As filed with Securities and Exchange Commission on February 11, 2000
Securities Act Registration No. 333-92955
Investment Company Act No. 811-06290
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.1
Post-Effective Amendment No.___
__________________
Smith Barney World Funds, Inc.
(a Maryland Corporation)
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
(212) 816-6474
(Registrant's Telephone Number, including Area Code)
Christina T. Sydor, Secretary
Smith Barney World Funds, Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
_____________________
Copies to:
John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
_______________
Approximate Date of Proposed Public Offering:
As soon as possible after the effective date of this Registration Statement.
Registrant hereby proposes that this amendment be declared effective on
February 14, 2000.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Beneficial Interest ($.001 par value) of the
Smith Barney World Funds, Inc.
___________________
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940, as amended; accordingly, no fee is payable herewith because of
reliance upon Section 24(f).
PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
<PAGE>
A SPECIAL NOTICE TO SHAREHOLDERS OF
SMITH BARNEY WORLD FUNDS, INC.--INTERNATIONAL BALANCED PORTFOLIO
Your Vote is Important
Dear Shareholder:
The Board of Directors of Smith Barney World Funds, Inc. has recently
reviewed and unanimously endorsed a proposal for a reorganization of the
International Balanced Portfolio (the "Balanced Portfolio") of Smith Barney
World Funds, Inc. which it judges to be in the best interests of Balanced
Portfolio's shareholders.
Under the terms of the proposal, the International Equity Portfolio of Smith
Barney World Funds, Inc. ("Equity Portfolio") will acquire all of the assets
and liabilities of the Balanced Portfolio, and you will become a shareholder
of the Equity Portfolio. You will receive shares of the Equity Portfolio with
an aggregate value equivalent to the aggregate net asset value of your
investment in the Balanced Portfolio at the time of the transaction.
Here are some facts about the merger and the Equity Portfolio that will be
useful to you as you vote for this transaction:
. There will be no cost to you to become a shareholder of the Equity
Portfolio.
. In the opinion of counsel, this transaction will be free from federal income
taxes to you, the Balanced Portfolio and the Equity Portfolio.
. You will be able to redeem your shares of the Equity Portfolio for cash
without any redemption fees or required holding period.
. Shares of the Equity Portfolio are priced on each day the fund is open for
business and you may redeem all or a part of your shares at the then-current
net asset value per share.
. As a shareholder of the Equity Portfolio, you will have the ability to
exchange your shares of the fund for shares of the same class of other funds
within that fund complex.
. The same portfolio managers who currently manage the Balanced Portfolio also
manage the Equity Portfolio.
. Lower operating expenses are anticipated for Balanced Portfolio
shareholders.
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS: YOUR VOTE IS IMPORTANT
To consider this transaction, we have called a Special Meeting of
Shareholders to be held on April 7, 2000. We strongly urge your participation
by asking you to review, complete and return your proxy promptly.
Detailed information about the proposed transaction is described in the
enclosed proxy statement. On behalf of the Board of Directors, I thank you for
your participation as a shareholder and urge you to please exercise your right
to vote by completing, dating and signing the enclosed proxy card. A self-
addressed, postage-paid envelope has been enclosed for your convenience.
If you have any questions regarding the proposed transaction, please feel
free to call your Salomon Smith Barney Financial Consultant who will be
pleased to assist you.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED PROMPTLY.
Sincerely,
Heath B. McLendon
Chairman of the Board
February 21, 2000
<PAGE>
SMITH BARNEY WORLD FUNDS, INC.--INTERNATIONAL BALANCED PORTFOLIO
388 Greenwich Street
New York, New York 10013
----------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on April 7, 2000
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of the International Balanced Portfolio ("Acquired Fund") of Smith
Barney World Funds, Inc. (the "Company") will be held at 7 World Trade Center,
New York, New York on April 7, 2000, commencing at 10:00 a.m. for the
following purposes:
1. To approve or disapprove the Company's Plan of Reorganization dated
as of February 11, 2000 providing for (i) the acquisition of all of the
assets and liabilities of the Acquired Fund by Smith Barney World Funds,
Inc.--International Equity Portfolio ("Acquiring Fund"), (ii) the
amendment of the Company's Charter reclassifying all shares of the
Acquired Fund as shares of the Acquiring Fund, and (iii) the
accomplishment of the reclassification by the issuance of shares of the
Acquiring Fund to shareholders of the Acquired Fund.
2. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
The Board of Directors of the Company has fixed the close of business on
February 8, 2000 as the record date for the determination of shareholders
of the Acquired Fund entitled to notice of and to vote at the Meeting and
any adjournment or adjournments thereof.
Your vote is important regardless of the size of your holdings in the
Acquired Fund. Whether or not you plan to attend the meeting, we ask that you
please complete and sign the enclosed proxy card and return it promptly in the
enclosed envelope that needs no postage if mailed in the continental United
States. Instructions for the proper execution of proxies are set forth on the
inside cover.
By Order of the Board of
Directors
Christina T. Sydor, Esq.
Secretary
February 21, 2000
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF
FURTHER SOLICITATION.
<PAGE>
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense to the Fund involved in validating your
vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to the name shown in the registration on the proxy
card.
3. All Other Accounts: The capacity of the individual signing the proxy card
should be indicated unless it is reflected in the form of registration. For
example:
<TABLE>
<CAPTION>
Registration Valid Signatures
------------ ----------------
<S> <C>
Corporate Accounts
(1)ABC Corp. ................................... ABC Corp.
(2)ABC Corp. ................................... John Doe, Treasurer
(3)ABC Corp. c/o John Doe, Treasurer............ John Doe
(4)ABC Corp. Profit Sharing Plan................ John Doe, Trustee
Trust Accounts
(1)ABC Trust.................................... Jane B. Doe, Trustee
(2)Jane B. Doe, Trustee u/t/d 12/28/78.......... Jane B. Doe
Custodian or Estate Accounts
(1)John B. Smith, Cust. f/b/o John B. Smith, Jr.
UGMA.......................................... John B. Smith
(2)Estate of John B. Smith...................... John B. Smith, Jr., Executor
</TABLE>
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED FEBRUARY 21, 2000
Acquisition of the Assets of
INTERNATIONAL BALANCED PORTFOLIO
a separate investment portfolio of
SMITH BARNEY WORLD FUNDS, INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
By and in Exchange for Shares of
INTERNATIONAL EQUITY PORTFOLIO
a separate investment portfolio of
SMITH BARNEY WORLD FUNDS, INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Prospectus/Proxy Statement is being furnished to shareholders of the
International Balanced Portfolio (the "Acquired Fund") of Smith Barney World
Funds, Inc. (the "Company") in connection with a proposed plan of
reorganization to be submitted to shareholders of the Acquired Fund for
consideration at a Special Meeting of Shareholders to be held on April 7, 2000
at 10:00 a.m. (the "Meeting"), at the offices of Salomon Smith Barney Inc.
("Salomon Smith Barney") located at 7 World Trade Center, New York, New York
10048, or any adjournment or adjournments thereof.
The plan of reorganization provides for all of the assets of the Acquired
Fund to be acquired by the International Equity Portfolio (the "Acquiring
Fund") of the Company in exchange for shares of the Acquiring Fund and the
assumption by the Acquiring Fund of liabilities of the Acquired Fund
(hereinafter referred to as the "Reorganization"). (The Acquiring Fund and the
Acquired Fund are sometimes referred to hereinafter as the "Funds" and
individually as a "Fund"). The Reorganization will be accomplished pursuant to
an amendment to the Company's Charter that will reclassify shares of the
Acquired Fund into shares of the Acquiring Fund. As a result of the
Reorganization, each shareholder of the Acquired Fund will receive that number
of shares of the Acquiring Fund having an aggregate value equal to the
aggregate net asset value of such shareholder's shares of the Acquired Fund
immediately prior to the Reorganization. Holders of Class A shares of the
Acquired Fund will receive Class A shares of the Acquiring Fund, and no sales
charge will be imposed on the Class A shares of the Acquiring Fund received by
the Acquired Fund Class A shareholders. Holders of Class B or Class L shares
of the Acquired Fund will receive Class B or Class L shares, respectively, of
the Acquiring Fund. No contingent deferred sales charge ("CDSC") will be
imposed on Class B or Class L shares, nor those Class A shares otherwise
subject to a CDSC, of the Acquiring Fund upon consummation of the
Reorganization.
<PAGE>
However, any CDSC which is applicable to a shareholder's investment will
continue to apply, and in calculating the applicable CDSC payable upon the
subsequent redemption of Class B or Class L shares of the Acquiring Fund, the
period during which an Acquired Fund shareholder held Class B or Class L
shares of the Acquired Fund will be counted. This transaction is structured to
be tax-free for federal income tax purposes to shareholders and to both the
Acquiring Fund and the Acquired Fund.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
The Acquiring Fund is a separate diversified investment portfolio of the
Company, an open-end, management investment company, whose investment
objective is to seek total return on its assets from growth of capital and
income. The Acquiring Fund invests primarily in equity securities of foreign
companies, including exchange traded and over-the-counter common stocks and
preferred shares, debt securities convertible into equity securities, warrants
and rights relating to equity securities. The Acquired Fund is another
separate investment portfolio of the Company, but the Acquired Fund is non-
diversified. The Acquired Fund's investment objective is to provide a
competitive total return on its assets from growth of capital and income
through a portfolio invested primarily in securities of established non-U.S.
issuers. The Acquired Fund invests primarily in equity and debt securities of
foreign issuers, including common stocks and preferred shares, debt securities
convertible into equity securities, depository receipts and warrants and
rights relating to equity securities. Debt securities in which the Fund
invests consist primarily of foreign government obligations, but may include
corporate bonds.
SSB Citi Fund Management LLC, 388 Greenwich Street, New York, New York 10013
(the "Manager"), serves as investment manager to both the Acquiring Fund and
the Acquired Fund. The Manager is a wholly owned subsidiary of Salomon Smith
Barney Holdings, Inc. which, in turn, is a wholly owned subsidiary of
Citigroup Inc.
The investment policies of the Acquiring Fund are generally similar to those
of the Acquired Fund. Certain differences in the investment policies of the
Acquiring Fund and the Acquired Fund, however, are described under "Investment
Objectives and Policies" in this Prospectus/Proxy Statement.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that
a prospective investor should know before investing. Certain relevant
documents listed below, which have been filed with the Securities and Exchange
Commission ("SEC"), are incorporated in whole or in part by reference. A
Statement of Additional Information dated February 21, 2000, relating to this
Prospectus/Proxy
2
<PAGE>
Statement and the Reorganization, has been filed with the SEC and is
incorporated by reference into this Prospectus/Proxy Statement. A copy of such
Statement of Additional Information is available upon request and without
charge by writing to the Acquiring Fund at the address listed on the cover
page of this Prospectus/Proxy Statement or by contacting a Salomon Smith
Barney Financial Consultant. The Statement of Additional Information is not a
Prospectus and should be read in conjunction with the Prospectus.
1. The Prospectus of Smith Barney World Funds, Inc.--International Equity
Portfolio dated February 28, 1999 is incorporated in its entirety by reference
and a copy accompanies this Proxy Statement/Prospectus.
2. The Prospectus of Smith Barney World Funds, Inc.--International Balanced
Portfolio dated February 28, 1999 is incorporated in its entirety by reference
and a copy accompanies this Proxy Statement/Prospectus.
3. The Annual Report of Smith Barney World Funds, Inc.--International Equity
Portfolio dated October 31, 1999, is incorporated in its entirety by reference
and a copy accompanies this Proxy Statement/Prospectus.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a copy of
the Plan of Reorganization (the "Plan") for the proposed transaction. The
Reorganization will be accomplished pursuant to an amendment to the Company's
Charter reclassifying shares of the Acquired Fund as shares of the Acquiring
Fund, substantially in the form set forth as Annex I to the Plan. Any term not
defined herein shall have the meaning assigned to it in the accompanying
prospectus of the Acquiring Fund.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL MATERIALS.................................................... 4
FEE TABLES.............................................................. 5
SUMMARY................................................................. 8
PRINCIPAL RISK FACTORS.................................................. 13
INFORMATION ABOUT THE REORGANIZATION.................................... 14
INFORMATION ABOUT THE ACQUIRING FUND.................................... 20
INFORMATION ABOUT THE ACQUIRED FUND..................................... 20
VOTING INFORMATION...................................................... 21
OTHER BUSINESS.......................................................... 22
EXHIBIT A: PLAN OF REORGANIZATION
AND ANNEX I........................................................... A-1
</TABLE>
ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated February 21, 2000
relating to this Prospectus/Proxy Statement and the Reorganization, will be
sent (without charge) to all shareholders requesting a copy of such Statement
of Additional Information.
1. Statement of Additional Information of Smith Barney World Funds, Inc.--
International Equity Portfolio dated February 28, 1999, as supplemented
December 15, 1999 and February 21, 2000.
2. Annual Report of Smith Barney World Funds, Inc.--International Balanced
Portfolio for the fiscal year ended October 31, 1999.
4
<PAGE>
FEE TABLES
Following are tables showing the current costs and expenses of the Acquired
Fund and the Acquiring Fund and the pro forma costs and expenses expected to
be incurred by the Acquiring Fund after giving effect to the Reorganization,
each based on the maximum sales charge or maximum CDSC that may be incurred at
the time of purchase or redemption. Shareholders of the Acquired Fund will
experience a decrease in expenses with respect to Class A, Class B, and Class
L shares following the Reorganization.
CLASS A SHARES
<TABLE>
<CAPTION>
Acquired Acquiring
Fund Fund Pro Forma
-------- --------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum sales charge imposed on purchases
(as a percentage of offering price).......... 5.00% 5.00%* 5.00%
Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower).......................... None** None** None**
Annual Operating Expenses:
(as a percentage of average net assets)
Management fees................................ 0.85% 0.85% 0.85%
12b-1 fees..................................... 0.25% 0.25% 0.25%
Other expenses***.............................. 1.11% 0.18% 0.18%
---- ---- ----
Total Operating Expenses....................... 2.21% 1.28% 1.28%
==== ==== ====
</TABLE>
- -----------
* The sales charge imposed on purchases will be waived with regard to the
Acquiring Fund's exchange of its shares for the Acquired Fund's assets;
you will not pay any sales charge in connection with your receipt of the
Acquiring Fund's Class A shares pursuant to the Reorganization.
** You may buy Class A shares in amounts of $500,000 or more at net asset
value (without an initial sales charge), but if you redeem those shares
within 12 months of their purchase, you will pay a deferred sales charge
of 1.00%. However, if you receive Class A shares pursuant to the
Reorganization, you may redeem those shares at any time and you will not
have to pay any deferred sales charge unless your 12-month holding period
commencing with your purchase of Class A shares of the Acquired Fund has
not yet expired.
*** "Other expenses" for shares of the Acquired Fund and the Class A shares of
the Acquiring Fund are based on expenses for the fiscal year ended
October 31, 1999.
5
<PAGE>
CLASS B SHARES
<TABLE>
<CAPTION>
Acquired Acquiring
Fund Fund Pro Forma
-------- --------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum sales charge imposed on purchases (as a
percentage of offering price)................ None None None
Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower).......................... 5.00%* 5.00%* 5.00%*
Annual Operating Expenses:
(as a percentage of average net assets)
Management fees................................ 0.85% 0.85% 0.85%
12b-1 fees..................................... 1.00% 1.00% 1.00%
Other expenses**............................... 1.18% 0.23% 0.23%
---- ---- ----
Total Operating Expenses....................... 3.03% 2.08% 2.08%
==== ==== ====
</TABLE>
- -----------
* If you receive Class B shares pursuant to the Reorganization, you may
redeem those shares at any time and you will not have to pay any deferred
sales charge. However, if you have held Class B shares of the Acquired
Fund for less than 6 years, you will be subject to the applicable deferred
sales charge.
** "Other expenses" for Class B shares of the Acquired Fund and the Acquiring
Fund are based on expenses for the fiscal year ended October 31, 1999.
CLASS L SHARES*
<TABLE>
<CAPTION>
Acquired Acquiring
Fund Fund Pro Forma
-------- --------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum sales charge imposed on purchases (as
a percentage of offering price)............. 1.00% 1.00% 1.00%
Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower)......................... 1.00%** 1.00%** 1.00%**
Annual Operating Expenses:
(as a percentage of average net assets)
Management fees............................... 0.85% 0.85% 0.85%
12b-1 fees.................................... 1.00% 1.00% 1.00%
Other expenses***............................. 1.35% 0.22% 0.22%
---- ---- ----
Total Operating Expenses...................... 3.20% 2.07% 2.07%
==== ==== ====
</TABLE>
- -----------
* Class L shares do not have a conversion feature and, therefore, are
subject to an ongoing distribution fee. As a result, long-term
shareholders of Class L
6
<PAGE>
shares may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers,
Inc.
** If you receive Class L shares pursuant to the Reorganization, you may
redeem those shares at any time and you will not have to pay any deferred
sales charge. However, if you have held Class L shares of the Acquired Fund
for less than one year, you will be subject to the deferred
sales charge.
*** "Other expenses" for Class L shares of the Acquired Fund and the Acquiring
Fund are based on expenses for the fiscal year ended October 31, 1999.
Example
This example helps you compare the costs of investing in the Acquiring Fund
with the costs of investing in the Acquired Fund. Your actual costs may be
higher or lower. The example assumes:
. You invest $10,000 in each Fund for the period shown.
. You redeem all of your shares at the end of each period.
. Your investment has a 5% return each year.
. You reinvest all distributions and dividends without a sales charge.
. The Funds' operating expenses remain the same.
Number of years you own your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years*
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Class A
Acquired Fund................................. $713 $1,157 $1,625 $2,917
Acquiring Fund................................ 624 886 1,167 1,968
Class B
Acquired Fund................................. $806 $1,236 $1,691 $3,161
Acquiring Fund................................ 711 952 1,219 2,209
Class L
Acquired Fund................................. $520 $1,076 $1,751 $3,568
Acquiring Fund................................ 408 742 1,202 2,476
</TABLE>
- ----------
* 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.
Shareholders of the Acquired Fund will experience a decrease in costs with
respect to Class A, Class B, and Class L shares following the Reorganization.
This example should not be considered representations of past or future
expenses and actual expenses may be greater or less than those shown.
7
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the Plan
of Reorganization, a copy of which is attached to this Prospectus/Proxy
Statement as Exhibit A and the Company's Charter amendment attached as Annex I
to the Plan of Reorganization, the accompanying Prospectus of the Acquiring
Fund dated February 28, 1999, the Prospectus of the Acquired Fund dated
February 28, 1999 and the Statement of Additional Information of the Smith
Barney World Funds, Inc. dated February 21, 2000, which is available upon
request.
Proposed Reorganization. The Plan provides for the acquisition of all of the
assets and the assumption of the liabilities of the Acquired Fund by the
Acquiring Fund and the issuance of shares of the Acquiring Fund to
shareholders of the Acquired Fund. (The foregoing proposed transaction is
referred to in this Prospectus/Proxy Statement as the "Reorganization.") The
Reorganization will be accomplished pursuant to an amendment to the Charter of
the Company that will reclassify shares of the Acquired Fund as shares of the
Acquiring Fund, substantially in the form set forth as Annex I to the Plan of
Reorganization (Exhibit A). As a result of the Reorganization, each
shareholder of the Acquired Fund will become the owner of that number of full
and fractional shares of the Acquiring Fund having an aggregate value equal to
the aggregate net asset value of the shareholder's shares of the Acquired Fund
as of the close of business on the date that the Acquired Fund's assets are
exchanged for shares of the Acquiring Fund. (Shareholders of Class A, Class B
or Class L shares of the Acquired Fund will receive Class A, Class B or Class
L shares, respectively, of the Acquiring Fund). See "Information About the
Reorganization--Plan of Reorganization."
For the reasons set forth below under "Reasons for the Reorganization," the
Board of Directors of the Company, including the Directors of the Company who
are not "interested persons" (the "Independent Directors"), as that term is
defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
have concluded that the Reorganization would be in the best interests of the
shareholders of the Acquired Fund and that the interests of the Acquired
Fund's existing shareholders will not be diluted as a result of the
transaction contemplated by the Reorganization and therefore has submitted the
Plan for approval by the Acquired Fund's shareholders. The Board of Directors
of the Company has reached similar conclusions with respect to the Acquiring
Fund and has also approved the Reorganization in respect of the Acquiring
Fund.
Approval of the Reorganization will require the affirmative vote of a
majority of the outstanding shares of the Acquired Fund. For purposes of
voting with respect to the Reorganization, the Class A, Class B and Class L
shares of the Acquired Fund will vote together as a single class. See "Voting
Information."
8
<PAGE>
Tax Consequences. Prior to completion of the Reorganization, the Funds will
have received an opinion of counsel that, based on customary representations
and assumptions, no gain or loss will be recognized by the Acquired Fund or
its shareholders for federal income tax purposes as a result of the
Reorganization. The holding period and aggregate tax basis of the Acquiring
Fund shares received by an Acquired Fund shareholder will be the same as the
holding period and aggregate tax basis of the shares of the Acquired Fund
previously held by such shareholder. In addition, the holding period and tax
basis of the assets of the Acquired Fund in the hands of the Acquiring Fund as
a result of the Reorganization will be the same as in the hands of the
Acquired Fund immediately prior to the Reorganization.
Investment Objectives and Policies. The Acquiring Fund and the Acquired Fund
have generally similar investment objectives, policies and restrictions. The
Acquiring Fund is a diversified portfolio whose investment objective is total
return on its assets from growth of capital and income. It invests primarily
in equity securities of foreign companies, including exchange traded and over-
the-counter common stocks and preferred shares, debt securities convertible
into equity securities, warrants and rights relating to equity securities. The
Acquired Fund is a non-diversified portfolio whose investment objective is to
provide a competitive total return on its assets from growth of capital and
income through a portfolio invested primarily in securities of established
non-U.S. issuers. It invests primarily in equity and debt securities of
foreign issuers, including common stocks and preferred shares, debt securities
convertible into equity securities, depository receipts and warrants and
rights relating to equity securities. Debt securities in which the Fund
invests consist primarily of foreign government obligations, but may include
corporate bonds. For a discussion of the differences between the investment
policies of the Acquiring Fund and the Acquired Fund, see "Comparison of
Investment Objectives and Policies."
Comparison of Investment Objectives and Policies. Despite the similar
investment objectives, there are some differences between the investment
policies that the two Funds pursue to fulfill their investment objectives. The
primary differences between the Funds' investment policies relate to the fact
that the Acquiring Fund invests primarily in equity securities of foreign
companies, while the Acquired Fund also invests in the debt securities of
foreign issuers, consisting primarily of foreign government obligations, but
also including corporate bonds. The manager of the Acquired Fund selects
investments for either their capital appreciation or income potential,
attempting to achieve a balance between equity and debt securities so that
neither normally comprises more than 70%, or less than 30% of its assets. The
manager may vary its allocation, depending on the manager's assessment of
current economic and market conditions.
The final material difference between the investment policies of the Funds
stems from the fact that the Acquired Fund is a non-diversified investment
company and the Acquiring Fund is a diversified investment company. In order
to
9
<PAGE>
be classified as a diversified investment company, the Acquiring Fund may not,
with respect to 75% of its assets, invest more than 5% of its total assets in
the securities of one issuer (except U.S. Government securities) or own more
than 10% of the outstanding voting securities of any one issuer. As a non-
diversified fund, the Acquired Fund is not subject to these restrictions.
However, both Funds intend to conduct their operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which will relieve the Funds of any liability
for federal income tax to the extent their earnings are distributed to
shareholders. To qualify as a regulated investment company, both Funds will,
among other things, limit their investments so that, at the close of each
quarter of their taxable year (1) not more than 25% of the market value of
each Fund's total assets will be invested in the securities of a single issuer
and (2) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of each Fund's total assets will be invested in
the securities of a single issuer.
The manager of both Funds believes that there are no differences between the
investment policies of the Funds and no differences in the 1940 Act
regulations applicable to both Funds that would require the sale of any
securities of the Acquired Fund because of the Reorganization. However, if
such a sale were required, the manager would pay all costs associated with
such sale.
Purchase and Redemption Procedures. The purchase and redemption procedures
available to shareholders of the Acquiring Fund are identical to those of the
Acquired Fund. Purchase of shares of the Acquiring Fund and the Acquired Fund
may be made through a Salomon Smith Barney, Inc. ("Salomon Smith Barney")
Financial Consultant or a broker that clears securities transactions through
Salomon Smith Barney on a fully disclosed basis (a "Dealer Representative").
Class A shares of both the Acquiring Fund and the Acquired Fund are sold
subject to a maximum initial sales charge of 5.00% of the public offering
price. Class A shares of either Fund may be purchased at a reduced sales
charge or at net asset value, determined by aggregating the dollar amount of a
new purchase and the total asset value of all Class A shares of Funds offered
by Salomon Smith Barney held by such person that are exchangeable with Class A
shares of either Fund and applying the (reduced) sales charge applicable to
such aggregate. Purchases of Class A shares of both Funds, which when combined
with current holdings of Class A shares offered with a sales charge equal or
exceed $500,000 in the aggregate, will be made at net asset value, with no
sales charge, but will be subject to a CDSC of 1.00% on redemptions made
within 12 months. Class B shares of both Funds may be purchased without an
initial sales charge but are subject to a CDSC of 5.00% payable upon certain
redemptions. The charge is reduced over time and there is no CDSC after six
years.
10
<PAGE>
Class L shares of both Funds are sold with an initial sales charge of 1.00%
and are subject to a CDSC if shares are redeemed within one year of purchase.
Class L shares are also subject to higher ongoing expenses than Class A
shares.
Class A shares of both the Acquiring and the Acquired Fund may be redeemed
at their respective net asset values per share next determined without charge,
except as set forth in the preceding paragraph. Class B shares of both Funds
may be redeemed at their net asset value per share, subject to a maximum CDSC
of 5.00% of the lower of original cost or redemption proceeds, declining by
0.50% the first year after purchase and by 1.00% each year thereafter to zero.
