making an initial investment of at least $1,000 for each account, or
$250 for an IRA or Self-Employed Retirement Plan, in the Fund Investors in Class
Y shares may open an account by making an initial investment of $15,000,000.
Subsequent investments of at least $50 may be made for all Classes. For
participants in retirement plans qualified undder Section 403(b)(7) or Section
401(c) of the Code, the minimum initial investment requirement for Class A,
Class B and Class L shares and the subsequent investment requirement for all
Classes in the Fund is $25. For 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 L shares and 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
20
<PAGE>
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
required for Class A, Class B and Class L shares and the subsequent investment
requirement for all Classes is $50. There are no minimum investment requirements
for Class A shares for employees of Travelers and its subsidiaries, including
Smith Barney, and Directors/Trustees of any of the Smith Barney Mutual Funds and
their spouses and children. The Portfolio reserves the right to waive or change
minimums, to decline any order to purchase its shares and to suspend the
offering of shares from time to time. Shares purchased will be held in the
shareholder's account by First Data. Share certificates are issued only upon a
shareholder's written request to First Data. It is not recommended that the
Portfolio be used as a vehicle for Keogh, IRA or other qualified retirement
plans.
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 after the trade date. In all other
cases, payment 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 at least $25 on a monthly basis or at least
$50 on a quarterly basis to charge the shareholder's account held with a bank or
other financial institution on a monthly or quarterly basis as indicated by the
shareholder to provide for 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.
SALES CHARGE WAIVERS AND REDUCTIONS
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Board Members and
employees of Travelers and its subsidiaries and any Travelers Affiliated Funds
including the Smith Barney Mutual Funds (including retired Board Members and
employees);
21
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
the immediate families of such persons (including the surviving spouse of a
deceased Board Member or employee); and to a pension, profit-sharing or other
benefit plan for such persons and (ii) employees of members of the National
Association of Securities Dealers, Inc., provided such sales are made upon the
assurance of the purchaser that the purchase is made for investment purposes and
that the securities will not be resold except through redemption or repurchase,
(b) offers of Class A shares to any other investment company to effect the
combination of such company with the Fund by merger, acquisition of assets or
otherwise; (c) purchases of Class A shares by any client of a newly employed
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) purchases by
shareholders who have redeemed Class A shares in the Portfolio (or Class A
shares of another Smith Barney Mutual Fund that is offered with a sales charge)
and who wish to reinvest their redemption proceeds in the Portfolio, provided
the reinvestment is made within 60 calendar days of the redemption; (e)
purchases by accounts managed by registered investment advisory subsidiaries of
Travelers; and (f) purchases by investors participating in a Smith Barney
fee-based arrangement. 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 or at net asset value determined by
aggregating the dollar amount of the new purchase and the total net asset value
of all Class A shares of the Portfolio and of funds sponsored by Smith Barney
which are offered with a sales charge as currently listed under "Exchange
Privilege" then held by such person and applying the sales charge applicable to
such aggregate. In order to obtain such discount, the purchaser must provide
sufficient information at the time of purchase to permit verification that the
purchase qualifies for the reduced sales charge. The right of accumulation is
subject to modification or discontinuance at any time with respect to all shares
purchased thereafter.
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 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
22
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
"Sales Charge Alternatives -- 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 employee 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. 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 of the Portfolio 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 Fund shares at a discount and (c) satisfies uniform criteria which
enable 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 an amount of $50,000 or more
provides an opportunity for an investor to obtain a reduced sales charge by
aggregating investments over a 13 month period, provided that the investor
refers to such Letter when placing orders. For purposes of a Letter of Intent,
the "Amount of Investment" as referred to in the preceding sales charge table
includes (i) all Class A shares of the Portfolio and other Smith Barney Mutual
Funds offered with a sales charge acquired during the term of the Letter plus
(ii) the value of all Class A shares previously purchased and still owned. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If the goal is not achieved within
the period, the investor must pay the difference between the sales charges
applicable to the purchases made and the charges previously paid, or an
appropriate number of escrowed shares will be redeemed. The term of the Letter
will commence upon the date the Letter is signed, or at the option of the
investor, up to 90
23
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
days before such date. 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 (except purchases
of Class Y shares by Smith Barney Concert Allocation Series Inc., for which
there is no minimum purchase amount). Such investors must make an initial
minimum purchase of $5,000,000 in Class Y shares of the Portfolio and agree to
purchase a total of $15,000,000 of Class Y shares of the Portfolio within 13
months from the date of the Letter. If a total investment of $15,000,000 is not
made within the 13 month period, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be subject to all fees (including
a service fee of 0.15%) 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 PROVISIONS
"CDSC Shares" are: (a) Class B shares; (b) Class L shares; and (c) Class A
shares that were purchased without an initial sales charge but are subject to a
CDSC. A CDSC may be imposed on certain redemptions of these shares.
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 L shares and Class
A shares that are CDSC Shares, shares redeemed more than 12 months after their
purchase.
Class A shares and Class L shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
the 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."
24
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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 shareholders as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. See "Prospectus Summary -- Alternative Purchase Arrangements
- -- Class B Shares Conversion Feature."
The length 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
25
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
prior to November 7, 1994); (c) redemptions of shares within 12 months following
the death or disability of the shareholder; (d) involuntary redemptions; and (e)
redemptions of shares to effect 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 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.
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 enroll-
26
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
ment 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 $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) or ExecChoice(TM)
Program, whether opened before or after June 21, 1996, that has not previously
qualified for an exchange into Class A shares will be offered the opportunity to
exchange all of its Class 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) or ExecChoice(TM)
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 Portfolio but instead may acquire Class A shares of the Portfolio. 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 First Data. 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
27
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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."
