SMITH BARNEY WORLD FUNDS INC, DEFS14A, 1998-02-04

SMITH BARNEY WORLD FUNDS INC
DEFS14A, 1998-02-04

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Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of
1934

Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-
12

Smith Barney World Funds, Inc.
(Name of Registrant as Specified in its Charter)

Nancy W. Le Donne
Name of Person Filing Proxy Statement

Payment of Filing Fee (Check appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.

(1) Title of each class of securities to which the transaction
applies:

(2) Aggregate number of securities to which transactions
applies:

(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:1

(4) Proposed maximum aggregate value of transaction:

[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the
date of its filing.

(1) Amount previously paid:

(2) Form, schedule or registration statement no.:

(3) Filing party:

(4) Date filed:
<PAGE>

SMITH BARNEY
WORLD FUNDS, INC.

PROXY STATEMENT

[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>

Dear Fellow Shareholder:

As an investor in Smith Barney World Funds, Inc. (the "Fund"), you are
cordially invited to attend a special shareholder meeting(s) to be held at 388
Greenwich Street, New York, New York 10013 on Monday March 30, 1998 at the
time(s) specified in the attached Notice of Special Meeting. Shareholder
meetings are held by mutual fund companies periodically as issues arise
requiring shareholder approval. This meeting is being held to (i) elect
Directors, (ii) propose changes to certain specific investment policies
currently in effect, (iii) amend the terms of the plan of distribution adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940 with respect
to Class A shareholders only, and (iv) approve a Subadvisory Agreement with
Smith Barney Global Capital Management, Inc. (with respect to the
International Balanced Portfolio only).

Enclosed for your review is a joint proxy statement that describes the
proposals that will be submitted to shareholders for approval at the meeting.
Note that not all of the proposals relate to each Portfolio. However, because
many of our shareholders own shares of more than one Portfolio, a joint proxy
statement is being sent to you to reduce the preparation, printing, handling
and postage expenses that would be incurred if we sent out separate proxy
statements for each Portfolio.

Please refer to page 4 of the proxy statement for a list of the proposals
that are applicable to your Portfolio.

PROPOSAL 1. ELECT THE FUND'S BOARD OF DIRECTORS

Proposal One asks that you elect the Board of Directors of the Fund. The
page following Proposal One provides a brief description of each nominee's
background and current status with the Fund.

The Board of the Fund recommends that you vote "FOR" the election of
nominees to the Board.

PROPOSAL 2. APPROVE PROPOSED CHANGES TO THE PORTFOLIOS' FUNDAMENTAL INVESTMENT
POLICIES

Every mutual fund has certain specific investment policies that can only be
changed with the approval of the fund's shareholders. Such policies are often
referred to as "fundamental" investment policies. Proposal Two asks that you
approve certain changes to the fundamental investment policies of the Fund's
Portfolios in light of various regulatory, business and industry developments
that have occurred since the original adoption of these policies by the Fund.
The three principal objectives of this proposal are:

i) To simplify the Portfolios' investment policies to make them
consistent with the investment companies distributed by Smith Barney.

ii) To eliminate or make non-fundamental certain investment policies
that are no longer required by law to be fundamental. Once an investment
<PAGE>

policy has become "non-fundamental," the Fund's Board of Directors would
have to approve any changes to such policy. Giving the Board the
flexibility to make changes in non-fundamental policies without the
expense of obtaining shareholder approval each time a change is desired
will save the Portfolio money, and will make it easier for the Portfolio's
portfolio manager(s) to utilize new investment policies and techniques to
respond more rapidly to changing market conditions. Shareholders would of
course receive notice of any investment policy changes approved by the
Board.

iii) To reclassify as "non-fundamental" or eliminate certain investment
policies that had previously been adopted to meet certain requirements
under state securities laws that are no longer applicable. Prior to
October 11, 1996, mutual funds not only had to comply with various federal
investment policy restrictions, but also with state law investment
restrictions as well. Some such state laws were actually more restrictive
than the Federal laws, making compliance very difficult. In an effort to
streamline the registration process of mutual funds, effective on October
11, 1996, the states no longer require that mutual funds adopt specific
investment policies. Because such investment policies were originally
adopted by the Portfolios as "fundamental" investment policies,
shareholder approval is necessary to reclassify them as non-fundamental or
to eliminate them.

As described more fully in the proxy statement, many of the changes are
currently not expected to result in changes in the investment techniques or
operations of a Portfolio. In most instances, the changes permit the Board to
determine whether the implementation of a new technique or policy is in the
best interests of the shareholders.

The Board recommends that you vote "FOR" the changes to the Fund's
fundamental investment policies as described in the proxy statement.

PROPOSAL 3. AMEND THE TERMS OF THE PLAN OF DISTRIBUTION ADOPTED PURSUANT TO
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (CLASS A
SHAREHOLDERS ONLY)

Each of the Portfolios of the Fund has adopted a Plan of Distribution
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "Current Plan"). Smith Barney provides distribution services as the
Fund's principal underwriter, for which it receives front-end sales charges
applicable to purchases of Class A shares of the Portfolio. In addition, under
the Current Plan, each Portfolio may pay Smith Barney a service fee of up to
0.25% of the Portfolio's Class A average daily net assets. This fee reimburses
Smith Barney for actual expenses incurred in any given year for shareholder
services in respect of the Class A shares of each Portfolio. Under the Current
Plan, any amounts received

2
<PAGE>

by Smith Barney in excess of the actual expenses incurred are returned to the
Portfolio. The Current Plan with respect to Class A shares is commonly
referred to as a "reimbursement" plan, although in contrast to many such plans
the Current Plan does not carry forward amounts unreimbursed in any given
year.

Proposal Three asks that you approve an amendment to the Current Plan to
change it with respect to Class A shares into a "compensation" plan (the
"Proposed Plan"). Under the Proposed Plan, Smith Barney would receive an
annual fee equal to 0.25% of the average daily net assets of each Portfolio of
the Fund attributable to Class A shares regardless of the actual expenses it
has incurred in any given year. In all other substantive respects, the
Proposed Plan with respect to each Portfolio is identical to the Current Plan.

The Board recommends that you vote "FOR" amending the terms of the 12b-1
Plan.

PROPOSAL 4. APPROVE A SUBADVISORY AGREEMENT WITH SMITH BARNEY GLOBAL CAPITAL
MANAGEMENT, INC. (INTERNATIONAL BALANCED PORTFOLIO ONLY)

Mutual Management Corp. ("MMC") is currently investment manager to the
International Balanced Portfolio series (the "International Balanced
Portfolio") of the Fund pursuant to a management agreement entered into by the
Fund on behalf of the International Balanced Portfolio. In such capacity, MMC
manages the day-to-day operations of the International Balanced Portfolio,
offering it advice and assistance with respect to the acquisition, holding or
disposal of securities, making recommendations with respect to other aspects
and affairs of the International Balanced Portfolio and furnishing the
International Balanced Portfolio with bookkeeping, accounting and
administrative services, office space and equipment, and the services of the
officers and employees of the Fund.

Proposal 4 asks that you approve MMC entering into a subadvisory agreement
(the "Proposed Agreement") with Smith Barney Global Capital Management, Inc.
("Global Capital"), a U.S.-registered investment adviser affiliated with Smith
Barney. The Proposed Agreement would allow MMC to receive investment
management and research services from Global Capital. Because MMC would pay a
fee to Global Capital for the subadvisory services from MMC's current
management fee, the Proposed Agreement would not affect the total fees paid by
the International Balanced Portfolio.

THE PROPOSED AGREEMENT WOULD NOT INCREASE THE ADVISORY FEES PAID BY THE
INTERNATIONAL BALANCED PORTFOLIO. MMC would pay Global Capital 0.35% of its
monthly management fee with respect to the average daily net assets of the
International Balanced Portfolio.

The Board recommends that you vote "FOR" the proposed agreement.

3
<PAGE>

YOUR VOTE IS IMPORTANT!

We ask that you review the attached proxy carefully. If you do not plan to
attend the meeting, we ask that you complete, sign, date and return the proxy
as soon as possible in the enclosed postage-paid envelope. Thank you in
advance for your attention and vote with regard to these important proposals.

Sincerely,

Heath B. McLendon
Chairman

4
<PAGE>

SMITH BARNEY WORLD FUNDS, INC.
(THE "FUND")
EMERGING MARKETS PORTFOLIO
EUROPEAN PORTFOLIO
GLOBAL GOVERNMENT BOND PORTFOLIO
INTERNATIONAL BALANCED PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
PACIFIC PORTFOLIO

388 GREENWICH STREET
NEW YORK, NEW YORK 10013

NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS

----------------------

TO BE HELD ON MARCH 30, 1998

----------------------

TO THE SHAREHOLDERS:

Notice is hereby given that Special Meetings of Shareholders of the
registered investment companies listed above (each a "Portfolio," and
collectively, the "Portfolios") will be held on the date and at the times and
location specified below. Also set out below are the number of shares of each
Portfolio issued and outstanding at the close of business on January 6, 1998.

The Special Meetings of the Portfolios will be held at 388 Greenwich Street,
New York, New York on March 30, 1998 at the following times:

<TABLE>
<CAPTION>
MEETING SHARES
TIME OUTSTANDING
---------- -------------
<S> <C> <C>
Emerging Markets Portfolio.......................... 10:00 a.m. 2,622,376.51
European Portfolio.................................. 10:30 a.m. 2,500,053.78
Global Government Bond Portfolio.................... 11:00 a.m. 11,889,447.77
International Balanced Portfolio.................... 11:30 a.m. 5,110,767.16
International Equity Portfolio...................... 12:00 p.m. 62,590,528.29
Pacific Portfolio................................... 12:30 p.m. 806,757.13
</TABLE>

The Special Meetings are being held for the following purposes:

<TABLE>
<CAPTION>
PAGE NO. IN
THE ATTACHED
JOINT PROXY
STATEMENT
------------
<S> <C>
1. To elect Directors of the Fund (Proposal 1)--ALL PORTFOLIOS.... 5
2. To approve or disapprove the reclassification, modification
and/or elimination of certain fundamental investment policies
(Proposal 2)--ALL PORTFOLIOS................................... 8
3. To amend the terms of the Plan of Distribution Adopted Pursuant
to Rule 12b-1 under the Investment Company Act of 1940
(Proposal 3)--(ALL PORTFOLIOS, CLASS A SHAREHOLDERS ONLY)...... 24
4. To approve a Subadvisory Agreement with Smith Barney Global
Capital Management, Inc. (Proposal 4)--(INTERNATIONAL BALANCED
PORTFOLIO ONLY)................................................ 27
5. To transact such other business as may properly come before the
meeting or any adjournment thereof (Proposal 5)--ALL
PORTFOLIOS..................................................... 30
</TABLE>
<PAGE>

The close of business on January 23, 1998 has been fixed as the record date
for the determination of shareholders of the Portfolios entitled to notice of
and to vote at the meeting and any adjournment thereof.

By Order of the Directors,

Christina T. Sydor, Secretary

February 2, 1998

----------------------

SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETINGS ARE REQUESTED
TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD(S) IN THE ENCLOSED ENVELOPE,
WHICH NEEDS NO POSTAGE IF MAILED IN THE CONTINENTAL UNITED STATES.
INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXY CARDS ARE SET FORTH ON THE
FOLLOWING PAGE. IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.

2
<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 Portfolio(s) involved in validating
your vote if you fail to sign your proxy card(s) properly.

1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card(s).

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(s).

3. All Other Accounts: The capacity of the individual signing the proxy
card(s) should be indicated unless it is reflected in the form of
registration. For example:

<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURE
------------ ---------------
<C> <S> <C>
CORPORATE ACCOUNTS
(1) ABC Corp............................................ ABC Corp.
(2) ABC Corp............................................ John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer........................... John Doe
(4) ABC Corp. Profit Sharing Plan....................... John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust........................................... Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78.................................... Jane B. Doe
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA..................... John B. Smith
(2) Estate of John B. Smith............................. John B. Smith,
Executor
</TABLE>

3
<PAGE>

SMITH BARNEY WORLD FUNDS, INC.
EMERGING MARKETS PORTFOLIO
EUROPEAN PORTFOLIO
GLOBAL GOVERNMENT BOND PORTFOLIO
INTERNATIONAL BALANCED PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
PACIFIC PORTFOLIO

388 GREENWICH STREET
NEW YORK, NEW YORK 10013

SPECIAL MEETINGS OF SHAREHOLDERS

----------------------

TO BE HELD ON MARCH 30, 1998

----------------------

JOINT PROXY STATEMENT

INTRODUCTION

This document is a joint proxy statement for the investment portfolios
listed above (each a "Portfolio" and, collectively, the "Portfolios"). This
joint proxy statement is being furnished to the shareholders of the Portfolios
in connection with the Fund's Board of Directors' (the "Board") solicitation
of proxies to be used at the special meetings of shareholders of the
Portfolios to be held on the date specified in the Notice of Special Meetings
of Shareholders ("Notice of Meeting") and proxy card(s) that accompany this
Proxy Statement, or any adjournment or adjournments thereof (collectively, the
"Meeting"). The Meeting will be held on the day and at the time and location
specified in the Notice of Meeting of Shareholders and proxy card(s) that
accompany this Proxy Statement. This joint proxy statement and accompanying
proxy card(s) will first be mailed to shareholders on or about February 2,
1998. Proxy solicitations will be made primarily by mail, but proxy
solicitations also may be made by telephone, telegraph or personal interviews
conducted by officers and employees of the Fund; Smith Barney Inc. ("Smith
Barney"), distributor of shares of the Portfolios; the investment adviser (the
"Adviser") of a Portfolio; and/or First Data Investor Services Group, Inc.
("First Data"), the Portfolios' transfer agent. Such representatives and
employees will not receive additional compensation for solicitation
activities. Smith Barney has retained the services of First Data to assist in
the solicitation of proxies. The aggregate cost of solicitation of the
shareholders of all of the Portfolios is expected to be approximately
$150,000. The costs of the proxy solicitation and expenses incurred in
connection with the preparation of this joint proxy statement and its
enclosures will be borne by the Portfolios, with the Portfolios' cost being
allocated based in part on a Portfolio's assets and in part on its number of
shareholders. The Portfolios also will reimburse expenses of forwarding
solicitation materials to beneficial owners of shares of the Portfolios. If
the Portfolios record votes by telephone, they will use procedures designed to

<PAGE>

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. Proxies voted by
telephone may be revoked at any time before they are voted in the same manner
that proxies voted by mail may be revoked.