Class L shares of both Funds may be redeemed at their net asset value per
share, subject to a CDSC of 1.00% if such shares are redeemed during the first
12 months following their purchase. Shares of both Funds held by Salomon Smith
Barney as custodian must be redeemed by submitting a written request to a
Salomon Smith Barney Financial Consultant. All other shares may be redeemed
through a Salomon Smith Barney Financial Consultant, Dealer Representative or
by forwarding a written request for redemption to Smith Barney World Funds,
Inc./[name of fund] (please specify class); c/o PFPC Global Fund Services,
P.O. Box 9699, Providence, RI 02940-9699. See "Redeeming Shares" in the
accompanying Prospectus of the Acquiring Fund.
Distribution Arrangements. To compensate Salomon Smith Barney for the
service it provides and for the expenses it bears, both the Acquiring Fund and
the Acquired Fund have adopted a plan of distribution pursuant to Rule 12b-1
under the 1940 Act (the "12b-1 Plan"). Under the 12b-1 Plan, each Fund pays
Salomon Smith Barney a service fee, accrued daily and paid monthly, calculated
at the annual rate of 0.25% of the value of the Fund's average daily net
assets attributable to the Class A shares. The service fee is primarily used
to pay Salomon Smith Barney Financial Consultants for servicing shareholder
accounts. In addition, each Fund pays Salomon Smith Barney a distribution fee
accrued daily and paid monthly calculated at the annual rate of 1.00% of the
Fund's average daily net assets with respect to Class B shares and Class L
shares. The distribution fee is used 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 Salomon 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 Salomon Smith Barney associated with the sale of fund
shares, including lease, utility, communications and sales promotion expenses.
For each of the Class B and Class L shares of the Funds, the distribution fee
is calculated at the annual rate of 0.75% of the value of the average net
assets attributable to the shares of the respective Class.
Payments under each 12b-1 Plan are not tied exclusively to the distribution
and shareholder services expenses actually incurred by Salomon Smith Barney
and
11
<PAGE>
the payments may exceed distribution expenses actually incurred. The Board of
Directors will evaluate the appropriateness of each 12b-1 Plan and its payment
terms on a continuing basis and in so doing will consider all relevant
factors, including expenses borne by Salomon Smith Barney, amounts received
under the 12b-1 Plan and proceeds of the deferred sales charges.
Exchange Privileges. The exchange privileges available to shareholders of
the Acquiring Fund are identical to those available to shareholders of the
Acquired Fund. Shareholders of both the Acquired Fund and the Acquiring Fund
may exchange at net asset value all or a portion of their shares for shares of
the same class in certain other funds of the Smith Barney Mutual Funds. Any
exchange will be a taxable event for which a shareholder may have to recognize
a gain or a loss under federal income tax provisions. No initial sales charge
is imposed on the shares being acquired in an exchange, and no CDSC is imposed
on the shares being disposed of in the exchange. A sales charge differential,
however, may apply to exchanges of Class A shares with other Smith Barney
Mutual Funds. For purposes of computing the CDSC that may be payable upon a
disposition, the Class B and Class L shares and those Class A shares that are
subject to a CDSC acquired in the exchange will be deemed to have been
purchased on the same date as the Class B, Class L and Class A shares that
were exchanged therefor. Class B shares and Class A shares subject to a CDSC
(shares purchased in an amount greater than $500,000 and not subject to an
initial sales charge) of the Funds that are exchanged for Class B and Class A
shares, respectively, of other Smith Barney Mutual Funds imposing a higher
CDSC will be subject to the higher applicable CDSC. See "Exchanging Shares" in
the accompanying Prospectus of the Acquiring Fund.
Dividends. The Acquiring Fund generally makes capital gain distributions and
pays dividends, if any, once a year, typically in December. The Acquiring Fund
may pay additional distributions and dividends at other times if necessary for
it to avoid a federal tax. The Acquired Fund generally declares and pays
dividends quarterly and makes capital gain distributions, if any, once a year,
typically in December. The Acquired Fund may pay additional distributions and
dividends at other times if necessary for it to avoid a federal tax. With
respect to both Funds, unless a shareholder otherwise instructs, dividends and
capital gains distributions will be reinvested automatically in additional
shares of the same class at net asset value, subject to no sales charge or
CDSC. The distribution option currently in effect for a shareholder of the
Acquired Fund will remain in effect after the Reorganization. After the
Reorganization, however, the former Acquired Fund shareholders may change
their distribution option at any time by contacting a Salomon Smith Barney
Financial Consultant. See "Dividends, Distributions and Taxes" in the
accompanying Prospectus of the Acquiring Fund.
Shareholder Voting Rights. The Company is registered with the SEC as an
open-end management investment company. The Acquiring Fund and the Acquired
Fund are both separate series of the Company, a Maryland corporation having a
12
<PAGE>
Board of Directors. Shareholders of both funds have comparable voting rights.
The Company does not hold a meeting of shareholders annually, and there is
normally no meeting of shareholders held 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 of the
Company then in office will call a shareholders' meeting for the election of
Directors.
Shareholders of the Acquired Fund may redeem their shares at net asset value
(subject to any applicable CDSC) prior to the date of the Reorganization. For
purposes of voting with respect to the Reorganization, the Class A, Class B
and Class L shares of the Acquired Fund will vote together as a single class.
PRINCIPAL RISK FACTORS
Due to the similarities of investment objectives and policies of the
Acquiring Fund and the Acquired Fund, the investment risks are substantially
similar. Such risks are generally those typically associated with investing in
foreign securities. The following is a summary of the principal risk factors
associated with investing in shares of the Acquiring Fund and a comparison
with those applicable to the Acquired Fund. This summary is qualified in its
entirety by the accompanying Prospectus of the Acquiring Fund.
Investors could lose money on their investment in the Acquiring Fund, or the
Acquiring Fund may not perform as well as other investments, if:
. Foreign securities prices decline
. Adverse governmental action or political, economic or market instability
affects a foreign country or region.
. The currency in which a security is priced declines in value relative to
the U.S. dollar
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular security proves to be incorrect.
Many foreign countries in which the Acquiring Fund invests have markets that
are less liquid and more volatile than markets in the U.S. In some foreign
countries, less information is available about foreign issuers and markets
because of less rigorous accounting and regulatory standards than in the U.S.
Currency fluctuations could erase investment gains or add to investment
losses. The risk of investing in foreign securities is greater in the case of
emerging markets.
In Europe, Economic and Monetary Union ("EMU") and the introduction of a
single currency began on January 1, 1999. There are significant political and
economic risks associated with EMU, which may increase the volatility of the
Acquiring Fund's European investments and present valuation problems.
13
<PAGE>
Currency Transactions. The Acquiring Fund may enter into transactions to buy
or sell currencies at a future date, which may be a few days or a number of
months. The Fund may enter into these forward currency contracts to:
. Settle transactions in securities quoted in foreign currencies
. Attempt to protect against the economic impact of adverse changes in the
value of the U.S. dollar.
The Fund may not fully benefit from or may lose money on forward currency
transactions if changes in currency rates do not occur as anticipated or do
not correspond accurately to changes in the value of the Fund's holdings.
In comparing these risks with the risks of the Acquired Fund, the risks are
almost identical. The one material difference is that investors in the
Acquired Fund are also subject to the risks of investing in debt securities,
including the possibility that debt securities may lose value because of an
increase in market interest rates, a decline in an issuer's credit rating or
financial condition or a default.
INFORMATION ABOUT THE REORGANIZATION
Plan of Reorganization. The following summary of the Plan is qualified in
its entirety by reference to the Plan (Exhibit A hereto). The Plan provides
that the Acquiring Fund will acquire all of the assets of the Acquired Fund in
exchange for Class A, Class B and Class L shares of the Acquiring Fund and the
assumption by the Acquiring Fund of liabilities of the Acquired Fund on April
14, 2000 or such later date as may be agreed upon by the parties (the "Closing
Date").
Prior to the Closing Date, the Acquired Fund will endeavor to discharge all
of its known liabilities and obligations. The number of full and fractional
shares of Class A, B and L shares to be issued to the Acquired Fund
shareholders will be determined on the basis of the Acquiring Fund's Class A,
B and L shares' and the Acquired Fund's Class A, B and L shares' relative net
asset values. The net asset value per share of each class will be determined by
dividing assets, less liabilities, by the total number of such outstanding
shares. The Reorganization will be accomplished pursuant to an amendment to
the Charter of the Company that will reclassify shares of the Acquired Fund as
shares of the Acquiring Fund, substantially in the form set forth as Annex I
to the Plan of Reorganization (Exhibit A).
The Acquired Fund and the Acquiring Fund will utilize the procedures set
forth in their respective Prospectuses to determine the value of their
respective portfolio securities and to determine the aggregate value of each
Fund's portfolio. The methods of valuation will also be consistent with the
requirements of Rule 22c-1 under the 1940 Act and the interpretations of such
rule by the SEC's Division of Investment Management.
14
<PAGE>
Prior to the Closing Date, dividends on the Acquired Fund's shares,
consisting of substantially all of the Acquired Fund's undistributed taxable
net investment income and undistributed taxable capital gains will be declared
as of the first business day prior to the Closing Date (the term Closing Date
shall have the meaning assigned to it in the Plan), to the shareholders of
record as of the close of business on the second day prior to the Closing
Date, payable on the first day prior to the Closing Date, with proceeds being
paid to the Fund's Dividend Paying Agent which shall pay such proceeds in cash
or immediately invest the proceeds for the account of the shareholders of
record in accordance with the Acquired Fund's current Prospectus, on the date
that the dividend is paid, in additional shares at the net asset value per
share of the applicable class next determined following the time of the
cash payment to the Dividend
Agent.
On the Closing Date or as soon thereafter as conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to shareholders of record
as of the close of business on the Closing Date the full and fractional shares
of the Acquiring Fund received by the Acquired Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the
names of the Acquired Fund's shareholders on the share records of the
Acquiring Fund's transfer agent. Each account will represent the respective
pro rata number of full and fractional shares of the Acquiring Fund due to
each of the Acquired Fund's shareholders.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan. The Plan may be abandoned at any time prior to the Closing
Date upon the vote of a majority of the Board of Directors of the Company. In
addition, at any time prior to or after approval of the Plan, the Company may
amend any provisions of the Plan upon authorization of the Company's Board of
Directors, with or without shareholder approval.
Approval of the Plan will require the affirmative vote of a majority of the
outstanding shares of the Acquired Fund. If the Reorganization is not approved
by shareholders of the Acquired Fund, the Board of Directors of the Company
will consider courses of action available to it, including re-submitting the
Reorganization proposal to shareholders.
Description of the Acquiring Fund's Shares. Pursuant to the Reorganization
and in accordance with the Plan, each shareholder of Class A, Class B and
Class L shares of the Acquired Fund will become a shareholder of Class A,
Class B and Class L shares, respectively, of the Acquiring Fund. Each share of
the Acquiring Fund represents a proportional interest in the Acquiring Fund's
investment portfolio. The Class A shares and the Class L shares of the
Acquiring Fund are normally purchased subject to a 5.00% and 1.00% initial
sales charge, respectively. However, no sales charge will be paid on shares
received pursuant to this
15
<PAGE>
Reorganization. Also, no fee will be charged upon redemption of shares of the
Acquiring Fund received pursuant to this Reorganization. For a complete
description of the Acquiring Fund's shares, please see "Choosing a class of
shares to buy"; "Comparing the fund's classes"; "Sales charges"; "More about
deferred sales charges"; "Buying shares"; "Exchanging shares"; "Redeeming
shares"; and "Other things to know about share transactions," in the Acquiring
Fund's Prospectus which was mailed herewith.
Reasons for the Reorganization. The Board of Directors of the Company has
determined that it is in the best interest of the Funds' shareholders to
combine the Acquired Fund with the Acquiring Fund. The Funds have generally
similar investment objectives and policies and have the same investment
adviser, distributor, transfer agent and Board of Directors. In reaching this
conclusion, the Board considered a number of factors as described below.
Among the factors considered by the Board of Directors is the fact that the
Acquired Fund does not have sufficient assets to justify maintaining this fund
as a separate investment portfolio (i.e. this fund has never exceeded $20.6
million in assets). The Acquired Fund, which has been in existence for
approximately five years, has not grown and in light of the history of the
fund, there is no foreseeable potential for future growth. The manager
subsidized this fund by absorbing expenses, including waiving the management
fee, in several years since the inception of the fund. Without these
subsidies, the Acquired Fund would have had a substantially higher expense
ratio and substantially lower performance.
The Board of Directors also considered that the Reorganization would permit
the shareholders of the Acquired Fund to pursue substantially the same
investment goals in a larger fund. A larger fund should enhance the ability of
the manager to effect portfolio transactions on more favorable terms and give
the manager greater flexibility and the ability to select a larger number of
portfolio securities for the Acquiring Fund, with the attendant benefit of
increased diversification. In addition, the larger aggregate asset base would
result in lower overall expense ratios for the Acquired Fund's shareholders
through the spreading of both fixed and variable costs of operations over a
larger asset base. As a general rule, economies of scale can be expected to be
realized with respect to fixed expenses, such as costs of printing and fees
for professional services, although expenses that are based on the value of
assets or the number of shareholder accounts, such as custody fees, would be
largely unaffected by the Reorganization.
Both the Acquired Fund and the Acquiring Fund are managed by the same
investment adviser and have the same portfolio managers, i.e., the individuals
primarily responsible for each Fund's day-to-day investment decisions. In
particular, the Board was presented with information to the effect that, with
two different funds, Salomon Smith Barney was confronted with operational and
shareholder services issues, including (i) dilution of the firm's money
management
16
<PAGE>
and research expertise due to the splitting of attention between the two
highly similar funds; and (ii) investor confusion associated with offering
similar funds. The Board also considered that no sales charges would be
imposed in effecting the Reorganization and the advantages of eliminating
duplication inherent in marketing two funds with similar investment
objectives.
Information regarding operating expenses of the Acquired Fund and the
Acquiring Fund reflecting expenses for the fiscal year ended October 31, 1999,
is included under the caption "Fee Tables" in this Prospectus/Proxy Statement.
Based upon these levels of expenses, assuming the same level of assets of the
combined fund after the Reorganization as on April 14, 2000, it is estimated
that Class A, Class B and Class L shareholders of the Acquired Fund should
experience a 0.93%, 0.95% and 1.13% decrease, respectively, in total operating
expenses, resulting from a decrease in other operating expenses.
The Board of Directors also considered liquidation of the Acquired Fund. If
the Acquired Fund were to liquidate, the shareholders would receive the net
asset value of their holdings in cash pursuant to the liquidation and would
recognize any gain or loss then built into their shares. Pursuant to the
Reorganization, the shareholders of the Acquired Fund will receive an amount
of Class A, Class B, or Class L shares of the Acquiring Fund equal to the net
asset value of their holdings in the Acquired Fund in a tax free
reorganization. Thus, shareholders may defer the recognition of gain or loss
on the disposition of their Acquired Fund shares pursuant to the
Reorganization. However, if the shareholder desired cash and a recognition for
tax purposes of the gain or loss built in such shareholder's shares, the
shareholder would have the right to redeem those shares in the Acquiring Fund
at the shares' net asset value for cash and with no redemption fee charged.
Thus, by pursuing the Reorganization, rather than a liquidation of the
Acquired Fund, shareholders have the option of achieving the same result as a
liquidation or they may defer tax consequences. In addition, because a
liquidation would require all of the Acquired Fund's investments to be sold,
there would be lower transaction costs involved in the Reorganization.
The Board also considered, among other things, the terms and conditions of
the Reorganization and the comparative investment performance of the Funds. In
addition, the Board was advised that the Reorganization would be effected as a
tax-free reorganization.
In light of the foregoing, the Board of Directors of the Smith Barney World
Funds, Inc. including the Independent Directors, has determined that it is in
the best interests of the Acquired Fund and its shareholders to combine with
the Acquiring Fund. The Board of Directors has also determined that a
combination of the Acquired Fund and the Acquiring Fund would not result in a
dilution of the interests of the Acquired Fund's shareholders and that the
Reorganization would be effected as a tax-free reorganization. Accordingly,
the Board of Directors,
17
<PAGE>
including a majority of the Independent Directors, has determined that the
Reorganization is in the best interests of the Acquiring Fund's shareholders
and that the interests of the Acquiring Fund's shareholders would not be
diluted as a result of the Reorganization.
Federal Income Tax Consequences. The exchange of assets for shares of the
Acquiring Fund is intended to qualify for federal income tax purposes as a
tax-free reorganization under Section 368(a) of the Code. As a condition to
the closing of the Reorganization, the Acquiring Fund and the Acquired Fund
will receive an opinion from Sullivan & Cromwell, counsel to the Company, to
the effect that, on the basis of customary representations and assumptions,
and the existing provisions of the Code, U.S. Treasury regulations issued
thereunder, current administrative rules, pronouncements and court decisions,
for federal income tax purposes, upon consummation of the Reorganization:
(1) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund's shares and the assumption by
the Acquiring Fund of scheduled liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a) of the
Code, and the Acquiring Fund and the Acquired Fund will each be a "party
to a reorganization" within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for the Acquiring
Fund's shares and the assumption of scheduled liabilities of the Acquired
Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in exchange
for the Acquiring Fund's shares and the assumption of scheduled
liabilities of the Acquired Fund or upon the distribution (whether actual
or constructive) of the Acquiring Fund's shares to the Acquired Fund's
shareholders;
(4) no gain or loss will be recognized by shareholders of the Acquired
Fund upon the exchange of their shares of the Acquired Fund for shares of
the Acquiring Fund;
(5) the aggregate tax basis for shares of the Acquiring Fund received by
each shareholder of the Acquired Fund pursuant to the Reorganization will
be the same as the aggregate tax basis of shares of the Acquired Fund
surrendered therefor, and the holding period of shares of the Acquiring
Fund to be received by each shareholder of the Acquired Fund will include
the period during which shares of the Acquired Fund exchanged therefor
were held by such shareholder (provided shares of the Acquired Fund were
held as capital assets on the date of the Reorganization); and
(6) the tax basis to the Acquiring Fund of the Acquired Fund's assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets
18
<PAGE>
to the Acquired Fund immediately prior to the Reorganization, and the
holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which those assets were held
by the Acquired Fund.
Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the
Acquired Fund should also consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
Capitalization. The following table shows the capitalization of the
Acquiring Fund and the Acquired Fund as of February 8, 2000, the Record Date,
and on a pro forma basis as of that date, giving effect to the proposed
acquisition of assets at net asset value.
<TABLE>
<CAPTION>
Acquiring Acquired
Fund Fund
(Unaudited) (Unaudited)
-------------- -------------
(In thousands, except per share values)
<S> <C> <C>
Class A Shares
Net assets................ $ 650,944 $ 8,784
Net asset value per share. 32.85 15.46
Shares outstanding........ 24,244 568
Class B Shares
Net assets................ $ 266,967 $ 3,266
Net asset value per share. 32.25 15.49
Shares outstanding........ 8,291 209
Class L Shares
Net assets................ $ 219,095 $ 2,487
Net asset value per share. 31.75 15.42
Shares outstanding........ 7,360 161
Class Y Shares
Net assets................ $ 442,917 $ 0
Net asset value per share. 32.93 0
Shares outstanding........ 13,450 0
Class Z Shares
Net assets................ $ 187,840 $ 0
Net asset value per share. 32.90 0
Shares outstanding........ 5,719 0
</TABLE>
As of the Record Date, the officers and Directors of the Acquired Fund
beneficially owned as a group less than 1% of the outstanding shares of each
class of the Acquired Fund. To the best knowledge of the Directors of the
Acquired Fund, as of the Record Date, no shareholder or "group" (as that term
is used in Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange
Act")),
19
<PAGE>
except as set forth in the table below, owned beneficially or of record more
than 5% of the outstanding shares of a class of the Acquired Fund. As of the
Record Date, the officers and Directors of the Acquiring Fund beneficially
owned as a group less than 1% of the outstanding shares of each class of the
Acquiring Fund. To the best knowledge of the Directors of the Acquiring Fund,
as of the Record Date, no shareholder or "group" (as that term is used in
Section 13(d) of the Exchange Act) owned beneficially or of record more than
5% of the outstanding shares of a class of the Acquiring Fund. As of February
8, 2000, the net asset value of the Acquired Fund equaled less than 1% of the
Acquiring Fund's net asset value; thus, pursuant to item 14(a)(2) of Form N-
14, proforma financial statements, including the Capitalization Table, have
not been prepared.
<TABLE>
<CAPTION>
Percentage of
Class Owned
of Record
or Beneficially
--------------------------
Upon
Consummation
Fund As of the of the
Name and Address and Class Record Date Reorganization
- ---------------- ------------- ----------- --------------
<S> <C> <C> <C>
Daniel H. and Margaret L. Becker Acquired Fund *
Charitable Remainder Unitrust Class A 5.8390
Attn: An Faluto Jr. TTEE
1111 Boardman Canfied Rd.
Youngstown, OH 44512-4062
</TABLE>
- -----------
* Less than 1.00%
INFORMATION ABOUT THE ACQUIRING FUND
The Prospectus and Annual Report of the Acquiring Fund have been delivered
with this prospectus/proxy statement and are incorporated herein by reference.
Information regarding Fund Goal and Strategies, Investment Objective, Risks,
Performance and Expenses, Fee Table, More on the Fund's Investments,
Management and Financial Highlights Information of the Acquiring Fund may be
found under such headings in the prospectus of the Acquiring Fund. For
information regarding Management's Discussion of Fund Performance of the
Acquiring Fund, please refer to the Acquiring Fund's annual report that
accompanies this prospectus/proxy statement.
INFORMATION ABOUT THE ACQUIRED FUND
Information about the Acquired Fund is incorporated herein by reference from
the current prospectus of the Acquired Fund. The Acquired Fund's prospectus,
dated February 28, 1999, is available upon request (without charge) by calling
or writing the Acquired Fund at the telephone number or address listed on the
cover page of this prospectus/proxy statement. Copies of the Acquired Fund's
20
<PAGE>
shareholder reports, prospectus and statement of additional information can be
reviewed and copied at the Commission's Public Reference Room in Washington,
D.C. In addition, information on the operation of the Public Reference Room
may be obtained by calling the Commission at 1-202-942-8090. Reports and other
information about the Acquired Fund are available on the EDGAR Database on the
Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained for a duplicating fee by electronic request at the following
E-mail address: [email protected], or by writing the Commission's Public
Reference Section, Washington, D.C. 20549-0102.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of the Company to be used at
a Special Meeting of Shareholders of the Acquired Fund to be held at 10:00
a.m. on April 7, 2000 at 7 World Trade Center, New York, NY 10048 and at any
adjournment or adjournments thereof. This Prospectus/Proxy Statement, along
with a Notice of the Meeting and a proxy card, is first being mailed to
shareholders of the Acquired Fund on or about February 21, 2000. Only
shareholders of record as of the close of business on the Record Date will be
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
The holders of one-third of the shares of the Acquired Fund outstanding at the
close of business on the Record Date present in person or represented by proxy
will constitute a quorum for the Meeting. For purposes of determining a quorum
for transacting business at the Meeting, abstentions and broker "non-votes"
(that is, proxies from brokers or nominees indicating that such persons have
not received instructions from the beneficial owner or other persons entitled
to vote shares on a particular matter with respect to which the brokers or
nominees do not have discretionary power) will be treated as shares that are
present but which have not been voted. For this reason, abstentions and broker
non-votes will have the effect of a "no" vote for purposes of obtaining
approval of the Plan. If the enclosed form of proxy is properly executed and
returned in time to be voted at the Meeting, the proxies named therein will
vote the shares represented by the proxy in accordance with the instructions
marked thereon. Unmarked proxies will be voted FOR approval of the proposed
Reorganization and FOR approval of any matters deemed appropriate. A proxy may
be revoked at any time on or before the Meeting by written notice to the
Secretary of the Acquired Fund, Christina T. Sydor, Esq., 388 Greenwich
Street, New York, New York, 10013. Unless revoked, all valid proxies will be
voted in accordance with the specifications thereon or, in the absence of such
specifications, FOR approval of the Plan and the Reorganization contemplated
thereby.
Approval of the Plan will require the affirmative vote of a majority of the
outstanding shares of the Acquired Fund. Shareholders of the Acquired Fund are
entitled to one vote for each share. Fractional shares are entitled to
proportional voting rights.
21
<PAGE>
Proxy solicitations will be made primarily by mail, but proxy solicitations
also may be made by telephone or personal interviews conducted by officers and
employees of Salomon Smith Barney and its affiliates and/or by PFPC Global
Fund Services the Acquiring Fund's sub-transfer agent. If the Acquired Fund
records votes by telephone, it will use procedures designed to authenticate
shareholders' identities to allow shareholders to authorize the voting of
their shares in accordance with their instructions, and to confirm that their
instructions have been properly recorded. Although a shareholder's vote may be
taken by telephone, each shareholder will receive a copy of this
Prospectus/Proxy Statement and may vote by mail using the enclosed proxy card.
The aggregate cost of solicitation of the shareholders of the Acquired Fund is
expected to be approximately $8,500. Expenses of the Reorganization, including
the costs of proxy solicitation and the preparation of enclosures to the
Prospectus/Proxy Statement, reimbursement of expenses of forwarding
solicitation material to beneficial owners of shares of the Acquired Fund and
expenses incurred in connection with the preparation of this Prospectus/Proxy
Statement will be borne by the Acquiring Fund.
In the event that a quorum necessary for a shareholders meeting is not
present or sufficient votes to approve the Reorganization are not received by
April 7, 2000, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the
information to be provided to shareholders with respect to the reasons for the
solicitation. Any such adjournment will require an affirmative vote by the
holders of a majority of the shares present in person or by proxy and entitled
to vote at the Meeting. The persons named as proxies will vote upon a decision
to adjourn the Meeting.
The votes of the shareholders of the Acquiring Fund are not being solicited
by this Prospectus/Proxy Statement.
OTHER BUSINESS
The Directors of the Smith Barney World Funds, Inc. do not intend to present
any other business at the Meeting. If, however, any other matters are properly
brought before the Meeting, the persons named in the accompanying form of
proxy will vote thereon in accordance with their judgment.