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 591/2 by an employee in the Participating Plan; (e) hardship of an
employee in the Participating Plan to the extent permitted under Section 401(k)
of the Code; or (f) redemptions of shares in connection with a loan made by the
Participating Plan to an employee.
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
Except as otherwise noted below, shares of each Class may be exchanged at
the net asset value next determined 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 L 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
Concert Peachtree Growth Fund
Concert Social Awareness Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
28
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund
Smith Barney Convertible Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -- Large Cap Value Fund
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Premium Total Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Taxable Fixed-Income Funds
* Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+ Smith Barney Funds, Inc. -- Short-Term High Grade Bond Fund
Smith Barney Funds, Inc. -- U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
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
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
29
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc. -- Balanced Portfolio
Smith Barney Concert Allocation Series Inc. -- Conservative Portfolio
Smith Barney Concert Allocation Series Inc. -- Global Portfolio
Smith Barney Concert Allocation Series Inc. -- Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- High Growth Portfolio
Smith Barney Concert Allocation 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 and Class B shares of the Portfolio.
** Available for exchange with Class A, Class L and Class Y shares of the
Portfolio.
*** Available for exchange with Class A shares of the Portfolio.
+ Available for exchange with Class A and Class Y shares of the Portfolio.
++ Available for exchange with Class B and Class L shares of the Portfolio.
+++ Available for exchange with Class A and Class Y shares of the Portfolio.
In addition, Participating Plans opened prior to June 21, 1996 and
investing in Class L shares may exchange Portfolio shares for Class L
shares of this fund.
Class B Exchanges. In the event a Class B shareholder 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 date as the Class B shares of the Portfolio
that have been exchanged.
Class L Exchanges. Upon an exchange, the new Class L shares will be deemed
to have been purchased on the same date as the Class L shares of the Portfolio
that have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of the
Fund who wish to exchange all or a portion of their shares for shares of the
respective
30
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
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. MMC 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
a shareholder. Upon such a determination, the Fund will provide notice in
writing or by telephone to the shareholder at least 15 days prior to suspending
the exchange privilege and during the 15 day period the shareholder will be
required to (a) redeem his or her shares in the 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 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 which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until First Data receives
further instructions from Smith Barney, or if the shareholder's account is not
with Smith Barney, from
31
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
the shareholder directly. The redemption proceeds will be remitted on or before
the third business day following receipt of proper tender, except on any days on
which the NYSE is closed or as permitted under the 1940 Act in extraordinary
circumstances. Generally, if the redemption proceeds are remitted to a 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./The Amstel Hudson Equity Fund
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
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 or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's address of record. First Data may
require additional supporting documents for redemptions made by corporations,
executors, administrators, trustees or guardians. A redemption request will not
be deemed properly received until First Data receives all required documents in
proper form.
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
ac-
32
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
counts 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. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset value
next determined. 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 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
33
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Performance
- --------------------------------------------------------------------------------
From time to time the Fund may advertise the Portfolio's total return and
average annual total return 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 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
34
<PAGE>
- --------------------------------------------------------------------------------
Performance (continued)
- --------------------------------------------------------------------------------
computed in the same manner but without annualizing the total return or taking
sales charges into account. The Portfolio calculates current dividend return for
each Class by dividing the current dividend 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. The current dividend
return for each Class may vary from time to time depending on market conditions,
the composition of the 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.
- --------------------------------------------------------------------------------
Management of the Fund
- --------------------------------------------------------------------------------
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 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
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 investment management
services rendered to the Portfolio, the Portfolio pays MMC a fee at the annual
rate of 0.75%.
35
<PAGE>
- --------------------------------------------------------------------------------
Management of the Fund (continued)
- --------------------------------------------------------------------------------
The Manager was incorporated on March 12, 1968 under the laws of Delaware.
As of July 31, 1998 the Manager had aggregate assets under management of
approximately $100 billion. The Manager, Smith Barney and Holdings are each
located at 388 Greenwich Street, New York, New York 10013. The term "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
The Portfolio is managed by Maurits E. Edersheim and Peter Gregory and a
team of seasoned international equity portfolio managers, who collectively have
over 125 years of experience and manage in excess of $2 billion in global equity
assets for other investment companies and managed accounts. Mr. Edersheim is
Chairman and Advisory Director of the Fund and is Deputy Chairman of Smith
Barney International Incorporated. Mr. Gregory is a managing Director of Smith
Barney. Mr. James Conheady, Mr. Rein van der Does and Mr. Jeffrey Russell, all
Vice Presidents of the Portfolio and Managing Directors of Smith Barney, are
members of the international equity team, and have been responsible for the day
to day operations of the Portfolio, including making all investment decisions,
since November 1991.
- --------------------------------------------------------------------------------
Distribution
- --------------------------------------------------------------------------------
CFBDS distributes shares of the Portfolio as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring CFBDS 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"), pursuant to which Smith Barney is paid a
service fee with respect to Class A, Class B and Class L 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 L shares at the annual rate of 0.75% 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 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.
36
<PAGE>
- --------------------------------------------------------------------------------
Distribution (continued)
- --------------------------------------------------------------------------------
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 L 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 L 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 seven series of shares, each representing shares in one of seven
separate Portfolios and may authorize the issuance of additional series of
shares in the future. The assets of each Portfolio are segregated and separately
managed and a shareholder's interest is in the assets of the Portfolio in which
he or she holds shares. Class A, Class B, Class C, Class Y and Class Z 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 pertains 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.