Each share is entitled to one vote and any fractional share is entitled to a
fractional vote. If the enclosed proxy is properly executed and returned in
time to be voted at the Meeting, the shares represented thereby will be voted
in accordance with the instructions marked thereon. Unless instructions to the
contrary are marked thereon, a proxy will be voted FOR the election of the
nominees for Directors ("Board members"), FOR the other matters listed in the
accompanying Notice of Meeting of Shareholders and FOR any other matters
deemed appropriate. If you properly execute the enclosed proxy and give no
voting instructions, your shares will be voted FOR the proposals set forth
herein. Abstentions will be counted as present for purposes of determining a
quorum, but will not be counted as voting. Broker non-votes (i.e., proxies
received from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other persons entitled to
vote the shares on a particular matter with respect to which the broker or
nominees do not have discretionary power) will be treated the same as
abstentions. Any shareholder who has given a proxy has the right to revoke it
at any time prior to its exercise either by attending the Meeting and voting
his or her shares in person or by submitting a letter of revocation or a
later-dated proxy to the appropriate Portfolio at the above address prior to
the date of the Meeting.

In the event that a quorum is not present at the Meeting, or in the event
that a quorum is present but sufficient votes to approve any of the proposals
are not received, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies with
respect to any such proposals. In determining whether to adjourn the Meeting,
the following factors may be considered: the nature of the proposals that are
the subject of the Meeting, 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 adjournment will require the
affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy. When voting on a proposed adjournment, the persons named
as proxies will vote for the proposed adjournment all shares that they are
entitled to vote with respect to each item, unless directed to vote "Against"
the item, in which case such shares will be voted against the proposed
adjournment with respect to that item. A shareholder vote may be taken on one
or more of the proposals in this joint proxy statement prior to any
adjournment if sufficient votes have been received for approval. Under the
charter, a quorum is constituted by the presence in person or by proxy of the
holders of one-third of the outstanding shares of a Portfolio entitled to vote
at the Meeting.

2
<PAGE>

The Board has fixed the close of business on January 23, 1998 as the record
date (the "Record Date") for the determination of shareholders of the
Portfolios entitled to notice of and to vote at the Meeting. At the close of
business on January 6, 1998, the number of shares of each Portfolio shown in
the accompanying Notice of Meeting were issued and outstanding.

As of January 6, 1998, to the knowledge of the Fund and its Board, no single
shareholder or "group" (as that term is used in Section 13(d) of the
Securities Exchange Act of 1934), except as set forth in Annex I hereto, owned
beneficially or of record more than 5% of the outstanding shares of a
Portfolio. As of the Record Date, the officers and Board members of the Fund
beneficially owned less than 1% of the shares of each Portfolio.

This joint proxy statement is being used in order to reduce the preparation,
printing, handling and postage expenses that would result from the use of a
separate proxy statement for each Portfolio and, because many shareholders own
shares of more than one Portfolio, to avoid burdening shareholders with more
than one proxy statement. Although some proposals described herein relate to
several or all of the Portfolios, shareholders of each Portfolio will vote
separately on each proposal on which shareholders of that Portfolio are
entitled to vote (except that all Portfolios of the Fund will vote as a single
fund on Proposal 1) and separate proxy cards are enclosed for each Portfolio
in respect of which a shareholder is a record owner of shares. Thus, if a
proposal is approved by shareholders of one Portfolio and disapproved by
shareholders of other Portfolios, the proposal will be implemented for the
Portfolio that approved the proposal and will not be implemented for any
Portfolio that did not approve the proposal. It is therefore essential that
shareholders complete, date and sign each enclosed proxy card. Set forth below
are the proposals on which shareholders of each respective Portfolio are
entitled to vote.

Proposal 1 requires for approval the affirmative vote of a plurality of the
votes cast at the Meeting in person or by proxy (a "Plurality Vote") for the
Fund. Because abstentions and broker non-votes are not treated as shares
voted, abstentions and broker non-votes have no impact on Proposal 1. Approval
of Proposals 2, 3 and 4 requires the affirmative vote of a "majority of the
outstanding voting securities" of each applicable Portfolio or Class, as the
case may be, which, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), means the lesser of (a) 67% of the Portfolio's (or
Class') shares present at a meeting of its shareholders if the owners of more
than 50% of the shares of the Portfolio (or Class) then outstanding are
present in person or by proxy or (b) more than 50% of the Portfolio's (or
Class') outstanding shares (a "Majority Vote"). Abstentions and broker non-
votes are treated as votes "against" Proposals 2, 3 and 4.

3
<PAGE>

PROPOSALS APPLICABLE TO EACH PORTFOLIO

<TABLE>
<CAPTION>
PORTFOLIO NAME PROPOSALS APPLICABLE TO PORTFOLIO
-------------- ---------------------------------
<S> <C>
All Portfolios............................... 1, 2(C, D, E, F, G, H, I, J, M, N)
All Portfolios, Class A Shares only.......... 3
Emerging Markets Portfolio................... 2(A, B, K, L, O)
European Portfolio........................... 2(A, B, K, L, O)
Global Government Bond Portfolio............. 2(P)
International Balanced Portfolio............. 2(A, B, K, L, O), 4
International Equity Portfolio............... 2(A, B, K, L, O)
Pacific Portfolio............................ 2(A, B, K, L, O)
</TABLE>

4
<PAGE>

PROPOSAL 1:

TO ELECT DIRECTORS OF THE FUND

ALL PORTFOLIOS

The first proposal to be considered at the Meeting is the election of
Directors of the Fund.

Except for Mr. Abraham E. Cohen, all of the nominees are currently serving
as a director of the Board, and all of the nominees serve as a director,
trustee and/or general partner of other investment companies for which Smith
Barney serves as distributor. Each nominee has consented to serve as a Board
member if elected at the Meeting. If a designated nominee declines or
otherwise becomes unavailable for election, however, the proxy confers
discretionary power on the persons named therein to vote in favor of a
substitute nominee or nominees.

If elected, the Board members will hold office without limit in time,
subject to the Emeritus Program* adopted by the Fund, and except that any
Board member may resign and any Board member may be removed at any meeting of
shareholders called for that purpose by at least 75% of the votes entitled to
be cast for the election of Board members. In case a vacancy shall exist for
any reason, the remaining Board members may fill the vacancy by appointing
another Board member. If at any time less than a majority of the Board members
holding office have been elected by shareholders, the Board members then in
office will call a shareholders meeting for the purpose of electing Board
members.

The Board has an Audit Committee and a Nominating Committee, each consisting
of all Board members who are not "interested persons" (as defined in the 1940
Act) of the Fund ("independent Board members"). The Audit Committee reviews
the scope and results of the Fund's annual audit with the Fund's independent
accountants and recommends the engagement of accountants. Included among the
functions of the Nominating Committee is the selection and nomination for
appointment and election of candidates to serve as independent Board members.
The Nominating Committee, in its discretion, may also coordinate with Board
members who are "interested persons" in the selection and election of Fund
officers and may consider nominees recommended by shareholders to serve as

- -----------
* The Fund has adopted an Emeritus Program for non-interested Board members
pursuant to which the Fund's Board and the management of the Fund can
continue to benefit from the experience of long-time Board members who have
resigned from the Board. Pursuant to this Program, Board members with 10
years of service may agree to provide services as an emeritus director at
age 72. Each emeritus director agrees to be available for consultation with
the Board and management of the Fund and may attend Board meetings.

5
<PAGE>

directors, provided that shareholders submit such recommendations in
compliance with all the pertinent provisions of Rule 14a-8 under the
Securities Exchange Act of 1934. Exhibit A hereto sets forth certain
information regarding compensation paid to each of the Board members and the
number of Board, Audit Committee and Nominating Committee meetings the Fund
has held in the calendar year ended December 31, 1997. Each nominee for Board
member attended at least 75% of the meetings that were held in the calendar
year ended December 31, 1997. The Board does not have a Compensation
Committee. The executive officers of the Fund are set forth in Exhibit B
hereto. Each officer of the Fund will serve at the discretion of the Board.
The names and addresses of the investment manager, subadviser and distributor
of the Fund are set forth in Exhibit C hereto.

Set forth in the following table are the nominees for election as Board
member of the Fund, together with certain other information. "Interested
persons" of the Fund, as defined in the 1940 Act, by virtue of their positions
as officer or director of the Fund's investment adviser, distributor or one of
their affiliates, are marked by an asterisk. Other directorships include
directorships, general partnerships or trusteeships of companies that are
required to report to the Securities and Exchange Commission (the "SEC") other
than registered investment companies. For purposes of this Proxy Statement,
the address of each Board member is P.O. Box 5128, Westborough, MA, 01581-
5128.

6
<PAGE>

NOMINEES FOR ELECTION TO THE BOARD OF
SMITH BARNEY WORLD FUNDS, INC.

<TABLE>
<CAPTION>
DIRECTOR OF
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER SMITH BARNEY WORLD
DIRECTORSHIPS DURING THE PAST FIVE YEARS FUNDS, INC. SINCE
----------------------------------------- ------------------
<S> <C>
Victor K. Atkins, age 75. 1991
Retired; Former President of Lips Propellers, Inc., a ship
propeller repair company.
Abraham E. Cohen, age 61. N/A
Consultant to MeesPierson, Inc., a Dutch investment bank;
Consultant to and Director of Chugai Pharmaceutical Co.
Ltd.; Director of Agouron Pharmaceuticals, Inc., Akzo Nobel
N.V., a chemical company, Vasomedical, Inc., Teva
Pharmaceutical Ind., Ltd., Neurobiological Technologies
Inc., Vion Pharmaceuticals, Inc., BlueStone Capital
Partners, LP and The Population Council, an international
public interest organization.
Robert A. Frankel, age 70. 1994
Managing Partner of Robert A. Frankel Management
Consultants; Former Vice President of The Reader's Digest
Association, Inc.
Rainer Greeven, age 60. 1991
Attorney.
Susan M. Heilbron, age 52. 1991
Attorney.
*Heath B. McLendon, age 64. 1995
Managing Director of Smith Barney; President and Director of
Mutual Management Corp. and Travelers Investment Adviser,
Inc.; Chairman of Smith Barney Strategy Advisers Inc. Prior
to July 1993, Senior Executive Vice President of Shearson
Lehman Brothers Inc., Vice Chairman of Shearson Asset
Management, Director of PanAgora Asset Management, Inc. and
PanAgora Asset Management Limited.
*Bruce D. Sargent, age 53. 1991
Managing Director of Smith Barney and Vice President of
Mutual Management Corp.
James M. Shuart, age 66. 1991
President of Hofstra University; Director of European
American Bank; Director of Long Island Tourism and
Convention Commission; Director of Association of Colleges
and Universities of the State of New York.
</TABLE>

REQUIRED VOTE

Election of the listed nominees for Board members of the Fund must be
approved by a Plurality Vote.

THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION OF NOMINEES
TO THE BOARD.

7
<PAGE>

PROPOSAL 2:

TO APPROVE OR DISAPPROVE THE RECLASSIFICATION, MODIFICATION AND/OR ELIMINATION
OF CERTAIN FUNDAMENTAL INVESTMENT POLICIES

ALL PORTFOLIOS

The 1940 Act requires a registered investment company, including each of the
Portfolios, to have certain specific investment policies that can be changed
only by a Majority Vote of the company's shareholders. Investment companies
may also elect to designate other policies that may be changed only by a
shareholder vote. Both types of policies are often referred to as
"fundamental" policies. (In this joint proxy statement, the word "restriction"
or "limitation" is sometimes used to describe a policy.) Certain fundamental
policies have been adopted in the past by the Portfolios to reflect certain
regulatory, business or industry conditions that are no longer in effect.
Accordingly, the Fund's Board authorized a review of the Portfolios'
fundamental policies with the following goals: (i) to simplify, modernize and
make consistent with those of other investment companies distributed by Smith
Barney, the Portfolios' policies that are required to be fundamental; (ii) to
reclassify as non-fundamental any policies that are not required to be
fundamental under the 1940 Act or the positions of the staff of the SEC in
interpreting the 1940 Act, in which case, depending on the circumstances, the
policy would be either eliminated or adopted by the Board as a non-fundamental
policy in the same or a modified form; and (iii) to reclassify as non-
fundamental or to eliminate certain policies previously required under state
securities laws. Non-fundamental policies can be changed by the Board without
shareholder approval, subject to compliance with applicable SEC disclosure
requirements.

This proposal seeks shareholder approval of changes that are intended to
accomplish the foregoing goals. Shareholders of any particular Portfolio will
be able to vote for or against or abstain from voting with respect to each of
the proposed changes applicable to that Portfolio. The proposed changes to the
fundamental policies are discussed in detail below. By reducing to a minimum
those policies that can be changed only by a shareholder vote, each Portfolio
should be able to avoid the costs and delay associated with a shareholder
meeting and the Board believes that the ability of each Portfolio's Investment
Manager or Sub-Adviser to manage the Portfolio's assets in a changing
regulatory or investment environment will be enhanced. Accordingly, investment
management opportunities generally will be increased. Before a Portfolio
engages in any new investment policy, the Board must approve it.

Generally, the Portfolios and other mutual funds distributed by Smith Barney
do not have precisely the same set of investment restrictions. They often have
specific restrictions that are substantially similar but not necessarily
identical. Please refer to the policies as set forth in Exhibit D hereto,
which includes the current text of each Portfolio's fundamental investment
restrictions. Please refer to Appendix D to compare your Portfolio's current
investment policy with the one proposed. For your convenience, a table of
contents has been inserted at the beginning of Appendix D which will refer you
to the page on which your Portfolio's current policies are set forth. If a
fundamental policy is proposed by the

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<PAGE>

Board to be modified, the text of the proposed revision is supplied in the
discussion below.

The percentage limitations contained in the restrictions described herein
apply at the time of investment.

If these investment policy changes are approved by shareholders at the
meeting, each Portfolio's Prospectus and Statement of Additional Information
will be amended or supplemented in order to reflect the elimination, amendment
and/or reclassification of the investment policies. Shareholders will be
notified by the Fund of any future investment policy changes, either in the
Portfolio's Prospectus or Statement of Additional Information, which are
updated at least annually, or in other Portfolio correspondence.