The Board of Directors of the Smith Barney World Funds, Inc., including the
Independent Directors, unanimously recommends approval of the Plan, and any
unmarked proxies without instructions to the contrary will be voted in favor
of the Plan.
22
<PAGE>
EXHIBIT A
PLAN OF REORGANIZATION
THIS PLAN OF REORGANIZATION (the "Plan") is dated as of this 11th day of
February, 2000, and has been adopted by the Board of Directors of Smith Barney
World Funds, Inc. (the "Company") to provide for the reorganization of its
International Balanced Portfolio (the "Acquired Fund") into its International
Equity Portfolio (the "Acquiring Fund").
A. BACKGROUND
The Acquired Fund and the Acquiring Fund (individually, a Fund and
collectively, the "Funds") are separate investment portfolios of the Company.
The Company is organized as a Maryland corporation and is an open-end
management investment company registered with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Board of Directors of the Company has determined that it
is in the best interests of the Acquired Fund and its shareholders to be
reorganized through the transfer of all of the Acquired Fund's assets and
liabilities to the Acquiring Fund upon the terms set forth in this Plan (the
"Reorganization").
B. THE REORGANIZATION
1. Prior to the Closing Date (as defined below in Section 6 of this Article
B), the Company will execute and file Articles of Amendment to the Company's
Charter with the Maryland State Department of Assessments and Taxation in
substantially the form attached hereto as Annex I, which Articles of Amendment
will, effective as of the Closing Date: (a) reclassify all of the Company's
issued and outstanding shares of Common Stock of the Acquired Fund as shares
of Common Stock of the comparable class of equal aggregate value of the
Acquiring Fund; and (b) reclassify all of the authorized and unissued Common
Stock of the Acquired Fund as authorized and unissued Common Stock of the
Acquiring Fund.
2. At the Closing Date, all property of every description, and all
interests, rights, privileges and powers of the Acquired Fund, subject to all
liabilities of the Acquired Fund, whether accrued, absolute, contingent or
otherwise (such assets subject to such liabilities are herein referred to as
the "Assets") will be transferred and conveyed by the Acquired Fund to the
Acquiring Fund and will be assumed by the Acquiring Fund, such that at and
after the Closing Date, the Assets of the Acquired Fund will become and be the
Assets of the Acquiring Fund. In exchange for the transfer of the Assets of
the Acquired Fund and in order to accomplish the reclassification of shares as
described above in Section 1 of this Article B, the Acquiring Fund will
contemporaneously issue to shareholders of the Acquired Fund full and
fractional shares of the Acquiring Fund (as contemplated by Section
A-1
<PAGE>
4 of this Article B) having an aggregate net asset value equal to the value of
the Assets of the Acquired Fund. For purposes of effecting such exchange, the
value of the Assets of the Acquired Fund and the net asset value of the shares
of the Acquiring Fund shall be determined as of the close of regular trading
on the New York Stock Exchange on April 14, 2000 or at such other time as may
be determined by the Board of Directors or an authorized officer of the
Company. Such values shall be computed in the manner set forth in the
applicable Fund's then current prospectus under the Securities Act of 1933, as
amended. At and after the Closing Date, all debts, liabilities, obligations
and duties of the Acquired Fund will attach to the Acquiring Fund as aforesaid
and may thenceforth be enforced against the Acquiring Fund to the same extent
as if the same had been incurred by the Acquiring Fund.
3. Prior to the Closing Date, dividends on the Acquired Fund's shares,
consisting of substantially all of the Acquired Fund's undistributed taxable
net investment income and undistributed taxable capital gains will be declared
as of the first business day prior to the Closing Date (the term Closing Date
shall have the meaning assigned to it in the Plan), to the shareholders of
record as of the close of business on the second day prior to the Closing
Date, payable on the first day prior to the Closing Date, with proceeds being
paid to the Fund's Dividend Paying Agent, which shall pay such proceeds in cash
or immediately invest the proceeds for the account of the shareholders of
record in accordance with the Acquired Fund's current Prospectus, on the date
that the dividend is paid, in additional shares at the net asset value per
share of the applicable class next determined following the time of the
cash payment to the Dividend Agent.
4. At the Closing Date, the Company will liquidate the Acquired Fund and
issue full and fractional shares of the Acquiring Fund to the Acquired Fund's
shareholders, such that the shares of the Acquiring Fund that are distributed
to a shareholder of the Acquired Fund will have an aggregate net asset value
equal to the aggregate net asset value of the shares of the Acquired Fund held
by such shareholder immediately prior to the Closing Date. In addition, each
shareholder of the Acquired Fund will have the right to receive any unpaid
dividends or other distributions that were declared before the Closing Date
with respect to the shares of the Acquired Fund held by such shareholder
immediately prior to the Closing Date.
A-2
<PAGE>
5. The stock transfer books of the Company with respect to the Acquired Fund
will be permanently closed as of the close of business on the day immediately
preceding the Closing Date. Redemption requests received thereafter by the
Company with respect to the Acquired Fund will be deemed to be redemption
requests for shares of the Acquiring Fund issued pursuant to this Plan. If any
shares of the Acquired Fund are represented by a share certificate, the
certificate must be surrendered to the Company's transfer agent for
cancellation before the Acquiring Fund shares issuable to the shareholder
pursuant to this Plan will be redeemed.
6. The Closing Date for purposes of this Plan shall be the close of business
on April 14, 2000, or at such other time as may be determined by the Board of
Directors or an authorized officer of the Company.
C. ACTIONS BY SHAREHOLDERS OF THE ACQUIRED FUND
Prior to the Closing Date and as a condition thereto, the Board of Directors
of the Company will call, and the Company will hold, a meeting of the
shareholders of the Acquired Fund to consider and vote upon:
1. Approval of this Plan and the implementing charter amendment
reclassifying shares of the Acquired Fund into shares of the Acquiring
Fund and the transactions contemplated hereby.
2. Such other matters as may be determined by the Board of Directors of
the Company.
D. CONDITIONS OF THE REORGANIZATION
Consummation of this Plan will be subject to:
1. The approval of the matters referred to in Article C of this Plan by
the shareholders of the Acquired Fund in the manner required by law and
otherwise deemed necessary or advisable by the Board of Directors of the
Company; and
2. The following additional conditions:
(a) The Company will have received opinions of Sullivan & Cromwell
based upon customary representations and assumptions and to the
effect that:
(i) the shares of the Acquiring Fund issued pursuant to this
Plan will, when issued in accordance with the provisions hereof,
be validly issued, fully paid and non-assessable; and
(ii) for federal income tax purposes: (A) the acquisition of
the assets and assumption of the liabilities of the Acquired
Fund by the Acquiring Fund in return for shares of the Acquiring
Fund followed
A-3
<PAGE>
by the distribution of such shares to the shareholders of the
Acquired Fund will constitute a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code (the "Code")
and the Acquiring Fund and the Acquired Fund will each be "a
party to the reorganization" within the meaning of Section
368(b) of the Code; (B) no gain or loss will be recognized by
the Acquired Fund upon the transfer of its assets and
liabilities to the Acquiring Fund; (C) no gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets
of the Acquired Fund in exchange for shares of the Acquiring
Fund and the assumption by the Acquiring Fund of the liabilities
of the Acquired Fund; (D) no gain or loss will be recognized by
the shareholders of the Acquired Fund upon the receipt of the
shares of the Acquiring Fund in exchange for their shares of the
Acquired Fund; (E) the tax basis of the shares of the Acquiring
Fund received by the shareholders of the Acquired Fund will be
the same as the tax basis of the shares of the Acquired Fund
exchanged therefor; (F) the tax basis of the assets of the
Acquired Fund in the hands of the Acquiring Fund will be the
same as the tax basis of such assets in the hands of the
Acquired Fund immediately prior to the transfer; (G) the holding
period of the shares of the Acquiring Fund received by the
shareholders of the Acquired Fund will include the holding
period of the shares of the Acquired Fund exchanged therefor,
provided that at the time of the exchange the shares of the
Acquired Fund were held as capital assets; and (H) the holding
period of the Acquiring Fund for the assets of the Acquired Fund
transferred to it will include the period during which such
assets were held by the Acquired Fund.
(b) All necessary approvals, registrations and exemptions required
under federal and state laws will have been obtained.
E. MISCELLANEOUS
1. This Plan and the transactions contemplated hereby will be governed and
construed in accordance with the laws of the State of Maryland.
2. This Plan and the transactions contemplated hereby may be abandoned at
any time for any reason prior to the Closing Date upon the vote of a majority
of the Board of Directors of the Company.
3. At any time prior to or (to the fullest extent permitted by law) after
approval of this Plan by the shareholders of the Acquired Fund, the Company
may, upon authorization by the Board of Directors and with or without the
approval of shareholders of the Acquired Fund, amend any of the provisions of
this Plan.
A-4
<PAGE>
4. The expenses incurred in connection with the Reorganization will be borne
by the Acquiring Fund.
5. The Company, by consent of its Board of Directors, or an officer
authorized by such Board of Directors, may waive any condition to the
obligations of the Acquired Fund or the Acquiring Fund hereunder if, in its or
such officer's judgment, such waiver will not have a material adverse effect
on the interests of the shareholders of the Acquired Fund or the shareholders
of the Acquiring Fund.
A-5
<PAGE>
ANNEX I
SMITH BARNEY WORLD FUNDS, INC.
ARTICLES OF AMENDMENT
SMITH BARNEY WORLD FUNDS, INC., a Maryland corporation, having its principal
office in the City of Baltimore, Maryland (the "Company"), certifies to the
State Department of Assessments and Taxation that:
FIRST: The Charter of the Company is amended by (i) reclassifying all of the
shares of the Company's International Balanced Portfolio as shares of the
Company's International Equity Portfolio, and (ii) increasing the aggregate
number of authorized shares of the International Equity Portfolio by
125,000,000 shares.
SECOND: Upon effectiveness of these Articles of Amendment:
(a) All of the assets and liabilities belonging to the Company's
International Balanced Portfolio and attributable to its Class A, B, and L
shares, respectively, shall be conveyed, transferred and delivered to the
Company's International Equity Portfolio, and shall thereupon become and
be assets and liabilities belonging to the International Equity Portfolio
and attributable to its Class A, B, and L shares, respectively.
(b) Each of the issued and outstanding shares (and fractions thereof) of
the Company's International Balanced Portfolio and its Class A, B, and L
shares, respectively, will automatically, and without the need of any
further act or deed, be reclassified and changed to full and fractional
issued and outstanding shares of the Company's International Equity
Portfolio and of its Class A, B and L, shares, respectively, of equal
aggregate net asset value, in such number of such International Equity
Portfolio Class A, B, and L shares as shall be determined by multiplying
one (1) times the number obtained by dividing the net asset value of a
Class A, B, or L share, respectively, of the International Balanced
Portfolio by the net asset value of a Class A, B, or L share,
respectively, of the International Equity Portfolio, all determined as of
the close of regular trading on the New York Stock Exchange on the
effective date of these Articles of Amendment.
(c) Each unissued Class A, B, L, Y or Z share (or fraction thereof),
respectively, of the Company's International Balanced Portfolio will
automatically, and without the need for any further act or deed, be
reclassified and changed to such number of unissued Class A, B, L, Y or Z
shares (or fractions thereof), respectively, of the Company's
International Equity Fund as shall result, as of the effective time of
these Articles of Amendment and as a result hereof, in the total number of
unissued shares of the Company's International Equity Portfolio being
increased by 125,000,000 shares less the
A-6
<PAGE>
number of issued and outstanding shares of the Company's International
Equity Portfolio resulting from paragraph (b) of this Article SECOND.
(d) Open accounts on the share records of the Company's International
Equity Portfolio owned by each former holder of its International Balanced
Portfolio shares shall be established representing the appropriate number
of the International Equity Portfolio shares, of the appropriate class,
deemed to be owned by each such stockholder as a result of the
reclassification.
THIRD: This amendment does not increase the authorized capital stock of the
Company or the aggregate par value thereof. This amendment reclassifies and
changes the 125,000,000 authorized shares of the International Balanced
Portfolio to 125,000,000 additional authorized shares of the International
Equity Portfolio but does not amend the description of any class of stock as
set forth in the Charter. As a result of this amendment, the International
Equity Portfolio series of the Company has five classes of shares, which are
designated Class A, Class B, Class L, Class Y and Class Z, each consisting,
until further changed, of the lesser of (x) 375,000,000 shares or (y) the
number of shares that could be issued by issuing all of the shares of Common
Stock of the International Equity Portfolio series less the total number of
shares of all classes of Common Stock of the International Equity Portfolio
series then issued and outstanding. The shares of the International Equity
Portfolio series and of each class within such series shall have all of the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption of such series and such class as set forth in the Charter of the
Corporation.
FOURTH: Outstanding stock certificates representing issued and outstanding
Class A, B, or L shares, respectively, of the International Balanced Portfolio
of the Company immediately prior to these Articles of Amendment becoming
effective shall, upon these Articles becoming effective, be deemed to
represent the appropriate number of issued and outstanding shares of the same
respective class of the Company's International Equity Portfolio, calculated
as set forth in Article SECOND of these Articles. Stock certificates
representing shares of the International Equity Portfolio resulting from the
aforesaid change and reclassification need not be issued until stock
certificates representing the shares of the International Balanced Portfolio
so changed and reclassified, if issued, have been received by the Company or
its agent duly endorsed for transfer.
FIFTH: This amendment has been duly authorized and advised by the Board of
Directors of the Company and approved by the stockholders of the Company
entitled to vote thereon.
SIXTH: These Articles of Amendment shall be effective as of , 2000.
A-7
<PAGE>
IN WITNESS WHEREOF, SMITH BARNEY WORLD FUNDS, INC. has caused these Articles
of Amendment to be signed in its name and on its behalf by its , and
witnessed by its [Assistant] Secretary, as of the day of , 2000.
WITNESS: SMITH BARNEY WORLD FUNDS, INC.
By: _____________________________ By: _____________________________
Name Name:
[Assistant] Secretary Office:
THE UNDERSIGNED, , of Smith Barney World Funds, Inc.,
who executed on behalf of the Company the foregoing Articles of Amendment of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Company the foregoing Articles of Amendment to be the corporate
act of said Company and hereby certifies that to the best of his knowledge,
information and belief the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
---------------------------------------------------
Name:
Office:
A-8
PART B
February 21, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY WORLD FUNDS, INC.
388 Greenwich Street
New York, New York 10013
Smith Barney World Funds, Inc. (the "Company") offers a
choice of six open-end
management investment companies (each a "fund"):
The Global Government Bond Portfolio seeks as high a level
of
current income and capital appreciation as is consistent
with its
policy of investing primarily in high quality bonds of the
United
States and foreign governments.
The International Equity Portfolio seeks total return on
its assets
from growth of capital and income. The fund seeks to
achieve this
objective by investing primarily in a diversified portfolio
of
equity securities of established foreign issuers.
The Pacific Portfolio seeks long-term capital appreciation
by
investing primarily in a diversified portfolio of equity
securities
of companies in the Asia Pacific Region.
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 by
investing
primarily in securities of established non-U. S. issuers.
The Emerging Markets Portfolio seeks long-term capital
appreciation
on its assets by investing primarily in securities of
emerging
country issuers.
In all cases, there can be no assurance that a fund will
achieve its investment
objective.
Each 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 and Class L
shares) and/or (ii) on a deferred basis (Class B and Class
L shares). A fourth
class of shares (the Class Y shares) are 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
funds. A fifth class of shares of the International Equity
Portfolio and the
International Balanced Portfolio (the Class Z shares) are
offered only to tax-
exempt retirement plans of Salomon 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 fund. Therefore, it
should be read in conjunction with each Prospectus dated
February 21, 2000 for the
International Equity Portfolio, the Global Government Bond
Portfolio, the Pacific
Portfolio, the European Portfolio, the International
Balanced Portfolio and the
Emerging Markets Portfolio, which may be obtained from the
Company or your Salomon
Smith Barney Financial Consultant.
TABLE OF CONTENTS
P
a
g
e
Directors, Advisory Director and Officers
3
Investment Policies
5
Investment Practices
10
Risk Factors
20
Investment Restrictions
24
Additional Tax Information
27
IRA and Other Prototype Retirement Plans
31
Performance Information
32
Determination of Net Asset Value
35
Purchase of Shares
36
Exchange of Shares
40
Redemption of Shares
41
Dividends and Distributions
43
Investment Management Agreement and Other Services
43
Custodian
49
Independent Auditors
49
Voting
49
Other Information about the Company
50
Financial Statements
51
Appendix - Ratings of Debt Obligations
A-1
DIRECTORS, ADVISORY DIRECTOR AND OFFICERS
Overall responsibility for management and supervision of
each fund rests with the
Company's Board of Directors. The directors approve all
significant agreements
between the Company and the companies that furnish services
to the Company and the
funds, including agreements with the Company's distributor,
investment adviser,
custodian and transfer agent. The day-to-day operations of
each fund are
delegated to that fund's manager. The directors and
officers of the Company are
listed below.
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 Salomon Smith Barney; 77.
ABRAHAM E. COHEN, Director
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. Director
of two investment companies associated with Salomon Smith
Barney; 62.
ROBERT A. FRANKEL, Director
Managing Partner of Robert A. Frankel Managing Consultants,
102 Grand Street,
Croton-on-Hudson, NY. Director of ten investment companies
associated with
Salomon Smith Barney. Former Vice President of The Readers
Digest Association,
Inc.; 71.
**MICHAEL E. GELLERT, Director
Partner of Windcrest Partners, 122 E. 42nd Street, New
York, New York 10168.
Director of Devon Energy Corp.; Humana, Inc.; Premier
Parks, Inc.; Seacor Smit
Inc.; Cimilar A/S; Dalet Technologies and numerous private
companies. Director of
two investment companies associated with Citigroup; 68
RAINER GREEVEN, Director
Partner of the law firm of Greeven & Ercklentz; 630 Fifth
Avenue, New York, NY.
Director of two investment companies associated with
Salomon Smith Barney; 63.
SUSAN M. HEILBRON, Director
Attorney; Lacey & Heilbron, 3 East 54th Street, New York,
NY. Director of two
investment companies associated with Salomon Smith Barney;
54.
*HEATH B. McLENDON, Chairman of the Board, President and
Chief Executive Officer
Managing Director of Salomon Smith Barney Inc. ("Salomon
Smith Barney"); President
of SSBC Fund Management Inc. ("SSBC" or the "Manager") and
Travelers Investment
Adviser, Inc. ("TIA"); Chairman or Co-Chairman of the Board
of 59 investment
companies associated with Salomon Smith Barney and former
Chairman of the Board of
Smith Barney Strategy Advisers Inc; 65
*MAURITS E. EDERSHEIM, Chairman of the Company 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); 80
*LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Salomon Smith Barney, Senior Vice
President and Treasurer
(Chief Financial Officer) of the Smith Barney Mutual funds;
Director and Senior
Vice President of SSBC and TIA: 41
*JAMES B. CONHEADY, Vice President and Investment Officer
Managing Director of Salomon Smith Barney; 63.
*JEFFREY RUSSELL, Vice President and Investment Officer
Managing Director of Salomon Smith Barney; 41.
*REIN VAN DER DOES, Vice President and Investment Officer
Managing Director of Salomon Smith Barney; 59.
*SIMON R. HILDRETH, Vice President and Investment Officer
Senior Vice President of Salomon Smith Barney, Managing
Director of Smith Barney
Global Capital Management, Inc. Formerly Director of
Mercury Asset Management
Ltd; 44.
*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; 45.
*DAVID S. ISHIBASHI, Vice President and Investment Officer
Vice President of Salomon Smith Barney; Formerly Head of
Japanese equities desk at
SG Warburg; 43.
*IRVING DAVID, Controller
Director of Salomon Smith Barney. Formerly Assistant
Treasurer of First
Investment Management Company; 38.
*CHRISTINA T. SYDOR, Secretary
Secretary ; Managing Director of Salomon Smith Barney.
General Counsel and
Secretary of SSBC and TIA; 48.
* 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 Company officer or director.
** Director as of March 1999
On February 10, 1999 the directors and officers owned, in
the aggregate, less than
1% of the outstanding shares of each of the funds.
The following table shows the compensation paid by the
Company to each director
during the Company's last fiscal year. None of the
officers of the Company
received any compensation from the Company for such period.
The Company does not
pay retirement benefits to its directors and officers.
Officers and interested
directors of the Company are compensated by Salomon Smith
Barney.
COMPENSATION TABLE
Name of Person
Aggregate Compensation from
the Company
Compensation from Company
and Complex Paid to
Directors
Number of Funds for
Which Director Serves
Within Fund Complex
Victor Atkins
$10,411.00
$29,500.00
2
A. E. Cohen1
4,676.00
20,100.00
2
Robert A.
Frankel
10,450.56
72,250.00
9
Ranier Greeven
9,908.00
27,800.00
2
Susan M.
Heilbron
9,908.00
27,800.00
2
Heath B.
McLendon
0
0
59
Bruce D.
Sargent2
0
0
3
James M. Shuart3
7,664.00
20,800.00
2
1 Effective March 30, 1998, Mr. Cohen became a member of
the Company's Board of
Directors.
2 Effective October 8, 1998, Mr. Sargent resigned from the
Company's Board of
Directors.
3 Effective July 28, 1998, Mr. Shuart resigned from the
Company's Board of
Directors.
INVESTMENT POLICIES tc "INVESTMENT POLICIES"
Each fund's investment objectives may be changed only by
the ''vote of a majority
of the outstanding voting securities'' as defined in the
Investment Company Act of
1940 (the ''1940 Act''). However, each fund's investment
policies are non-
fundamental, and thus may be changed by the Board of
Directors, provided such
change is not prohibited by the fund's fundamental
investment restrictions
(described under INVESTMENT RESTRICTIONS) or applicable
law, and any such change
will first be disclosed in the then current prospectus.
Refer to the "INVESTMENT
PRACTICES" and "RISK FACTORS" for further information on
the funds' investments.
Under unusual economic or market conditions as determined
by the Manager, for
defensive purposes each fund may depart from its principal
investment strategies
and temporarily invest all or a major portion of its assets
in all types of money
market and short-term debt securities (including U.S. money
market securities).
To the extent a fund's assets are invested for temporary
defensive purposes, they
will not be invested in a manner designed to achieve that
fund's investment
objective.
Global Government Bond Portfolio
Under normal market conditions, the Global Government Bond
Portfolio invests at
least 65% of its total assets in bonds issued or guaranteed
by the United States
or foreign governments (including foreign states,
provinces, cantons and
municipalities) or their agencies, authorities, or
instrumentalities denominated
in various currencies, including U.S. dollars, or in
multinational currency units,
such as the European Currency Unit ("ECU"). Except with
respect to government
securities of less developed countries (see below), the
fund invests in foreign
government securities only if the issue or the issuer
thereof is rated in the two
highest rating categories by Moody's Investors Service,
Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P") (see "APPENDIX -
RATINGS OF DEBT
OBLIGATIONS"), or if unrated, are of comparable quality in
the determination of
the Manager.
Consistent with its investment objective, under normal
circumstances the fund may
invest up to 35% of its total assets in debt obligations
(including debt
obligations convertible into common stock) of United States
or foreign
corporations and financial institutions and supranational
entities. Supranational
entities are international organizations, organized or
supported by government
entities to promote economic reconstruction or development
and by international
banking institutions and related government agencies. The
supranational entities
in which the fund may invest are the World Bank, The Asian
Development Bank, the
European Economic Community, the European Investment Bank,
the European Coal and
Steel Community, Eurofima, Euratom, Council of Europe, the
European Bank for
Construction and Development, the International Finance
Corporation and the Nordic
Investment Bank. Any non-government investment would be
limited to issues that
are rated A or better by Moody's or S&P, or if not rated,
are determined by the
Manager to be of comparable quality. For certain risks
associated with
investments in foreign issues, see "RISK FACTORS."
The fund is organized as a non-diversified series and
currently contemplates
investing primarily in obligations of the U.S. and of
developed nations (i.e.,
industrialized countries) which the Manager believes to
pose limited credit risks.
These countries currently are Australia, Austria, Belgium,
Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan,
Luxembourg, Netherlands, New
Zealand, Norway, Portugal, Spain, Sweden, Switzerland and
The United Kingdom. The
fund also will invest in securities denominated in the
currencies of such
countries or in multinational currency units. Under normal
market conditions the
fund invests at least 65% of its assets in issues of not
less than three different
countries; issues of any one country (other than the United
States) will represent
no more than 45% of the fund's total assets. Allocation of
the fund's investments
will depend upon the relative attractiveness of the global
markets and particular
issuers. Concentration of the fund's assets in one or a
few countries or
currencies will subject the fund to greater risks than if
the fund's assets were
not geographically concentrated.
In seeking to achieve its investment objective of current
income, the Manager
considers and compares the relative yields of obligations
of various developed
nations; whereas, in seeking to achieve its objective of
capital appreciation, it
considers all of the following factors, especially changes
in currency values
against the U.S. dollar. The Manager allocates the fund's
assets among securities
of countries and in currency denominations where
opportunities for meeting the
fund's investment objective are expected to be the most
attractive. The Manager
selects securities of particular issuers on the basis of
its views as to the best
values then currently available in the marketplace. Such
values are a function of
yield, maturity, issue classification and quality
characteristics, coupled with
expectations regarding the local and world economies,
movements in the general
level and term of interest rates, currency values,
political developments, and
variations of the supply of funds available for investment
in the world bond
market relative to the demands placed upon it. The Manager
generally evaluates
currencies on the basis of fundamental economic criteria
(e.g., relative inflation
and interest rates levels and trends, growth rate
forecasts, balance of payments
status and economic policies) as well as technical and
political data. If the
currency in which a security is denominated appreciates
against the U.S. dollar,
the dollar value of the security will increase, and
conversely, a decline in the
exchange rate of the currency normally would adversely
affect the value of the
security expressed in dollars. Similarly, a decline in
interest rates on debt
obligations generally increases the value of debt
obligations, and conversely, an
increase in interest rates generally decreases the value of
such obligations.