The Chase Manhattan Bank, located at Chase MetroTech Center, Brooklyn, New
York 11245, serves as custodian of the Portfolio's investments.
37
<PAGE>
- --------------------------------------------------------------------------------
Additional Information (continued)
- --------------------------------------------------------------------------------
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves
as the Fund's transfer agent.
The Fund sends its 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. Shareholders who do not want this consolidation to apply to
their account should contact their Smith Barney Financial Consultant or First
Data.
38
<PAGE>
SMITH BARNEY
A Member of Travelers Group[LOGO]
Smith Barney
World Funds, Inc.
The Amstel Hudson
Equity Fund
388 Greenwich Street
New York, New York 10013
FD 0667 12/98
PART B
February 27, 1998
As Amended August 27, 1998
And as Amended December 14, 1998
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY WORLD FUNDS, INC.
388 Greenwich Street
New York, New York 10013
Shares of Smith Barney World Funds, Inc. (the "Fund") are
offered with a choice of seven 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 Amstel Hudson Equity Fund seeks long term capital
appreciation through investments in equity securities.
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 with respect to the International Equity
Portfolio and $15,000,000 with respect to each of the other
Portfolios. 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 27, 1998 for the International
Equity Portfolio, the Global Government Bond Portfolio, the Pacific
Portfolio, the European Portfolio, the International Balanced
Portfolio, the Emerging Markets Portfolio and the Prospectus dated
December 9, 1998 for the Amstel Hudson Equity Fund, which may be
obtained from the Fund or your Smith Barney Financial Consultant.
TABLE OF CONTENTS
Page
Directors, Advisory Director and Officers 3
Investment Policies 5
Investment Restrictions 16
Additional Tax Information 20
IRA and Other Prototype Retirement Plans 22
Performance Information 23
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 35
Appendix - Ratings of Debt Obligations A-1
DIRECTORS, ADVISORY DIRECTOR AND OFFICERS
VICTOR K. ATKINS, Director
Retired; 120 Montgomery Street, San Francisco, CA. Former President of
Lips Propellers, Inc., a ship propeller repair company. Director of
two investment companies associated with Smith Barney; 76.
ABRAHAM E. COHEN, Director (Age 61)
Consultant to MeesPierson, Inc., a Dutch investment bank; Consultant
to and Board Member, Chugai Pharmaceutical Co. Ltd.; Director of
Agouron Pharmaceuticals, Inc., Akzo Nobel NV, Vasomedical, Inc., Teva
Pharmaceutical Ind., Ltd., Neurobiological Technologies Inc., Vion
Pharmaceuticals, Inc., BlueStone Capital Partners, LP. and The
Population Council, an international public interest organization.
ROBERT A. FRANKEL, Director
Managing Partner of Robert A. Frankel Managing Consultants, 102 Grand
Street, Croton-on-Hudson, NY. Director of seven investment companies
associated with Smith Barney. Former Vice President of The Readers
Digest Association, Inc.; 70.
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; 62.
SUSAN M. HEILBRON, Director
Attorney; Lacey & Heilbron, 3 East 54th Street, 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; 53.
*HEATH B. McLENDON, Chairman of the Board, President and Chief
Executive Officer
Managing Director of Smith Barney; Director of forty-two investment
companies associated with Smith Barney; Director and President of the
Manager and Travelers Investment Adviser, Inc. ("TIA"); Chairman of
Smith Barney Strategy Advisers Inc.; prior to July 1993, Senior
Executive Vice President of Shearson Lehman Brothers, Inc., Vice
Chairman of Shearson Asset Management, Director of PanAgora Asset
Management, Inc. and PanAgora Asset Management Limited; 64
*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; 79.
*LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Smith Barney, and Senior Vice President and
Treasurer of forty-two investment companies associated with Smith
Barney; and Director and Senior Vice President of the Manager and TIA;
40
*JAMES B. CONHEADY, Vice President and Investment Officer
Managing Director of Smith Barney. Formerly First Vice President of
Drexel Burnham Lambert Incorporated; 62.
*JEFFREY RUSSELL, Vice President and Investment Officer
Managing Director of Smith Barney. Formerly Vice President of Drexel
Burnham Lambert Incorporated; 40.
*REIN VAN DER DOES, Vice President and Investment Officer
Managing Director of Smith Barney. Formerly Managing Director of
Drexel Burnham Lambert Incorporated; 58.
*SCOTT KALB, Vice President and Investment Officer
Managing Director of Smith Barney. Formerly Vice President of Drexel
Burnham Lambert Incorporated; 41
*VICTOR S. FILATOV, Vice President and Investment Officer
Managing Director of Smith Barney, President and Director of Smith
Barney Global Capital Management Inc. Formerly Vice President of J.P.
Morgan Securities Inc.; 46.
*SIMON R. HILDRETH, Vice President and Investment Officer
Senior Vice President of Smith Barney, Managing Director of Smith
Barney Global Capital Management Inc. Formerly Director of Mercury
Asset Management Ltd; 43.
*DENIS P. MANGAN, Vice President and Investment Officer
Vice President of Smith Barney Global Capital Management Inc.
Formerly Vice President of J.P. Morgan and Citibank; 44.
*DONALD ELEFSON, Vice President and Investment Officer
Vice President of Smith Barney; Formerly Analyst of emerging markets
at Merrill Lynch Asset Management; 38.
*DAVID S. ISHIBASHI, Vice President and Investment Officer
Vice President of Smith Barney; Formerly Head of Japanese equities
desk at SG Warburg; 42
*PETER GREGORY, Vice President and Investment Officer
Managing Director of Smith Barney. Formerly President and Chief
Operating Officer of Global Asset Management (U.S.A) Inc.