A. MODIFICATION OF EACH PORTFOLIO'S FUNDAMENTAL POLICY RELATING TO
DIVERSIFICATION

EUROPEAN PORTFOLIO, INTERNATIONAL EQUITY PORTFOLIO AND PACIFIC PORTFOLIO
ONLY

Under the 1940 Act, a "diversified" fund is permitted to invest, with
respect to 75% of its assets, up to 5% of its assets in one issuer, provided
that the investment represents less than 10% of the issuer's voting
securities. The International Equity Portfolio initially adopted a more
restrictive fundamental limitation of 5% per issuer with respect to 100% of
its assets. In addition, each of the Portfolios initially adopted a more
restrictive fundamental policy that applies the 10% limitation on voting
securities to 100% of its assets. The Board believes that these restrictions
should be standardized and conformed to the statutory definition of
diversification under the 1940 Act in order to enhance each Portfolio's
ability to pursue its investment objective by investing a larger but still
limited amount of its assets in a single issuer. If approved by shareholders,
each Portfolio's new policy on diversification will permit the Portfolio to
invest, with respect to 25% of its assets, more than 5% of its assets in an
issuer and in securities representing more than 10% of the outstanding voting
securities of an issuer.

This Proposal will increase the amount of assets of the International Equity
Portfolio that may be invested in the securities of any one issuer. With
respect to each of the Portfolios, this Proposal will eliminate the
restriction against holding more than 10% of an issuer's securities with
respect to 25% of the assets of each Portfolio. To the extent that a Portfolio
invests a greater proportion of its assets in a single issuer, it will be
subject to a correspondingly greater degree of risk associated with that
investment. Set forth below is each Portfolio's fundamental policy on
diversification, as proposed to be modified:

[The Portfolio will not] 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.

EMERGING MARKETS PORTFOLIO AND INTERNATIONAL BALANCED PORTFOLIO ONLY

Each of these Portfolios is registered as a "non-diversified" investment
company under the 1940 Act. However, each Portfolio conducts its operations so
as to qualify as a "regulated investment company" for purposes of the Internal

9
<PAGE>

Revenue Code of 1986, as amended (the "Code"), which will relieve each
Portfolio of any liability for Federal income tax and state franchise taxes to
the extent its earnings are distributed to shareholders. To so qualify, among
other requirements, each Portfolio must limit its investment so that, at the
close of each quarter of the taxable year (a) not more than 25% of the market
value of its total assets will be invested in the securities of a single
issuer and (b) with respect to 50% of the market value of its total assets,
not more than 5% of the market value of its total assets will be invested in
the securities of a single issuer, provided that the investment represents
less than 10% of the issuer's voting securities. However, each of these
Portfolios initially adopted a fundamental policy that applies the 10%
limitation on voting securities to 100% of its assets. The Board believes that
these restrictions should be standardized and conformed in order to enhance
each Portfolio's ability to pursue its investment objective by investing a
larger but still limited amount of its assets in a single issuer. If approved
by shareholders, each Portfolio's new policy on diversification will permit
the Portfolio to invest, with respect to 50% of its assets, more than 5% of
its assets in an issuer and in securities representing more than 10% of the
outstanding voting securities of an issuer. Set forth below is each
Portfolio's fundamental policy on diversification, as proposed to be modified:

[The Portfolio will not] deviate from its subclassification as a non-
diversified company.

B. EMERGING MARKETS PORTFOLIO, EUROPEAN PORTFOLIO, INTERNATIONAL BALANCED
PORTFOLIO, INTERNATIONAL EQUITY PORTFOLIO AND PACIFIC PORTFOLIO ONLY

MODIFICATION OF EACH PORTFOLIO'S FUNDAMENTAL POLICY REGARDING ISSUANCE OF
SENIOR SECURITIES

Although the definition of a "senior security" involves complex statutory
and regulatory concepts, a senior security is generally thought of as an
obligation of a fund which has a claim to the fund's assets or earnings that
takes precedence over the claims of the fund's shareholders. The 1940 Act
generally prohibits mutual funds from issuing senior securities; however,
mutual funds are permitted to engage in certain types of transactions that
might be considered "senior securities" as long as certain conditions are
satisfied. For example, a transaction which obligates a fund to pay money at a
future date (e.g., the purchase of securities to be settled on a date that is
further away than the normal settlement period) may be considered a "senior
security." A mutual fund is permitted to enter into this type of transaction
if it maintains a segregated account containing liquid securities in value
equal to its obligation to pay cash for the securities at a future date. The
Portfolios utilize transactions that may be considered to give rise to "senior
securities" only in accordance with applicable regulatory requirements under
the 1940 Act.

The primary purpose of the proposal is to revise each Portfolio's
fundamental limitation with respect to senior securities to conform to a
limitation that is expected to become the standard for all Smith Barney funds.
If the proposal is approved, the new fundamental senior securities limitation
cannot be changed without a vote of a Portfolio's shareholders.

10
<PAGE>

Adoption of the proposed limitation on senior securities is not expected to
affect the way in which a Portfolio is managed, the investment performance of
any Portfolio, or the securities or instruments in which a Portfolio invests.
None of the Portfolios is currently engaged in issuing senior securities,
except with the protections afforded by segregated accounts, and the
Portfolios have no current intention to begin issuing senior securities. The
proposed limitation would recognize that the Portfolios issue such securities
only to the extent permitted under the 1940 Act. To the extent a Portfolio
becomes involved in such securities trading practices, the Board will
carefully review the Portfolio's disclosure of its participation and the risks
of loss to the Portfolio and its shareholders which may result from such
trading practices. The Board will further determine whether such trading
practices are consistent with the Portfolio's investment policies.

Set forth below is the fundamental policy on issuance of senior securities,
as proposed to be modified:

[The Portfolio will not] 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.

C.ALL PORTFOLIOS

MODIFICATION OF EACH PORTFOLIO'S FUNDAMENTAL POLICY REGARDING INDUSTRY
CONCENTRATION

Each of the Portfolios has a fundamental policy that prohibits the Portfolio
from concentrating its investments in any one industry. The language of the
Portfolios' policies, however, varies widely from that of other mutual funds
distributed by Smith Barney. In addition, the second sentence of the proposed
policy is new for each Portfolio except the Global Government Bond Portfolio.
It is proposed that these policies be standardized and made more consistent
with those of other mutual funds distributed by Smith Barney. The modified
policies will not involve any change in the manner in which each Portfolio's
assets are currently managed. Set forth below is each Portfolio's fundamental
policy on industry concentration, as proposed to be modified:

[The Portfolio will not] 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.

D. MODIFICATION OF EACH PORTFOLIO'S FUNDAMENTAL POLICY REGARDING BORROWING

EMERGING MARKETS PORTFOLIO, EUROPEAN PORTFOLIO AND GLOBAL GOVERNMENT BOND
PORTFOLIO ONLY

Every Portfolio is required to have a fundamental policy with respect to
borrowing and each Portfolio is presently prohibited from borrowing, except as
borrowings may be necessary for temporary or emergency purposes (such as

11
<PAGE>

meeting redemption requests that might otherwise require the untimely
disposition of securities) in amounts not in excess of a specified amount,
and, in some cases, except as engaging in certain investment strategies may be
considered borrowings. The language of these policies, however, varies widely
from Portfolio to Portfolio and with that of other mutual funds distributed by
Smith Barney. It is therefore proposed that this language be simplified and
standardized. In addition, the Portfolios that do not already have specific
authority are proposed to be granted authority to engage in reverse repurchase
agreements and forward roll transactions, practices that may be deemed to
involve borrowing and are frequently authorized for use by sophisticated
institutional asset managers.

Under a reverse repurchase agreement, a Portfolio would sell securities and
agree to repurchase them at a mutually agreed date and price. At the time the
Portfolio enters into a reverse repurchase agreement, it will establish and
maintain a segregated account with an approved custodian containing cash or
liquid securities having a value not less than the repurchase price (including
accrued interest). Reverse repurchase agreements involve the risk that the
market value of the securities may decline prior to the repurchase date. The
cash proceeds of the sales may be invested in securities or other instruments.
In the event the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, such buyer or its trustee or
receiver may receive an extension of time to determine whether to enforce the
Portfolio's obligation to repurchase the securities, and the Portfolio's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision.

Under a forward roll transaction, the Portfolio sells fixed-income
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities
on a specified future date. Similar to a reverse repurchase agreement, at the
time the Portfolio enters into a forward roll transaction, it will establish
and maintain a segregated account with an approved custodian containing cash
or liquid securities having a value not less than the repurchase price
(including accrued interest). During the roll period, the Portfolio would
forego principal and interest paid on such securities. The Portfolio would be
compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale.

If a Portfolio borrows and uses the proceeds to make additional investments,
income and appreciation from such investments will improve its performance if
they exceed the associated borrowing costs but impair its performance if they
are less than such borrowing costs. This speculative factor is known as
"leverage." These Portfolios have chosen not to borrow money for leveraging
purposes. In addition, the policies of the Global Government Bond Portfolio
currently provide that whenever borrowings other than reverse repurchase
agreements exceed 5% of the value of the Portfolio's total assets, the
Portfolio will not make additional investments. While the 1940 Act and the
rules thereunder do not require such a policy, and the Portfolios do not
propose to include language to this effect in their fundamental restrictions,
the Board has determined that their assets should be

12
<PAGE>

managed in accordance with such a policy. Set forth below is each Portfolio's
fundamental policy on borrowing, as proposed to be modified or adopted:

[The Portfolio will not] borrow money, except that (a) the Portfolio may
borrow from banks for temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests which might otherwise require
the untimely disposition of securities and (b) the Portfolio may, to the
extent consistent with its investment policies, enter into reverse
repurchase agreements, forward roll transactions and similar investment
strategies and techniques. To the extent that it engages in transactions
described in (a) and (b), the Portfolio will be limited so that no more
than 33 -1/3% of the value of its total assets (including the amount
borrowed), valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) valued at the time the borrowing is made,
is derived from such transactions.

INTERNATIONAL BALANCED PORTFOLIO, INTERNATIONAL EQUITY PORTFOLIO AND
PACIFIC PORTFOLIO ONLY:

These Portfolios may engage in leveraging. As the Prospectus of each of
these Portfolios describes, leverage creates an opportunity for increased
returns to shareholders of a Portfolio, but at the same time it creates
special risk considerations. For example, leverage may exaggerate changes in
the net asset value of a Portfolio's shares and in the Portfolio's yield.
Although the principal or stated value of such borrowings will be fixed,
Portfolio assets may change in value during the time the borrowing is
outstanding. Leverage will create interest or dividend expenses for a
Portfolio which can exceed the income from the assets retained. To the extent
the income or other gain derived from securities purchased with borrowed funds
exceeds the interest and other charges the Portfolio will have to pay in
respect thereof, the Portfolio's net income or other gain will be greater than
if leverage had not been used. Conversely, if the income or other gain from
the incremental assets is not sufficient to cover the cost of leverage, the
net income or other gain of the Portfolio will be less than if leverage had
not been used. If the amount of income from the incremental securities is
insufficient to cover the cost of borrowing, securities might have to be
liquidated to obtain required funds. Depending on market or other conditions,
such liquidations could be disadvantageous to a Portfolio. The fundamental
policy limitation on borrowing as proposed to be adopted by the International
Balanced, the International Equity and the Pacific Portfolios maintains the
ability to leverage and is set forth below:

[The Portfolio will not] borrow money, except that (a) the Portfolio may
borrow from banks under circumstances where the Portfolio's Investment
Manager or Sub-Adviser, as the case may be, reasonably believes that (i)
the cost of borrowing and related expenses will be exceeded by the
Portfolio's return from investments of the proceeds of the borrowing in
portfolio securities or (ii) the meeting of redemption requests might
otherwise require the untimely disposition of securities, in an amount not
exceeding 33 -1/3% of the value of the Portfolio's total assets (including
the amount borrowed), valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) valued at the time the
borrowing is made and (b) the

13
<PAGE>

Portfolio may, to the extent consistent with its investment policies,
enter into reverse repurchase agreements, forward roll transactions and
similar investment strategies and techniques.

E.ALL PORTFOLIOS

ELIMINATION OF EACH PORTFOLIO'S FUNDAMENTAL POLICY RESTRICTING ITS ABILITY
TO PLEDGE ASSETS

The Board has approved, subject to shareholder approval, the elimination of
fundamental policies restricting each Portfolio's ability to pledge its assets
to other parties. The elimination of the fundamental investment limitations
regarding pledging assets would remove all restrictions on the ability of each
Portfolio to pledge, mortgage, hypothecate or otherwise encumber its assets,
except for those restrictions imposed by or under the 1940 Act, and would
leave the imposition of any further limits on the Portfolio's pledging
activities to the sole discretion of the Board, subject to applicable SEC
disclosure requirements.

Each Portfolio's current fundamental investment limitations on pledging
assets may conflict with its ability to engage in permitted borrowings,
purchase securities on a when-issued or delayed-delivery basis, lend portfolio
securities, enter into escrow arrangements in connection with writing options,
enter into collateral arrangements in connection with investments involving
futures contracts and options thereon and possibly to engage in other
investments and arrangements that may develop in the future. The Board has
approved the elimination of each Portfolio's fundamental investment
limitations restricting pledging of assets to avoid these potential conflicts
and to secure greater flexibility for the future. The elimination of this
policy is not expected to affect the way in which a Portfolio's assets are
currently managed.

The potential conflict between a Portfolio's pledging and borrowing
limitations, for instance, arises because banks generally require borrowers
such as a Portfolio to pledge assets in order to collateralize the amount
borrowed. The Portfolios currently are permitted to borrow from banks for
temporary or emergency purposes in limited amounts that vary from Portfolio to
Portfolio and, in most cases, to pledge assets to secure permitted borrowings.
(In addition, the International Equity Portfolio, the Pacific Portfolio and
the International Balanced Portfolio may also borrow money for purposes of
leveraging their portfolios.) Loan agreements between investment companies and
banks generally require collateral or provide that the bank may, at its
option, require collateral for future outstanding loans. The amount of
required collateral, however, generally exceeds the principal amount of the
loan. Therefore, the limitation on the amount of portfolio securities that a
Portfolio is permitted to pledge effectively reduces the maximum borrowing
ability of such Portfolio to below the amount it is permitted to borrow. The
Board believes that the pledging limitations should be eliminated to ensure
that the Portfolio's flexibility to consider borrowing money temporarily as a
means of raising cash is not limited by restrictions in its ability to pledge
assets. The pledging of assets may, however, limit some flexibility that a
portfolio manager has to engage in transactions involving Portfolio assets or
to meet extraordinary redemptions if, at the same time, the loans for which
the assets are pledged remain outstanding.