Investments may be made from time to time in government
securities, including loan
assignments and loan participations, of less developed
countries. These include
all countries other than Australia, Austria, Belgium,
Canada, Denmark, Finland,
France, Germany, Holland, Ireland, Italy, Japan,
Luxembourg, Norway, Sweden,
Switzerland, Spain, the United Kingdom and the United
States. Countries may be
added to or deleted as economic and political conditions
warrant. Historical
experience indicates that the markets of less developed
countries have been more
volatile than the markets of the more mature economies of
developed countries;
however, such markets often provide rates of return to
investors commensurate with
the credit and market risks. The Manager does not intend
to invest more than 10%
of the fund's assets in the government securities of less
developed countries and
will not invest more than 5% of the fund's assets in the
government securities of
any one such country. Such investments may be unrated or
rated below investment
grade or may be in default. Securities rated below
investment grade (and
comparable unrated securities) are the equivalent of high
yield, high risk bonds.
Such securities are regarded as predominantly speculative
with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms
of the obligations and involve major risk exposure to
adverse business, financial,
economic, and political conditions, whether or not
occurring within the issuers'
borders.
International Equity Portfolio
Under normal market conditions, the International Equity
Portfolio invests at
least 80% of its assets in a diversified portfolio of
equity securities consisting
of dividend and non-dividend paying common stock, preferred
stock, convertible
debt and rights and warrants to obtain such securities and
may invest up to 20% of
the fund's assets in bonds, notes and other debt securities
(consisting of
securities issued in the Eurocurrency markets or
obligations of the United States
or foreign governments and their political sub-divisions)
or established non-
United States issuers.
In seeking to achieve its objective, the fund presently
expects to invest its
assets primarily in common stocks of established non-United
States companies which
in the opinion of the Manager have potential for growth of
capital.
Except as otherwise provided, the fund will invest at least
80% of its assets in
companies organized or governments located in any area of
the world other than the
United States, such as the Far East (e.g., Japan, Hong
Kong, Singapore, Malaysia),
Western Europe (e.g., United Kingdom, Germany, the
Netherlands, France, Italy,
Switzerland), Eastern Europe (e.g., the Czech Republic,
Hungary, Poland, and the
countries of the former Soviet Union), Central and South
America (e.g., Mexico,
Chile, and Venezuela), Australia, Canada and such other
areas and countries as the
Manager may determine from time to time. Allocation of the
fund's investments
will depend upon the relative attractiveness of the
international markets and
particular issuers. Concentration of the fund's assets in
one or a few countries
or currencies will subject the fund to greater risks than
if the fund's assets
were not geographically concentrated.
It is expected that fund securities will ordinarily be
traded on a stock exchange
or other market in the country in which the issuer is
principally based, but may
also be traded on markets in other countries including, in
many cases, the United
States securities exchanges and over-the-counter markets.
To the extent that the fund's assets are not otherwise
invested as described
above, the assets may be held in cash, in any currency, or
invested in U.S. as
well as foreign high quality money market instruments and
equivalents.
Pacific Portfolio
The Pacific Portfolio invests primarily in equity
securities, including American
Depository Receipts ("ADRs"), of companies in the Asia
Pacific Region. The Asia
Pacific Region currently includes Australia, Hong Kong,
India, Indonesia, Japan,
Malaysia, New Zealand, Pakistan, Papua New Guinea, the
People's Republic of China,
the Philippines, Singapore, South Korea, Sri Lanka, Taiwan
and Thailand. The
Manager may change this list at its discretion. The
Manager considers a company
to be in the Asia Pacific Region if its securities trade on
exchanges in the Asia
Pacific Region, it generates at least half of its revenue
from the Asia Pacific
Region or it is organized under the laws of an Asia Pacific
Region country.
The fund will normally invest at least 80% of its total
assets in equity
securities of companies in the Asia Pacific Region,
consisting of the securities
listed above. For the purposes of the foregoing limitation
equity securities
include exchange traded and over-the-counter common stocks,
preferred shares, debt
securities convertible into equity securities, depository
receipts and warrants
and rights relating to equity securities. The fund may
also invest up to 20% of
its total assets in debt securities and other types of
investments. The fund will
generally invest its assets broadly among countries and
will normally have
represented in the portfolio business activities in not
less than three different
countries. However, the fund has no predetermined policy on
the allocation of
funds for investment among such countries or securities and
allocation of the
fund's investments will depend upon the relative
attractiveness of the Asia
Pacific markets and particular issuers. Concentration of
the fund's assets in one
or a few of the countries in the Asia Pacific Region and
Asia Pacific currencies
will subject the fund to greater risks than if the fund's
assets were not
geographically concentrated.
It is expected that portfolio securities will ordinarily be
traded on a stock
exchange or other market in the country in which the issuer
is principally based,
but may also be traded on markets in other countries
including, in many cases, the
United States securities exchanges and over-the-counter
markets. The fund may
invest in companies, large or small, whose earnings are
believed to be in a
relatively strong growth trend, or in companies in which
significant further
growth is not anticipated but whose market value per share
is thought to be
undervalued. It may also invest in small and relatively
less well-known companies.
Debt securities in which the fund may invest will generally
be rated at the time
of purchase at least Baa by Moody's or BBB by S&P. Debt
securities rated Baa or
BBB may have speculative characteristics and changes in
economic conditions or
other circumstances are more likely to lead to a weakened
capacity of their
issuers to pay interest and repay principal than is the
case with higher rated
securities.
To the extent that the fund's assets are not otherwise
invested as described
above, the assets may be held in cash, in any currency, or
invested in U.S. as
well as foreign high quality money market instruments and
equivalents.
European Portfolio
The European Portfolio seeks to achieve its objective by
investing primarily in
equity securities (common and preferred stock) of issuers
in the countries of
Europe (the "Primary Investment Area"), which includes
Western Europe (e.g.,
France, Germany, Italy, the Netherlands, Switzerland,
United Kingdom) and Eastern
Europe (e.g., the Czech Republic, Hungary, Poland and the
countries of the former
Soviet Union). It is a fundamental policy of the fund to
invest, under normal
circumstances, at least 65% of its total assets in a
diversified portfolio of
equity securities of issuers domiciled in the Primary
Investment Area of the fund.
The fund will generally invest its assets broadly among
countries and will
normally have represented in the portfolio business
activities in not less than
three countries in the Primary Investment Area. Allocation
of the fund's
investments will depend upon the relative attractiveness of
the markets and
particular issuers. Concentration of the fund's assets in
one or a few countries
will subject the fund to greater risks than if the fund's
assets were not
geographically concentrated.
In addition, the fund may invest up to 35% of its total
assets in other kinds of
securities, e.g., convertible bonds, warrants, Samurai and
Yankee Bonds,
Eurobonds, sponsored and unsponsored ADRs and European
Depository Receipts
("EDRs"), securities issued by companies domiciled outside
the Primary Investment
Area of the fund, including, but not limited to, U.S. and
foreign government
securities, and U.S. and non-U.S. money market securities.
Money market securities
will generally be held by the fund for temporary defensive
purposes. With respect
to certain countries, investments by the fund presently may
only be made by
acquiring shares of other investment companies with local
governmental authority
to invest in those countries. It is not expected that the
income yield of the fund
will be significant.
The fund may also hold cash in U.S. dollars to meet
redemption requests and other
expenses and cash in other currencies to meet settlement
requirements for foreign
securities. The fund may engage in currency exchange
transactions with up to 100%
of its assets in order to protect against uncertainty in
the level of future
exchange rates between a particular foreign currency and
the U.S. dollar or
between foreign currencies in which the fund's securities
are or may be
denominated. The fund may conduct its currency exchange
transactions either on a
"spot" (i.e., cash) basis at the rate prevailing in the
currency exchange market
or through entering into forward contracts to purchase or
sell currencies. The
fund's transactions in forward foreign currency exchange
contracts will be limited
to hedging involving either specific transactions or
aggregate fund positions.
The fund may invest up to 5% of its assets in yen-
denominated bonds sold in Japan
by non-Japanese issuers. Such bonds are commonly called
"Samurai Bonds" and
correspond to "Yankee Bonds" or dollar-denominated bonds
sold in the United States
by non-U.S. issuers. As compared with domestic issues,
e.g., those of the
government of Japan and its agencies, Samurai bond issues
normally carry a higher
interest rate but are less actively traded and therefore
may be volatile.
Moreover, as with other securities denominated in foreign
currencies, their value
is affected by fluctuations in currency exchange rates. It
is the policy of the
fund to invest in Samurai bond issues only after taking
into account
considerations of quality and liquidity, as well as yield.
These bonds would be
issued by governments of the Organization for Economic
Cooperation and Development
or would have AAA ratings.
As a fundamental policy, the fund may borrow money from a
bank only as a temporary
measure for emergency or extraordinary purposes in an
amount not exceeding 10% of
the value of its total assets, and may invest no more than
15% of its total assets
in securities that are illiquid (i.e., trading in the
security is suspended or, in
the case of unlisted securities, market makers do not exist
or will not entertain
bids or offers). When the fund has borrowed in excess of 5%
of the value of its
total assets, the fund will not make further investments.
The fund will not invest
more than 25% of the value of its total assets in the
securities of issuers
engaged in any one industry (other than the U.S.
Government, its agencies and
instrumentalities). The fund will invest no more than 10%
of the value of its net
assets in warrants valued at the lower of cost or market.
The fund does not
currently intend to engage in transactions in options or
futures contracts but may
do so in the future if determined to be in the fund's best
interests by the fund's
Board of Directors.
International Balanced Portfolio
Under normal market conditions, the International Balanced
Portfolio will invest
its assets in an international portfolio of equity
securities (consisting of
exchange traded and over-the-counter common stocks,
preferred shares, debt
securities convertible into equity securities, depository
receipts and warrants
and rights relating to equity securities) and debt
securities (consisting of
corporate debt securities, sovereign debt instruments
issued by governments or
governmental entities, including supranational
organizations such as the World
Bank, and U.S. and foreign money market instruments). The
fund attempts to
achieve a balance between equity and debt securities.
However, the proportion of
equity and debt held by the fund at any one time will
depend on the Manager's
views on current market and economic conditions.
Investments may be made for capital appreciation and for
income or any combination
of both for the purpose of achieving a higher overall
return than might otherwise
be obtained solely from investing for growth of capital or
for income. Under
normal conditions, no more than 70%, nor less than 30%, of
the fund's assets will
be invested in either equity or debt securities; however,
there is no limitation
on the percent or amount of the fund's assets which may be
invested for growth or
income and, therefore, from time to time the investment
emphasis may be placed
solely or primarily on growth of capital or solely or
primarily on income.
The fund is organized as a non-diversified series, but will
generally invest its
assets broadly among countries and will normally have at
least 65% of its assets
invested in business activities in not less than three
different countries outside
of the United States. The fund may invest in companies
organized or governments
located in any area of the world: the Far East (e.g., Hong
Kong, Japan, Malaysia,
Singapore), Western Europe (e.g., France, Germany, Italy,
the Netherlands,
Switzerland, United Kingdom), Eastern Europe (e.g., the
Czech Republic, Hungary,
Poland, and the countries of the former Soviet Union),
Central and South America
(e.g., Chile, Mexico and Venezuela), the Middle East,
Africa, Asia, Australia, New
Zealand and Canada. Allocation of the fund's investments
will depend upon the
relative attractiveness of the international markets and
particular issuers.
Concentration of the fund's assets in one or a few
countries or currencies will
subject the fund to greater risks than if the fund's assets
were not
geographically concentrated. Up to 25% of the total assets
of the fund may be
invested in securities of emerging market countries.
It is expected that equity securities purchased by the fund
will ordinarily be
traded on a stock exchange or other market in the country
in which the issuer is
principally based, but may also be traded on markets in
other countries including,
in many cases, the United States securities exchanges and
over-the-counter
markets. The fund will invest in a broad range of
industries and sectors and will
mainly invest in securities issued by companies with market
capitalization of at
least $50,000,000.
Particular debt securities will be selected based upon
credit risk analysis of
potential issuers, the characteristics of the security and
interest rate
sensitivity of the various debt issues available with
respect to a particular
issuer, analysis of the anticipated volatility and
liquidity of the particular
debt instruments, maturity, and the tax implications to the
fund. The debt
securities in which the fund expects to invest will
generally range in maturity
from two to ten years. Debt securities of developed
foreign countries may be
rated as investment grade at the time of purchase.
Investment grade securities
are those rated in the top four ratings categories by a
nationally recognized
statistical rating organization or that are unrated but
judged by the Manager to
be of comparable quality. If the rating drops below
investment grade subsequent
to purchase, the Manager will not necessarily sell the
security, but will consider
such an event in determining whether the fund should
continue to hold the
security. Securities rated in the lowest category of
investment grade may have
speculative characteristics and changes in economic
conditions or other
circumstances are more likely to lead to a weakened
capacity to make principal and
interest payments than is the case for higher grade
securities. Debt securities
of emerging market countries may be rated below investment
grade (commonly known
as "junk bonds") and could include securities that are in
default as to payments
of principal or interest.
The relative performance of foreign currencies is an
important factor in the
fund's performance. The Manager may manage the fund's
exposure to various
currencies to take advantage of different yield, risk and
return characteristics
that different currencies can provide for U.S. investors.
To manage exposure to
currency fluctuations, the fund may enter into currency
forward contracts
(agreements to exchange one currency for another at a
future date) or currency
swap agreements, buy and sell options and futures contracts
relating to foreign
currencies, and purchase securities indexed to foreign
currencies. The fund will
use currency forward contracts in the normal course of
business to lock in an
exchange rate in connection with purchases and sales of
securities denominated in
foreign currencies. The fund will use options and futures
contracts relating to
foreign currencies to allow the Manager to hedge fund
securities, to shift
investment exposure from one currency to another, or to
attempt to profit from
anticipated declines in the value of a foreign currency
relative to the U.S.
dollar. There is no overall limitation on the amount of
the fund's assets that
may be committed to currency management strategies.
Emerging Markets Portfolio
The Emerging Markets Portfolio will seek to achieve its
objective by investing
substantially all its assets in equity securities of
issuers in emerging market
countries (consisting of dividend and non-dividend paying
common stocks, preferred
stocks, convertible securities and rights and warrants to
such securities). The
fund may also invest in debt securities having a high
potential for capital
appreciation, especially in countries where direct equity
investment is not
permitted. Under normal conditions, at least 70% of the
fund's assets will be
invested in equity securities.
For purposes of its investment objective, the fund
considers as "emerging" all
countries other than Australia, Austria, Belgium, Canada,
Denmark, Finland,
France, Germany, Holland, Ireland, Italy, Japan,
Luxembourg, Norway, Sweden,
Switzerland, Spain, the United Kingdom and the United
States. The fund will
generally invest its assets broadly among countries and
will normally have at
least 65% of its assets invested in issuers in not less
than three different
countries. Allocation of the fund's investments will depend
upon the relative
attractiveness of the emerging markets and particular
issuers. Concentration of
the fund's assets in one or a few countries or currencies
will subject the fund to
greater risks than if the fund's assets were not
geographically concentrated.
Under normal circumstances, the fund may invest up to 30%
of its assets in debt
securities. These may include debt securities of issuers
in countries having
smaller capital markets. Capital appreciation in debt
securities may arise as a
result of a favorable change in relative foreign exchange
rates, in relative
interest rate levels, or in the creditworthiness of
issuers. In accordance with
its investment objective, the fund will not seek to benefit
from anticipated
short-term fluctuations in currency exchange rates. The
fund may, from time to
time, invest in debt securities with relatively high yields
(as compared to other
debt securities meeting the fund's investment criteria),
notwithstanding that the
fund may not anticipate that such securities will
experience substantial capital
appreciation. Such income can be used, however, to offset
the operating expenses
of the fund.
The fund may invest in debt securities issued or guaranteed
by foreign governments
(including foreign states, provinces and municipalities) or
their agencies and
instrumentalities ("governmental entities"), issued or
guaranteed by international
organizations designated or supported by multiple foreign
governmental entities
(which are not obligations of foreign governments) to
promote economic
reconstruction or development ("supranational entities"),
or issued by foreign
corporations or financial institutions. Supranational
entities include
international organizations designated or supported by
governmental entities to
promote economic reconstruction or development and
international banking
institutions and related government agencies. Examples
include the International
Bank for Reconstruction and Development (the "World Bank"),
the European Steel and
Coal Community, the Asian Development Bank and the Inter-
American Development
Bank. The governmental members, or "stockholders," usually
make initial capital
contributions to the supranational entity and in many cases
are committed to make
additional capital contributions if the supranational
entity is unable to repay
its borrowings.
Up to 10% of the fund's assets may be invested in debt
securities of emerging
markets that are unrated or rated below investment grade.
Securities rated below
investment grade (and comparable unrated securities) are
the equivalent of high
yield, high risk bonds, commonly known as "junk bonds".
Such securities are
regarded as predominantly speculative with respect to the
issuer's capacity to pay
interest and repay principal in accordance with the terms
of the obligations and
involve major risk exposure to adverse business, financial,
economic, or political
conditions.
The fund may invest in the securities of foreign issuers in
the form of ADRs,
EDRs, GDRs or other securities convertible into securities
of foreign issuers. The
fund may invest in unsponsored ADRs. The issuers of
unsponsored ADRs are not
obligated to disclose material information in the United
States, and therefore,
there may not be a correlation between such information and
the market value of
such ADRs. The fund may invest in U.S. over-the-counter
securities of issuers
whose business interests are in emerging countries.
INVESTMENT PRACTICES
Each of the following investment practices is subject to
the limitations set forth
under "Investment Restrictions."
EQUITY SECURITIES
Common Stocks (all funds except the Global Government Bond
Portfolio). Each fund
except the Global Government Bond Portfolio may purchase
common stocks. Common
stocks are shares of a corporation or other entity that
entitle the holder to a
pro rata share of the profits of the corporation, if any,
without preference over
any other shareholder or class of shareholders, including
holders of the entity's
preferred stock and other senior equity. Common stock
usually carries with it the
right to vote and frequently an exclusive right to do so.
Preferred Stocks and Convertible Securities (all funds).
Each fund may invest in
convertible debt and preferred stocks. Convertible debt
securities and preferred
stock entitle the holder to acquire the issuer's stock by
exchange or purchase for
a predetermined rate. Convertible securities are subject
both to the credit and
interest rate risks associated with fixed income securities
and to the stock
market risk associated with equity securities.
Warrants (all funds except the Global Government Bond
Portfolio). Each fund
except the Global Government Bond Portfolio may purchase
warrants. Warrants
acquired by a fund entitle it to buy common stock from the
issuer at a specified
price and time. Warrants are subject to the same market
risks as stocks, but may
be more volatile in price. A fund's investment in warrants
will not entitle it to
receive dividends or exercise voting rights and will become
worthless if the
warrants cannot be profitably exercised before the
expiration dates.
REITs (all funds). Each fund may invest in shares of real
estate investment
trusts (REITs), which are pooled investment vehicles that
invest in real estate or
real estate loans or interests. Investing in REITs
involves risks similar to
those associated with investing in equity securities of
small capitalization
companies. REITs are dependent upon management skills, are
not diversified, and
are subject to risks of project financing, default by
borrowers, self-liquidation,
and the possibility of failing to qualify for the exemption
from taxation on
distributed amounts under the Internal Revenue Code of
1986, as amended (the
"Code").
Illiquid and Restricted Securities (all funds). Each fund
may invest up to 15% of
its assets in securities (excluding those subject to Rule
144A under the
Securities Act of 1933 (the ''1933 Act'')), with
contractual or other restrictions
on resale and other instruments that are not readily
marketable.
ADRs, EDRs and GDRs (all funds except the Global Government
Bond Portfolio). Each
fund except the Global Government Bond Portfolio fund may
also purchase ADRs, EDRs
and 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. A fund may invest in ADRs through
both sponsored and
unsponsored arrangements.
FIXED INCOME SECURITIES
To the extent that each fund may invest in fixed income
securities, it may invest
in the securities described below, unless otherwise noted.
Corporate Debt Obligations. Each fund may invest in
corporate debt obligations
and zero coupon securities issued by financial institutions
and corporations.
Corporate debt obligations are subject to the risk of an
issuer's inability to
meet principal and interest payments on the obligations and
may also be subject to
price volatility due to such factors as market interest
rates, market perception
of the creditworthiness of the issuer and general market
liquidity. Zero coupon
securities are securities sold at a discount to par value
and on which interest
payments are not made during the life of the security.
U.S. Government Securities. The U.S. Government
securities in which the funds
may invest include: bills, certificates of indebtedness,
and notes and bonds
issued by the U.S. Treasury or by agencies or
instrumentalities of the U.S.
Government. Some U.S. Government securities, such as U.S.
Treasury bills and
bonds, are supported by the full faith and credit of the
U.S. Treasury; others are
supported by the right of the issuer to borrow from the
U.S. Treasury; others,
such as those of the Federal National Mortgage Association,
are supported by the
discretionary authority of the U.S. Government to purchase
the agency's
obligations; still others, such as those of the Student
Loan Marketing Association
and the Federal Home Loan Mortgage Corporation ("FHLMC"),
are supported only by
the credit of the instrumentality. Mortgage participation
certificates issued by
the FHLMC generally represent ownership interests in a pool
of fixed-rate
conventional mortgages. Timely payment of principal and
interest on these
certificates is guaranteed solely by the issuer of the
certificates. Other
investments will include Government National Mortgage
Association Certificates
("GNMA Certificates"), which are mortgage-backed securities
representing part
ownership of a pool of mortgage loans on which timely
payment of interest and
principal is guaranteed by the full faith and credit of the
U.S. Government. While
the U.S. Government guarantees the payment of principal and
interest on GNMA
Certificates, the market value of the securities is not
guaranteed and will
fluctuate.
Sovereign Debt Obligations. A fund may purchase sovereign
debt instruments issued
or guaranteed by foreign governments or their agencies,
including debt of
developing countries. Sovereign debt may be in the form of
conventional securities
or other types of debt instruments such as loans or loan
participations. Sovereign
debt of developing countries may involve a high degree of
risk, and may be in
default or present the risk of default. Governmental
entities responsible for
repayment of the debt may be unable or unwilling to repay
principal and interest
when due, and may require renegotiation or rescheduling of
debt payments. In
addition, prospects for repayment of principal and interest
may depend on
political as well as economic factors. Although some
sovereign debt, such as
Brady Bonds, is collateralized by U.S. Government
securities, repayment of
principal and interest is not guaranteed by the U.S.
Government.
Loans and Other Direct Debt Instruments. A fund may
purchase interests in amounts
owed by a corporate, governmental, or other borrower to
another party. These
interests may represent amounts owed to lenders or lending
syndicates (loans and
loan participations), to suppliers of goods or services
(trade claims or other
receivables), or to other parties. Direct debt instruments
involve the risk of
loss in case of default or insolvency of the borrower and
may offer less legal
protection to the fund in the event of fraud or
misrepresentation. In addition,
loan participations involve a risk of insolvency of the
lending bank or other
financial intermediary. Direct debt instruments may also
include standby
financing commitments that obligate the fund to supply
additional cash to the
borrower on demand.
Floating And Variable Rate Income Securities. Income
securities may provide for
floating or variable rate interest or dividend payments.
The floating or variable
rate may be determined by reference to a known lending
rate, such as a bank's
prime rate, a certificate of deposit rate or the London
InterBank Offered Rate
(LIBOR). Alternatively, the rate may be determined through
an auction or
remarketing process. The rate also may be indexed to
changes in the values of
interest rate or securities indexes, currency exchange
rates or other commodities.
The amount by which the rate paid on an income security may
increase or decrease
may be subject to periodic or lifetime caps. Floating and
variable rate income
securities include securities whose rates vary inversely
with changes in market
rates of interest. Such securities may also pay a rate of
interest determined by
applying a multiple to the variable rate. The extent of
increases and decreases
in the value of securities whose rates vary inversely with
changes in market rates
of interest generally will be larger than comparable
changes in the value of an
equal principal amount of a fixed rate security having
similar credit quality,
redemption provisions and maturity.
Zero Coupon, Discount and Payment-in-kind Securities. A
fund may invest in "zero
coupon" and other deep discount securities of governmental
or private issuers.
Zero coupon securities generally pay no cash interest (or
dividends in the case of
preferred stock) to their holders prior to maturity.
Payment-in-kind securities
allow the lender, at its option, to make current interest
payments on such
securities either in cash or in additional securities.
Accordingly, such
securities usually are issued and traded at a deep discount
from their face or par
value and generally are subject to greater fluctuations of
market value in
response to changing interest rates than securities of
comparable maturities and
credit quality that pay cash interest (or dividends in the
case of preferred
stock) on a current basis.
Premium Securities. A fund may invest in income securities
bearing coupon rates
higher than prevailing market rates. Such "premium"
securities are typically
purchased at prices greater than the principal amounts
payable on maturity. A
fund will not amortize the premium paid for such securities
in calculating its net
investment income. As a result, in such cases the purchase
of such securities
provides a fund a higher level of investment income
distributable to shareholders
on a current basis than if the fund purchased securities
bearing current market
rates of interest. If securities purchased by a fund at a
premium are called or
sold prior to maturity, the fund will recognize a capital
loss to the extent the
call or sale price is less than the purchase price.
Additionally, a fund will
recognize a capital loss if it holds such securities to
maturity.
Yankee Bonds. A fund may invest in U.S. dollar-denominated
bonds sold in the
United States by non-U.S. issuers ("Yankee bonds"). As
compared with bonds issued
in the United States, such bond issues normally carry a
higher interest rate but
are less actively traded.
Loan Participations and Assignments. A fund may invest a
portion of its assets in
loan participations ("Participations"). By purchasing a
Participation, a fund
acquires some or all of the interest of a bank or other
lending institution in a
loan to a corporate or government borrower. The
Participations typically will
result in the fund having a contractual relationship only
with the lender and not
with the borrower. The fund will have the right to receive
payments of principal,
interest and any fees to which it is entitled only from the
lender selling the
Participation and only upon receipt by the lender of the
payments from the
borrower. In connection with purchasing Participations,
the fund generally will
have no right to enforce compliance by the borrower with
the terms of the loan
agreement relating to the loan, nor any rights of set-off
against the borrower,
and the fund may not directly benefit from any collateral
supporting the loan in
which it has purchased the Participation. As a result, the
fund will assume the
credit risk of both the borrower and the lender that is
selling the Participation.