*IRVING DAVID, Controller
Director of Smith Barney. Formerly Assistant Treasurer of First
Investment Management Company; 37.
*CHRISTINA T. SYDOR, Secretary
Managing Director of Smith Barney and Secretary of forty-two
investment companies associated with Smith Barney; Secretary and
General Counsel of the Manager and TIA; 47.
* 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 6, 1998 the directors and officers owned, in the
aggregate, less than 1% of the outstanding shares of each of the
Portfolios.
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
Compensation
from Fund
and Complex
Paid
to Directors
Number of
Funds for
Which
Director
Serves
Within
Fund Complex
Victor Atkins
$11,946
0
$27,400
2
Alger B. Chapman1
9,078
0
20,600
2
A. E. Cohen2
0
0
13,700
2
Robert A. Frankel
11,946
0
65,900
8
Ranier Greeven
11,346
0
25,600
2
Susan M. Heilbron
11,946
0
27,400
2
Heath B. McLendon
0
0
0
42
Bruce D. Sargent3
0
0
0
3
James M. Shuart4
11,946
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--Brokerage and 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.
ADRs, EDRs and GDRs. Each Portfolio may also purchase American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs")
and Global Depositary Receipts ("GDRs") or other securities
representing underlying shares of foreign companies. ADRs are
publicly traded on exchanges or over-the-counter in the United States
and are issued through "sponsored" or "unsponsored" arrangements. In
a sponsored ADR arrangement, the foreign issuer assumes the obligation
to pay some or all of the depository's transaction fees, whereas under
an unsponsored arrangement, the foreign issuer assumes no obligation
and the depository's transaction fees are paid by the ADR holders. In
addition, less information is available in the United States about an
unsponsored ADR than about a sponsored ADR, and the financial
information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. The Portfolios may invest in ADRs
through both sponsored and unsponsored arrangements.
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 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.
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 obligors 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 not 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 U.S. Futures exchanges limit the amount of fluctuation
permitted in Futures Contract prices during a single trading day. The
daily limit establishes the maximum amount that the price of a Futures
Contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been
reached in a particular type of Futures Contract, no trades may be
made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures Contract
prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing
prompt liquidation of Futures positions and subjecting some Futures
traders to substantial losses.
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 ("SEC") 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
"1940 Act"). 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 1940 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 securities, the
issuers of which conduct their principal business activities
in the same industry. For purposes of this limitation,
securities of the U.S. government (including its agencies and
instrumentalities) and securities of state or municipal
governments and their political subdivisions are not
considered to be issued by members of any industry.
4. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction
shall not prevent the Portfolio from (a) investing in
securities of issuers engaged in the real estate business or
the business of investing in real estate (including interests
in limited partnerships owning or otherwise engaging in the
real estate business or the business of investing in real
estate) and securities which are secured by real estate or
interests therein; (b) holding or selling real estate
received in connection with securities it holds or held; (c)
trading in futures contracts and options on futures contracts
(including options on currencies to the extent consistent
with the Portfolio's' investment objective and policies); or
(d) investing in real estate investment trust securities.
5. Borrow money, except that (a) the Portfolio may borrow from
banks for temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests which might
otherwise require the untimely disposition of securities, and
(b) the Portfolio may, to the extent consistent with its
investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar investment
strategies and techniques. To the extent that it engages in
transactions described in (a) and (b), the Portfolio will be
limited so that no more than 33 1/3% of the value of its
total assets (including the amount borrowed), valued at the
lesser of cost or market, less liabilities (not including the
amount borrowed) valued at the time the borrowing is made, is
derived from such transactions.
6. Issue senior securities.
7. Make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the Portfolio may
invest consistent with its investment objectives and
policies; (b) repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent permitted under
the 1940 Act.
8. Engage in the business of underwriting securities issued by
other persons, except to the extent that the Portfolio may
technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, in disposing of
portfolio securities.
9. 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 CFTC.
In addition, the following policies have also been adopted by
the Global Government Bond Portfolio but are not fundamental and
accordingly may be changed by approval of the Board of Directors. The
Portfolio may not:
1. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and
sales of portfolio securities) or sell any securities short
(except "against the box"). For purposes of this
restriction, the deposit or payment by the Portfolio of
underlying securities and other assets in escrow and
collateral agreements with respect to initial or maintenance
margin in connection with futures contracts and related
options and options on securities, indexes or similar items
is not considered to be the purchase of a security on margin.
2. Have more than 15% of its total assets at any time invested
in or subject to puts, calls or combinations thereof.
3. Invest in companies for the purpose of exercising control or
management.
4. Purchase or otherwise acquire any security if, as a result,
more than 15% of its net assets would be invested in
securities that are illiquid.
5. Invest in securities of another investment company except as
permitted by Section 12(d)(1)(a) of the 1940 Act, or as part
of a merger, consolidation, or acquisition.
6. 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.
7. 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.
8. 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.
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, the
Emerging Markets Portfolio and the Amstel Hudson Equity Fund each may
not:
1. With respect to each of the European Portfolio, the
International Equity Portfolio, the Pacific Portfolio and the
Amstel Hudson Equity Fund, invest in a manner that would
cause it to fail to be a "diversified company" under the 1940
Act and the rules, regulations and orders thereunder
2. With respect to each of the Emerging Markets Portfolio and
the International Balanced Portfolio, deviate from its
subclassification as a non-diversified company.
3. Invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities
in the same industry. For purposes of this limitation,
securities of the U.S. government (including its agencies and
instrumentalities) and securities of state or municipal
governments and their political subdivisions are not
considered to be issued by members of any industry.
4. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction
shall not prevent the Portfolio from (a) investing in
securities of issuers engaged in the real estate business or
the business of investing in real estate (including interests
in limited partnerships owning or otherwise engaging in the
real estate business or the business of investing in real
estate) and securities which are secured by real estate or
interests therein; (b) holding or selling real estate
received in connection with securities it holds or held; (c)
trading in futures contracts and options on futures contracts
(including options on currencies to the extent consistent
with the Portfolios' investment objective and policies); or
(d) investing in real estate investment trust securities.
5. With respect to each of the Emerging Markets Portfolio and
the European Portfolio, borrow money, except that (a) the
Portfolio may borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of
redemption requests which might otherwise require the
untimely disposition of securities, and (b) the Portfolio
may, to the extent consistent with its investment policies,
enter into reverse repurchase agreements, forward roll
transactions and similar investment strategies and
techniques. To the extent that it engages in transactions
described in (a) and (b), the Portfolio will be limited so
that no more than 33 1/3% of the value of its total assets
(including the amount borrowed), valued at the lesser of cost
or market, less liabilities (not including the amount
borrowed) valued at the time the borrowing is made, is
derived from such transactions.
6. With respect to each of the International Balanced Portfolio,
the International Equity Portfolio the Pacific Portfolio and
the Amstel Hudson Equity Fund, borrow money, except that (a)
the Portfolio may borrow from banks under certain
circumstances where the Portfolio's Manager reasonably
believes that (i) the cost of borrowing and related expenses
will be exceeded by the Portfolio's return from investments
of the proceeds of the borrowing in portfolio securities, or
(ii) the meeting of redemption requests might otherwise
require the untimely disposition of securities, in an amount
not exceeding 33 1/3% of the value of the Portfolio's total
assets (including the amount borrowed), valued at the lesser
of cost or market, less liabilities (not including the amount
borrowed) valued at the time the borrowing is made and (b)
the Portfolio may, to the extent consistent with its
investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar investment
strategies and techniques.
7. Make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the Portfolio may
invest consistent with its investment objectives and
policies; (b) repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent permitted under
the 1940 Act.
8. Engage in the business of underwriting securities issued by
other persons, except to the extent that the Portfolio may
technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, n disposing of portfolio
securities.
9. Issue "senior securities" as defined in the 1940 Act and the
rules, regulations and orders thereunder, except as permitted
under the 1940 Act and the rules, regulations and orders
thereunder.
In addition, the following policies have also been adopted by
the Emerging Markets Portfolio, the International Balanced Portfolio,
the International Equity Portfolio, the Pacific Portfolio and the
Amstel Hudson Equity Fund, but are not fundamental and accordingly may
be changed by approval of the Board of Directors. The Portfolios' may
not:
1. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and
sales of portfolio securities) or sell any securities short
(except "against the box"). For purposes of this
restriction, the deposit or payment by the Portfolio of
underlying securities and other assets in escrow and
collateral agreements with respect to initial or maintenance
margin in connection with futures contracts and related
options and options on securities, indexes or similar items
is not considered to be the purchase of a security on margin.
2. Purchase 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.
3. 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 Portfolios may also purchase shares of other
investment companies pursuant to Section 12(d)(1)(A) of the
1940 Act.
4. Make investments in securities for the purpose of exercising
control over or managing the issuer.
5. 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.
6. Purchase or otherwise acquire any security if, as a result,
more than 15% of its net assets would be invested in
securities that are illiquid.
7. 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 ("NYSE")
or American Stock Exchange ("AMEX") 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 is a summary of the material federal tax
considerations affecting a Portfolio of the Fund. In addition to the
considerations described below there may be other federal, state,
local or foreign tax applications to consider. Because taxes are a
complex matter, prospective shareholders are urged to consult their
tax advisors for more detailed information with respect to the tax
consequences of any investment.
General
Each Portfolio intends to qualify, as it has in prior years,
under Subchapter M of the Internal Revenue Code (the "Code") for tax
treatment as a regulated investment company. In each taxable year
that each Portfolio qualifies, so long as such qualification is in the
best interest of its shareholders, each Portfolio will pay no federal
income tax on its net investment income and long-term capital gain
that is distributed to shareholders.
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; and (ii) 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 Small Business Job Protection Act of 1996 changed the
eligibility requirements for participants in Individual Retirement
Accounts ("IRAs"). Under these new provisions, if you or your spouse
have earned income, each of you may establish an IRA and make maximum
annual contributions equal to the lesser of earned income or $2,000.
As a result of this legislation, married couples where one spouse is
non-working may now contribute a total of $4,000 annually to their
IRAs.
The Taxpayer Relief Act of 1997 has changed the requirements for
determining whether or not you are eligible to make a deductible IRA
contribution. Under the new rules effective beginning January 1,
1998, if you are considered an active participant in an employer-
sponsored retirement plan, you may still be eligible for a full or
partial deduction depending upon your combined adjusted gross income*
("AGI"). For married couples filing jointly, a full deduction is
permitted if your combined AGI is $50,000 or less ($30,000 for
unmarried individuals); a partial deduction will be allowed when AGI
is between $50,000-$60,000 ($30,000-$40,000 for an unmarried
individual); and no deduction when AGI is $60,000 ($40,000 for an
unmarried individual). However, if you are married and your spouse is
covered by a employer-sponsored retirement plan, but you are not, you
will be eligible for a full deduction if your combined AGI is $150,000
or less. A partial deduction is permitted if your combined AGI is
between $150,000-$160,000 and no deduction is permitted after
$160,000.