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<PAGE>

F.ALL PORTFOLIOS

MODIFICATION OF EACH PORTFOLIO'S FUNDAMENTAL POLICY REGARDING LENDING BY
THE PORTFOLIO

Each Portfolio has a fundamental policy prohibiting the Portfolio from
lending its assets to other persons or limiting its authority to lend assets,
except that each Portfolio may engage in loans of its portfolio securities,
enter into repurchase agreements and purchase debt instruments. The language
of these policies is proposed to be standardized and clarified and is not
expected to affect the way in which a Portfolio is currently managed.

If this proposal is approved by shareholders, each Portfolio may lend
portfolio securities to well-known and recognized U.S. and foreign brokers,
dealers and banks. Currently, the maximum allowed under the 1940 Act is 33
1/3% of the value of a Fund's total assets. A Portfolio will not lend
securities to Smith Barney or its affiliates, unless the Portfolio has applied
for and received specific authority to do so from the SEC. A Portfolio's loan
of securities will be collateralized as required by the SEC, by cash, letters
of credit or U.S. government securities. The cash or instruments
collateralizing a Portfolio's loan of securities will be maintained at all
times in a segregated account with the Fund's custodian, or with a designated
sub-custodian, in an amount at least equal to the current market value of the
loaned securities. From time to time, a Portfolio may pay a part of the
interest earned from the investment of collateral received for securities
loaned to the borrower and/or a third party that is unaffiliated with the
Portfolio and is acting as a "finder" (unless the SEC permits affiliated
persons to serve as "finders"). Whenever a Portfolio loans securities, it will
comply with conditions established by the SEC, which conditions currently
include: (1) the Portfolio must receive at least 100% cash collateral or
equivalent securities from the borrower; (2) the borrower must increase the
collateral whenever the market value of the securities loaned rises above the
level of the collateral; (3) the Portfolio must be able to terminate the loan
at any time; (4) the Portfolio must receive reasonable interest on the loan,
as well as any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (5) the Portfolio may pay only
reasonable custodian fees in connection with the loan; and (6) voting rights
on the loaned securities may pass to the borrower except that, if a material
event adversely affecting the investment in the loaned securities occurs, the
Portfolio must terminate the loan and regain the right to vote the securities.
In lending securities to U.S. and foreign brokers, dealers and banks, the
Portfolio will be subject to risks, which, like those associated with other
extensions of credit, include possible loss of rights in the collateral should
the borrower fail financially.

The practice of lending securities is expected to generate income for the
Portfolios, which will be utilized to offset Portfolio expenses. The
Investment Manager or Sub-Adviser, as the case may be, for each Portfolio is
responsible for

15
<PAGE>

assuring that this practice will not effect adversely a Portfolio's ability to
meet its investment objective, including an objective of growth or capital
appreciation.

Set forth below is the fundamental policy on lending, as proposed to be
modified:

[The Portfolio will not] make loans. This restriction does not apply to:
(a) the purchase of debt obligations in which the Portfolio may invest
consistent with its investment objectives and policies; (b) repurchase
agreements; and (c) loans of its portfolio securities, to the fullest
extent permitted under the 1940 Act.

G.ALL PORTFOLIOS

MODIFICATION OF EACH PORTFOLIO'S FUNDAMENTAL POLICY REGARDING THE
UNDERWRITING OF SECURITIES OF OTHER ISSUERS

Each Portfolio has a fundamental policy regarding the Portfolio acting as an
underwriter of securities. The language of the Portfolios' policies, however,
varies widely from that of other mutual funds distributed by Smith Barney.
Each Portfolio except the Global Government Bond Portfolio combines this
policy with such Portfolio's policy regarding restricted securities. The
policy respecting restricted securities is now proposed to be adopted as a
separate policy and is discussed below under sub-paragraph J. The policy on
underwriting securities is proposed to be standardized and clarified, but not
changed in any material way. The modification will clarify that a Portfolio
will not be deemed to be an underwriter by reason of disposing of portfolio
securities. The modification will not involve any change in the manner in
which a Portfolio is currently managed.

Set forth below is each Portfolio's fundamental policy on underwriting, as
proposed to be modified:

[The Portfolio will not] engage in the business of underwriting
securities issued by other persons, except to the extent that the
Portfolio may technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, in disposing of portfolio securities.

H.ALL PORTFOLIOS

RECLASSIFICATION AS NON-FUNDAMENTAL AND MODIFICATION OF EACH PORTFOLIO'S
FUNDAMENTAL POLICY REGARDING THE PURCHASE OF SECURITIES ON MARGIN AND THE
SHORT SALE OF SECURITIES

Each Portfolio has a fundamental policy that prohibits the Portfolio from
purchasing securities on margin or making short sales. The Board recommends
that

16
<PAGE>

shareholders vote to eliminate these fundamental investment limitations and
replace them with the standard non-fundamental policy set forth below. The
policy, as proposed, would give the Board greater flexibility in its ability
to respond to the availability of new instruments and strategies without
further approval by shareholders.

Margin purchases involve the purchase of securities with money borrowed from
a broker. Each Portfolio's current fundamental policy prohibits the Portfolio
from purchasing securities on margin, except to obtain short-term credits as
may be necessary for the clearance of transactions and for initial and
variation margin payments made in connection with the purchase and sale of
futures contracts and options on futures contracts or related options. With
these exceptions, mutual funds are unable to enter into most types of margin
transactions under applicable SEC regulations. As a result, elimination of
each Portfolio's fundamental limitation on margin transactions is unlikely to
affect the Portfolio's investment strategies at this time. However, in the
event of a change in the applicable Federal regulatory requirements, the
Portfolios may alter their investment practices in the future.

Each Portfolio's current fundamental policy prohibits the making of short
sales, except short sales "against the box." As used in this context, a short
sale "against the box" means a short sale where the Portfolio owns the
securities sold short or, by virtue of its ownership of other securities, the
Portfolio has the right to obtain securities equivalent in kind and amount to
the securities sold. The proposed non-fundamental limitation includes this
exception. As with margin transactions, the Board of each Portfolio does not
anticipate that elimination of the fundamental policy on short sales will
affect the Fund's investment strategies at this time.

While each Portfolio has a separate fundamental policy regarding the
purchase of securities on margin and making short sales, the non-fundamental
policy as proposed to be adopted below combines the two investment policies
into a global one:

[The Portfolio will not] purchase any securities on margin (except for
such short-term credits as are necessary for the clearance of purchases
and sales of portfolio securities) or sell any securities short (except
"against the box"). For purposes of this restriction, the deposit or
payment by the Portfolio of underlying securities and other assets in
escrow and collateral agreements with respect to initial or maintenance
margin in connection with futures contracts and related options and
options on securities, indexes or similar items is not considered to be
the purchase of a security on margin.

I.ALL PORTFOLIOS

MODIFICATION OF EACH PORTFOLIO'S FUNDAMENTAL POLICY REGARDING THE
PORTFOLIO'S PURCHASE OR SALE OF REAL ESTATE, REAL ESTATE LIMITED
PARTNERSHIP INTERESTS OR COMMODITIES

17
<PAGE>

Each Portfolio has a fundamental policy with respect to investments in real
estate, which also contains a restriction against investments in real estate
limited partnership interests and in commodities contracts. If approved by
shareholders, these restrictions would be amended to permit the Portfolio to
invest in securities of companies that deal in mortgages and real estate and
securities secured by real estate and interests therein. In addition, the
modified restriction reserves for the Portfolio the freedom of action to hold
and sell real estate acquired as a result of the Portfolio's ownership of
securities. For example, this modified policy would allow the Portfolio to
dispose of real estate in the event that it acquired real estate as the result
of a default on securities it holds.

The modified policy would also continue to permit each Portfolio to purchase
and sell futures contracts and options thereon.

Although no Portfolio has any current intention of expanding the range of
instruments it is currently permitted to purchase, the modification of this
policy would permit a Portfolio greater flexibility to respond to market and
other developments. Any future change in the Portfolio's manner of investing
or the instruments it may purchase would require Board approval and
appropriate disclosure to shareholders.

The Global Government Bond Portfolio may currently invest in real estate
investment trusts, and the proposed modification would also permit the other
Portfolios to so invest. Although this modification is not expected to involve
any change in the manner in which a Portfolio's assets are currently invested,
the proposed limitation seeks to avoid ambiguity by making it explicit that
the Portfolios may, to the extent consistent with their outlook on the market,
invest in real estate investment trust securities.

To the extent that the Portfolios invest in real estate-related securities,
the Portfolios' performance will be subject to the risks of the real estate
market. This industry is sensitive to factors such as real estate values and
property taxes, overbuilding, variations in rental income, and interest rates.
Performance could also be affected by the structure, cash flow and management
skill of real estate companies.

Set forth below are each Portfolio's fundamental policies regarding the
purchase or sale of real estate or commodities, as proposed to be modified or
adopted:

[The Portfolio will not] purchase or sell real estate, real estate
mortgages, commodities or commodity contracts, but this restriction shall
not prevent the Portfolio from (a) investing in securities of issuers
engaged in the real estate business or the business of investing in real
estate (including interests in limited partnerships owning or otherwise
engaging in the real estate business or the business of investing in real
estate) and securities which are secured by

18
<PAGE>

real estate or interests therein; (b) holding or selling real estate
received in connection with securities it holds or held; (c) trading in
futures contracts and options on futures contracts (including options on
currencies to the extent consistent with the Portfolios' investment
objective and policies); or (d) investing in real estate investment trust
securities.

J.ALL PORTFOLIOS

RECLASSIFICATION AS NON-FUNDAMENTAL OF EACH PORTFOLIO'S FUNDAMENTAL
POLICIES REGARDING INVESTMENTS IN RESTRICTED AND ILLIQUID SECURITIES.

Each Portfolio's fundamental policies currently provide that the Portfolio
will not purchase or otherwise acquire any securities that are subject to
legal or contractual restrictions on resale or for which there is no readily
available market or enter into a repurchase agreement maturing in more than
seven calendar days, if as a result more than a certain percentage (ranging
from 5% to 15%) of its assets would be invested in all such securities. These
policies are not required to be fundamental and, additionally, are considered
overly restrictive in the current regulatory and market environment.

If approved by shareholders, these policies would be reclassified as non-
fundamental and the Board intends to adopt a non-fundamental investment policy
that could be changed by vote of the Board in response to regulatory or market
developments without further approval by shareholders. The non-fundamental
policy would provide that the Portfolio could not purchase or otherwise
acquire any security if, as a result, more than 15% (which is consistent with
the current SEC policy) of its net assets would be invested in securities that
are illiquid.

An open-end investment company, including each of the Portfolios, may not
hold a significant amount of illiquid securities because these securities may
be difficult to value accurately and because it is possible that the
investment company would have difficulty liquidating such securities if
necessary in order to satisfy in a timely manner requests to redeem shares of
the Portfolio. In general, illiquid securities have included those enumerated
in each Portfolio's fundamental restriction (e.g., securities subject to
contractual or legal restrictions on resale, securities for which there is no
readily available market and repurchase agreements or time deposits maturing
in greater than seven days). The securities markets are evolving, however, and
new types of instruments have developed that make each Portfolio's current
policies on illiquid investments overbroad and unnecessarily restrictive. In
addition, the markets for some types of securities are almost exclusively
institutional--repurchase agreements, commercial paper, many types of
municipal securities and some corporate bonds and notes. These instruments are
often exempt from registration under the U.S. securities laws or sold in
transactions not requiring registration. Consequently, institutional investors
depend on the issuer's ability to honor a demand for repayment in less than
seven days or on an

19
<PAGE>

efficient institutional market in which the unregistered security can readily
be resold. The fact that there may be legal or contractual restrictions on
resale to the general public, therefore, does not necessarily determine the
liquidity of these investments.

In recognition of the increased size and liquidity of the institutional
market for unregistered securities and the importance of institutional
investors in the capital formation process, the SEC has advanced rule and
legislative proposals designed to facilitate efficient trading among
institutional investors. The most important of these, Rule 144A under the
Securities Act of 1933, as amended, contemplates a particularly broad
institutional trading market for securities subject to restriction on resale
to the general public. As these institutional markets develop, the Portfolios
could be constrained by their current investment restrictions even though the
institutional restricted securities markets would provide readily
ascertainable market values for such securities and the ability to liquidate
an investment in order to satisfy Portfolio share redemption orders on a
timely basis. In order to take advantage of these regulatory initiatives and
the increasingly liquid institutional trading markets, the Board recommends
that each Portfolio reclassify as non-fundamental its policies regarding
investments in illiquid securities and limit such investments to not more than
15% of its net assets. Under this new policy, restricted securities that have
nonetheless been determined to be liquid may be purchased without limitation.

If this proposal is approved by shareholders, the specific types of
securities that may be deemed to be illiquid or liquid will be determined by
the Board in a manner consistent with current regulatory positions of the SEC
and its staff. The Board has adopted guidelines and delegated to management
the daily function of determining and monitoring liquidity of restricted
securities available pursuant to Rule 144A. The Board, however, retains
sufficient oversight and is ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market for
Rule 144A restricted securities will develop, the Board will carefully monitor
each Portfolio's investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of
information. Investments in restricted securities could have the effect of
increasing the level of illiquidity in a Portfolio to the extent that
qualified institutional buyers become for a time uninterested in these
restricted securities. By making each Portfolio's policy on illiquid
securities non-fundamental, the Portfolios will be able to respond more
rapidly to regulatory and market developments because a shareholder vote will
not be required to redefine the types of securities that are deemed illiquid.
Set forth below is the non-fundamental policy proposed to be adopted by the
Board if this proposal is approved by shareholders of the Portfolio:

[The Portfolio will not] 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.

20
<PAGE>

K. EMERGING MARKETS PORTFOLIO, EUROPEAN PORTFOLIO, INTERNATIONAL BALANCED
PORTFOLIO, INTERNATIONAL EQUITY PORTFOLIO AND PACIFIC PORTFOLIO ONLY

RECLASSIFICATION AS NON-FUNDAMENTAL OF EACH PORTFOLIO'S FUNDAMENTAL POLICY
REGARDING INVESTMENTS IN THE SECURITIES OF COMPANIES THAT, TOGETHER WITH
ANY PREDECESSORS, HAVE BEEN IN CONTINUOUS OPERATION FOR LESS THAN THREE
YEARS

The Board has recommended shareholder approval of the reclassification of
each Portfolio's fundamental policies regarding investments in the securities
of companies that, together with any predecessors, have been in continuous
operation for less than three years ("unseasoned issuers"). This investment
limitation, which limits a Portfolio's investments in unseasoned issuers, was
adopted to meet certain requirements of state securities laws, although this
limitation need not be fundamental. If the reclassification of this limitation
is approved by shareholders, the Board presently intends to adopt a
substantially similar non-fundamental policy that could be changed by vote of
the Board without further approval by shareholders. This will provide each
Portfolio greater flexibility to respond to regulatory, capital markets and
other developments.