In the event of the insolvency of the lender selling a
Participation, the fund may
be treated as a general creditor of the lender and may not
benefit from any
set-off between the lender and the borrower. A fund will
acquire Participations
only if the lender interpositioned between the fund and the
borrower is determined
by management to be creditworthy.
A fund also may invest in assignments of portions of loans
from third parties
("Assignments"). When it purchases Assignments from
lenders, the fund will
acquire direct rights against the borrower on the loan.
However, since
Assignments are arranged through private negotiations
between potential assignees
and assignors, the rights and obligations acquired by the
fund as the purchaser of
an Assignment may differ from, and be more limited than,
those held by the
assigning lender. A fund may have difficulty disposing of
Assignments and
Participations. The liquidity of such securities is
limited, and the fund
anticipates that such securities could be sold only to a
limited number of
institutional investors. The lack of a liquid secondary
market could have an
adverse impact on the value of such securities and on the
fund's ability to
dispose of particular Assignments or Participations when
necessary to meet the
fund's liquidity needs or in response to a specific
economic event, such as a
deterioration in the creditworthiness of the borrower. The
lack of a liquid
secondary market for Assignments and Participations also
may make it more
difficult for the fund to assign a value to those
securities or purposes of
valuing the fund's portfolio and calculating its net asset
value.
Structured Notes. Emerging Markets Portfolio may purchase
structured notes, which
are over-the-counter debt instruments where the interest
rate and/or principal are
indexed to an unrelated indicator (e.g., short-term rates
in Japan, the price of
oil). Sometimes the two are inversely related (i.e., as the
index goes up, the
coupon rate goes down; inverse floaters are an example of
this) and sometimes they
may fluctuate to a greater degree than the underlying index
(e.g., the coupon may
change twice as much as the change in the index rate).
Structured notes are often
issued by high-grade corporate issuers. There is often an
underlying swap
involved; the issuer will receive payments that match its
obligations under the
structured note (usually from an investment bank) and, in
turn, makes more
"traditional" payments to the investment bank (e.g., fixed
rate or ordinary
floating rate payments). It is important to note, however,
that in such cases the
fund would not be involved in the swap; the issuer of the
note would remain
obligated even if its counterparty defaulted.
Short-Term Investments. In certain circumstances the funds
may invest without
limitation in all types of short-term money market
instruments, including U.S.
Government securities; certificates of deposit, time
deposits and bankers'
acceptances issued by domestic banks (including their
branches located outside the
United States and subsidiaries located in Canada), domestic
branches of foreign
banks, savings and loan associations and similar
institutions; high grade
commercial paper; and repurchase agreements. To the extent
a fund is investing in
short-term investments as a temporary defensive posture,
the applicable fund's
investment objective may not be achieved.
Commercial Paper. Commercial paper consists of short-term
(usually 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
funds, pursuant to which
the lender may determine to invest varying amounts.
Transfer of such notes is
usually restricted by the issuer, and there is no secondary
trading market for
such notes. Each fund, therefore, may not invest in a
master demand note, if as a
result more than 15% of the value of the fund's total
assets would be invested in
such notes and other illiquid securities.
Commercial Bank Obligations. For the purposes of each
fund's investment policies
with respect to bank obligations, obligations of foreign
branches of U.S. banks
and of foreign banks may be general obligations of the
parent bank in addition to
the issuing bank, or may be limited by the terms of a
specific obligation and by
government regulation. As with investment in foreign
securities in general,
investments in the obligations of foreign branches of U.S.
banks and of foreign
banks may subject a fund to investment risks that are
different in some respects
from those of investments in obligations of domestic
issuers. Although a fund
will typically acquire obligations issued and supported by
the credit of U.S. or
foreign banks having total assets at the time of purchase
in excess of U.S. $1
billion (or the equivalent thereof), this U.S. $1 billion
figure is not a
fundamental investment policy or restriction of the fund.
For calculation
purposes with respect to the U.S. $1 billion figure, the
assets of a bank will be
deemed to include the assets of its U.S. and foreign
branches.
DERIVATIVE CONTRACTS
Options, Futures and Currencies (All funds). Each fund may
use forward currency
contracts and certain options and futures strategies to
attempt to hedge its
portfolio, i.e., reduce the overall level of investment
risk normally associated
with the fund. These hedging techniques are described in
detail below. Neither
International Balanced Portfolio nor Emerging Markets
Portfolio will hedge more
than 25% of its total assets by selling futures, buying
puts, and writing calls
under normal conditions. In addition, neither of these
funds will buy futures or
write puts whose underlying value exceeds 25% of its total
assets, or will buy
calls with a value exceeding 5% of its total assets.
Writing Covered Call Options (All funds). Each fund 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
Manager, 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 fund.
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
Company believe that
writing of covered call options is less risky than writing
uncovered or "naked"
options, which the funds 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
fund's investment objective. When writing a covered call
option, the fund, 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 fund 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 fund has written
expires, the fund 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 fund
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 fund's custodian.
The premium the fund receives for writing a call option is
deemed to constitute
the market value of an option. The premium the fund 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
fund for writing covered call options will be recorded as a
liability in the
fund'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." 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 fund to
write another call option on the underlying security or
currency with either a
different exercise price, expiration date or both. If the
fund 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 fund will be able to effect such closing
transactions at a
favorable price. If the fund 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 at market risk with
respect to the security or
currency.
Each fund 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 fund, 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 fund 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 fund 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 fund.
See "ADDITIONAL TAX INFORMATION" for a discussion of
federal income tax treatment
of covered call options.
Purchasing Put Options (All funds). Each fund may purchase
put options. As the
holder of a put option, the fund has the right to sell the
underlying security or
currency at the exercise price at any time during the
option period. The fund may
enter into closing sale transactions with respect to such
options, exercise them
or permit them to expire.
Each fund may purchase a put option on an underlying
security or currency (a
"protective put") owned by the fund 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 fund,
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 may reduce any capital gain or, in
the case of currency,
ordinary income otherwise available for distribution when
the security or currency
is eventually sold.
Each fund may also purchase put options at a time when the
fund does not own the
underlying security or currency. By purchasing put options
on a security or
currency it does not own, the fund 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 fund 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 fund when purchasing a put option
will be recorded as an
asset in the fund's statement of assets and liabilities.
This asset will be
adjusted daily to the option's current market value, as
calculated by the fund.
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 (All funds). Each fund may
purchase call options. As the
holder of a call option, a fund has the right to purchase
the underlying security
or currency at the exercise price at any time during the
option period. The fund
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 fund for the
purpose of acquiring the underlying security or currency
for its portfolio.
Utilized in this fashion, the purchase of call options
enables the fund 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 fund 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 fund 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 fund 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 fund's current return.
Interest Rate and Currency Futures Contracts (All funds).
Each fund 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 fund. A
fund's hedging may include holding Futures as an offset
against anticipated
changes in interest or currency exchange rates. A fund 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 fund's exposure to interest rate and
currency exchange rate
fluctuations, the fund 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 fund realizes a gain; if
it is more, the fund
realizes a loss. Conversely, if the offsetting sale price
is more than the
original purchase price, the fund realizes a gain; if it is
less, the fund
realizes a loss. The transaction costs must also be
included in these
calculations. There can be no assurance, however, that the
fund will be able to
enter into an offsetting transaction with respect to a
particular Futures Contract
at a particular time. If the fund is not able to enter
into an offsetting
transaction, the fund will continue to be required to
maintain the margin deposits
of the underlying financial instrument or currency on the
relevant delivery date.
The Company 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
fund.
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 fund'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 fund owns,
or Futures Contracts
will be purchased to protect a fund 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 fund with a broker in order to initiate
Futures trading and to
maintain the fund's open positions in Futures Contracts. A
margin deposit made
when the Futures Contract is entered into ("initial
margin") is intended to assure
the fund'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
fund. In computing daily net asset values, the fund will
mark to market the
current value of its open Futures Contracts. Each fund
expects to earn interest
income on its margin deposits.
See "ADDITIONAL TAX INFORMATION" for a discussion of
federal tax treatment of
Futures Contracts.
Options on Futures Contracts (All funds). 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 fund 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
fund or to reduce or
eliminate the hedge position then currently held by the
fund, the fund 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 funds 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 fund 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 fund'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, Options on Currency and
Currency Swaps (All funds). 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 fund
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 fund
engages in forward currency
transactions in anticipation of, or to protect itself
against, fluctuations in
exchange rates. A fund 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 fund 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 fund 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 fund may not
always be able to enter into foreign currency forward
contracts at attractive
prices and this will limit the fund's ability to use such
contract to hedge or
cross-hedge its assets. Also, with regard to a fund'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 fund's cross-hedges and the
movements in the exchange
rates of the foreign currencies in which the fund'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 fund, however, may enter into
forward contracts with
deposit requirements or commissions.
A put option gives a fund, 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 fund, as purchaser, the
right (but not the
obligation) to purchase a specified amount of currency at
the exercise price until
its expiration. A fund 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 fund 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 fund anticipates purchasing securities.
Each fund'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 fund 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 fund 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 fund 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 fund 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.
A fund may also enter into currency swaps. 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.
Interest Rate Swaps, Caps and Floors (All funds). Among the
hedging transactions
into which the funds may enter are interest rate swaps and
the purchase or sale of
interest rate caps and floors. Each fund 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
fund anticipates purchasing at a later date. Each fund
intends to use these
transactions as a hedge and not as a speculative
investment. Each fund will not
sell interest rate caps or floors that it does not own.
Interest rate swaps
involve the exchange by a fund 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 fund 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, with the fund
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 Manager
and the funds believe such obligations do not constitute
senior securities and,
accordingly will not treat them as being subject to their
borrowing restrictions.
The net amount of the excess, if any, of a fund's
obligations over its
entitlements 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 1940 Act. The funds
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 fund 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 funds may invest in any such options and
contracts as may be
developed to the extent consistent with their investment
objectives and regulatory
requirements applicable to investment companies.
OTHER PRACTICES
Repurchase Agreements (All funds). Each fund may enter
into repurchase
agreements. International Equity Portfolio, Pacific
Portfolio, International
Balanced Portfolio and Emerging Markets Portfolio each may
invest in repurchase
agreements up to 25% of its total assets. A repurchase
agreement is a contract
under which a fund 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
fund to resell such security at a fixed time and price
(representing the fund's
cost plus interest). It is each fund'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 fund which
are collateralized
primarily by the securities subject to repurchase. A fund
bears a risk of loss in
the event that the other party to a repurchase agreement
defaults on its
obligations and the fund is delayed in or prevented from
exercising its rights to
dispose of the collateral securities. Pursuant to policies
established by the
Board of Directors, the Manager monitors the
creditworthiness of all issuers with
which each fund enters into repurchase agreements.
Reverse Repurchase Agreements (All funds). Each fund does
not currently intend to
commit more than 5% of its net assets to reverse repurchase
agreements. Each fund
may enter into reverse repurchase agreements with
broker/dealers and other
financial institutions. Such agreements involve the sale
of fund securities with
an agreement to repurchase the securities at an agreed-upon
price, date and
interest payment, are considered to be borrowings by a fund
and are subject to the
borrowing limitations set forth under "Investment
Restrictions." Since the
proceeds of reverse repurchase agreements are invested,
this would introduce the
speculative factor known as "leverage." The securities
purchased with the funds
obtained from the agreement and securities collateralizing
the agreement will have
maturity dates no later than the repayment date. Generally
the effect of such a
transaction is that the Company can recover all or most of
the cash invested in
the portfolio securities involved during the term of the
reverse repurchase
agreement, while in many cases it will be able to keep some
of the interest income
associated with those securities. Such transactions are
only advantageous if the
fund has an opportunity to earn a greater rate of interest
on the cash derived
from the transaction than the interest cost of obtaining
that cash.
Opportunities to realize earnings from the use of the
proceeds equal to or greater
than the interest required to be paid may not always be
available, and the Company
intends to use the reverse repurchase technique only when
the Manager believes it
will be advantageous to the fund. The use of reverse
repurchase agreements may
exaggerate any interim increase or decrease in the value of
the participating
fund's assets. The Company's custodian bank will maintain
a separate account for
the fund with securities having a value equal to or greater
than such commitments.
Borrowing (All funds). Each fund may borrow up to 33%
(except that Emerging
Markets Portfolio may borrow only up to 25% and European
Portfolio may borrow only
up to 10%) of the value of its total assets from banks for
temporary or emergency
purposes, such as to meet the fund's redemptions.
Leverage (International Balanced, International Equity and
Pacific).
International Equity Portfolio, International Balanced
Portfolio and Pacific
Portfolio each may borrow from banks, on a secured or
unsecured basis, up to 33%
of the value of its total assets and use the proceeds to
make additional
investments. Income and appreciation from such investments
will improve a fund's
performance if they exceed the associated borrowing costs,
but will impair a
fund's performance if they are less than the borrowing
costs. This speculative
factor is known as "leverage."
Leverage creates an opportunity for increased returns to
shareholders of a fund
but, at the same time, creates special risk considerations.
For example, leverage
may exaggerate changes in the net asset value of the fund's
shares and in the
fund's yield. Although the principal or stated value of
such borrowings will be
fixed, the fund assets may change in value during the time
the borrowing is
outstanding. Leverage will create interest expenses for
the fund 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 the
fund will have to pay in respect thereof, the fund'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 fund 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 fund.
Securities Lending (All funds). Global Government Bond
Portfolio, European
Portfolio, International Balanced Portfolio and Emerging
Markets Portfolio each
may lend securities in amounts up to one-third of total
assets. International
Equity Portfolio and Pacific Portfolio each may lend
securities in amounts up to
15% of total assets. Each fund 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 fund 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 Company 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
fund. 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 fund's investment in
the securities loaned.
Apart from lending its securities and acquiring debt
securities of a type
customarily purchased by financial institutions, no fund
will make loans to other
persons.
When-Issued and Delayed Delivery Securities (All funds).
The funds each 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 a fund 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 fund at the
time of entering into the transaction. The Chase Manhattan
Bank, the Company's
custodian (the "Custodian") will maintain, in a segregated
account of the
applicable fund, cash, debt securities of any grade or
equity securities, having a
value equal to or greater than the fund'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 a fund enters into the commitment and no interest
accrues to the fund
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.
Short Sales. (All funds) Each fund may sell securities
"short against the box."
While a short sale is the sale of a security the fund does
not own, it is "against
the box" if at all times when the short position is open,
the fund owns an equal
amount of the securities or securities convertible into, or
exchangeable without
further consideration for, securities of the same issue as
the securities sold
short. The ability to use short sales to defer recognition
of gains was
substantially limited by certain "constructive sale" tax
provisions enacted in
1997.
* * * * * * * *
The Articles of Incorporation of the Company permit the
Board of Directors to
establish additional funds of the Company from time to
time. The investment
objectives, policies and restrictions applicable to
additional funds would be
established by the Board of Directors at the time such
funds were established and
may differ from those set forth in the Prospectus and this
Statement of Additional
Information.
RISK FACTORS tc "RISK FACTORS"
General. Investors should realize that risk of loss is
inherent in the ownership
of any securities and that each fund's net asset value will
fluctuate, reflecting
fluctuations in the market value of its portfolio
positions.
Non-diversification and Geographic Concentration. Funds
that are
"non-diversified" are permitted to invest a greater
proportion of their assets in
the securities of a smaller number of issuers, and thus may
be subject to greater
credit and liquidity risks with respect to their individual
portfolios than a fund
that is more broadly diversified. In addition,
concentration of a fund's assets
in one or a few countries or currencies will subject the
fund to greater risks
than if the fund's assets were not geographically
concentrated.
Fixed Income Securities. Investments in fixed income
securities may subject the
funds to risks, including the following:
Interest Rate Risk. When interest rates decline, the
market value of fixed income
securities tends to increase. Conversely, when interest
rates increase, the
market value of fixed income securities tends to decline.
The volatility of a
security's market value will differ depending upon the
security's duration, the
issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income
securities are subject to
the risk that the issuer of the security could default on
its obligations, causing
a fund to sustain losses on such investments. A default
could impact both
interest and principal payments.
Call Risk and Extension Risk. Fixed income securities may
be subject to both call
risk and extension risk. Call risk exists when the issuer
may exercise its right
to pay principal on an obligation earlier than scheduled,
which would cause cash
flows to be returned earlier than expected. This typically
results when interest
rates have declined and a fund will suffer from having to
reinvest in lower
yielding securities. Extension risk exists when the issuer
may exercise its right
to pay principal on an obligation later than scheduled,
which would cause cash
flows to be returned later than expected. This typically
results when interest
rates have increased, and a fund will suffer from the
inability to invest in
higher yield securities.
Below Investment Grade Fixed Income Securities. Securities
which are rated BBB by
S&P or Baa by Moody's are generally regarded as having
adequate capacity to pay
interest and repay principal, but may have some speculative
characteristics.
Securities rated below Baa by Moody's or BBB by S&P may
have speculative
characteristics, including the possibility of default or
bankruptcy of the issuers
of such securities, market price volatility based upon
interest rate sensitivity,
questionable creditworthiness and relative liquidity of the
secondary trading
market. Because high yield bonds have been found to be
more sensitive to adverse
economic changes or individual corporate developments and
less sensitive to
interest rate changes than higher-rated investments, an
economic downturn could
disrupt the market for high yield bonds and adversely
affect the value of
outstanding bonds and the ability of issuers to repay
principal and interest. In
addition, in a declining interest rate market, issuers of
high yield bonds may
exercise redemption or call provisions, which may force a
fund, to the extent it
owns such securities, to replace those securities with
lower yielding securities.
This could result in a decreased return.
Foreign Securities. Investments in securities of foreign
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. Since each fund will
invest heavily in securities denominated or quoted in
currencies other than the
U.S. dollar, changes in foreign currency exchange rates
will, to the extent the
fund does not adequately hedge against such fluctuations,
affect the value of
securities in its portfolio and the unrealized appreciation
or depreciation of
investments so far as U.S. investors are concerned. 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,
auditing, and financial reporting standards and
requirements comparable to or as
uniform as those of U.S. companies. Foreign 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 price more volatile
than securities of comparable U.S. companies. Transaction
costs on foreign
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. A fund might have greater difficulty taking
appropriate legal
action in foreign courts. Dividend and interest income from
foreign securities
will generally be subject to withholding taxes by the
country in which the issuer
is located and may not be recoverable by the fund or the
investors. Capital gains
are also subject to taxation in some foreign countries.
Currency Risks. The U.S. dollar value of securities
denominated in a foreign
currency will vary with changes in currency exchange rates,
which can be volatile.
Accordingly, changes in the value of the currency in which
a fund's investments
are denominated relative to the U.S. dollar will affect the
fund's net asset
value. Exchange rates are generally affected by the forces
of supply and demand
in the international currency markets, the relative merits
of investing in
different countries and the intervention or failure to
intervene of U.S. or
foreign governments and central banks. However, currency
exchange rates may
fluctuate based on factors intrinsic to a country's
economy. Some emerging market
countries also may have managed currencies, which are not
free floating against
the U.S. dollar. In addition, emerging markets are subject
to the risk of
restrictions upon the free conversion of their currencies
into other currencies.
Any devaluations relative to the U.S. dollar in the
currencies in which a fund's
securities are quoted would reduce the fund's net asset
value per share.
Special Risks of countries in the Asia Pacific Region.
Certain of the risks
associated with international investments are heightened
for investments in these
countries. For example, some of the currencies of these
countries have experienced
devaluations relative to the U.S. dollar, and adjustments
have been made
periodically in certain of such currencies. Certain
countries, such as Indonesia,
face serious exchange constraints. Jurisdictional disputes
also exist, for
example, between South Korea and North Korea. In addition,
Hong Kong reverted to
Chinese administration on July 1, 1997. The long-term
effects of this reversion
are not known at this time.
Securities of Developing/Emerging Markets Countries. A
developing or emerging
markets country generally is considered to be a country
that is in the initial
stages of its industrialization cycle. Investing in the
equity markets of
developing countries involves exposure to economic
structures that are generally
less diverse and mature, and to political systems that can
be expected to have
less stability, than those of developed countries.
Historical experience indicates
that the markets of developing countries have been more
volatile than the markets
of the more mature economies of developed countries;
however, such markets often
have provided higher rates of return to investors.
One or more of the risks discussed above could affect
adversely the economy of a
developing market or a fund's investments in such a market.
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 a fund
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 fund
could lose its entire investment in the market involved.
Moreover, changes in the
leadership or policies of such markets could halt the
expansion or reverse the
liberalization of foreign investment policies now occurring
in certain of these
markets and adversely affect existing investment
opportunities.
Many of a fund's investments in the securities of emerging
markets may be unrated
or rated below investment grade. Securities rated below
investment grade (and
comparable unrated securities) are the equivalent of high
yield, high risk bonds,
commonly known as "junk bonds." Such securities are
regarded as predominantly
speculative with respect to the issuer's capacity to pay
interest and repay
principal in accordance with the terms of the obligations
and involve major risk
exposure to adverse business, financial, economic, or
political conditions.
Restrictions on Foreign Investment. Some countries
prohibit or impose
substantial restrictions on investments in their capital
markets, particularly
their equity markets, by foreign entities such as a fund.
As illustrations,
certain countries require governmental approval prior to
investments by foreign
persons, or limit the amount of investment by foreign
persons in a particular
company, or limit the investment by foreign persons to only
a specific class of
securities of a company which may have less advantageous
terms than securities of
the company available for purchase by nationals or limit
the repatriation of funds
for a period of time.
A number of countries, such as South Korea, Taiwan and
Thailand, have authorized
the formation of closed-end investment companies to
facilitate indirect foreign
investment in their capital markets. In accordance with
the 1940 Act, each fund
may invest up to 10% of its total assets in securities of
closed-end investment
companies. This restriction on investments in securities
of closed-end investment
companies may limit opportunities for a fund to invest
indirectly in certain
smaller capital markets. Shares of certain closed-end
investment companies may at
times be acquired only at market prices representing
premiums to their net asset
values. If a fund acquires shares in closed-end investment
companies,
shareholders would bear both their proportionate share of
expenses in the fund
(including management and advisory fees) and, indirectly,
the expenses of such
closed-end investment companies.
In some countries, banks or other financial institutions
may constitute a
substantial number of the leading companies or the
companies with the most
actively traded securities. Also, the 1940 Act restricts a
fund's investments in
any equity security of an issuer which, in its most recent
fiscal year, derived
more than 15% of its revenues from "securities related
activities," as defined by
the rules thereunder. These provisions may also restrict
the fund's investments
in certain foreign banks and other financial institutions.
Smaller capital markets, while often growing in trading
volume, have substantially
less volume than U.S. markets, and securities in many
smaller capital markets are
less liquid and their prices may be more volatile than
securities of comparable
U.S. companies. Brokerage commissions, custodial services,
and other costs
relating to investment in smaller capital markets are
generally more expensive
than in the United States. Such markets have different
clearance and settlement
procedures, and in certain markets there have been times
when settlements have
been unable to keep pace with the volume of securities
transactions, making it
difficult to conduct such transactions. Further,
satisfactory custodial services
for investment securities may not be available in some
countries having smaller
capital markets, which may result in the fund incurring
additional costs and
delays in transporting and custodying such securities
outside such countries.
Delays in settlement could result in temporary periods when
assets of a fund are
uninvested and no return is earned thereon. The inability
of a fund to make
intended security purchases due to settlement problems
could cause the fund to
miss attractive investment opportunities. Inability to
dispose of a portfolio
security due to settlement problems could result either in
losses to a fund due to
subsequent declines in value of the portfolio security or,
if the fund has entered
into a contract to sell the security, could result in
possible liability to the
purchaser. Generally, there is less government supervision
and regulation of
exchanges, brokers and issuers in countries having smaller
capital markets than
there is in the United States.
Derivative Instruments. In accordance with its investment
policies, each fund may
invest in certain derivative instruments which are
securities or contracts that
provide for payments based on or "derived" from the
performance of an underlying
asset, index or other economic benchmark. Essentially, a
derivative instrument is
a financial arrangement or a contract between two parties
(and not a true security
like a stock or a bond). Transactions in derivative
instruments can be, but are
not necessarily, riskier than investments in conventional
stocks, bonds and money
market instruments. A derivative instrument is more
accurately viewed as a way of
reallocating risk among different parties or substituting
one type of risk for
another. Every investment by a fund, including an
investment in conventional
securities, reflects an implicit prediction about future
changes in the value of
that investment. Every fund investment also involves a
risk that the portfolio
manager's expectations will be wrong. Transactions in
derivative instruments
often enable a fund to take investment positions that more
precisely reflect the
portfolio manager's expectations concerning the future
performance of the various
investments available to the fund. Derivative instruments
can be a legitimate and
often cost-effective method of accomplishing the same
investment goals as could be
achieved through other investment in conventional
securities.
Derivative contracts include options, futures contracts,
forward contracts,
forward commitment and when-issued securities transactions,
forward foreign
currency exchange contracts and interest rate, mortgage and
currency swaps. The
following are the principal risks associated with
derivative instruments.
Market risk: The instrument will decline in value or that
an alternative
investment would have appreciated more, but this is no
different from the risk of
investing in conventional securities.
Leverage and associated price volatility: Leverage causes
increased volatility in
the price and magnifies the impact of adverse market
changes, but this risk may be
consistent with the investment objective of even a
conservative fund in order to
achieve an average portfolio volatility that is within the
expected range for that
type of fund.
Credit risk: The issuer of the instrument may default on
its obligation to pay
interest and principal.
Liquidity and valuation risk: Many derivative instruments
are traded in
institutional markets rather than on an exchange.
Nevertheless, many derivative
instruments are actively traded and can be priced with as
much accuracy as
conventional securities. Derivative instruments that are
custom designed to meet
the specialized investment needs of a relatively narrow
group of institutional
investors such as the funds are not readily marketable and
are subject to a fund's
restrictions on illiquid investments.
Correlation risk: There may be imperfect correlation
between the price of the
derivative and the underlying asset. For example, there
may be price disparities
between the trading markets for the derivative contract and
the underlying asset.