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
$24,000) of each participant's compensation. Compensation is capped
at $160,000 for 1997.
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").
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, 1997 for the one,
and five year periods and since inception:
Average Annual Total Returns
SEC Returns
Name of Portfolio
Class
1 YEAR
5 YEAR
Annualized
Cumulative
SINCE INCEPTION
Annualized
Cumulative
International Equity1
inception: 11-22-91 A
inception: 11-7-94 B
inception: 1-4-93 C
inception: 6-16-94 Y
inception: 11-7-94 Z
3.85%
3.42%
7.43%
9.68%
9.69%
10.55%
- --
- --
- --
- --
65.08%
- --
10.95%*
2.60%
10.83%
5.45%
4.71%
237.55%*
7.97%
64.21%
19.64%
14.73%
Global Government Bond
inception: 7-22-91 A
inception: 11-18-94 B
inception: 1-4-93 C
inception: 2-19-93 Y
3.35%
3.22%
6.75%
8.61%
7.47%
- --
- --
- --
43.34
- --
- --
- --
8.16%
8.76%
8.35%
8.62%
63.69%
28.15%
47.27%
47.45%
International Balanced
inception: 8-25-94 A
inception: 11-7-94 B
inception: 8-25-94 C
inception: 2-7-96 Y
(6.62)%
(7.27)%
(3.42)%
(1.28)%
- --
- --
- --
- --
- --
- --
- --
- --
4.41%
4.58%
5.29%
3.88%
14.74%
14.31%
17.84%
6.82%
Pacific
inception: 2-7-94 A
inception: 11-7-94 B
inception: 2-11-94 C
(21.08)%
(21.70)%
(18.56)%
- --
- --
- --
- --
- --
- --
(11.17)%
(14.21)%
(10.68)%
(35.71)%
(36.69)%
(34.32)%
European
inception: 2-7-94 A
inception: 11-7-94 B
inception: 2-14-94 C
7.22%
7.08%
11.06%
- --
- --
- --
- --
- --
- --
11.34%
14.36%
12.23%
49.31%
49.22%
53.45%
Emerging Markets
inception: 5-12-95 A
inception: 5-12-95 B
inception: 5-12-95 C
(2.12)%
(2.82)%
1.26%
- --
- --
- --
- --
- --
- --
(0.58)%
(0.51)%
0.74%
(1.43)%
(1.25)%
1.83%
The International Equity Portfolio's performance record includes
the performance of the Fenimore International Fund through November
22, 1991. The shareholders of the Fenimore International Fund
approved a reorganization with the Portfolio at their October 31, 1991
shareholder's meeting. As a result, all shares of the 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.
* These numbers represent the financial performance for the ten-year
period ended October 31, 1997.
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 Smith Barney 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 ("Moody's") or BBB by
Standard and Poor's Ratings Group ("S&P"), 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 Smith Barney Broad Investment Grade Bond 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 which is a price-weighted
average of 30 actively traded stocks of highly reputable
companies prepared by Dow Jones & Co.
(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 Smith Barney, Inc., Merrill Lynch, 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.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Portfolio's shares will be
determined on any day that the NYSE is open. The NYSE is closed for
the following holidays: New Year's Day, Martin Luther King 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 SEC, 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 1995, 1996 and 1997 the management fees for
each Portfolio were as follows:
Portfolio
1995
1996
1997
International Equity
$8,452,273
$10,047,384
$11,766,569
Global Government Bond
901,693
1,150,340
l,123,627
European
202,500
314,805
390,268
Pacific
74,052
82,839
79,628
International
Balanced
213,800
274,278
471,084
Emerging Markets
69,254
227,869
380,979
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 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. Mutual Management
Corp., the investment manager of the Fund, also acts as investment
adviser to numerous other open-end investment companies. 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.
Distributor
For the year ended October 31, 1997, 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 1997 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 1940 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
International
Equity
$1,282,917
$2,375,547
$2,261,441
$5,919,905
Global Government Bond
249,862
169,569
25,078
444,509
European
32,501
302,094
27,521
362,116
Pacific
9,943
37,798
16,217
63,958
International
Balanced
34,903
56,286
42,281
133,470
Emerging Markets
37,470
189,861
41,594
268,925
During the fiscal years 1995, 1996 and 1997 aggregate sales
commissions of $1,929,000, $1,438,000, and $1,613,000, 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 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 shares that were
purchased without an initial sales charge but subject to a CDSC 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
SEC under the 1940 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. United States and foreign government securities
and money market instruments are generally traded in the 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 1995, 1996 and 1997. 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 1997, the total amount of commissionable
transactions was $1,215,395,099 of which $14,300,215 (1%) was directed
to Smith Barney and executed by unaffiliated brokers and
$1,201,094,884 (99%) of which was directed to other brokers.
Commissions
For Execution Only
Total
To Smith Barney
To Others
1995
$2,907,454
$38,786* (1.33%)
$2,868,668 (98.67%)
1996
3,971,236
31,857* (.80%)
3,939,379 (99.20%)
1997
3,310,496
52,098* (1.57%)
3,258,398 (98.43%)
_________________
* 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, has
been selected as the Fund's independent auditors to examine and report
on the financial statements and financial highlights of the Fund for
its fiscal year ending October 31, 1998.
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.
The following table contains a list of shareholders who of
record or beneficially owned at least 5% of the outstanding shares of
a particular class of shares of a Portfolio of the Fund as of
February 6, 1998.