L. EMERGING MARKETS PORTFOLIO, EUROPEAN PORTFOLIO, INTERNATIONAL BALANCED
PORTFOLIO, INTERNATIONAL EQUITY PORTFOLIO AND PACIFIC PORTFOLIO ONLY

ELIMINATION OF EACH PORTFOLIO'S FUNDAMENTAL POLICY REGARDING THE PURCHASE
OF SECURITIES OF AN ISSUER WHEN THE BOARD MEMBERS AND OFFICERS OF THE FUND
OR OF THE ADVISER HOLD MORE THAN 1/2 OF 1% AND TOGETHER THEY OWN MORE THAN
5% OF THE SECURITIES OF THE ISSUER

These Portfolios' fundamental policies currently include a restriction that
prohibits the Portfolios from purchasing or retaining the securities of any
issuer if any officer or Board member of the Fund or of the Portfolio's
investment adviser individually owns more than 1/2 of 1% of the securities of
that issuer and together such officers and Board members own more than 5% of
such securities. This investment restriction was originally adopted to address
requirements no longer applicable to the Portfolios under state securities
laws in connection with the registration of shares of the Portfolios for sale
in certain states. Neither the Portfolios nor their management is aware of any
past violations of this policy, but the Portfolios have been advised by their
management that accurate monitoring of compliance with this restriction is
difficult, burdensome and may inhibit portfolio management. Accordingly, the
Board has determined that the benefits derived from

21
<PAGE>

this restriction are now outweighed by the cost of compliance and the possible
inhibitions on management, and elimination of this restriction will
potentially increase the Portfolios' flexibility when selecting investments
for a Portfolio in the future. The ability of a Portfolio to invest in
companies in which its directors and officers, or its affiliates and their
directors and officers, hold interests would continue to be restricted by the
1940 Act and the Fund's Code of Ethics, whether or not the current fundamental
investment restriction is eliminated. For example, the 1940 Act prohibits
joint enterprises between the Fund and affiliates of the Fund (or affiliates
of affiliates of the Fund) and the Fund's Code of Ethics prevents affiliated
persons of the Fund and others from investing in a manner that, among other
things, takes advantage of portfolio trading by the Fund. The elimination of
this restriction is not expected to involve any change in the manner in which
a Portfolio's assets are currently invested.

M.ALL PORTFOLIOS

RECLASSIFICATION AS NON-FUNDAMENTAL OF EACH PORTFOLIO'S INVESTMENT POLICY
REGARDING PURCHASES OF SECURITIES OF OTHER INVESTMENT COMPANIES.

The Portfolios currently have a fundamental investment policy prohibiting
investments in other investment companies, except as part of a merger,
consolidation, or acquisition of assets or, in the case of each Portfolio
except the International Equity Portfolio, in certain other circumstances such
as when the investment is otherwise generally permitted by the 1940 Act. If
approved by shareholders, this restriction would be reclassified as non-
fundamental. The Board currently intends to maintain a policy that would
involve no change in the manner in which the Portfolio's assets are invested.
In addition, the 1940 Act currently limits the amount an investment company
may invest in other investment companies. As a result, this reclassification
should not be material but will provide the Board greater flexibility to
respond to regulatory and other developments without further approval by
shareholders.

N.ALL PORTFOLIOS

RECLASSIFICATION AS NON-FUNDAMENTAL OF EACH PORTFOLIO'S FUNDAMENTAL POLICY
PROHIBITING THE PURCHASE OF SECURITIES FOR PURPOSES OF EXERCISING CONTROL
OR MANAGEMENT

Each Portfolio has a fundamental policy prohibiting the Portfolio from
investing its assets so as to exercise control or management (or control of
management) of an issuer. Although the restriction was required under certain
state securities laws, it is not required to be fundamental. If approved by
shareholders, this policy would be reclassified as non-fundamental and the
Board currently

22
<PAGE>

intends to adopt a substantially similar non-fundamental investment policy
that would involve no change in the manner in which the Portfolio's assets are
currently invested. This will provide the Board greater flexibility to respond
to regulatory and other developments without further approval by shareholders.

O. EMERGING MARKETS PORTFOLIO, EUROPEAN PORTFOLIO, INTERNATIONAL BALANCED
PORTFOLIO, INTERNATIONAL EQUITY PORTFOLIO AND PACIFIC PORTFOLIO ONLY

RECLASSIFICATION AS NON-FUNDAMENTAL OF EACH PORTFOLIO'S FUNDAMENTAL POLICY
REGARDING ITS INVESTMENTS IN OIL, GAS AND/OR OTHER MINERAL EXPLORATION OR
DEVELOPMENT PROGRAMS

Each of these Portfolios has a fundamental policy prohibiting investment in
any oil, gas and/or mineral exploration or development programs, with certain
exceptions. This investment restriction was adopted to address requirements
under certain state securities laws, but is not required to be fundamental.
The Board believes that this investment restriction should be reclassified as
a non-fundamental policy to provide greater flexibility to respond to
regulatory developments without further approval by shareholders. If approved
by shareholders, the Board currently intends to adopt a substantially similar
non-fundamental policy.

P.GLOBAL GOVERNMENT BOND PORTFOLIO ONLY

RECLASSIFICATION AS NON-FUNDAMENTAL OF THE PORTFOLIO'S FUNDAMENTAL POLICY
ON PUTS, CALLS AND COMBINATIONS THEREOF

The Portfolio has a fundamental policy limiting investments involving puts,
calls or combinations thereof. The Board recommends that shareholders vote to
reclassify this fundamental investment limitation. Although the Portfolio has
no current intention of actually expanding the range of instruments it is
currently permitted to purchase, the reclassification as non-fundamental of
the Portfolio's fundamental policy limiting investments involving puts, calls
or combinations thereof would permit the Portfolio greater flexibility to
respond to market and other developments, and would permit the Board to make
changes to the policy in the future without further approval by shareholders.
The Portfolio's current investment policies place limits on the percentage of
Portfolio assets that may be invested in, or subject to, options such as puts
and calls. Although the Portfolio is proposing to reclassify such investment
policies as non-fundamental, the Portfolio has no current intention of
changing its investment policies with respect to puts, calls and combinations
thereof, including changing any such limits which are now placed on the
Portfolio's ability to invest in such instruments. Any future change in the
Portfolio's manner of investing or the instruments it may purchase will
accompany appropriate disclosure to shareholders.

23
<PAGE>

REQUIRED VOTE

Approval of each investment policy proposal with respect to a Portfolio
requires a Majority Vote of such Portfolio. The Board has considered various
factors and believes that approval of these investment policy changes are in
the best interest of each Portfolio and its shareholders. If these investment
proposals are not approved by any Portfolio, that Portfolio's current
fundamental investment policies will remain in effect.

THE BOARD OF THE FUND, INCLUDING A MAJORITY OF THE INDEPENDENT BOARD MEMBERS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE RECLASSIFICATION, MODIFICATION
AND/OR ELIMINATION OF THE PORTFOLIOS' FUNDAMENTAL POLICIES AS DESCRIBED ABOVE.

PROPOSAL 3:

ALL PORTFOLIOS, CLASS A SHAREHOLDERS ONLY

TO AMEND THE TERMS OF THE PLAN OF DISTRIBUTION ADOPTED PURSUANT TO RULE 12B-1
UNDER THE 1940 ACT

The Fund's Board has approved on behalf of each Portfolio an amendment to
its current plan of distribution pursuant to Rule 12b-1 under the 1940 Act
(the "Current Plan")* to change the Current Plan with respect to Class A
shares into a "compensation" plan pursuant to Rule 12b-1 (the "Proposed
Plan"), subject to the approval of the Class A shareholders of each Portfolio.
The continuance of the Current Plan was most recently approved by unanimous
vote of the Board, including all members who are not interested persons, on
June 10, 1997. The Proposed Plan was also approved on June 10, 1997, by the
unanimous vote of the Board, including all directors who are not interested
persons, at a meeting called for that purpose. A copy of each of the two forms
of the Proposed Plan (one for equity Portfolios and one for fixed-income
Portfolios) is attached as Exhibit E hereto.

Currently, Smith Barney provides distribution services as the Fund's
principal underwriter, for which it receives front-end sales charges
applicable to purchases of Class A shares of the Fund. In addition, under the
Current Plan, the Fund pays Smith Barney a service fee of up to 0.25% of the
average daily net assets of the Portfolio's Class A shares. This fee
reimburses Smith Barney for actual expenses incurred in any given year for
shareholder services in respect of the Class A shares
- -----------
* The original plan of distribution pursuant to Rule 12b-1 was initially
adopted by each Portfolio as follows: the Emerging Markets Portfolio on May
12, 1995, the European Portfolio on February 7, 1994, the Global Government
Bond Portfolio on August 28, 1992, the International Balanced Portfolio on
August 25, 1994, the International Equity Portfolio on October 16, 1992, and
the Pacific Portfolio on February 7, 1994. It was most recently amended with
respect to each Portfolio (except the Emerging Markets Portfolio) on November
7, 1994.

24
<PAGE>

of each Portfolio. Under the Current Plan, any amounts received by Smith
Barney in excess of the actual expenses incurred are returned to the
Portfolio. The Current Plan with respect to Class A shares is commonly
referred to as a "reimbursement" plan, although in contrast to many such plans
the Current Plan does not carry forward amounts unreimbursed in any given
year.

Since the Current Plan was adopted, Smith Barney has incurred a significant
amount of expenses in excess of the cumulative fees (as shown below) received
from the Class A shares of each Portfolio (except the Emerging Markets
Portfolio). It is therefore proposed that the Current Plan be amended so that
Smith Barney would receive an annual fee equal to 0.25% of the average daily
net assets of each Portfolio of the Fund attributable to Class A shares
regardless of the actual expenses it has incurred in any given year. In
contrast, if the Current Plan is not amended, Smith Barney would only receive
an annual fee equal to the actual expenses incurred in any given year, which
could be less than 0.25% of the average daily net assets of the Class A shares
of a Portfolio. In all other substantive respects, the Proposed Plan is
identical to the Current Plan.

Prior to approving the amendment of the Current Plan to change it into the
Proposed Plan, the Fund's Board, including all directors who are not
interested persons, reviewed detailed information relating to the Proposed
Plan and consulted with independent counsel. Among other matters considered by
the Fund's Board with respect to the Class A shares of the Fund were:

1. Smith Barney has, since the adoption of the Current Plan, incurred
shareholder servicing costs with respect to its Class A shares that are
greater than the payments it received under that Plan on behalf of each
Portfolio except the Emerging Markets Portfolio. In approving the Proposed
Plan, the Board was provided with the following amounts expended by Smith
Barney and the amounts payable by the various Portfolios of the Fund on a
cumulative basis for the five years ended December 31, 1996:

<TABLE>
<CAPTION>
AMOUNTS EXPENDED BY AMOUNTS PAID
SMITH BARNEY IN BY THE PORTFOLIO
CONNECTION WITH THE WITH RESPECT
PORTFOLIOS (INCEPTION DATE) CURRENT PLAN TO CLASS A SHARES
- ------------------------------------------ ------------------- -----------------
<S> <C> <C>
Emerging Markets (5-12-95)................ 35,515 35,676
European (2-7-94)......................... 174,198 59,869
Global Government Bond (7-22-91).......... 2,256,242 1,298,699
International Balanced (8-25-94).......... 448,656 102,550
International Equity (11-22-91)........... 11,822,413 4,514,755
Pacific (2-7-94).......................... 178,981 44,618
</TABLE>

2. Under the Current Plan, which limits reimbursements to amounts expended,
amounts expended by Smith Barney on an annual basis have not in each year
exceeded those paid by the Portfolios although as demonstrated by the chart
above, they have cumulatively done so except for the Emerging Markets

25
<PAGE>

Portfolio. As more fully discussed below, the directors did not think that
the year-to-year differences between amounts expended and amounts paid were
as significant as the efforts made by Smith Barney to enhance its service
capacity over the long term.

3. A portion of the amounts paid to Smith Barney under the Current Plan (and
other plans of other funds) is paid to the Smith Barney financial
consultants for shareholder servicing, including, but not limited to,
responding to shareholder inquiries concerning their accounts and
investments in shares of the Portfolios and assisting in processing
purchase, exchange and redemption requests from shareholders. The remaining
portion is retained by Smith Barney and is used to offset expenses incurred
by retail branch offices in providing shareholder services. Such
expenditures include salaries for sales assistants and retail sales
executives, as well as general office overhead, such as rent payments and
electricity. Other expenditures include the development and implementation
of computer hardware and software and telecommunications infrastructures
that enable Smith Barney better to service shareholders. The directors were
concerned that the structure of the Current Plan as a reimbursement plan
might operate to inhibit Smith Barney's efforts to make technological
improvements or utilize innovations geared to providing shareholder
services and more timely information to shareholders.

4. An additional benefit of the Proposed Plan over a reimbursement plan, such
as the Current Plan, is the facilitation of administration and accounting.
Under reimbursement plans, all expenses must be specifically accounted for
and attributed to the specific class of shares of a Portfolio in order to
qualify for reimbursement. Although the Proposed Plan will continue to
require quarterly reporting to the directors of the amounts accrued and
paid under the Plan and of the expenses actually borne by Smith Barney,
there will be no need to match specific expenses to reimbursements as
required under the Current Plan. Thus, the accounting for the Proposed Plan
would be simplified and the timing of when expenditures are to be made by
Smith Barney would not be an issue. These considerations, combined with the
fact that the expenses incurred by Smith Barney have in the case of all but
the Emerging Markets Portfolio exceeded (and with respect to the Emerging
Markets Portfolio, substantially equaled) the amounts reimbursed under the
Current Plan, suggest that the costs and efforts associated with a
reimbursement plan are unwarranted.

Following its consideration, the Fund's Board, including all directors who
are not interested persons, concluded that the fees payable by each
Portfolio's Class A shares pursuant to its Proposed Plan were reasonable in
view of the services provided by Smith Barney. The Fund's Board, including all
directors who are not interested persons, determined that the implementation
of the Proposed Plan would be in the best interests of each Portfolio's Class
A shareholders and would have a reasonable likelihood of benefiting each
Portfolio and its Class A shareholders. The

26
<PAGE>

Board, however, recognized that there was no assurance that the benefits
sought pursuant to the Proposed Plan would be achieved or when or in what
period of time the benefits might be realized.