Each derivative instrument purchased for a fund's portfolio
is reviewed and
analyzed by the fund's portfolio manager to assess the risk
and reward of each
such instrument in relation the fund's portfolio investment
strategy. The
decision to invest in derivative instruments or
conventional securities is made by
measuring the respective instrument's ability to provide
value to the fund and its
shareholders.
Special Risks of Using Futures Contracts. The prices of
Futures Contracts are
volatile and are influenced by, among other things, actual
and anticipated changes
in interest rates, which in turn are affected by fiscal and
monetary policies and
national and international political and economic events.
At best, the correlation between changes in prices of
Futures Contracts and of the
securities or currencies being hedged can be only
approximate. The degree of
imperfection of correlation depends upon circumstances such
as: variations in
speculative market demand for Futures and for debt
securities or currencies,
including technical influences in Futures trading; and
differences between the
financial instruments being hedged and the instruments
underlying the standard
Futures Contracts available for trading, with respect to
interest rate levels,
maturities, and creditworthiness of issuers. A decision of
whether, when, and how
to hedge involves skill and judgment, and even a well-
conceived hedge may be
unsuccessful to some degree because of unexpected market
behavior or interest rate
trends.
Because of the low margin deposits required, Futures
trading involves an extremely
high degree of leverage. As a result, a relatively small
price movement in a
Futures Contract may result in immediate and substantial
loss, as well as gain, to
the investor. 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 fund, 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 fund
enters into Futures
transactions for non-hedging purposes, it will be subject
to greater risks and
could sustain losses which are not offset by gains on other
fund assets.
Furthermore, in the case of a Futures Contract purchase, in
order to be certain
that each fund has sufficient assets to satisfy its
obligations under a Futures
Contract, the fund segregates and commits to back the
Futures Contract an amount
of cash and liquid 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.
Economic and Monetary Union (EMU). EMU began on January 1,
1999, when 11 European
countries adopted a single currency - the euro. For
participating countries, EMU
means sharing a single currency and single official
interest rate and adhering to
agreed upon limits on government borrowing. Budgetary
decisions will remain in
the hands of each participating country, but will be
subject to each country's
commitment to avoid "excessive deficits" and other more
specific budgetary
criteria. A European Central Bank will be responsible for
setting the official
interest rate to maintain price stability within the euro
zone. EMU is driven by
the expectation of a number of economic benefits, including
lower transaction
costs, reduced exchange risk, greater competition, and a
broadening and deepening
of European financial markets. However, there are a number
of significant risks
associated with EMU. Monetary and economic union on this
scale has never been
attempted before. There is a significant degree of
uncertainty as to whether
participating countries will remain committed to EMU in the
face of changing
economic conditions. This uncertainty may increase the
volatility of European
markets and may adversely affect the prices of securities
of European issuers in
the funds' portfolios.
Year 2000 Issue As the year 2000 began, there were few
problems caused by the
inability of certain computer systems to tell the
difference between the year 2000
and the year 1900 ( commonly known as the "Year 2000"
issue). It is still
possible that some computer systems could malfunction in
the future because of the
Year 2000 issue or as a result of actions taken to address
the Year 2000 issue.
Fund management does not anticipate that its services or
those of the Fund's other
service providers will be adversely affected, but Fund
management will continue to
monitor the situation. If malfunctions related to the Year
2000 issue do arise,
the Fund and its investments could be negatively affected.
INVESTMENT RESTRICTIONS tc "INVESTMENT RESTRICTIONS"
The Company 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 fund 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
fund from (a) investing in securities of issuers engaged in
the
rea
estate business or the business of investing in real
estate
(including interests in limited partnerships owning or
otherwise
engaging in the real estate business or the business of
investing
in real estate) and securities which are secured by real
estate or
interests therein; (b) holding or selling real estate
received in
connection with securities it holds or held; (c) trading in
futures
contracts and options on futures contracts (including
options on
currencies to the extent consistent with the fund's'
investment
objective and policies); or (d) investing in real estate
investment
trust securities.
5. Borrow money, except that (a) the fund may
borrow from banks for
temporary or emergency (not leveraging) purposes, including
the
meeting of redemption requests which might otherwise
require the
untimely disposition of securities, and (b) the fund may,
to the
extent consistent with its investment policies, enter into
reverse
repurchase agreements, forward roll transactions and
similar
investment strategies and techniques. To the extent that
it
engages in transactions described in (a) and (b), the fund
will be
limited so that no more than 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 fund may invest consistent
with
its investment objectives and policies; (b) repurchase
agreements;
and (c) loans of its portfolio securities, to the fullest
extent
permitted under the 1940 Act.
8. Engage in the business of underwriting
securities issued by other
persons, except to the extent that the fund may
technically be
deemed to be an underwriter under the Securities Act of
1933, as
amended, in disposing of portfolio securities.
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 fund'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 fund 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 fund 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
fund 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
fund 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 and the Emerging Markets
Portfolio each may not:
1. With respect to each of the European Portfolio,
the International
Equity Portfolio and the Pacific Portfolio, 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
fund from (a) investing in securities of issuers engaged in
the
real estate business or the business of investing in real
estate
(including interests in limited partnerships owning or
otherwise
engaging in the real estate business or the business of
investing
in real estate) and securities which are secured by real
estate or
interests therein; (b) holding or selling real estate
received in
connection with securities it holds or held; (c) trading in
futures
contracts and options on futures contracts (including
options on
currencies to the extent consistent with the funds'
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 fund
may
borrow from banks for temporary or emergency (not
leveraging)
purposes, including the meeting of redemption requests
which might
otherwise require the untimely disposition of securities,
and (b)
the fund may, to the extent consistent with its investment
policies, enter into reverse repurchase agreements, forward
roll
transactions and similar investment strategies and
techniques. To
the extent that it engages in transactions described in (a)
and
(b), the fund will be limited so that no more than 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 and the Pacific Portfolio,
borrow
money, except that (a) the Portfolio may borrow from banks
under
certain circumstances where the fund's Manager reasonably
believes
that (i) the cost of borrowing and related expenses will be
exceeded by the fund'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 fund'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 fund 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 fund may invest consistent
with
its investment objectives and policies; (b) repurchase
agreements;
and (c) loans of its portfolio securities, to the fullest
extent
permitted under the 1940 Act.
8. Engage in the business of underwriting
securities issued by other
persons, except to the extent that the fund may technically
be
deemed to be an underwriter under the Securities Act of
1933, as
amended, in disposing of portfolio securities.
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 European
Portfolio, the Emerging Markets Portfolio, the
International Balanced Portfolio,
the International Equity Portfolio and the Pacific
Portfolio, but are not
fundamental and accordingly may be changed by approval of
the Board of Directors.
The funds 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 fund 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 funds
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 fund 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.
ADDITIONAL TAX INFORMATION tc "ADDITIONAL TAX INFORMATION"
The following is a summary of the material federal tax
considerations affecting a
fund of the Company. 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 fund intends to qualify, as it has in prior years,
under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), for
tax treatment as a
separate regulated investment company so long as such
qualification is in the best
interest of its shareholders. In each taxable year that
each fund qualifies, each
fund will pay no federal income tax on its net investment
income and net short-
term and long-term capital gains that are distributed to
shareholders in
compliance with the Code's timing and other requirements.
To so qualify, a fund 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 fund'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 fund'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 fund's assets is
invested in securities of
any one issuer (other than U.S. Government securities or
securities of other
regulated investment companies) or two or more issuers
controlled by the fund and
engaged in the same, similar or related trades or
businesses. The diversification
requirements described above may limit the fund'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
fund'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 fund will not be
subject to U.S. federal
income tax on net investment income and net short-term and
long-term capital gains
distributed to shareholders if, as is intended, the fund
distributes at least 90%
of its net ordinary income and any excess of its net short-
term capital gain over
its net long-term capital loss to the fund's shareholders
for each taxable year of
the fund.
Each fund, however, will generally be subject to a
nondeductible federal 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
fund 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 fund will not
be subject to the excise tax.
For federal income tax purposes, dividends declared by each
fund 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 fund 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 fund sells the stock or security short or
acquires a put or writes a
call thereon or it is otherwise subject to the straddle
rules described below.
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 but may in some cases
be subject to the mark-
to-market rules described below. If an option written for
a fund lapses or is
terminated through a closing transaction the fund 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 and subject to
possible recharacterization
for certain listed nonequity options under the "60/40 rule"
described below. If a
fund sells stock or securities pursuant to the exercise of
a call option written
by it, the fund 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.
Under the Code, gains or losses attributable to foreign
currency forward contracts
or certain foreign currency options or futures contracts,
or to fluctuations in
exchange rates between the time a fund accrues income or
receivables or expenses
or other liabilities denominated in a foreign currency and
the time the fund
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 fund 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 fund
may create "straddles" for federal income tax purposes and
this may affect the
character and timing of gains or losses realized by the
fund on such contracts or
options or on the underlying securities and therefore
affect the fund's
distributions.
Certain options, Futures and foreign currency contracts
held by a fund 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. Generally,
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 40%
will be treated as short-term capital gain or loss (the
"60/40 rule"), regardless
of how long the fund has held such options or contracts.
Certain of these gains
or losses that relate to some currency-related futures,
options, or forwards will
be recharacterized as ordinary income or loss.
Constructive sale rules may also
require the recognition of gains (but not losses) if a fund
engages in short sales
or certain other transactions.
If a fund purchases shares in certain foreign investment
entities, referred to as
"passive foreign investment companies," the fund 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 fund to its
shareholders in a manner that satisfies the requirements
described above. If the
fund were able and elected to treat a passive foreign
investment company as a
"qualified electing fund," in lieu of the treatment
described above, the fund
would be required each year to include in income, and
distribute to shareholders
in accordance with the distribution requirements described
above, the fund's pro
rata share of the ordinary earnings and net capital gains
of the company, whether
or not actually received by the fund. The funds generally
should be able to make
an alternative election to mark these investments to market
annually, resulting in
the recognition of ordinary income (rather than capital
gain) or ordinary loss,
subject to limitations on the ability to use any such loss.
A fund may be required to treat amounts as taxable income
or gain, subject to the
distribution requirements referred to above, even though no
corresponding amounts
of cash are received concurrently, as a result of (1) mark
to market, constructive
sale or other rules applicable to passive foreign
investment companies or
partnerships in which the fund invests or to certain
options, futures, forward
contracts, or "appreciated financial positions" or (2) the
inability to obtain
cash distributions or other amounts due to currency
controls or restrictions on
repatriation imposed by a foreign country with respect to
the fund's investments
in issuers in such country or (3) tax rules applicable to
debt obligations
acquired with "original issue discount," including zero-
coupon or deferred payment
bonds and pay-in-kind debt obligations, or to market
discount if an election is
made with respect to such market discount. The fund may
therefore be required to
obtain cash to be used to satisfy these distribution
requirements by selling
portfolio securities at times that it might not otherwise
be desirable to do so or
borrowing the necessary cash, thereby incurring interest
expenses.
Income (including, in some cases, capital gains) received
by a fund 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 fund's
assets to be invested in
various countries is not known. Such foreign taxes would
reduce the income of the
fund distributed to shareholders.
If, at the end of a fund's taxable year, more than 50% of
the value of that fund's
total assets consist of stock or securities of foreign
corporations, the fund may
make an election pursuant to which qualified foreign income
taxes paid by it will
be treated as paid directly by its shareholders. A fund
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 a fund makes
such an election, the amount of such qualified 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,
provided that certain
holding period requirements are satisfied, or, provided the
shareholder itemizes
deductions, a deduction for U.S. federal income tax
purposes for such foreign
taxes. Tax-exempt shareholders generally will not be able
to use any credit or
deduction. 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 fund from its
foreign source ordinary income will be treated as foreign
source income. The
fund'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 fund 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 qualified foreign
income taxes paid by a fund.
Prior to investing in shares of the fund, investors should
consult with their tax
advisors concerning the federal, state and local tax
consequences of such an
investment.
Distributions
If the net asset value of shares of a fund is reduced below
a shareholder's cost
as a result of distribution by the fund, such distribution
will be taxable even
though it represents a return of invested capital.
Dividends from net investment income and distributions of
realized short-term
capital gains, whether paid in cash or automatically
invested in additional shares
of the fund, are taxable to shareholders as ordinary
income. The funds' dividends
will not qualify for the dividends received deduction for
corporations. Dividends
and distributions by the funds may also be subject to state
and local taxes.
Distributions out of net long-term capital gains (i.e., net
long-term capital gain
in excess of net short-term capital loss) 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.
The Company 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. Distributions to nonresident aliens and foreign
entities may also be
subject to other withholding taxes.
Redemption of Shares
Any gain or loss realized on the redemption or exchange of
fund 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, provided in each case that
the transaction is
properly treated as a sale rather than a dividend for tax
purposes.
However, any loss realized by such a shareholder upon the
redemption or exchange
of fund 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 fund 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 fund shares.
In determining gain or loss, a shareholder who redeems or
exchanges shares in a
fund 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 due to
any reinvestment right
for investing in the same fund or a different fund, such as
pursuant to the rights
discussed in ''Exchange Privilege.''
IRA AND OTHER PROTOTYPE RETIREMENT PLANS tc "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
Company or Salomon
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 for 1998, 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 above $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.
The rules applicable to so-called "Roth IRAs" differ from
those described above.
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 1998.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and non-
corporate entities may
purchase shares of the Company through the Salomon 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 tc "PERFORMANCE INFORMATION"
From time to time the Company may advertise a fund's total
return, average annual
total return and yield in advertisements. The Company may
also quote the funds'
total that eliminates the sales charge or the initial
investment. In addition, in
other types of sales literature the Company may include a
fund's current dividend
return. These figures are based on historical earnings and
are not intended to
indicate future performance. The total returns below show
what an investment in
the fund would have earned over a specified period of time
(one, five or ten years
or since inception) assuming the payment of the maximum
sales load when the
investment was first made and that all distributions and
dividends by the fund
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 following chart
reflects the financial
performance of the funds through the period ended October
31, 1998 for the one,
and five year periods and since inception:
Total Returns
5 Year
Since
Inception
Since
Name of Fund
Class
1 Year
Average
Annual
5 Year
Cumulative
Average
Annual
Inception
Cumulative
International Equity1
Inception: 11-22-91
A
(4.85)%
3.06%
16.26%
10.00%
159.26%
Inception: 11-7-94
B
(5.66)%
N/A
N/A
2.00%
8.20%
Inception: 1-4-93
L
(2.67)%
3.10%
16.47%
8.58%
61.49%
Inception: 6-16-94
Y
0.45%
N/A
N/A
4.29%
20.18%
Inception: 11-7-94
Z
0.45%
N/A
N/A
3.63%
15.25%
Global Government Bond
Inception: 7-22-91
A
3.19%
6.14%
34.69%
8.15%
76.90%
Inception: 11-18-94
B
3.09%
N/A
N/A
8.67%
38.93%
Inception: 1-4-93
L
5.66%
6.30
35.74%
8.05%
56.98%
Inception: 2-19-93
Y
8.50%
7.17%
41.36%
8.60%
59.99%
International Balanced
Inception: 8-25-94
A
7.24%
N/A
N/A
6.37%
29.51%
Inception: 11-7-94
B
6.96%
N/A
N/A
6.67%
29.33%
Inception: 8-25-94
L
9.82%
N/A
N/A
6.58%
30.55%
Pacific
Inception: 2-7-94
A
(16.08)%
N/A
N/A
(13.21)%
(48.86)%
Inception: 11-7-94
B
(16.43)%
N/A
N/A
(15.77)%
(49.53)%
Inception: 2-11-94
L
(22.62)%
N/A
N/A
(13.18)%
(48.69)%
European
Inception: 2-7-94
A
3.64%
N/A
N/A
10.86%
62.90%
Inception: 11-7-94
B
3.24%
N/A
N/A
13.01%
62.77%
Inception: 2-14-94
L
6.30%
N/A
N/A
11.15%
64.59%
Emerging Markets
Inception: 5-12-95
A
(46.38)%
N/A
N/A
(15.51)%
(44.34)%
Inception: 5-12-95
B
(46.70)%
N/A
N/A
(15.39)%
(44.06)%
Inception: 5-12-95
L
(45.12)%
N/A
N/A
(15.17)%
(43.56)%
1 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 fund 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 fund. Prior to November 22, 1991 the
fund had not made an
offering of its shares.
*These numbers represent the financial performance for the
ten-year period ended
October 31, 1998.
The total returns below show what an investment in the fund
would have earned over
a specified period of time (one, five or ten years or since
inception) without
assuming the payment of the maximum sales load when the
investment was first made
and that all distributions and dividends by the fund were
invested on the
reinvestment dates during the period, less all recurring
fees. The following
chart reflects the financial performance of the funds
through the period ended
October 31, 1998 for the one, and five year periods and
since inception:
Total Returns
5 Year
Since
Inception
Since
Name of Fund
Class
1 Year
Average
Annual
5 Year
Cumulative
Average
Annual
Inception
Cumulative
International Equity1
Inception: 11-22-91
A
0.15%
4.13%
22.40%
10.50%
255.72%
Inception: 11-7-94
B
(0.69)%
N/A
N/A
2.47%
10.20%
Inception: 1-4-93
L
(0.70)%
3.30%
17.63%
8.76%
63.06%
Inception: 6-16-94
Y
0.45%
N/A
N/A
4.29%
20.18%
Inception: 11-7-94
Z
0.45%
N/A
N/A
3.63%
15.25%
Global Government Bond
Inception: 7-22-91
A
8.08%
7.12%
41.05%
8.84%
85.30%
Inception: 11-18-94
B
7.46%
N/A
N/A
9.07%
40.93%
Inception: 1-4-93
L
7.67%
6.51%
37.10%
8.24%
58.57%
Inception: 2-19-93
Y
8.50%
7.17%
41.36%
8.60%
59.99%
International Balanced
Inception: 8-25-94
A
12.87%
N/A
N/A
7.68%
36.31%
Inception: 11-7-94
B
11.96%
N/A
N/A
7.08%
31.33%
Inception: 8-25-94
L
11.90%
N/A
N/A
6.83%
31.86%
Pacific
Inception: 2-7-94
A
(20.45)%
N/A
N/A
(12.27)%
(46.16)%
Inception: 11-7-94
B
(21.09)%
N/A
N/A
(15.34)%
(48.50)%
Inception: 2-11-94
L
(21.07)%
N/A
N/A
(12.99)%
(48.16)%
European
Inception: 2-7-94
A
9.10%
N/A
N/A
12.08%
71.50%
Inception: 11-7-94
B
8.24%
N/A
N/A
13.35%
64.77%
Inception: 2-14-94
L
8.38%
N/A
N/A
11.40%
66.31%
Emerging Markets
Inception: 5-12-95
A
(43.53)%
N/A
N/A
(14.26)%
(41.42)%
Inception: 5-12-95
B
(43.90)%
N/A
N/A
(14.89)%
(42.92)%
Inception: 5-12-95
L
(44.03)%
N/A
N/A
(14.93)%
(43.00)%
1 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 fund 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 fund. Prior to November 22, 1991 the
fund had not made an
offering of its shares.
*These numbers represent the financial performance for the
ten-year period ended
October 31, 1998.
Note that, (i) prior to June 12, 1998, Class L shares were
called Class C shares;
(ii) prior to November 7, 1994, Class C shares were called
Class B shares; and
(iii) prior to November 7, 1994, Class Y shares of Global
Government Bond
Portfolio were called 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 fund
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. For
the 30-day period ended October 31, 1998, the portfolio's
Class A share, Class B
share, Class L share and Class Y share yields were 4.36%,
5.15%, 4.70% and 4.80%,
respectively.
The Company calculates current dividend return for each
fund 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 Company may include the fund's
current dividend return in
information furnished to present or prospective
shareholders and in
advertisements.
Each fund'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
fund'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 fund's shares and to the risks
associated with the fund'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.
Standard total return information may also be accompanied
with nonstandard total
return information for differing periods computed in the
same manner but without
annualizing the total return or taking sales charges into
account.
Performance information may be useful in evaluating a fund
and for providing a
basis for comparison with other financial alternatives.
Since the performance of
the fund changes in response to fluctuations in market
conditions, interest rates
and fund expenses, no performance quotation should be
considered a representation
as to the fund's performance for any future period.
A fund 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 Lehman Brothers 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), or other similar
indices.
(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) 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. Each fund may also include comparative
performance information in
advertising or marketing its shares. Such performance
information may include data
from Lipper Analytical Services, Inc., Morningstar, Inc.
and other financial
publications.
DETERMINATION OF NET ASSET VALUE tc "DETERMINATION OF NET
ASSET VALUE"
The net asset value per share of each fund normally 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 fund's net assets attributable to each Class
by the total number of
shares of the Class outstanding. If the NYSE closes early,
the fund accelerates
the calculation of its net asset value to the actual
closing time. 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.
Securities 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 sales 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
of Directors has
determined that amortized cost is fair value. Premiums
received on the sale of
call options will be included in the fund's net assets, and
current market value
of such options sold by the fund will be subtracted from
the fund's net assets.
Any other investments of the fund, 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 fund 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.
Foreign securities trading may not take place on all days
on which the NYSE is
open. Further, trading takes place in various foreign
markets on days on which the
NYSE is not open. Accordingly, the determination of the net
asset value of the
fund may not take place contemporaneously with the
determination of the prices of
investments held by such fund. Events affecting the values
of investments that
occur between the time their prices are determined and 4:00
P.M. on each day that
the NYSE is open will not be reflected in the fund's net
asset value unless the
Manager, under the supervision of the Company's Board of
Directors, determines
that the particular event would materially affect net asset
value. As a result, a
fund's net asset value may be significantly affected by
such trading on days when
a shareholder has no access to that fund.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase.
See the Prospectus
for a discussion of factors to consider in selecting which
Class of shares to
purchase.
Class A Shares. Class A shares are sold to investors at
the public offering
price, which is the net asset value plus an initial sales
charge as follows:
Global Gov't
Bond Portfolio
Offering Price
Amount of
Investment
Sales Charge as % of
Offering Price
Sales Charge as %
of Amount
Invested
Sales Charge as a
%
Of Offering Price
Sales Charge as a %
of Amount Invested
Less than $25,000
4.50%
4.71%
5.00%
5.26%
$ 25,000 - 49,999
4.00
4.17
4.00
4.17
50,000 - 99,999
3.50
3.63
3.50
3.63
100,000 - 249,999
2.50
2.56
3.00
3.09
250,000 - 499,999
1.50
1.52
2.00
2.04
500,000 and over
- -0-
- -0-
*
*
* 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 deferred
sales charge of 1.00% on redemptions made within 12 months
of purchase. The
deferred sales charge on Class A shares is payable to
Salomon Smith Barney,
which compensates Salomon Smith Barney Financial
Consultants and other
dealers whose clients make purchases of $500,000 or more.
The deferred
sales charge is waived in the same circumstances in which
the deferred
sales charge applicable to Class B and Class L shares is
waived. See
"Deferred Sales Charge Alternatives" and "Waivers of
Deferred Sales
Charge."
Members of the selling group may receive up to 90% of the
sales charge and may be
deemed to be underwriters of the fund as defined in the
1933 Act. The reduced
sales charges shown above apply to the aggregate of
purchases of Class A shares of
the fund made at one time by "any person," which includes
an individual and his or
her immediate family, or a trustee or other fiduciary of a
single trust estate or
single fiduciary account.
Class B Shares. Class B shares are sold without an initial
sales charge but are
subject to a deferred sales charge payable upon certain
redemptions. See
"Deferred Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial
sales charge of 1.00%
(which is equal to 1.01% of the amount invested) and are
subject to a deferred
sales charge payable upon certain redemptions. See
"Deferred Sales Charge
Provisions" below. Until June 22, 2001 purchases of Class
L shares by investors
who were holders of Class C shares of the fund on June 12,
1998 will not be
subject to the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an initial
sales charge or
deferred sales charge and are available only to investors
investing a minimum of
$15,000,000 (except for purchases of Class Y shares (i) of
the International
Equity Portfolio, for which the minimum initial investment
is $5,000,000 and (ii)
by
Smith Barney Concert Allocation Series Inc., for which
there is no minimum
purchase amount).
General
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or
a broker that clears through Salomon Smith Barney ("Dealer
Representative"). In
addition, certain investors, including qualified retirement
plans purchasing
through certain Dealer Representatives, may purchase shares
directly from the
fund. When purchasing shares of the fund, investors must
specify whether the
purchase is for Class A, Class B, Class L or Class Y
shares. Salomon Smith Barney
and Dealer Representatives may charge their customers an
annual account
maintenance fee in connection with a brokerage account
through which an investor
purchases or holds shares. Accounts held directly at PFPC
Global Fund Services
("sub-transfer agent") are not subject to a maintenance
fee.
Investors in Class A, Class B and Class L shares may open
an account in the fund
by making an initial investment of at least $1,000 for each
account, or $250 for
an IRA or a Self-Employed Retirement Plan, in the fund.
Investors in Class Y
shares may open an account by making an initial investment
of $15,000,000.
Subsequent investments of at least $50 may be made for all
Classes. For
participants in retirement plans qualified under Section
403(b)(7) or Section
401(c) of the Code, the minimum initial investment required
for Class A, Class B
and Class L shares and the subsequent investment
requirement for all Classes in
the fund is $25. For shareholders purchasing shares of the
fund 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
fund through the Systematic Investment Plan on a quarterly
basis, the minimum
initial investment 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
Citigroup Inc.
("Citigroup") and its subsidiaries, including Salomon Smith
Barney, unitholders
who invest distributions from a Unit Investment Trust
("UIT") sponsored by Salomon
Smith Barney, and Directors/Trustees of any of the Smith
Barney Mutual Funds, and
their spouses and children. The fund reserves the right to
waive or change
minimums, to decline any order to purchase its shares and
to suspend the offering
of shares from time to time. Shares purchased will be held
in the shareholder's
account by sub-transfer agent. Share certificates are
issued only upon a
shareholder's written request to sub-transfer agent.
Purchase orders received by the fund or a Salomon Smith
Barney Financial
Consultant prior to the close of regular trading on the New
York Stock Exchange
("NYSE"), on any day the fund calculates its net asset
value, are priced according
to the net asset value determined on that day (the ''trade
date''). Orders
received by a Dealer Representative prior to the close of
regular trading on the
NYSE on any day the fund calculates its net asset value,
are priced according to
the net asset value determined on that day, provided the
order is received by the
fund or the fund's agent prior to its close of business.