Global Government Bond Portfolio
Class A
Srs. of Providence Community
Support Trust - Intl Inv
Generalate - Finance Office
Owens Hall
St Mary of the W IN 47876-1096
owned 500,318,344(6.5778%) shares
Class C
Richard J. Horbal & Linda
Horbal TTEES FBO Richard J. Horbal
MD PC EMP. Retirement
Plan UAD 12/01/82
4196 Old Pine Trail
Midland, MI 48642-8892
owned 39,524.368 (15.2563%) shares
Class Y
Smith Barney Concert Series, Inc.
Balanced Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
owned 1,747,519.597 (71.6142%) shares
Smith Barney Concert Series, Inc.
Conservative Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
owned 451,650.086 (18.5088%) shares
Smith Barney Concert Series, Inc
Select Balanced Portfolio PNC Bank
Attn: Beverly Timpson
200 Steven Drive Suite 440
Lester, PA 19113-1522
owned 195,285.214 (8.0028) shares
International Balanced Portfolio
Class C
NR Ernest H Lorch
200 East End Avenue
New York, NY 10128-7831
owned 14,569.774 (5.9117%) shares
Class Y
Smith Barney Concert Series, Inc.
Balanced Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
owned 3,033,105.860 (78.9382%) shares
Smith Barney Concert Series, Inc.
Conservative Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
owned 416,763.846 (10.8465%) shares
Smith Barney Concert Series, Inc.
Select Balanced Portfolio PNC Bank
Attn: Beverly Timson
200 Steven Drive
Suite 440
Lester, PA 19113-1522
owned 351,002.485 (9.1350) shares
International Equity Portfolio
Class Y
Smith Barney Concert Series, Inc.
High Growth Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19133-1522
owned 5,275,866.243 (31.8316) shares
Smith Barney Concert Series, Inc.
Growth Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
owned 3,398,089.846 (20.5021) shares
Wachovia Bank of North Carolina, NA
Successor Trustee U/A DRD 7-1-95
For USAA Savings & Investment Plan
Attn: Mutual Funds
301 North Main Street- MC: NC-31051
Winston-Salem, NC 27150
owned 2,380,027.838 (14.3597%) shares
Wachovia Bank of North Carolina, NA
USAA Retirement Trust
Smith Barney Internat'l Equity
Attn: Mutual Funds Mc: NC-31051
301 North Main Street
Winston-Salem, NC 27150
owned 2,061,044.665 (12.4351) shares
Class Z
Citibank N A TTEE
Travelers Group Master Trust
Smith Barney 401K Savings Plan
111 Wall Street - 20th Floor
Attn: N. Kronenberg
New York, NY 10043
owned 6,170,398.219 (99.9928) shares
Pacific Portfolio
Class A
Phil D. Pitchford
87 Aspen Way
Rolling Hills EST CA 90274-3429
owned 38,472.812 (12.0999) shares
Clyde Pitchford TTEE
FBO The Miller Survivor's
Trust U/A/D 9/8/75
595 Market Street Suite 1470
San Francisco, CA 94105-2821
owned 17,359.820 (5.4597) shares
Michael F. Konak
Holanda 337, D-805
Santiago, Chile
owned 16,920.056 (5.3214) shares
FINANCIAL STATEMENTS
The following financial information is hereby incorporated by
reference to the indicated pages of the Fund's 1997 Annual Report to
Shareholders, copies of which are furnished with this Statement of
Additional Information.
Page(s) in
Annual Report
(Global
Government Bond,
International
Balanced and
International
Equity
Portfolios)
Page(s) in
Annual Report
(Emerging
Markets,
European and
Pacific
Portfolios)
5,11,15
6,12,18
Average Annual Total Return
Line Graph Showing Growth of
$10,000 Investment
6,12,16
7,13,19
Statements of Assets and
Liabilities
31
32
Statements of Operations
32
33
Statement of Changes in Net Assets
33-34
34-35
Notes to Financial Statements
35-43
36-41
Financial Highlights
44-56
42-50
Independent Auditor's Report
57
51
APPENDIX - RATINGS OF DEBT OBLIGATIONS
BOND (AND NOTE) RATINGS
Moody's Investors Service, Inc. ("Moody's")
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 Ratings Group ("Standard & Poors")
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 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 Ratings Group
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.
1 Effective June 20, 1997, Mr. Chapman resigned from the Fund's
Board of Directors
2 Effective March 30, 1998, Mr. Cohen became a member of the Fund's
Board of Directors.
3 Effective August 1, 1998, Mr. Sargent resigned from the Fund's Board of
Directors.
4 Effective July 28, 1998, Mr. Shuart resigned from the Fund's Board of
Directors.
A-3
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.
PART C Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A
Financial Highlights
Included in Part B
The Registrant's Annual Reports for the fiscal year ended
October 31, 1997 and Report of the Independent Accountants
is incorporated by reference to the filing of such reports pursuant to
Rule 30b2-1 under the Investment Company Act of 1940 as filed
with the Securities and Exchange Commission on January 9, 1998
Accession No.0000091155-98-000018.
The Registrant's Semi-Annual Reports for the period ended
April 30, 1998 is incorporated by reference to the filing of
such reports pursuant to Rule 30b2-1 under the Investment Company Act of
1940 as filed with the Securities and Exchange Commission on July 9, 1998
Accession No.0000091155-98-449.
(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 (16)
(b) --International Equity Portfolio (16)
(c) --Pacific Portfolio (16)
(d) --European Portfolio (16)
(e) --International Balanced Portfolio (16)
(f) --Emerging Markets Portfolio (16)
(g) Form of Subadvisory Agreements(16)
(h) --The Amstel Hudson Equity Fund will be filed by amendment.