If this Proposal is not approved by the Class A shareholders of a Portfolio,
the Current Plan will remain in effect for that Portfolio. The Board may also
consider further action as may be appropriate, and Smith Barney has advised
the Fund that, if the Proposed Plan is not approved, it may consider the
development of a modified Proposed Plan for presentation to the Fund.

REQUIRED VOTE

Approval of this Proposal with respect to a Portfolio requires a Majority
Vote of its Class A shareholders. The Board has considered various factors and
believes that approval of this proposal is in the best interest of each
Portfolio and its Class A shareholders.

THE BOARD OF THE FUND, INCLUDING A MAJORITY OF THE INDEPENDENT BOARD
MEMBERS, RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" AMENDING THE TERMS OF THE
12B-1 PLAN.

PROPOSAL 4:

INTERNATIONAL BALANCED PORTFOLIO ONLY

TO APPROVE A SUBADVISORY AGREEMENT WITH SMITH BARNEY GLOBAL CAPITAL
MANAGEMENT, INC.

Mutual Management Corp. (formerly known as Smith Barney Mutual Funds
Management Inc.) ("MMC") is currently investment manager to the International
Balanced Portfolio (the "Portfolio") of the Fund pursuant to a management
agreement entered into by the Fund on behalf of the Portfolio. In such
capacity, MMC manages the day-to-day operations of the Portfolio, offering the
Portfolio advice and assistance with respect to the acquisition, holding or
disposal of securities, making recommendations with respect to other aspects
and affairs of the Portfolio and furnishing the Portfolio with bookkeeping,
accounting and administrative services, office space and equipment, and the
services of the officers and employees of the Fund. In conjunction with these
management responsibilities, MMC proposes to enter into a subadvisory
agreement (the "Proposed Agreement") with Smith Barney Global Capital
Management, Inc. ("Global Capital"), a U.S. registered investment adviser
under the Investment Advisers Act of 1940, as amended, affiliated with Smith
Barney. Currently, the international fixed-income assets of the Smith Barney
Mutual Funds, including the Portfolio, are managed by individuals who work for
both MMC and Global Capital. While the same individuals will continue to make
the day-to-day investment decisions for the

27
<PAGE>

Portfolio, all of such services with respect to international fixed-income
securities will be allocated exclusively to the books and records of Global
Capital. In addition, because MMC would pay a fee to Global Capital for the
subadvisory services from MMC's current management fee, the Proposed Agreement
would not affect the total fees paid by the Portfolio.

On September 10, 1997, the Board of the Fund, including a majority of
independent Board members, unanimously approved the Proposed Agreement and
agreed to submit the Proposed Agreement to shareholders of the Portfolio. A
copy of the Proposed Agreement is attached as Exhibit F hereto.

Global Capital, with its principal office located at 10 Piccadilly, London,
England, is a wholly owned subsidiary of Smith Barney (Delaware) Inc., which
is in turn, a wholly owned subsidiary of Salomon Smith Barney Holdings Inc.,
which is in turn, a wholly owned subsidiary of Travelers Group Inc. Each of
Global Capital's parent companies is located at 388 Greenwich Street, New
York, New York 10013. Global Capital was established in 1986 to provide
investment management services with respect to global securities. This
research complements other research on non-U.S. securities produced by MMC's
U.S.-based research analysts and portfolio managers. Global Capital currently
manages the portfolios of clients in the international securities markets,
particularly in the fixed-income area and as of September 30, 1997, managed
approximately U.S. $2.4 billion of assets. The executive officers of Global
Capital are set forth in Exhibit G hereto. Officers or Directors of Global
Capital who are also officers or directors of the Fund are as follows: Bruce
D. Sargent, Victor S. Filatov, Simon R. Hildreth and Denis Mangan.

Under the Proposed Agreement, Global Capital would act as an investment
subadviser to MMC and the Portfolio, and would supply MMC with investment
research information and portfolio management services as MMC reasonably
requests on behalf of the Portfolio. The services provided by Global Capital
will also include the selection, acquisition, holding and disposal of
securities with respect to issuers located outside the United States focusing
primarily in the fixed-income area.

THE PROPOSED AGREEMENT WOULD NOT INCREASE THE ADVISORY FEES PAID BY THE
PORTFOLIO. MMC would pay Global Capital 0.35% of its monthly management fee of
0.85% with respect to the average daily net assets of the Portfolio.

If approved by shareholders, the Proposed Agreement would take effect on the
first day of the first month following approval and would continue in force
for two years and from year to year thereafter, but only as long as its
continuance was approved at least annually by (i) the vote, cast in person at
a meeting called for the purpose, of a majority of the independent Board
members and (ii) the vote of either a majority of the Board or by the vote of
a majority of the outstanding shares of the Portfolio.

28
<PAGE>

The Proposed Agreement would be terminable on 60 days' written notice by
either party and it would terminate automatically in the event of its
assignment.

REQUIRED VOTE

Approval of this Proposal requires a Majority Vote of the International
Balanced Portfolio. The Board has considered various factors and believes that
approval of this proposal is in the best interest of the Portfolio and its
shareholders.

THE BOARD OF THE FUND, INCLUDING A MAJORITY OF THE INDEPENDENT BOARD
MEMBERS, RECOMMENDS THAT THE SHAREHOLDERS OF THE INTERNATIONAL BALANCED
PORTFOLIO VOTE "FOR" THE PROPOSED AGREEMENT.

ADDITIONAL INFORMATION

The name and address of each Portfolio's investment manager, subadviser,
principal underwriter and administrator are set forth in Exhibit C hereto.

SUBMISSION OF SHAREHOLDER PROPOSALS

The Portfolios do not hold regular shareholders meetings. Shareholders
wishing to submit proposals for inclusion in a proxy statement for a
subsequent shareholders' meeting should send their written proposals to the
Secretary of the Fund at the address set forth on the cover of this joint
proxy statement. Proposals must be received at a reasonable time prior to the
date of a meeting of shareholders to be considered for inclusion in the
materials for a Portfolio's meeting. Timely submission of a proposal does not,
however, necessarily mean that such proposal will be included.

SHAREHOLDERS' REQUEST FOR SPECIAL MEETING

Shareholders holding at least 25% of the Fund's outstanding voting
securities (as defined in the 1940 Act) may require the calling of a meeting
of shareholders for the purpose of voting on the removal of any Board member
of the Fund. Meetings of shareholders for any other purpose also shall be
called by the Board members when requested in writing by shareholders holding
at least 25% of the shares then outstanding.

29
<PAGE>

OTHER MATTERS TO COME BEFORE THE MEETING

The Portfolios do not intend to present any other business at the Meeting,
nor are they aware that any shareholder intends to do so. If, however, any
other matters are properly brought before the Meeting, the persons named in
the accompanying proxy card(s) will vote thereon in accordance with their
judgment.

February 2, 1998

THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL REPORT
TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO THE FUND
BY CALLING (800) 473-6977 OR BY WRITING TO THE FUND, 388 GREENWICH STREET, NEW
YORK, NEW YORK 10013.

----------------------

IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN, DATE AND
RETURN EACH PROXY AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE PAID ENVELOPE.

30
<PAGE>

EXHIBIT A

BOARD MEMBER COMPENSATION,
BOARD AND COMMITTEE MEETINGS

<TABLE>
<CAPTION>
AMOUNTS PAID DURING CALENDAR YEAR ENDED
DECEMBER 31, 1997 FROM SMITH BARNEY MUTUAL
FUNDS TO BOARD MEMBER
---------------------------------------------
TOTAL NUMBER
OF FUNDS FOR
COMPENSATION WHICH DIRECTOR
COMPENSATION FROM FUND AND SERVES WITHIN
FROM FUND FUND COMPLEX* FUND COMPLEX
------------ ------------- --------------
<S> <C> <C> <C> <C>
Victor K. Atkins.................. $11,946 $27,400 2
Abraham E. Cohen.................. $ 0 $13,700 1
Robert A. Frankel................. $11,946 $65,900 8
Rainer Greeven.................... $11,346 $25,600 2
Susan M. Heilbron................. $11,946 $27,400 2
Heath B. McLendon................. $ 0 $ 0 42
Bruce D. Sargent.................. $ 0 $ 0 3
James M. Shuart................... $11,346 $25,600 2
</TABLE>
- -----------

* Reflects amounts paid to Board member for the last complete Calendar Year of
each Fund on whose Board the Board member sits.

<TABLE>
<S> <C>
Number of Board Meetings Held During Calendar Year Ended
December 31, 1997......................................... 5
Number of Audit Committee Meetings Held During Calendar Year
Ended December 31, 1997.............................. 2
Number of Nominating Committee Meetings Held During Calendar
Year Ended December 31, 1997..................... 1
</TABLE>

A-1
<PAGE>

EXHIBIT B
EXECUTIVE OFFICERS OF THE FUND

NAME, AGE, PRINCIPAL OCCUPATION

AND BUSINESS EXPERIENCE FOR THE PAST 5 YEARS

HEATH B. McLENDON (64), Chairman of the Board, President and Chief Executive
Officer. Managing Director of Smith Barney; Director of forty-two investment
companies associated with Smith Barney; President of Mutual Management Corp.
(the "Manager") and Travelers Investment Adviser, Inc. ("TIA"); Chairman of
Smith Barney Strategy Advisers Inc. Prior to July 1993, Senior Executive Vice
President of Shearson Lehman Brothers, Inc., Vice Chairman of Shearson Asset
Management, Director of PanAgora Asset Management, Inc. and PanAgora Asset
Management Limited.

MAURITS E. EDERSHEIM (79), Chairman of the Fund and Advisory Director.
Deputy Chairman of Smith Barney International Incorporated; Director and
President of Amstel Hudson Management Corp. (offshore investment management);
Director Esfinco NV (U.S. subsidiary of Spanish Construction Company).
Formerly Deputy Chairman and Director of Drexel Burnham Lambert Incorporated,
The Drexel Burnham Lambert Group Inc. and various of their subsidiaries.

LEWIS E. DAIDONE (40), Senior Vice President and Treasurer. Managing
Director of Smith Barney and Senior Vice President and Treasurer of forty-two
investment companies associated with Smith Barney; Director and Senior Vice
President of the Manager and TIA.

BRUCE D. SARGENT (53), Vice President. Managing Director of Smith Barney and
Vice President of the Manager; Director of three investment companies
associated with Smith Barney.

JAMES B. CONHEADY (61), Vice President and Investment Officer. Managing
Director of Smith Barney. Formerly First Vice President of Drexel Burnham
Lambert Incorporated.

JEFFREY RUSSELL (39), Vice President and Investment Officer. Managing
Director of Smith Barney. Formerly Vice President of Drexel Burnham Lambert
Incorporated.

REIN VAN DER DOES (57), Vice President and Investment Officer. Managing
Director of Smith Barney. Formerly Vice President of Drexel Burnham Lambert
Incorporated.

SCOTT KALB (41), Vice President and Investment Officer. Managing Director of
Smith Barney. Formerly Vice President of Drexel Burnham Lambert Incorporated.

B-1
<PAGE>

VICTOR S. FILATOV (46), Vice President and Investment Officer. Managing
Director of Smith Barney, President and Director of Smith Barney Global
Capital Management, Inc. Formerly Vice President of J.P. Morgan Securities
Inc..

SIMON R. HILDRETH (43), Vice President and Investment Officer. Senior Vice
President of Smith Barney, Managing Director of Smith Barney Global Capital
Management, Inc. Formerly Director of Mercury Asset Management Ltd.

DENIS P. MANGAN (44), Vice President and Investment Officer. Vice President
of Smith Barney Global Capital Management, Inc. Formerly Vice President of
J.P. Morgan and Citibank.

DONALD ELEFSON (38), Vice President and Investment Officer. Vice President
of Smith Barney.

DAVID S. ISHIBASHI (42), Vice President and Investment Officer. Vice
President of Smith Barney.

PHYLLIS ZAHORODNY (39), Investment Officer. Managing Director of Smith
Barney. Formerly Managing Director of Shearson Lehman Advisors.

CHRISTINA T. SYDOR (45), Secretary. Managing Director of Smith Barney and
Secretary of forty-two investment companies associated with Smith Barney;
Secretary and General Counsel of the Manager and TIA.

B-2
<PAGE>

EXHIBIT C

NAMES AND ADDRESSES OF INVESTMENT MANAGER, SUBADVISER AND DISTRIBUTOR

INVESTMENT MANAGER

Mutual Management Corp.
388 Greenwich Street
New York, NY 10013

DISTRIBUTOR
Smith Barney Inc.
388 Greenwich Street
New York, NY 10013

SUBADVISER FOR GLOBAL GOVERNMENT BOND PORTFOLIO
Smith Barney Global Capital Management, Inc.
10 Picadilly
London, W1V 0LH
England

C-1
<PAGE>

EXHIBIT D

CURRENT TEXT OF THE PORTFOLIOS' FUNDAMENTAL INVESTMENT POLICIES SUBJECT TO
CHANGES AS DESCRIBED IN PROPOSAL 2

INDEX

<TABLE>
<S> <C>
Emerging Markets Portfolio.................................................. D-3
European Portfolio.......................................................... D-3
Global Government Bond Portfolio............................................ D-2
International Balanced Portfolio............................................ D-3
International Equity Portfolio.............................................. D-3
Pacific Portfolio........................................................... D-3
</TABLE>

To the extent the text of each of your Portfolio's current fundamental
investment policies is proposed to be modified by Proposal 2 of this Proxy
Statement, such investment policy is followed in this Appendix D by a
parenthetical referencing the sub-proposal in Proposal 2 which proposes to
modify it. Please use these parenthetical references to compare each of your
Portfolio's current fundamental investment policies with each of the policies
as proposed to be adopted in Proposal 2 hereto.

D-1
<PAGE>

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 (Subproposal
A).

3. Invest more than 25% of its total assets in a particular industry, except
that this limitation shall not apply to securities issued or guaranteed as to
principal and interest by the U.S. government or any of its agencies or
instrumentalities. (Subproposal C).

4. Purchase any securities on margin, provided that the Portfolio may obtain
such short-term credits as may be necessary for the clearance of purchases and
sales of securities; except that it may make margin deposits in connection
with futures contracts subject to Investment Restriction 14 below.
(Subproposal H).

5. Make short sales of securities or maintain a short position in securities
unless at all times when a short position in securities is open, the Portfolio
owns or has the right to obtain, at no added cost, securities identical to
those sold short. (Subproposal H).