For shares purchased
through Salomon Smith Barney or a Dealer Representative
purchasing through Salomon
Smith Barney, payment for shares of the fund is due on the
third business day
after the trade date. In all other cases, payment must be
made with the purchase
order.
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, Salomon Smith
Barney or sub-transfer
agent 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 fund account. A shareholder who has
insufficient funds to complete
the transfer will be charged a fee of up to $25 by Salomon
Smith Barney or sub-
transfer agent. The Systematic Investment Plan also
authorizes Salomon Smith
Barney to apply cash held in the shareholder's Salomon
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 Salomon Smith Barney Financial Consultant or a Dealer
Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares
may be made at net
asset value without a sales charge in the following
circumstances: (a) sales to
(i) Board Members and employees of Citigroup and its
subsidiaries and any
Citigroup affiliated funds including the Smith Barney
Mutual Funds (including
retired Board Members and employees); the immediate
families of such persons
(including the surviving spouse of a deceased Board Member
or employee); and to a
pension, profit-sharing or other benefit plan for such
persons and (ii) employees
of members of the National Association of Securities
Dealers, Inc., provided such
sales are made upon the assurance of the purchaser that the
purchase is made for
investment purposes and that the securities will not be
resold except through
redemption or repurchase; (b) offers of Class A shares to
any other investment
company to effect the combination of such company with the
fund by merger,
acquisition of assets or otherwise; (c) purchases of Class
A shares by any client
of a newly employed Salomon Smith Barney Financial
Consultant (for a period up to
90 days from the commencement of the Financial Consultant's
employment with
Salomon Smith Barney), on the condition the purchase of
Class A shares is made
with the proceeds of the redemption of shares of a mutual
fund which (i) was
sponsored by the Financial Consultant's prior employer,
(ii) was sold to the
client by the Financial Consultant and (iii) was subject to
a sales charge; (d)
purchases by shareholders who have redeemed Class A shares
in the fund (or Class A
shares of another Smith Barney Mutual Fund that is offered
with a sales charge)
and who wish to reinvest their redemption proceeds in the
fund, provided the
reinvestment is made within 60 calendar days of the
redemption; (e) purchases by
accounts managed by registered investment advisory
subsidiaries of Citigroup; (f)
direct rollovers by plan participants of distributions from
a 401(k) plan offered
to employees of Citigroup or its subsidiaries or a 401(k)
plan enrolled in the
Smith Barney 401(k) Program (Note: subsequent investments
will be subject to the
applicable sales charge); (g) purchases by a separate
account used to fund certain
unregistered variable annuity contracts; (h) investments of
distributions from a
UIT sponsored by Salomon Smith Barney; (i) purchases by
investors participating in
a Salomon Smith Barney fee-based arrangement; and (j)
purchases by Section 403(b)
or Section 401(a) or (k) accounts associated with Copeland
Retirement Programs. In
order to obtain such discounts, the purchaser must provide
sufficient information
at the time of purchase to permit verification that the
purchase would qualify for
the elimination of the sales charge.
Right of Accumulation. Class A shares of the fund may be
purchased by ''any
person'' (as defined above) at a reduced sales charge or at
net asset value
determined by aggregating the dollar amount of the new
purchase and the total net
asset value of all Class A shares of the fund and of most
other Smith Barney
Mutual Funds that are offered with a sales charge then held
by such person and
applying the sales charge applicable to such aggregate. In
order to obtain such
discount, the purchaser must provide sufficient information
at the time of
purchase to permit verification that the purchase qualifies
for the reduced sales
charge. The right of accumulation is subject to
modification or discontinuance at
any time with respect to all shares purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for
an amount of $50,000 or
more provides an opportunity for an investor to obtain a
reduced sales charge by
aggregating investments over a 13 month period, provided
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 fund and other Smith
Barney Mutual Funds
offered with a sales charge acquired during the term of the
letter plus (ii) the
value of all Class A shares previously purchased and still
owned. Each investment
made during the period receives the reduced sales charge
applicable to the total
amount of the investment goal. If the goal is not achieved
within the period, the
investor must pay the difference between the sales charges
applicable to the
purchases made and the charges previously paid, or an
appropriate number of
escrowed shares will be redeemed. The term of the Letter
will commence upon the
date the Letter is signed, or at the options of the
investor, up to 90 days before
such date. Please contact a Salomon Smith Barney Financial
Consultant or Smith
Barney Private Trust Company the "Transfer Agent" to obtain
a Letter of Intent
application.
Letter of Intent - Class Y Shares. A Letter of Intent may
also be used as a way
for investors to meet the minimum investment requirement
for Class Y shares
(except purchases of Class Y shares by Smith Barney Concert
Allocation Series
Inc., for which there is no minimum purchase amount). For
International Equity
Portfolio, investors must make an initial minimum purchase
of $1,000,000 in Class
Y shares of the fund and agree to purchase a total of
$5,000,000 of Class Y of the
fund within 6 months of the date of the Letter. For all of
the other funds,
investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of
the fund and agree to purchase a total of $15,000,000 of
Class Y shares of the
fund within 13 months from the date of the Letter. If a
total investment of
$15,000,000 is not made within the 13-month period, or $5
million is not made
within 6 months for the International Equity Portfolio, all
Class Y shares
purchased to date will be transferred to Class A shares,
where they will be
subject to all fees (including a service fee of 0.25%) and
expenses applicable to
the fund's Class A shares, which may include a deferred
sales charge of 1.00%.
Please contact a Salomon Smith Barney Financial Consultant
or the Transfer Agent
for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares;
(b) Class L shares; and
(c) Class A shares that were purchased without an initial
sales charge but are
subject to a deferred sales charge. A deferred sales
charge may be imposed on
certain redemptions of these shares.
Any applicable deferred sales charge will be assessed on an
amount equal to the
lesser of the original cost of the shares being redeemed or
their net asset value
at the time of redemption. Deferred Sales Charge Shares
that are redeemed will not
be subject to a deferred sales charge to the extent that
the value of such shares
represents: (a) capital appreciation of fund assets; (b)
reinvestment of dividends
or capital gain distributions; (c) with respect to Class B
shares, shares redeemed
more than five years after their purchase; or (d) with
respect to Class L shares
and Class A shares that are Deferred Sales Charge Shares,
shares redeemed more
than 12 months after their purchase.
Class L shares and Class A shares that are Deferred Sales
Charge Shares are
subject to a 1.00% deferred sales charge if redeemed within
12 months of purchase.
In circumstances in which the deferred sales charge is
imposed on Class B shares,
the amount of the charge will depend on the number of years
since the shareholder
made the purchase payment from which the amount is being
redeemed. Solely for
purposes of determining the number of years since a
purchase payment, all purchase
payments made during a month will be aggregated and deemed
to have been made on
the last day of the preceding Salomon Smith Barney
statement month. The following
table sets forth the rates of the charge for redemptions of
Class B 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 ExecChoiceTM Programs.''
Deferred Sales Charge
Year Payment Was Made Since
Purchase
Global Government Bond
Portfolio
All other Funds
First
4.50%
5.00%
Second
4.00
4.00
Third
3.00
3.00
Fourth
2.00
2.00
Fifth
1.00
1.00
Sixth and thereafter
0.00
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 (Class B shares that were acquired
through the
reinvestment of dividends and distributions) owned by the
shareholder as the total
number of his or her Class B shares converting at the time
bears to the total
number of outstanding Class B shares (other than Class B
Dividend Shares) owned by
the shareholder.
The length of time that Deferred Sales Charge Shares
acquired through an exchange
have been held will be calculated from the date that the
shares exchanged were
initially acquired in one of the other Smith Barney Mutual
Funds, and fund shares
being redeemed will be considered to represent, as
applicable, capital
appreciation or dividend and capital gain distribution
reinvestments in such other
funds. For Federal income tax purposes, the amount of the
deferred sales charge
will reduce the gain or increase the loss, as the case may
be, on the amount
realized on redemption. The amount of any deferred sales
charge will be paid to
Salomon Smith Barney.
To provide an example, assume an investor purchased 100
Class B shares of the fund
at $10 per share for a cost of $1,000. Subsequently, the
investor acquired 5
additional shares of the fund through dividend
reinvestment. During the fifteenth
month after the purchase, the investor decided to redeem
$500 of his or her
investment. Assuming at the time of the redemption the net
asset value had
appreciated to $12 per share, the value of the investor's
shares would be $1,260
(105 shares at $12 per share). The deferred sales charge
would not be applied to
the amount which represents appreciation ($200) and the
value of the reinvested
dividend shares ($60). Therefore, $240 of the $500
redemption proceeds ($500
minus $260) would be charged at a rate of 4.00% (the
applicable rate for Class B
shares) for a total deferred sales charge of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a) exchanges
(see ''Exchange
Privilege''); (b) automatic cash withdrawals in amounts
equal to or less than
1.00% per month of the value of the shareholder's shares at
the time the
withdrawal plan commences (see ''Automatic Cash Withdrawal
Plan'') (provided,
however, that automatic cash withdrawals in amounts equal
to or less than 2.00%
per month of the value of the shareholder's shares will be
permitted for
withdrawal plans that were established prior to November 7,
1994); (c) redemptions
of shares within 12 months following the death or
disability of the shareholder;
(d) redemptions of shares made in connection with qualified
distributions from
retirement plans or IRAs upon the attainment of age 591/2;
(e) involuntary
redemptions; and (f) redemptions of shares to effect a
combination of the fund
with any investment company by merger, acquisition of
assets or otherwise. In
addition, a shareholder who has redeemed shares from other
Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or
part of the redemption
proceeds within 60 days and receive pro rata credit for any
deferred sales charge
imposed on the prior redemption.
Deferred sales charge waivers will be granted subject to
confirmation (by Salomon
Smith Barney in the case of shareholders who are also
Salomon Smith Barney clients
or by the Transfer Agent in the case of all other
shareholders) of the
shareholder's status or holdings, as the case may be.
Smith Barney 401(k) and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith
Barney 401(k) Program or the
Smith Barney ExecChoiceTM 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 fund offers to Participating Plans Class A and Class L
shares as investment
alternatives under the Smith Barney 401(k) and ExecChoiceTM
Programs. Class A and
Class L shares acquired through the Participating Plans are
subject to the same
service and/or distribution fees as the Class A and Class L
shares acquired by
other investors; however, they are not subject to any
initial sales charge or
deferred sales charge. Once a Participating Plan has made
an initial investment in
the fund, all of its subsequent investments in the fund
must be in the same Class
of shares, except as otherwise described below.
Class A Shares. Class A shares of the fund are offered
without any sales charge
or deferred sales charge 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 L Shares. Class L shares of the fund are offered
without any sales charge
or deferred sales charge to any Participating Plan that
purchases less than
$1,000,000 of Class L shares of one or more funds of the
Smith Barney Mutual
Funds.
401(k) and ExecChoiceTM 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 ExecChoiceTM Program, a
Participating Plan's
total Class L and Class O holdings in all non-money market
Smith Barney Mutual
Funds equal at least $1,000,000, the Participating Plan
will be offered the
opportunity to exchange all of its Class L shares for Class
A shares of the fund.
For Participating Plans that were originally established
through a Salomon Smith
Barney retail brokerage account, the five-year period will
be calculated from the
date the retail brokerage account was opened. Such
Participating Plans will be
notified of the pending exchange in writing within 30 days
after the fifth
anniversary of the enrollment date and, unless the exchange
offer has been
rejected in writing, the exchange will occur on or about
the 90th day after the
fifth anniversary date. If the Participating Plan does not
qualify for the five-
year exchange to Class A shares, a review of the
Participating Plan's holdings
will be performed each quarter until either the
Participating Plan qualifies or
the end of the eighth year.
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 a Participating
Plan's total Class L holdings in all non-money market Smith
Barney Mutual Funds
equal at least $500,000 as of the calendar year-end, the
Participating Plan will
be offered the opportunity to exchange all of its Class L
and Class O shares for
Class A shares of the fund. Such Plans will be notified in
writing within 30 days
after the last business day of the calendar year and,
unless the exchange offer
has been rejected in writing, the exchange will occur on or
about the last
business day of the following March.
Any Participating Plan in the Smith Barney 401(k) or the
Smith Barney ExecChoiceTM
Programs, whether opened before or after June 21, 1996,
that has not previously
qualified for an exchange into Class A shares will be
offered the opportunity to
exchange all of its Class L shares for Class A shares of
the fund, regardless of
asset size, at the end of the eighth year after the date
the Participating Plan
enrolled in the Smith Barney 401(k) Program. Such Plans
will be notified of the
pending exchange in writing approximately 60 days before
the eighth anniversary of
the enrollment date and, unless the exchange has been
rejected in writing, the
exchange will occur on or about the eighth anniversary
date. Once an exchange has
occurred, a Participating Plan will not be eligible to
acquire additional Class L
shares of the fund, but instead may acquire Class A shares
of the fund. Any Class
L shares not converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the fund
through the Smith Barney
401(k) Program or the Smith Barney ExecChoiceTM Program
must purchase such shares
directly from the sub-transfer agent. For further
information regarding these
Programs, investors should contact a Salomon Smith Barney
Financial Consultant.
EXCHANGE PRIVILEGE
Shares of each Class of the fund may be exchanged for
shares of the same Class of
certain 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.
Class B Exchanges. If a Class B shareholder wishes to
exchange all or a portion
of his or her shares in any of the funds imposing a higher
deferred sales charge
than that imposed by the fund, the exchanged Class B shares
will be subject to the
higher applicable deferred sales charge. Upon an exchange,
the new Class B shares
will be deemed to have been purchased on the same date as
the Class B shares of
the fund 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 fund 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
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 fund's performance and its shareholders.
The manager may
determine that a pattern of frequent exchanges is excessive
and contrary to the
best interests of the fund's other shareholders. In this
event, the fund may, at
its discretion, decide to limit additional purchases and/or
exchanges by the
shareholder. Upon such a determination, the fund will
provide notice in writing or
by telephone to the shareholder at least 15 days prior to
suspending the exchange
privilege and during the 15 day period the shareholder will
be required to (a)
redeem his or her shares in the fund or (b) remain invested
in the fund or
exchange into any of the funds of the Smith Barney Mutual
Funds ordinarily
available, which position the shareholder would be expected
to maintain for a
significant period of time. All relevant factors will be
considered in determining
what constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by
telephone. See ''Redemption
of Shares-Telephone Redemptions and Exchange Program.''
Exchanges will be
processed at the net asset value next determined.
Redemption procedures discussed
below are also applicable for exchanging shares, and
exchanges will be made upon
receipt of all supporting documents in proper form. If the
account registration
of the shares of the fund being acquired is identical to
the registration of the
shares of the fund exchanged, no signature guarantee is
required. An exchange
involves a taxable redemption of shares, subject to the tax
treatment described in
"Additional Tax Information" above, followed by a purchase
of shares of a
different fund. Before exchanging shares, investors should
read the current
prospectus describing the shares to be acquired. The fund
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 fund
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 deferred sales charge. Redemption
requests received after the
close of regular trading on the NYSE are priced at the net
asset value next
determined.
If a shareholder holds shares in more than one Class, any
request for redemption
must specify the Class being redeemed. In the event of a
failure to specify which
Class, or if the investor owns fewer shares of the Class
than specified, the
redemption request will be delayed until the Transfer Agent
receives further
instructions from Salomon Smith Barney, or if the
shareholder's account is not
with Salomon Smith Barney, from the shareholder directly.
The redemption proceeds
will be remitted on or before the third business day
following receipt of proper
tender, except on any days on which the NYSE is closed or
as permitted under the
1940 Act in extraordinary circumstances. Generally, if the
redemption proceeds are
remitted to a Salomon Smith Barney brokerage account, these
funds will not be
invested for the shareholder's benefit without specific
instruction and Salomon
Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption
proceeds for shares purchased by check, other than a
certified or official bank
check, will be remitted upon clearance of the check, which
may take up to ten days
or more.
Shares held by Salomon Smith Barney as custodian must be
redeemed by submitting a
written request to a Salomon Smith Barney Financial
Consultant. Shares other than
those held by Salomon Smith Barney as custodian may be
redeemed through an
investor's Financial Consultant, Dealer Representative or
by submitting a written
request for redemption to:
Smith Barney World Funds, Inc./[name of fund]
Class A, B, L or Y (please specify)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 0290-9699
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 the sub-transfer agent together with the
redemption request. Any
signature appearing on a share certificate, stock power or
written redemption
request in excess of $10,000 must be guaranteed by an
eligible guarantor
institution, such as a domestic bank, savings and loan
institution, domestic
credit union, member bank of the Federal Reserve System or
member firm of a
national securities exchange. Written redemption requests
of $10,000 or less do
not require a signature guarantee unless more than one such
redemption request is
made in any 10-day period. Redemption proceeds will be
mailed to an investor's
address of record. The Transfer Agent may require
additional supporting documents
for redemptions made by corporations, executors,
administrators, trustees or
guardians. A redemption request will not be deemed properly
received until the
Transfer Agent receives all required documents in proper
form.
Automatic Cash Withdrawal Plan. The fund offers
shareholders an automatic cash
withdrawal plan, under which shareholders who own shares
with a value of at least
$10,000 may elect to receive cash payments of at least $50
monthly or quarterly.
Retirement plan accounts are eligible for automatic cash
withdrawal plans only
where the shareholder is eligible to receive qualified
distributions and has an
account value of at least $5,000. The withdrawal plan will
be carried over on
exchanges between Classes of a fund. Any applicable
deferred sales charge 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
deferred sales charge at the
time the withdrawal plan commences. (With respect to
withdrawal plans in effect
prior to November 7, 1994, any applicable deferred sales
charge 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 deferred sales charge.)
For further
information regarding the automatic cash withdrawal plan,
shareholders should
contact a Salomon Smith Barney Financial Consultant or your
Dealer Representative
or the Transfer Agent.
Telephone Redemption and Exchange Program. Shareholders
who do not have a
brokerage account may be eligible to redeem and exchange
shares by telephone. To
determine if a shareholder is entitled to participate in
this program, he or she
should contact the Transfer Agent 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 the Transfer
Agent 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 a
fund.)
Redemptions. Redemption requests of up to $10,000 of any
class or classes of
shares of a fund may be made by eligible shareholders by
calling the Transfer
Agent at 1-800-451-2010. Such requests may be made between
9:00 a.m. and 4:00 p.m.
(Eastern time) on any day the NYSE is open. Redemptions of
shares (i) by
retirement plans or (ii) for which certificates have been
issued are not permitted
under this program.
A shareholder will have the option of having the redemption
proceeds mailed to
his/her address of record or wired to a bank account
predesignated by the
shareholder. Generally, redemption proceeds will be mailed
or wired, as the case
may be, on the 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
registration of the shares of the fund exchanged. Such
exchange requests may be
made by calling the Transfer Agent at 1-800-451-2010
between 9:00 a.m. and 5:00
p.m. (Eastern 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.
DIVIDENDS AND DISTRIBUTIONS
Each fund except the Global Government Bond Portfolio and
the International
Balanced Portfolio declares and pays income dividends at
least annually on its
shares. The Global Government Bond Portfolio declares and
pays income dividends
monthly and the International Balanced Portfolio declares
and pays income
dividends quarterly. Each fund makes annual distributions
of capital gains, if
any, on its 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 initial
or deferred sales
charges.
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 Salomon Smith Barney Financial
Consultant. Accounts held
directly by the sub-transfer agent should notify the sub-
transfer agent 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
fund may be lower than
the per share dividends on Class A and Class Y shares
principally as a result of
the distribution fee applicable with respect to Class B and
Class L shares. The
per share dividends on Class A shares of a fund 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.
INVESTMENT MANAGEMENT AND OTHER SERVICES tc "INVESTMENT
MANAGEMENT AND OTHER
SERVICES"
Manager
SSBC Fund Management Inc. (formerly, Mutual Management
Corp.) (the ''Manager'')
serves as each fund's investment manager. The Manager is a
wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
(''Holdings''). Holdings is a
wholly owned subsidiary of Citigroup Inc. The Manager was
incorporated on March
12, 1968 under the laws of Delaware. As of January 31,
1999 the Manager had
aggregate assets under management of in excess of $115
billion. The Manager,
Salomon 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 Company and
the funds has been adopted by permission of Salomon Smith
Barney and is subject to
the right of Salomon Smith Barney to elect that the Company
stop using the term in
any form or combination of its name.
The Manager manages the day-to-day operations of each fund
pursuant to a
management agreement entered into by the Company on behalf
of the fund under which
the Manager is responsible for furnishing or causing to be
furnished to the fund
advice and assistance with respect to the acquisition,
holding or disposal of
securities and recommendations with respect to other
aspects and affairs of the
fund and furnishes the fund with bookkeeping, accounting
and administrative
services, office space and equipment, and the services of
the officers and
employees of the Company. By written agreement the
Research and other departments
and staff of Salomon Smith Barney furnish the Manager with
information, advice and
assistance and are available for consultation on the fund,
thus Salomon Smith
Barney may also be considered an investment adviser to the
Company. Salomon Smith
Barney's services are paid for by the Manager on the basis
of direct and indirect
costs to Salomon Smith Barney of performing such services;
there is no charge to
the Company for such services. For the services provided
by the Manager, the
management agreement provides that each fund will pay the
Manager an annual fee
calculated as a percentage of the fund's average daily net
assets, paid monthly.
The Management Agreement for the Global Government Bond
fund provides for an
annual fee calculated at the rate of 0.75% of the fund'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 fund'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 fund's average daily net assets, paid
monthly.
For the fiscal years 1996, 1997 and 1998 the management
fees for each fund were as
follows:
Fund
1996
1997
1998
International Equity
$10,047,384
$11,766,569
$11,110,120
Global Government Bond
1,150,340
1,123,627
1,055,789
European
314,805
390,268
530,065
Pacific
82,839
79,628
50,789
International Balanced
274,278
471,084
403,368
Emerging Markets
227,869
380,979
242,829
Each Management Agreement provides that all other expenses
not specifically
assumed by the Manager under the Management Agreement on
behalf of the fund are
borne by the Company. Expenses payable by the Company
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
Company) 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 Company's shares and
the Company under
Federal or state securities laws and maintaining such
registrations and
qualifications (including the printing of the Company'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 incidental to the
Company's existence and extraordinary expenses such as
litigation and
indemnification expenses. Direct expenses are charged to
each fund; general
corporate expenses are allocated on the basis of the
relative net assets.
The Manager also acts as investment adviser to numerous
other open-end investment
companies. Salomon Smith Barney also advises profit-
sharing and pension accounts.
Salomon Smith Barney and its affiliates may in the future
act as investment
advisers for other accounts.
Distributor. CFBDS, Inc., located at 20 Milk Street,
Boston, Massachusetts 02109-
5408, serves as the Company's distributor pursuant to a
written agreement dated
October 8, 1998 (the "Distribution Agreement") which was
approved by the Company's
Board of Directors, including a majority of the Independent
Directors on July 13,
1998. Prior to the merger of Travelers Group Inc. and
Citicorp Inc. on October 8,
1998, Salomon Smith Barney served as the fund's
distributor. Salomon Smith Barney
continues to sell the funds shares as part of the selling
group.
Commissions on Class A Shares. For the 1996 and 1997
fiscal years, the aggregate
dollar amount of commissions on Class A shares, all of
which was paid to Salomon
Smith Barney, is as follows:
Class A
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Global Government Bond
$20,000
$11,000
International Equity
1,248,000
633,000
International Balanced
38,000
12,000
Emerging Markets
100,000
94,000
European
19,000
56,000
Pacific
13,000
9,000
For the period November 1, 1997 through October 7, 1998 and
for the period October
8, 1998 through October 31, 1998, the aggregate dollar
amounts of commissions on
Class A shares, are as follows:
Class A
Name of Fund
11/01/97 through
10/07/98*
10/08/98 through
10/31/98**
Global Government Bond
$15,000
$1,000
International Equity
467,000
51,000
International Balanced
4,000
0
Emerging Markets
15,000
0
European
213,000
29,000
Pacific
35,000
0
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney:
$900, $45,900, $0,
$0, $26,100 and $0, respectively.
Commissions on Class L Shares. For the period June 12,
1998 through October 7,
1998 and for the period October 8, 1998 through October 31,
1998, the aggregate
dollar amounts of commission on Class L shares are as
follows:
Class L
(On June 12, 1998, Class C
shares were renamed Class L
Shares)*
Name of Fund
06/12/98 through
10/07/98*
10/08/98 through
10/31/98**
Global Government Bond
$0
$0
International Equity
25,000
1,000
International Balanced
0
0
Emerging Markets
0
0
European
61,000
1,000
Pacific
0
0
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney:
$0, $900, $0, $0,
$900, and $0, respectively.
Deferred Sales Charges on Class A, B and L Shares For the
1996, 1997 and 1998
fiscal years, the following deferred sales charges were
paid to Salomon Smith
Barney on redemptions of the funds' shares:
Class A
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$0
$0
$0
International Equity
18,000
2,000
5,000
International Balanced
0
0
0
Emerging Markets
1,000
0
0
European
0
0
7,000
Pacific
0
0
1,000
Class B
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$86,000
$41,000
$16,000
International Equity
390,000
608,000
568,000
International Balanced
21,000
17,000
14,000
Emerging Markets
31,000
61,000
72,000
European
33,000
36,000
259,000
Pacific
6,000
12,000
25,000
Class L
(On June 12, 1998, Class C shares were renamed Class L
Shares)
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$0
$0
$0
International Equity
22,000
15,000
11,000
International Balanced
0
0
0
Emerging Markets
22,758
0
1,000
European
0
1,000
8,000
Pacific
0
1,000
0
Distribution Arrangements. To compensate Salomon Smith
Barney for the service it
provides and for the expenses it bears, each fund has
adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the
1940 Act. Under the
Plan, each fund pays Salomon Smith Barney a service,
accrued daily and paid
monthly, calculated at the annual rate of 0.25% of the
value of the fund's average
daily net assets attributable to the Class A, Class B and
Class L shares. The
service fee is primarily used to pay Salomon Smith Barney
Financial Consultants
for servicing shareholder accounts. In addition, each fund
pays Salomon Smith
Barney a distribution fee with respect to Class B and Class
L 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 Salomon 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
Salomon Smith Barney associated with the sale of fund
shares, including lease,
utility, communications and sales promotion expenses. For
the Global Government
Bond Portfolio the Class B and Class L distribution fee is
calculated at the
annual rate of 0.50% and 0.45% of the value of the fund's
average daily net assets
attributable to the shares of the respective Class. For
each of the other funds,
the Class B and Class L distribution fee is calculated at
the annual rate of 0.75%
of the value of such fund's average net assets attributable
to the shares of the
respective Class.