(6) (i) Form of Distribution Agreement (16)
(ii) Form of Selling Group Agreement (6)
(7) Not applicable
(8) (i) Form of Custodian Agreement (15)
(ii) Form of Transfer Agency Agreement (16)
(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 is incorporated by reference to Post-Effective
Amendment No.20.
(12) Not applicable
(13) Form of Subscription Agreement (4)
(14) IRA Agreement (6)
(15) Amended Plan of Distribution Pursuant to Rule 12b-1
(a) Global Government Bond Portfolio (16)
(b) International Equity Portfolio (16)
(c) Pacific Portfolio (16)
(d) European Portfolio (16)
(e) International Balanced Portfolio (16)
(f) Emerging Markets Portfolio(16)
(g) The Amstel Hudson Equity Fund to be filed by amendment.
(16) Schedule of Performance Quotations (8)
(17) Financial Data Schedule - not applicable
(18) Rule 18f-3 Plan (14)
(1) Incorporated by reference to to the Fund's Registration
Statement on Form N-1A filed on March 26, 1991.
(2) Incorporated by reference to Post-Effective Amendment
No. 2 to the Fund's Registration Statement on Form N-1A filed
on September 24, 1991.
(3) Incorporated by reference to Post-Effective Amendment
No. 6 to the Fund's Registration Statement on Form N-1A filed
on December 21, 1992.
(4) Incorporated by reference to Pre-Effective Amendment
No. 1 to the Fund's Registration Statement on Form N-1A filed
on May 27, 1991.
(5) Intentionally left blank.
(6) Incorporated by reference to Pre-Effective Amendment
No. 2 to the Fund's Registration Statement on Form N-1A filed
on June 14, 1991.
(7) Intentionally left blank.
(8) Incorporated by reference to Post-Effective Amendment
No. 3 to the Fund's Registration Statement on Form N-1A filed
on January 17, 1992.
(9) Incorporated by reference to Post-Effective Amendment
No. 8 to the Fund's Registration Statement on Form N-1A filed
on November 5, 1993.
(10) Incorporated by reference to Post-Effective Amendment
No. 9 to the Fund's Registration Statement on Form N-1A filed
on January 4, 1994.
(11) Incorporated by reference to Post-Effective Amendment
No. 12 to the Fund's Registration Statement on Form N-1A filed
on July 27, 1994.
(12) Incorporated by reference to Post-Effective Amendment
No. 14 to the Fund's Registration Statement on Form N-1A filed
on October 31, 1994.
(13) Incorporated by reference to Post-Effective Amendment
No. 15 to the Fund's Registration Statement on Form N-1A filed
on February 28, 1995.
(14) Incorporated by reference to Post-Effective Amendment
No. 17 to the Fund's Registration Statement on Form N-1A filed
on February 28, 1996.
(15) Incorporated by reference to Post-Effective Amendment
No. 18 to the Fund's Registration Statement on Form N-1A filed
on December 27, 1996.
(16) Incorporated by reference to Post-Effective Amendment
No. 19 to the Fund's Registration Statement on Form N-1A filed
on February 21, 1997.
* 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 September 1, 1998
Global Government Bond Portfolio 8,569
International Equity Portfolio 76,359
Pacific Portfolio 1,031
European Portfolio 5,323
International Balanced Portfolio 1,857
Emerging Markets Portfolio 4,987
The Amstel Hudson Equity Fund 0
Item 27. Indemnification
Reference is made to Article IX, of 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 Mutual Management Corp.
(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 Mutual Management
Corp. 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) CFBDS, Inc. the Registrant's Distributor effective on
or about ______, 1998, is also the distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM Large Cap Growth
Portfolio, CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax Free Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth & Income
Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM National
Tax Free Income Portfolio, CitiFundsSM New York Tax Free Income
Portfolio,
CitiSelect VIP Folio 200, Citiselect VIP Folio 300,
CitiSelect (VIP Folio 400, CitiSelect (VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect (Folio 200,
CitiSelect (Folio 300, CitiSelect (Folio 400, and CitiSelect (Folio 500.
CFBDS is also the placement agent for Large Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
CFBDS, Inc. will become the distributor effective
_______, 1998 for the following Smith Barney Mutual Fund
registrants:
Consulting Group Capital Markets Funds
Global Horizons Investment Series (Cayman Islands)
Greenwich Street Series Fund
Puerto Rico Daily Liquidity Fund Inc.
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Trust
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Smith Barney Worldwide Special Fund N.V. (Netherlands
Antilles)
Travelers Series Fund Inc.
The USA High Yield Fund N.V.(Netherlands Antilles)
Worldwide Securities Limited (Bermuda).
The information required by this Item 29 with respect
to each director, officer and partner of CFBDS, Inc.
is incorporated by reference to Schedule A of Form BD
filed by CFBDS, Inc. pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-32417).
(c) Not applicable
Item 30. Location of Accounts and Records
The Chase Manhattan Bank of New York,
Chase Metrotech Center, Brooklyn, New York 11245,
and First Data Investor Services Group, Inc.,
Exchange Place 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) Not applicable
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest
annual
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 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 25th day of September 1998.
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 9/25/98
Victor Atkins* Director
(Victor Atkins)
Director
Abraham E. Cohen
Robert Frankel* Director
(Robert Frankel)
Rainer Greeven* Director
(Rainer Greeven)
Susan M. Heilbron * Director
(Susan M. Heibron)
/s/ Lewis E. Daidone Treasurer (Principal Financial 9/25/98
(Lewis E. Daidone) Officer)and Principal Accounting
Officer
*By:/s/ Christina T. Sydor 9/25/98
(Christina T. Sydor)
Pursuant to Power of Attorney
EXHIBIT INDEX