6. Buy or sell real estate (including real estate limited partnerships) and
real estate mortgage loans, commodities or commodity contracts, or issue
senior securities; however, the Portfolio may invest in debt securities
secured by real estate or interests therein or issued by companies that invest
in real estate or interest therein, including real estate investment trusts,
provided such securities are readily marketable, and may purchase or sell
currencies (including forward currency contracts), futures contracts and
related options generally as described in the Prospectus and the Portfolio's
Statement of Additional Information and subject to Investment Restriction 14
below. (Subproposal I).

7. 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. (Subproposal M).

8. Have more than 15% of its total assets at any time invested in or subject
to puts, calls or combinations thereof. (Subproposal P).

9. Borrow money, except from banks for temporary or emergency purposes not
in excess of 33- 1/3% of the value of the Portfolio's total assets. Whenever
such borrowings exceed 5% of the value of the Portfolio's total assets, the
Portfolio will not make any additional investments. This restriction shall not
prevent the Portfolio from entering into reverse repurchase agreements,
provided that reverse repurchase agreements and any other transactions
constituting borrowing by the Portfolio may not exceed one-third of the
Portfolio's total assets. In the event that the asset coverage for the
Portfolio's borrowings falls below 300%, the Portfolio would reduce, within
three days (excluding Saturdays, Sundays and holidays), the amount of its
borrowings in order to provide for 300% asset coverage. (Subproposal D).

D-2
<PAGE>

10. Pledge, mortgage or hypothecate its assets other than (i) in connection
with the investment strategies described in Investment Restriction 9 above;
(ii) to secure letters of credit solely for purposes of participating in a
captive insurance company sponsored by the Investment Company Institute to
provide fidelity and directors and officers liability insurance; or (iii) in
connection with short sales and collateral arrangements with respect to
options and futures contracts including deposits of initial and variation
margin. (Subproposal E).

11. Make loans, except the Portfolio may purchase debt obligations, enter
into repurchase agreements and lend its securities. (Subproposal F).

12. Acquire securities subject to restrictions on disposition or securities
for which there is no readily available market; enter into repurchase
agreements, or purchase time deposits or variable-amount master demand notes,
if any of the foregoing have a term or demand feature of more than seven days;
or purchase OTC options or set aside assets to cover OTC options written by
the Portfolio if, immediately after and as a result, the value of such
securities would exceed, in the aggregate, 10% of the Portfolio's total
assets. (Subproposal J).

13. Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is defined
under the Securities Act of 1933, as amended (the "1933 Act"). (Subproposal
G).

14. Enter into a Futures Contract or a commodity option other than for bona
fide hedging purposes and, if, as a result thereof, more than 5% of the
Portfolio's total assets (taken at market value at the time of entering into
the contract or commodity option) would be committed to initial margin on
futures contracts and premiums on commodity options all within the meaning of
Regulation 4.5 of the Commodity Futures Trading Commission.

15. Invest in companies for the purpose of exercising control or management.
(Subproposal N).

THE INTERNATIONAL EQUITY PORTFOLIO, THE PACIFIC PORTFOLIO, THE EUROPEAN
PORTFOLIO, THE INTERNATIONAL BALANCED PORTFOLIO AND THE EMERGING MARKETS
PORTFOLIO EACH MAY NOT:

1. Purchase the securities of issuers conducting their principal business
activities in the same industry if immediately after a particular purchase the
value of the Portfolio's investments in such industry would exceed 25% of the
value of its total assets. (Subproposal C).

2. (a) With respect to the International Equity Portfolio only, purchase the
securities of any one issuer, if immediately after such purchase (i) more than
5% of the value of the total assets of the Portfolio would be invested in
securities of such issuer, provided that such limitation does not apply to the
U.S. government, its agencies or instrumentalities or (ii) the Portfolio would
own more than 10% of

D-3
<PAGE>

the outstanding voting securities of such issuer; (b) With respect to 75% of
the value of the total assets of each of the European Portfolio and the
Pacific Portfolio, purchase the securities of any one issuer, if immediately
after such purchase (i) more than 5% of the value of the total assets of the
Portfolio would be invested in securities of such issuer, provided that such
limitation does not apply to the U.S. government, its agencies or
instrumentalities or (ii) the Portfolio would own more than 10% of the
outstanding voting securities of such issuer (under the 1940 Act, each
Portfolio may not, under any circumstance, own more than 10% of the
outstanding voting securities of an issuer); (c) With respect to 50% of the
value of the total assets of the International Balanced Portfolio, purchase
the securities of any one issuer, if immediately after such purchase (i) more
than 5% of the value of the total assets of the Portfolio would be invested in
securities of such issuer, provided that such limitation does not apply to the
U.S. government, its agencies or instrumentalities or (ii) the Portfolio would
own more than 10% of the outstanding voting securities of such issuer (under
the 1940 Act, the Portfolio may not, under any circumstance, own more than 10%
of the outstanding voting securities of an issuer); (d) With respect to 50% of
the value of the total assets of the Emerging Markets Portfolio, purchase the
securities of any one issuer, if immediately after such purchase more than 5%
of the value of the total assets of the Portfolio would be invested in
securities of such issuer, provided that such limitation does not apply to the
U.S. government, its agencies or instrumentalities; (e) with respect to the
Emerging Markets Portfolio, purchase more than 10% of the outstanding voting
securities of any issuer. (Subproposal A).

3. Invest in real estate or real estate mortgage loans, real estate limited
partnerships, commodities or commodity contracts, or interests in oil, gas
and/or mineral exploration or development programs (including mineral leases),
except for purchases of currencies and futures and options and other related
contracts as described in the Prospectus from time to time and except for the
purchase of marketable securities issued by companies that have such
interests. (Subproposals I and O).

4. Purchase securities of any other registered investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets; provided, however, that each of the European, Pacific, International
Balanced and Emerging Markets Portfolios may also purchase shares of other
investment companies pursuant to Section 12(d)(1)(A) of the 1940 Act.
(Subproposal M).

5. Make investments in securities for the purpose of exercising control over
or managing the issuer. (Subproposal N).

6. Make loans, except, to the extent any of such transactions may be deemed
to be loans, for: (a) the purchase of publicly distributed debt securities,
(b) entry into repurchase agreements or (c) the lending of its securities.
(Subproposal F).

7. Purchase securities of any issuer (including any predecessor) which has
been in operation for less than three years if immediately after such purchase
more

D-4
<PAGE>

than 5% of the value of the total assets of the Portfolio would be invested in
such securities. (Subproposal K).

8. Sell securities short, unless at all times when a short position is open
the Portfolio owns an equal amount of the securities, or of securities
convertible into, or exchangeable without payment of any further consideration
for, securities, of the same issue as the securities sold short. (Subproposal
H).

9. Issue securities senior to its common stock or borrow money, except that
the Portfolio may borrow money from banks to provide greater liquidity or to
make additional portfolio investments so long as the aggregate amount borrowed
does not exceed 10% of the value of the European Portfolio's total assets
(including the proceeds of the borrowing) or 25% of the value of each of the
International Equity Portfolio's, the Pacific Portfolio's, the International
Balanced Portfolio's or the Emerging Markets Portfolio's total assets, as the
case may be, (including the proceeds of the borrowing) immediately after the
borrowing and so long as the Portfolio maintains asset coverage ratios as
specified in the 1940 Act. This restriction shall not prevent a Portfolio from
entering into reverse repurchase agreements, provided that reverse repurchase
agreements and any transactions constituting borrowing by the Portfolio may
not exceed one-third of the Portfolio's total assets. (Subproposals B and D).

10. Mortgage or pledge any assets, except to secure borrowings permitted
under the previous restriction. (Subproposal E).

11. Purchase the securities of an issuer if, at the time of such purchase,
one or more of the directors or officers of the Fund or the investment adviser
individually owns beneficially more than 0.5% of the outstanding securities of
such issuer and together such trustees, directors and officers owning more
than 0.5% own beneficially more than 5% of such securities. (Subproposal L).

12. Purchase a security which is not readily marketable, which is subject to
legal or contractual restrictions, including repurchase agreements and
interest rate swaps having more than seven days remaining to maturity, if, as
a result, more than 5% of total assets with respect to the International
Equity Portfolio and more than 15% of total assets with respect to each of the
Pacific Portfolio, the European Portfolio, the International Balanced
Portfolio and the Emerging Markets Portfolio would consist of such securities;
provided that each of the Pacific, European, and International Balanced
Portfolios will not invest more than 5% of its assets in securities that are
restricted from sale to the public until they have been registered under the
1933 Act; or act as an underwriter, except in connection with the resale of
portfolio securities. (Subproposals J and G).

13. Purchase any securities on margin, provided that the Portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities and except that it may make margin deposits
in connection with futures contracts. (Subproposal H).

D-5
<PAGE>

EXHIBIT E

AMENDED PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1

SMITH BARNEY WORLD FUNDS, INC.

[NAME OF EQUITY PORTFOLIO]

This Amended Plan of Distribution (the "Plan") is adopted in accordance with
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Smith
Barney World Funds, Inc. (the "Fund") on behalf of the [Name of Equity
Portfolio] (the "Portfolio"), subject to the following terms and conditions:

1. With respect to Class A, Class B and Class C shares, the Portfolio shall
pay to Smith Barney Inc. ("Smith Barney") a service fee at the annual rate of
0.25% of the average net assets of each such class. With respect to Class B
and Class C shares, the Portfolio shall pay to Smith Barney an asset-based
sales charge at the annual rate of 0.75% of the average net assets of each
such class. Amounts payable by each class shall be calculated and accrued
daily and paid monthly or at such other intervals as the Board of Directors
shall determine.

2. The amount payable by a particular class as set forth in paragraph 1 of
the Plan may be spent by Smith Barney on the following types of activities or
expenses: (1) compensation to Financial Consultants whose clients are
shareholders of the class; (2) the pro rata share of other employment costs of
such Financial Consultants based on their gross production credits (e.g.,
FICA, employee benefits, etc.); (3) employment expenses of home office
personnel primarily responsible for distribution of the class shares and for
providing service to the class' shareholders; (4) the pro rata share of branch
office fixed expenses (including branch overhead allocations); (5) media
advertising or promotion; (6) printing costs of marketing materials, including
prospectuses, sales literature, communications to shareholders and
advertisements (including the creative costs associated therewith); (7)
payments to other Broker/Dealers and (8) interest and/or carrying charges. In
addition, for purposes of paragraph 1 hereof, asset-based sales charges and
shareholder servicing expenses and the activities of Smith Barney carried out
in respect thereof shall be interpreted in a manner consistent with Section
26(d) of the Rules of Fair Practice of the National Association of Securities
Dealers.

3. The Plan shall become effective upon its execution by an authorized
officer of the Fund following its approval by votes of a majority of both (a)
the Board of Directors of the Fund and (b) those directors of the Fund who are
not "interested persons" of the Fund (as defined in the Act) and have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "Independent Directors"), cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan or any
related agreements (the "Effective Date").

E-1
<PAGE>

4. The Plan and any related agreements shall remain in effect for one year
from its Effective Date and may be continued thereafter if it is approved each
year by the votes set forth in the preceding paragraph.

5. Smith Barney shall provide to the Board of Directors of the Fund and the
Board of Directors shall review, at least quarterly, a written report of the
amounts so expended for each class and the purposes for which such
expenditures were made.

6. The Plan may be terminated with respect to a class at any time by vote of
a majority of the Independent Directors or by a vote of a majority of the
outstanding voting securities of the class.

7. The Plan may not be amended to increase materially the amount payable by
a class in accordance with paragraph 1 hereof unless such amendment is
approved by a "vote of a majority of the outstanding voting securities" of the
class, which is defined as the vote of the lesser of (1) 67% or more of the
shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the class are present or represented by proxy or (2)
more than 50% of the outstanding shares of the class. No material amendment to
the Plan shall be made unless approved in the manner provided for initial
approval in paragraph 3 hereof.

8. While the Plan is in effect, the selection and nomination of directors
who are not interested persons (as defined in the Act) of the Fund shall be
committed to the discretion of the directors who are not interested persons.

9. The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to paragraph 5 hereof, for a period of not less than
six years from the date of the Plan, or such agreement or such report, as the
case may be, the first two years in an easily accessible place.

IN WITNESS THEREOF, the Fund has executed this Amended Plan of Distribution
on the day and year set forth below in New York, New York.

DATED: , 1998

SMITH BARNEY WORLD FUNDS, INC.

By:
---------------------------------
Heath B. McLendon
Chairman

E-2
<PAGE>

AMENDED PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1

SMITH BARNEY WORLD FUNDS, INC.

[NAME OF FIXED-INCOME PORTFOLIO]

This Amended Plan of Distribution (the "Plan") is adopted in accordance with
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Smith
Barney World Funds, Inc. (the "Fund") on behalf of the [Name of Fixed-Income
Portfolio] (the "Portfolio"), subject to the following terms and conditions:

1. With respect to Class A, Class B and Class C shares, the Portfolio shall
pay to Smith Barney Inc. ("Smith Barney") a service fee at the annual rate of
0.25% of the average net assets of each such class. With respect to Class B
shares, the Portfolio shall pay to Smith Barney an asset-based sales charge at
the annual rate of 0.50% of the average net assets of such class. With respect
to Class C shares, the Portfolio shall pay to Smith Barney an asset-based
sales charge at the annual rate of 0.45% of the average net assets of such
class. Amounts payable by each class shall be calculated and accrued daily and
paid monthly or at such other intervals as the Board of Directors shall
determine.

E-3
<PAGE>

6. The Plan may be terminated with respect to a class at any time by vote of
a majority of the Independent Directors or by a vote of a majority of the
outstanding voting securities of the class.

IN WITNESS THEREOF, the Fund has executed this Amended Plan of Distribution
on the day and year set forth below in New York, New York.

DATED: , 1998

SMITH BARNEY WORLD FUNDS, INC.

By:
----------------------------------
Heath B. McLendon
Chairman

E-4
<PAGE>

EXHIBIT F

SMITH BARNEY GLOBAL CAPITAL MANAGEMENT

FORM OF SUBADVISORY AGREEMENT

AGREEMENT made as of , 1998 by and between Smith Barney World
Funds, Inc. (the "Fund") on behalf of the International Balanced Portfolio
(the "Portfolio"), Mutual Management Corp., a Delaware corporation
(hereinafter called the "Manager") and Smith Barney Global Capital Management,
Inc., a Delaware corporation (hereinafter called the "Subadviser").