Payments under each Plan are not tied exclusively to the
distribution and
shareholder services expenses actually incurred by Salomon
Smith Barney and the
payments may exceed distribution expenses actually
incurred. The Company's Board
of Directors will evaluate the appropriateness of each Plan
and its payment terms
on a continuing basis and in so doing will consider all
relevant factors,
including expenses borne by Salomon Smith Barney, amounts
received under the Plan
and proceeds of the deferred sales charges. For the 1996,
1997 and 1998 fiscal
years, the following distribution and service fees were
accrued and/or paid to
Salomon Smith Barney:
Class A
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$285,589
$249,862
$222,926
International Equity
1,284,971
1,282,917
1,108,230
International Balanced
41,971
34,906
24,416
Emerging Markets
23,462
37,470
23,548
European
25,498
32,501
53,687
Pacific
12,618
9,943
5,418
Class B
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$226,135
$169,569
$127,964
International Equity
1,811,343
2,375,547
2,106,818
International Balanced
44,612
56,286
41,008
Emerging Markets
111,672
189,861
117,539
European
252,229
302,094
350,335
Pacific
28,150
37,798
28,064
Class L
(On June 12, 1998, Class C shares were renamed Class L
Shares)
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$27,795
$25,078
$20,234
International Equity
2,370,218
2,261,441
1,771,900
International Balanced
46,666
42,281
31,758
Emerging Markets
22,758
41,594
29,080
European
16,760
27,521
58,524
Pacific
19,009
16,217
10,015
For the fiscal year ended October 31, 1998, Salomon Smith
Barney incurred the
following distribution expenses for the funds:
Fund Name
Advertisin
g
Printing
and Mailing
of
Prospectuse
s
Support
Services
Salomon
Smith Barney
Financial
Consultants
Interest
Expense
Total
Emerging
Markets
$18,193
$1,605
$132,640
$223,208
$8,186
$383,832
European
13,117
2,223
128,835
158,867
5,585
308,637
Global
Government
18,183
1,686
268,442
24,418
1,768
314,477
Internationa
l Balanced
4,524
637
48,859
34,929
3,818
92,767
Internationa
l Equity
209,103
30,743
1,219,038
2,154,441
166,907
3,780,232
Pacific
2,320
360
32,874
19,884
1,611
57,049
Salomon 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 Salomon Smith Barney are distribution expenses
within the meaning of
the Plans and may be paid from amounts received by Salomon
Smith Barney from the
Company under the Plans.
Brokerage and Portfolio Transactions
The Manager is responsible for allocating the Company's
brokerage. Orders may be
directed to any broker including, to the extent and in the
manner permitted by
applicable law, Salomon Smith Barney. No fund will deal
with Salomon Smith Barney
in any transaction in which Salomon Smith Barney acts as
principal.
The Company 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 Company 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 Company takes
into consideration the
fact that a particular broker may, in addition to execution
capability, provide
other services to the Company such as research and
statistical information. These
various services may, however, be useful to the Manager or
Salomon Smith Barney in
connection with its services rendered to other advisory
clients and not all such
services may be used in connection with the Company. For
the fiscal year ended
October 31, 1998, the funds did not direct brokerage
transactions to brokers
because of research services provided.
The Board of Directors of the Company 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 Salomon 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 all trades directed to Salomon Smith
Barney, the Company
has been assured that its orders will be accorded priority
over those received
from Salomon Smith Barney for its own accounts or for any
of its directors,
officers or employees. The Company will not deal with
Salomon Smith Barney in any
transaction in which Salomon Smith Barney acts as
principal.
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 fund. 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.
The Company effects transactions with a view towards
attaining each fund'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 fund will bear
directly, and may result in
the realization of net capital gains, distributions of
which are taxable to
shareholders.
Shown below are the total brokerage fees paid by the
Company on behalf of the
International Equity Portfolio, European Portfolio, Pacific
Portfolio,
International Balanced Portfolio and the Emerging Markets
Portfolio during 1996,
1997 and 1998. Also shown is the portion paid to Salomon
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 1998, the total
amount of commissionable
transactions was $ 1,137,153,020 of which $ 85,140,292
(7.00%) was directed to
Salomon Smith Barney and executed by unaffiliated brokers
and $1,052,012,727
(93.00%) of which was directed to other brokers.
Commissions
Total
To Salomon Smith Barney
To Others
1996
$3,971,236
$31,857*
0.80%
$3,939,379
99.20%
1997
3,310,496
52,098*
1.57
3,258,398
98.43
1998
2,626,706
189,693
7.22%
2,437,013
92.78
* Directed to Salomon Smith Barney and executed by
unaffiliated brokers.
CUSTODIAN tc "CUSTODIAN"
Portfolio securities and cash owned by the Company are held
in the custody of The
Chase Manhattan Bank, Chase Metrotech Center, Brooklyn, New
York 11245.
INDEPENDENT AUDITORS tc "INDEPENDENT AUDITORS"
KPMG LLP, 345 Park Avenue, New York, New York 10154, has
been selected as the
Company's independent auditors to examine and report on the
financial statements
and financial highlights of the Company for its fiscal year
ending October 31,
2000.
VOTING tc "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 Company. At such a meeting, a director may
be removed after the
holders of record of a majority of the outstanding shares
of the Company have
voted that the director be removed by votes cast in person
or by proxy. The
Company will assist shareholders in calling such a meeting
as required by the 1940
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 Company (or the
affected fund or class) or (b) 67% or more of such shares
present at a meeting if
more than 50% of the outstanding shares of the Company (or
the affected fund 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
fund of the Company as of February 8, 2000.
PORTFOLIO
CLASS
PERCENT
NAME
ADDRESS
Global Government Bond
A
9.7619
Srs. Of Providence
Community
Attn: Sr. Ann Margaret
O"Hara
Trustee
St Mary of the Woods
IN 47876
Global Government Bond
A
6.4564
Smith Barney Inc.
333 W 34th Street
New York, NY 10001
Global Government Bond
L
7.4443
Alberto M Roca
SSB IRA Rollover
custodian
13702 Teal Shore Ct.
Houston, TX 77077
Global Government Bond
L
6.0250
Anwar S Chourhry MDSC
Profit Sharing Plan &
Trust
U/A/D 10/10/92
149 Tomlin Circle
Burridge, IL 60521
Global Government Bond
L
5.7798
Earlene J Eggenberger
Trust
William D Eggenberger
Trust
U/A/D 12/14/94
4837 Cliffside Drive
West Bloomfield, MI
48323
International Balanced
A
5.8390
Daniel & Margaret Becker
Charitable remainder
unitrust
Attn: A N Flauto Jr.
TTEE
1111 Boardman
Canfield Road
Youngstown, OH 44512
Emerging Markets
A
7.1287
S B Corp Trust Cust.
New Mexico State
University
403-b-7 a/c Wiley E
Thompson
P.O. box 3793
Las Cruses, NM 88003
Pacific Portfolio
A
5.1358
Michael F. Konak
Holanda 337, D-805
Santiago Chile
Pacific Portfolio
L
5.4761
Molly F Greene
George C Greene
134 E. Edgewater
Drive
Charleston, SC 29407
OTHER INFORMATION ABOUT THE COMPANY
General. The Company, an open-end investment company, was
incorporated in
Maryland on March 22, 1991. The Company has an authorized
capital of 1,000,000,000
shares with a par value of $.001 per share. The Board of
Directors has authorized
the issuance of six series of shares, each representing
shares in one of six
separate funds and may authorize the issuance of additional
series of shares in
the future. The assets of each fund are segregated and
separately managed and a
shareholder's interest is in the assets of the fund in
which he or she holds
shares. Class A, Class B, Class L, Class Y shares of a fund
(and Class Z shares of
International Equity Portfolio) represent interests in the
assets of the fund and
have identical voting, dividend, liquidation and other
rights on the same terms
and conditions except that expenses related to the
distribution of each Class of
shares are borne solely by each Class and each Class of
shares has exclusive
voting rights with respect to provisions of the fund's Rule
12b-1 distribution
plan which pertain to a particular Class.
Shareholder Meetings. As described under ''Voting,'' the
Company ordinarily will
not hold meetings of shareholders annually; however,
shareholders have the right
to call a meeting upon a vote of 10% of the Company's
outstanding shares for the
purpose of voting to remove directors, and the Company 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.
Minimum Account Size. The Company reserves the right to
involuntarily liquidate
any shareholder's account in the fund if the aggregate net
asset value of the
shares held in the fund account is less than $500. (If a
shareholder has more than
one account in this fund, each account must satisfy the
minimum account size.) The
Company, however, will not redeem shares based solely on
market reductions in net
asset value. Before the Company 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.
Transfer Agent. Smith Barney Private Trust Company,
located at 388 Greenwich
Street, New York, NY 10013 serves as the Transfer Agent and
shareholder services
agent of the fund. PFPC Global Fund Services, located at
P.O Box 9699 Providence,
RI 02940-9699 serves as the fund's sub-transfer agent to
render certain
shareholder record keeping and accounting services
functions.
Annual and Semi-Annual Reports. Management's discussion
and analysis, and
additional performance information regarding the funds
during the fiscal year
ended October 31, 1998 is included in the annual report
dated October 31, 1998. A
copy of the annual report may be obtained upon request and
without charge from a
Salomon Smith Barney Financial Consultant or by writing or
calling the Company at
the address or phone number listed on page one of this
statement of additional
information.
The Company sends its shareholders a semi-annual report and
an audited annual
report, which include listings of the investment securities
held by the Company at
the end of the period covered. In an effort to reduce the
Company's printing and
mailing costs, the Company 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 Salomon Smith Barney Financial
Consultant or the
Transfer Agent.
FINANCIAL STATEMENTS tc "FINANCIAL STATEMENTS"
The following financial information is hereby incorporated
by reference to the
indicated pages of the Company's 1998 Annual Report to
Shareholders( filed on
December 30, 1998; Accession number 000009155-98-000736),
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)
Average Annual Total Return
5,11 and16
5, 10 and 17
Line Graph Showing Growth of $10,000
Investment
6,17 and 13
6,11 and18
Statements of Assets and Liabilities
25 and 26
26
Statements of Operations
27
27
Statement of Changes in Net Assets
28 and 29
28 and 29
Notes to Financial Statements
30-38
30-38
Financial Highlights
39-50
39-48
Independent Auditor's Report
51
49
APPENDIX - RATINGS OF DEBT OBLIGATIONS tc "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.
2
G:\Fund Accounting\Legal\FUNDS\SBWF\1999\proxy\N14SAI.doc
A-1
PART C
OTHER INFORMATION
ITEM 15. 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, as amended. Other assureds include SSB Citi Fund
Management LLC (Registrant's
Adviser) and affiliated investment companies.
ITEM 16. EXHIBITS
Unless otherwise noted, all references are to the Registrant's Registration
Statement
on Form N-1A (the "Registration Statement") as filed with the SEC on
March 26, 1991 (File Nos. 33-
39564 and 811-06290).
(1) (a) Articles of Incorporation (1)
(1) (b) Articles Supplementary to Articles of Incorporation for
International Equity Portfolio (2)
(1) (c) Articles of Amendment to the Articles of Incorporation
for the Fund dated November 10, 1992 (3)
(1) (d) Articles Supplementary to Articles of Incorporation for
the Fund dated December 8, 1992 (3)
(1) (e) Articles Supplementary to Articles of Incorporation for
Pacific Portfolio and European Portfolio(10)
(1) (f) Articles Supplementary to Articles of Incorporation for
International Balanced Portfolio (11)
(1) (g) Form of Articles Supplementary to Articles of
Incorporation for Emerging Markets Portfolio(12)
(1) (h) Articles of Amendment to the Articles of Incorporation
for the Fund dated June 4, 1991(13)
(1) (i) Articles Supplementary to Articles of Incorporation for
the Fund dated July 13, 1994 (13)
(1) (j) Articles of Amendment to Articles of Incorporation for
the Fund dated November 3, 1994(13)
(1) (k) Articles of Amendment to Articles of Incorporation for
the Fund dated November 3, 1994(13)
(1) (l) Articles Supplementary to Articles of Incorporation for
the Fund dated November 3, 1994(13)
(1) (m) Articles Supplementary to Articles of Incorporation for
Emerging Markets Portfolio dated November 10, 1994(13)
(1) (n) Articles of Amendment for the Fund dated June 4, 1998 (18)
(2) (a) Bylaws (4)
(3) Not applicable.
(4) Form of Plan of Reorganization is filed herewith.
(5) Not applicable.
(6) (a) Form of Management Agreement for Global Government Bond Portfolio (16)
(6) (b) Form of Management Agreement for International Equity Portfolio (16)
(6) (c) Form of Management Agreement for Pacific Portfolio (16)
(6) (d) Form of Management Agreement for European Portfolio (16)
(6) (e) Form of Management Agreement for International Balanced Portfolio (16)
(6) (f) Form of Management Agreement for Emerging Markets Portfolio (16)
(6) (g) Form of Subadvisory Agreements(16)
(7) (a) Form of Distribution Agreement (16)
(7) (b) Selling Group Agreement (18)
(7) (c) Form of Distribution Agreement (17)
(8) Not applicable.
(9) Form of Custodian Agreement (15)
(10) (a) Form of Amended Plan of Distribution Pursuant to Rule 12b-1 (18)
(10) (b) Plan of Distribution Pursuant to Rule 12b-1for Global Government
Bond Portfolio (16)
(10) (c) Plan of Distribution Pursuant to Rule 12b-1for International Equit
y Portfolio (16)
(10) (d) Plan of Distribution Pursuant to Rule 12b-1 for Pacific Portfolio (16)
(10) (e) Plan of Distribution Pursuant to Rule 12b-1 for European Portfolio (16)
(10) (f) Plan of Distribution Pursuant to Rule 12b-1 for International
Balanced Portfolio (16)
(10) (g) Plan of Distribution Pursuant to Rule 12b-1 for Emerging Markets
Portfolio(16)
(10) (h) Rule 18f-3 Plan (18)
(11) Form of Opinion and Consent of Sullivan & Cromwell filed herewith.
(12) Form of Tax Opinion and Consent of Sullivan & Cromwell to be
filed by amendment.
(13) (a) Form of Transfer Agency Agreement (16)
(14) (a) Consent of Independent Auditors to be filed herewith.
(14) (b) Form of Opinion and Consent of Venable, Baetjer
and Howard, LLP, as to matters of Maryland law filed herewith.
(15) Not applicable.
(16) Not Applicable.
(17) (a) Prospectus of the Registrant, dated February 28, 1999 (18)
(17) (b) Annual Report to Shareholders of the Registrant, dated October 31,
1999, is
incorporated by reference to Form N-30D, as filed on January 6, 2000 with the
Commission.
(17) (c) Semi-Annual Report to Shareholders of the Registrant, dated
April 30, 1999, is
incorporated by reference to Form N-30D, as filed on July 20, 1999, with the
Commission.
(17) (d) Form of Proxy Card filed herewith.
Footnotes:
(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.
(17) Incorporated by reference to Post-Effective Amendment
No. 22 to the Fund's Registration Statement on Form N-1A filed
on December 29, 1998.
(18) Incorporated by reference to Post-Effective Amendment
No. 23 to the Fund's Registration Statement on Form N-1A filed
On February 25, 1999.
ITEM 17. UNDERTAKINGS
(1)The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus
which is
a part of this registration statement by any person or party who is deemed
to be
an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR
230.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2)The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall
be deemed
to be the initial bonafide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Registration Statement on Form N-14 to be signed on its behalf by
the undersigned, thereunto duly authorized, all in the City of New York, State
of New York on the 11th day of February, 2000.
SMITH BARNEY WORLD FUNDS, INC. - INTERNATIONAL PORTFOLIO
By: /s/Heath B. McLendon
Heath B. McLendon
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/Heath B. McLendon Chairman of the Board, 2/11/00
Heath B. McLendon Chief Executive Officer,
and President
/s/Lewis E. Daidone Senior Vice President 2/11/00
Lewis E. Daidone and Treasurer
***/s/Victor K. Atkins
Victor K. Atkins Director 2/11/00
***/s/Abraham E. Cohen
Abraham E. Cohen Director 2/11/00
***/s/Robert A. Frankel
Robert A. Frankel Director 2/11/00
**/s/Michael Gellert
Michael Gellert Director 2/11/00
***/s/Rainer Greeven
Rainer Greeven Director 2/11/00
*/s/Susan M. Heilbron
Susan M. Heilbron Director 2/11/00
***/s/Maurits E. Edersheim
Maurits E. Edersheim Advisory Director 2/11/00
* By: /s/ Christina Sydor
Christina Sydor
Pursuant to a Power of Attorney dated December 3, 1991
** By: /s/ Christina Sydor
Christina Sydor
Pursuant to Power of Attorney dated July 30, 1999
***
By: /s/ Christina Sydor
Christina Sydor
Pursuant to Power of Attorney Dated September 12, 1991
EXHIBIT INDEX
(4) Form of Plan of Reorganization (included as Exhibit A to the Registrant's
Prospectus/Proxy Statement contianed in Part A of this Registration Statement).
(11) Opinion and Consent of Sullivan & Cromwell.
(14) (a) Consent of Independent Auditors.
(14) (b) Opinion and Consent of Venable, Baetjer and Howard, LLP, as
to matters of Maryland
law.
(17) (d) Form of Proxy Card.
Cover
Sullivan & Cromwell
25 Broad Street
New York, New York 10004-2498
NEW YORK TELEPHONE: (212) 558-4000
Telex: 62694 (International) 127816 (Domestic)
Cable Address: LADYCOURT, NEW YORK
FACSIMILE: (212) 558-3588 (125 Broad Street)
1701 PENNSYLVANIA AVENUE, N.W. WASHINGTON, D.C. 20006-5805
1888 CENTURY PARK EAST, LOS ANGELES, CA 90067-1725
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9A IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI 1-CHOME, CHIYODA-KU, TOKYO 100
NINE QUEEN'S ROAD, CENTRAL, HONG KONG
OBERLINDAU 54-56, 60323 FRANKFURT AM MAIN
February 11, 2000
Smith Barney World Funds, Inc.,
388 Greenwich Street,
New York, New York 10013.
Dear Sirs:
In connection with the registration under the Securities Act of 1933
(the "Act") of shares (the "Shares") of Common Stock, par value $.001
per share, of Smith Barney World Funds, Inc., a Maryland corporation
(the "Company"), to be issued in connection with the transaction
contemplated by the Company's Plan of Reorganization dated as of
February 11, 2000 that is being filed today as an Exhibit to the
Company's Registration Statement on Form N-14 (File No. 333-92955)
under the Act (the "Registration Statement"), we, as your counsel, have
examined such corporate records, certificates and other documents, and
such questions of law, as we have considered necessary or appropriate
for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our opinion,
when the Registration Statement has become effective under the Act, the
amendment to the Company's Charter reclassifying shares of the Company's
International Balanced Fund into shares of the Company's International
Equity Fund (the "Charter Amendment") has been approved by shareholders
of the International Balanced Portfolio and accepted for record by the
Maryland State Department of Assessments and Taxation and the Shares are
issued and sold as contemplated in the Registration Statement and the Charter
Amendment, the Shares will be validly issued, fully paid and nonassessable by
the Company.
The foregoing opinion is limited to the General Corporation Law of the
State of Maryland, and we are expressing no opinion as to the effect of the
laws of any other jurisdiction. With respect to all matters of Maryland
Law, we have, with your approval, relied upon the opinion dated February 11,
2000 of Venable, Baetjer and Howard, LLP, and our opinion is subject to the
same assumptions, qualifications and limitations with respect to such
matters as are contained in such opinion of Venable, Baetjer and Howard, LLP.
We believe you and we are justified in relying on such opinion for such matters.
We have relied as to certain matters on information obtained from public
officials, officers of the Company and other sources believed by us to be
responsible.
We hereby consent to the filing of this opinion as an exhibit to the Company's
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
Sullivan & Cromwell
<PAGE>
February 11, 2000
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Re: Smith Barney World Funds,Inc. -- International Balanced Fund
Ladies and Gentlemen:
We have acted as special Maryland counsel to Smith Barney World Funds, Inc.,
a Maryland corporation (the "Company"), in connection with the transactions
contemplated by the Company's Plan of Reorganization dated as of February 11,
2000 (the "Plan"). These transactions include, among other things, (i) the
transfer of all of the assets and liabilities of the Company's International
Balanced Fund investment portfolio (the "Transferor Fund") to the Company's
International Equity Fund investment portfolio (the "Surviving Fund"); (ii)
the adoption of the implementing amendment to the Company's Charter
reclassifying all shares of the Transferor Fund as shares of the Surviving
Fund (the "Charter Amendment"); and (iii) the accomplishment of the
reclassification by the issuance of shares of the Surviving Fund to
shareholders of the Transferor Fund.
In rendering the opinions hereinafter expressed, we have examined originals
or certified copies of (i) the Charter, including the proposed form of the
Charter Amendment, and Bylaws of the Company; (ii) the resolutions adopted by
the Board of Directors of the Company on December 15, 1999; and (iii) the
Plan.
We have also examined and relied upon a certificate issued by the Maryland
State Department of Assessments and Taxation ("SDAT") to the effect that the
Company is duly incorporated and existing under the laws of the State of
Maryland and is in good standing as a corporation and duly authorized to
transact business in the State of Maryland. With respect to questions of fact
material to such opinions, we have relied, without independent inquiry, upon
certificates of officers of the Company or of public officials.
In our examination, we have assumed (i) the genuineness of all signatures on
documents submitted to us for review; (ii) the legal capacity of all natural
persons who executed any document submitted to us for review; (iii) the
authenticity of all documents submitted to us as originals; (iv) the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such documents;
and (v) that all certificates of public officials upon which we have relied
have been duly and properly given.
<PAGE>
Based upon the foregoing and subject to the qualifications set forth below,
we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland;
2. When the Charter Amendment has been duly approved by the stockholders
of the Transferor Fund and is accepted for record by SDAT and has become
effective, the shares of the Surviving Fund issued pursuant to the Plan
and the Charter Amendment will be validly issued, fully paid and non-
assessable.
This letter expresses our opinion with respect to Maryland law governing the
matters set forth above. It does not extend to the securities or "Blue Sky"
laws of Maryland, to federal securities laws or to other laws.
You may rely on this opinion in rendering your opinion to the Company that
is to be filed as an exhibit to the Registration Statement. We consent to the
filing of this opinion as an exhibit to the Registration Statement. We do not
thereby admit that we are "experts" as that term is used in the Securities Act
of 1933 and the regulations thereunder. This opinion may not be relied on by
any other person or for any other purpose without our prior written consent.
Very truly yours,
Venable, Baetjer and Howard, LLP
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney World Funds, Inc. - International Balanced Portfolio
and International Equity Portfolio:
We consent to the incorporation by reference, of our report dated
December 15, 1999 with respect to the Smith Barney World Funds,
Inc. - International Balanced Portfolio and International Equity
Portfolio, and to the references to our firm under the heading
"Independent Auditors" in the Statement of Additional Information
included in this Registration Statement on Form N-14.
KPMG
LLP
New York, New York
February 10, 2000
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
............................................................................
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SMITH BARNEY WORLD FUNDS, INC. -INTERNATIONAL BALANCED PORTFOLIO
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Smith Barney World Funds - International
Balanced Portfolio (the "Balanced Portfolio"), hereby appoints Heath B.
McLendon,
Christina T. Sydor and Barbara J. Allen, attorneys and proxies for the
undersigned
with full powers of substitution and revocation, to represent the
undersigned and to
vote on behalf of the undersigned all shares of the Balanced Portfolio that the
undersigned is entitled to vote at the Special Meeting of Shareholders of the
Balanced Portfolio to be held at the offices of the Balanced Portfolio, 7 World
Trade Center, New York, New York on April 7, 2000 at 10:00 a.m.
and any adjournment
or adjournments thereof. The undersigned hereby acknowledges receipt of
the Notice
of Special Meeting and Prospectus /Proxy Statement dated February 21, 2000 and
hereby instructs said attorneys and proxies to vote said shares as
indicated herein.
In their discretion, the proxies are authorized to vote upon such other
business as
may properly come before the Special Meeting. A majority of the proxies
present and
acting at the Special Meeting in person or by substitute
(or, if only one shall be
so present, then that one) shall have and may exercise all of the power and
authority of said proxies hereunder. The undersigned hereby revokes any proxy
previously given.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
Note: Please sign exactly as your name appears on
this Proxy. If joint owners, EITHER may sign this
Proxy. When signing as attorney, executor,
administrator, trustee, guardian or corporate
officer, please give your full title.
Date:
Signature(s) (Title(s), if
applicable)
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
.................................
.........................................
................................
..........................................
...............................
...........................................
..
Please indicate your vote by an "X" in the appropriate box below.
This proxy, if
properly executed, will be voted in the manner directed by the undersigned
shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE
PROPOSAL.
1. To approve the Plan of Reorganization dated as of February 21, 2000
providing for: (i) the acquisition of all of the assets and liabilities of
Smith Barney World Funds, Inc. - International Balanced Portfolio (the
"Balanced Portfolio") by Smith Barney World Funds, Inc. - International
Equity Portfolio (the " Equity Portfolio") (ii) the amendment of the Charter
of Smith Barney World Funds, Inc. reclassifying all shares of the Balanced
Portfolio as shares of the Equity Portfolio, and (iii) the accomplishment of
the reclassification by the issuance of such shares of the Equity Portfolio
to shareholders of the Balanced Portfolio.