WITNESSETH:

WHEREAS, the Fund and the Manager each desires to retain the services of the
Subadviser with respect to the selection, acquisition, holding and the
disposal of the non-U.S. fixed-income securities and investments of the
Portfolio,

WHEREAS, the Subadviser is registered as an investment adviser under the
Investment Advisers Act of 1940 and is regulated by the Investment Management
Regulatory Organization Limited ("IMRO"), and

WHEREAS, the Subadviser is willing to perform such services on the terms and
conditions hereinafter set forth:

NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is agreed as follows:

1. The Subadviser, at its own expense, undertakes to afford to the Manager
the advice and assistance of its organization with respect to the selection,
acquisition, holding and the disposal of the non-U.S. fixed-income securities
and investments in connection with the Manager's function so as to enable the
Manager to fulfill its obligations as investment manager to the Portfolio
pursuant to its management agreement with the Fund dated July 10, 1994. The
Subadviser shall continuously advise with respect to the Portfolio's assets in
a manner consistent with the investment objective and policies of such
Portfolio.

Subject to the general supervision of the Board of Directors of the Fund and
the Manager, the Subadviser shall: (a) determine the non-U.S. fixed-income
securities and investments to be purchased, sold or otherwise disposed of by
the Portfolio and the timing of such purchases, sales and dispositions; (b)
take such further action, including the placing of purchase and sale orders on
behalf of the Portfolio, as it shall deem necessary or appropriate; and (c)
furnish to, or place at the disposal of, the Fund or the Manager such of the
information, evaluations, analyses and opinions formulated or obtained by it
in the discharge of its duties as the Fund or the Manager may, from time to
time, reasonably request.

F-1
<PAGE>

2. The Subadviser shall, at its own expense, maintain such staff and employ
or retain such personnel and consult with such other persons as it shall from
time to time determine to be necessary or useful in the performance of its
obligations under this Agreement. Such persons employed or otherwise retained
by the Subadviser shall furnish statistical and other factual data, advice
regarding economic factors and trends and such other information, advice and
assistance as the Subadviser may desire. The Subadviser shall maintain such
books and records as may be required to be maintained by the Subadviser under
the Investment Company Act of 1940. All such records so maintained shall be
made available to the Fund or the Manager, upon request by the Fund or the
Manager.

3. The Manager will, from time to time, furnish or otherwise make available
to the Subadviser such financial reports, proxy statements and other
information relating to the business and affairs of the Portfolio as the
Subadviser may reasonably require in order to discharge its duties and
obligations hereunder or to comply with any applicable law and regulations.

4. The Subadviser shall bear the cost of rendering the investment advisory
services to be performed by it under this Agreement, and shall, at its own
expense, pay the compensation of the officers and employees, if any, of the
Fund, employed by the Subadviser, and such clerical help and bookkeeping
services as the Subadviser shall reasonably require in performing its duties
hereunder.

5. The services of the Subadviser to the Manager are not to be deemed
exclusive, the Subadviser being free to render services to others and to
engage in other activities.

6. The Manager shall pay the Subadviser for its services hereunder a fee at
the annualized rate of 0.35% of the Portfolio's average daily net assets
determined in accordance with the Prospectus. The fee shall be computed daily
and paid monthly to the Subadviser.

7. This Agreement shall automatically terminate, without the payment of any
penalty, in the event of its assignment or in the event of the termination of
the management agreement between the Fund on behalf of the Portfolio and the
Manager, provided that such termination shall not relieve either party of any
liability incurred hereunder. The term "assignment" for this purpose shall
have the meaning defined in Section 2(a)(4) of the Investment Company Act of
1940.

8. This Agreement may be terminated at any time, without the payment of any
penalty, by (a) the Board of Directors of the Fund, the Manager or a vote of a
majority of the outstanding voting securities of the Portfolio as defined in
the Investment Company Act of 1940, upon 60 days' written notice addressed to
the Subadviser at its principal place of business or (b) the Subadviser upon
60 days' written notice addressed to the Manager at its principal place of
business.

F-2
<PAGE>

9. This Agreement shall continue in effect for a period of two years from
the date of its execution and thereafter for successive annual periods,
provided that such continuance is specifically approved annually by a majority
of the Board of Directors who are not interested persons of the parties hereto
as defined in the Investment Company Act of 1940 and either (a) the Board of
Directors or (b) the vote of a majority of the outstanding voting securities
of the Portfolio, as defined in the Investment Company Act of 1940.

10. The Subadviser assumes no responsibility under this agreement other than
to render the services called for hereunder in good faith and shall not be
responsible for any action of the Fund in following or declining to follow any
advice or recommendation of the Subadviser. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations
or duties hereunder on the part of the Subadviser, the Subadviser shall not be
subject to liability to the Manager or to the Fund or to any shareholder of
the Fund for any act or omission in the course of, or connected with,
rendering services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written by their officers thereunto
authorized.

SMITH BARNEY WORLD FUNDS, INC. ON
BEHALF OF THE INTERNATIONAL BALANCED
PORTFOLIO

By:______

MUTUAL MANAGEMENT CORP.

By:______

SMITH BARNEY GLOBAL CAPITAL
MANAGEMENT, INC.

By:_

F-3
<PAGE>

EXHIBIT G

DIRECTORS AND EXECUTIVE OFFICERS

OF SMITH BARNEY GLOBAL CAPITAL MANAGEMENT, INC.

NAME, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE

FOR THE PAST FIVE YEARS

ROBERT DRUSKIN, Director. Chief Administrative Officer of Smith Barney;
Chief Administrative Officer of Salomon Brothers Inc.

JOSEPH P. HORNE, Director. Managing Director of Smith Barney.

BRUCE D. SARGENT, Director and Chairman. Managing Director of Smith Barney;
Vice President of Mutual Management Corp.; Director of three investment
companies associated with Smith Barney.

VICTOR S. FILATOV, President, Chief Investment Officer and Director.
Managing Director of Smith Barney, Vice President and Investment Officer of
Smith Barney World Funds, Inc. Formerly Vice President of J.P. Morgan
Securities Inc.

SIMON R. HILDRETH, Senior Vice President and Director. Senior Vice
President of Smith Barney, Vice President and Investment Officer of Smith
Barney World Funds, Inc. Formerly Director of Mercury Asset Management Ltd.

DENIS MANGAN, Senior Vice President and Director. Vice President and
Investment Officer of Smith Barney World Funds, Inc. Formerly Vice President
of J.P. Morgan and Citibank.

ALAN J. HAIG, Senior Vice President and Director. Formerly Director of
Statchase Limited and Finance Director of International Financial Markets
Trading Limited.

A. GEORGE SAKS, Director and Secretary. Executive Vice President, Secretary
and Chief Legal Officer of Smith Barney.

IGNACIO CEREZO, Director. Formerly Managing Director of J.P. Morgan.

G-1
<PAGE>

ANNEX I

BENEFICIAL OWNERSHIP AS OF JANUARY 6, 1998

5% BENEFICIAL OWNERS OF THE FUND
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
PORTFOLIO AND CLASS BENEFICIAL OWNER OWNERSHIP OF FUND
------------------- ------------------- ---------- -------
<C> <S> <C> <C>
INTERNATIONAL EQUITY Smith Barney Concert Allocation 4,832,852 5.63%
PORTFOLIO--CLASS Y Series Inc.
High Growth Portfolio
PNC Bank, NA
Attn.: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
INTERNATIONAL EQUITY Citibank NA TEE 6,129,443 7.14%
PORTFOLIO--CLASS Z Travelers Group Master Trust
Smith Barney 401(k) Savings
Plan
111 Wall Street
20th Floor--Attn.: N.
Kronenberg
New York, NY 10043

5% BENEFICIAL OWNERS OF A PORTFOLIO
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
PORTFOLIO AND CLASS BENEFICIAL OWNER OWNERSHIP OF PORTFOLIO
------------------- ------------------- ---------- ------------
<C> <S> <C> <C>
INTERNATIONAL EQUITY Smith Barney Concert Allocation 4,832,852 7.70%
PORTFOLIO--CLASS Y Series Inc.
High Growth Portfolio
PNC Bank, NA
Attn.: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
INTERNATIONAL EQUITY Smith Barney Concert Allocation 3,299,495 5.25%
PORTFOLIO--CLASS Y Series Inc.
Growth Portfolio
PNC Bank, N.A.
Attn.: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
INTERNATIONAL EQUITY Citibank NA TEE 6,129,443 9.76%
PORTFOLIO--CLASS Z Travelers Group Master Trust
Smith Barney 401(k) Savings
Plan
111 Wall Street
20th Floor--Attn.: N.
Kronenberg
New York, NY 10043
</TABLE>

I-1
<PAGE>

<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
PORTFOLIO AND CLASS BENEFICIAL OWNER OWNERSHIP OF PORTFOLIO
------------------- ------------------- ---------- ------------
<C> <S> <C> <C>
GLOBAL GOVERNMENT BOND Smith Barney Concert 1,747,520 14.61%
PORTFOLIO--CLASS Y Allocation
Series Inc.
Balanced Portfolio
PNC Bank, NA
Attn.: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
INTERNATIONAL BALANCED Smith Barney Concert 2,962,424 57.83%
PORTFOLIO--CLASS Y Allocation Series Inc.
Balanced Portfolio
PNC Bank, NA
Attn.: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
INTERNATIONAL BALANCED Smith Barney Concert 413,324 8.07%
PORTFOLIO--CLASS Y Allocation Series Inc.
Conservative Portfolio
PNC Bank, NA
Attn.: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522
INTERNATIONAL BALANCED Smith Barney Concert 324,418 6.33%
PORTFOLIO--CLASS Y Allocation Series Inc.
Select Balanced Portfolio
PNC Bank, NA
Attn.: Beverly Timson
200 Stevens Drive, Suite 440
Lester, PA 19113-1522

5% BENEFICIAL OWNERS OF CLASS A
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
PORTFOLIO AND CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------- ------------------- ---------- ------------
<C> <S> <C> <C>
INTERNATIONAL EQUITY Bost & Co. 1,047,571 5.07%
PORTFOLIO--CLASS A Mutual Fund Operations
PO Box 3198
Pittsburgh, PA 15230-3198
PACIFIC PORTFOLIO Clyde Pitchford TTEE 14,330 5.78%
CLASS A FBO The Miller Survivor's
Trust U/A/D 9/8/75
595 Market Street, Suite 1470
San Francisco, CA 94105-2821
PACIFIC PORTFOLIO Michael F. Konak 13,520 5.46%
CLASS A Holanda 337, D-805
Santiago, Chile
GLOBAL GOVERNMENT BOND SRS. of Providence Community 500,318 6.50%
PORTFOLIO--CLASS A Support Trust--Intl Inv
Generalate--Finance Office
Onens Hall
St Mary of the West Indies
47876-1096
</TABLE>

I-2
<PAGE>

SMITH BARNEY

A Member of TravelersGroup[LOGO]

SMITH BARNEY
WORLD FUNDS, INC.

388 Greenwich Street
New York, New York 10013

<PAGE>

FORM OF PROXY CARD

PLEASE VOTE THIS PROXY CARD TODAY!
-----
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS.

NOTE: YOUR PROXY IS NOT VALID UNLESS IT IS SIGNED BELOW.
----- --------------------------------------------------

Please fold and detach card at perforation before mailing.

PORTFOLIO NAME PRINTS HERE
MEETING TIME PRINTS HERE

PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of the Fund referenced above hereby appoints
Heath B. McLendon, Christina T. Sydor and Nancy W. Le Donne attorneys with
full powers of substitution and revocation, to represent the undersigned and to
vote on behalf of the undersigned all shares of the Fund that the undersigned is
entitled to vote at the Special Meeting of Shareholders of the Fund to be held
at the offices of the Fund, 388 Greenwich Street, New York, New York, on March
30, 1998 at the time indicated above and at any adjournments thereof. The
undersigned hereby acknowledges receipt of the Notice of Special Meeting and
Proxy Statement dated January __, 1998 and hereby instructs said attorneys and
proxies to vote said shares as indicated herein. A majority of the proxies
present and acting at the Special Meeting in person or by substitute (or, if
only one shall be 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.

Date:_________________ 1998

PLEASE SIGN IN BOX BELOW
Please sign exactly as your name appears on this
Proxy. If joint owners, EITHER may sign the
Proxy. When signing as attorney, executor,
administrator, trustee, guardian or corporate
officer, please give your full title.

Signature(s) Title(s), if applicable

<PAGE>

PLEASE VOTE THIS PROXY CARD TODAY!
-----
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS.

NOTE: YOUR PROXY IS NOT VALID UNLESS IT IS SIGNED ON THE REVERSE SIDE.
----- ----------------------------------------------------------------

Please fold and detach card at perforation before mailing.

1. To elect Directors of the Fund.
Victor K. Atkins; Abraham E. Cohen; Robert A. Frankel; Rainer Greeven;
Swan M. Heilbron; Bruce D. Sargent; James M. Shuart;

FOR ALL FOR ALL EXCEPT WITHHOLD ALL
AS MARKED BELOW
[ ] [ ] [ ] 1.

TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT THAT NOMINEE'S
NAME ON THE LINE BELOW.

- --------------------------------------------------------------------------------

2. To approve or disapprove the reclassification, modification and/or
elimination of certain fundamental investment policies.

<TABLE>

<S> <C> <C>
(2A) Diversification (2I) Real Estate or Commodities (2O) Oil, Gas or Other Mineral
(2B) Senior Securities (2J) Restricted and Illiquid Exploration
(2C) Industry Concentration Securities (2P) Puts and Calls
(2D) Borrowing (2K) Unseasoned Issuers
(2E) Pledging Assets (2L) Management's Ownership of
(2F) Lending Portfolio Securities
(2G) Underwriting of Securities (2M) Securities of Other
(2H) Margins and Short Sales Investment Companies
(2N) Exercising Control or
Management
</TABLE>

FOR ALL EXCEPT FOR ALL WITHHOLD ALL
AS MARKED BELOW
[ ] [ ] [ ] 2.

TO VOTE AGAINST A PARTICULAR PROPOSED CHANGE, APPLICABLE TO YOUR FUND, WRITE THE
SUB-PROPOSAL NUMBER ON THE LINE BELOW.
_______________________________________________________________________________

3. (For Class A shareholders only) To amend the terms of the Plan of
Distribution Adopted Pursuant to Rule 12b-1 under the Investments Company Act of
1940.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

4. (For the International Balanced Portfolio only) To approve a Subadvisory
Agreement with Smith Barney Global Capital Management, Inc.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

5. To transact such other business as may properly come before the meeting or
any adjournment thereof.

[ ] [ ] [ ] 4.