<PAGE>
[GRAPHIC]
Smith Barney
World Funds, Inc.
Global Government Bond Portfolio
International Equity Portfolio
International Balanced Portfolio
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ANNUAL REPORT
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October 31, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(R)
<PAGE>
Smith Barney
World Funds, Inc.
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"We are now beginning to see a concerted global effort to correct the current
imbalances in the global economy. And while this process may take some time and
many individuals may suffer in the short-term, we nonetheless remain convinced
that the long-term higher standards of living and greater freedoms that come
from free-market global capitalism are worth the price."
Heath B. McLendon
Chairman
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The Global Government Bond Portfolio seeks as high a level of current income and
capital appreciation as is consistent with investing principally in high-quality
bonds of the U.S. and foreign governments.
NASDAQ SYMBOL
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Class A SBGLX
Class B SGGBX
The International Equity Portfolio seeks total return on its assets from growth
of capital and income. The Portfolio seeks to achieve its objective by investing
at least 65% of its assets in a diversified portfolio of equity securities of
established non-U.S. issuers.
NASDAQ SYMBOL
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Class A SBIEX
Class B SBIBX
Class L SBICX
The International Balanced Portfolio seeks a competitive total return on its
assets from growth of capital and income through a portfolio invested primarily
in securities of established non-U.S. issuers.
NASDAQ SYMBOL
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Class A SIEBX
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What's Inside
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A Message from the Chairman...................................................1
Global Government Bond Portfolio
Portfolio Manager Commentary................................................2
Historical Performance......................................................4
Portfolio at a Glance.......................................................6
International Equity Portfolio
Portfolio Manager Commentary................................................7
Historical Performance.....................................................10
Portfolio at a Glance......................................................13
International Balanced Portfolio
Portfolio Manager Commentary...............................................14
Historical Performance.....................................................15
Portfolio at a Glance......................................................17
Schedules of Investments.....................................................18
Statements of Assets and Liabilities.........................................25
Statements of Operations.....................................................27
Statements of Changes in Net Assets..........................................28
Notes to Financial Statements................................................30
Financial Highlights ........................................................39
Independent Auditors' Report.................................................51
Tax Information..............................................................52
<PAGE>
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A Message from the Chairman
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[PHOTO]
HEATH B.
MCLENDON
Chairman
Dear Shareholder:
Globalization of the world economy has continued at an unprecedented pace since
the fall of the Berlin wall. However, globalization does not always proceed
smoothly. The long-term commercialization and growing interdependence of the
world's economies can often create major social and political problems in
specific countries over the short term. For example, U.S. autoworkers become
concerned when they see more automobiles being produced in Japan and rice
farmers in Japan also become more alarmed when rice imports from California
increase.
Problems in Detroit and in Japan can quickly translate into political problems
and result in rising protectionism and economic contraction. Ideally the
commercialization of the global economy should occur gradually over time to help
minimize any unforeseen economic, social and political disruptions. Moreover,
the role of finance with respect to globalization can also be disruptive.
Because of the speed of technology and communications today, the movement of
capital around the world is virtually instantaneous, which is good for the
capital markets, but can create short-term aberrations.
In many countries, financial market inefficiencies were the catalyst for recent
stock price volatility. Too much capital went into developing countries too
quickly and these economies were unable to employ that capital in an orderly and
productive fashion. These monetary imbalances resulted in the widely publicized
problems experienced in Asia and later to Eastern Europe and Latin America. It
is important to note, however, these same market inefficiencies create the best
opportunities for global value investors.
We are now beginning to see a concerted global effort to correct the current
imbalances in the global economy. And while this process may take some time and
individuals may suffer in the short term, we nonetheless remain convinced that
the long-term higher standards of living and greater freedoms that come from
free-market global capitalism are worth the price.
The first half of 1998 saw good returns from some developed markets while
emerging market performance for the most part lagged. The global financial
crisis spread in late summer and negatively impacted all the world's stock
markets. Russia's problems, a major hedge fund rescue in the United States, the
Japanese recession, currency controls in Malaysia and global deflation dominated
the headlines. The markets bottomed out in mid-October when the Federal Reserve
Board cut short-term rates in the U.S. Since that time, the world's stock
markets have rebounded strongly, underscoring the market's higher volatility
during the reporting period.
In this report, you will find specific market commentary and performance
information on the Smith Barney World Funds, Inc. -- Global Government Bond
Portfolio, International Equity Portfolio and International Balanced Portfolio
- -- beginning on page two.
We encourage you to visit our improved Internet Web site at www.smithbarney.com.
In closing, thank you for investing in our family of international funds.
Despite turbulent market conditions, we remain committed to providing our
shareholders with competitive performance in the years ahead.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
December 10, 1998
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Smith Barney World Funds, Inc. 1
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Global Government Bond Portfolio
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Portfolio Managers
VICTOR S. FILATOV
Victor S. Filatov joined Smith Barney Global Capital Management in 1993 from
J.P. Morgan where, as head of the Bond Index Group, he was responsible for
developing the J.P. Morgan Government Bond Index and for international fixed
income and currency research. He has published numerous articles and is a member
of the Fixed Income Analysts Society, U.K. Bond Commission and the Global FX
Standards Board. Mr. Filatov has a B.A. in Mathematics and Economics from Clark
University and an M.A. in Economics from the University of Pennsylvania.
DENIS P. MANGAN
Denis P. Mangan is a Global Fixed Income Portfolio Manager and Research
Specialist. He joined Smith Barney Capital Management in 1994. He was previously
at J.P. Morgan as a Proprietary Fixed Income Trader and a Researcher of Fixed
Income Options and Trading for three years. Prior to that, Mr. Mangan spent two
years at Citibank, NA London as a Fixed Income and Currency Strategist for the
Strategic Positioning Desk. He also was at Citicorp for seven years in Treasury
management, doing analysis and strategic positioning. Mr. Mangan graduated with
honors from Trinity College, Dublin, and holds an M.A. in Mathematics from
Columbia University, and a Ph.D. in Financial Economics from Columbia
University.
Performance Update
In the twelve months covered in this report, the Global Government Bond
Portfolio ("Portfolio") returned 8.08% for Class A shares, including dividends
and before deducting any sales charges. The Portfolio outperformed the average
total return for global income funds of 4.28% for the same period according to
Lipper Inc. (Lipper is an independent fund-tracking organization.) Additional
information about the Portfolio's other share classes can be found on pages four
and five.
Market and Portfolio Update
This twelve-month period has been one of the most turbulent in financial markets
in the post-World War II era. Starting with currency devaluations in East Asia,
followed shortly by the 500-point fall in the Dow Jones Industrial Average in
October 1997, continuing with the period of complacency in the first half of
this year (during which U.S. stock markets rallied roughly 20% and European
markets even more), through the massive dislocations in financial markets this
summer and fall, the world has rarely seen such disorder and disarray compressed
into such a short time.
The principal effect on bond markets was the dramatic rally in major government
bond prices over the summer, bringing 10-year German yields below 4.0% and
30-year U.S. Treasury bond yields below 5.0%. This rally was in conjunction
with, and partly due to, the selloff in emerging markets over the late spring
and early summer, as well as the drastic widening of credit spreads of all
natures over the same period. Many investors fled to the highest-quality markets
and divested themselves of anything that could be construed as a "yield spread"
product over the safest of government bond markets. (The term "yield spread"
used here refers to those bonds with yields that exceed those of similar
maturity U.S. Treasury bonds.)
Investment Strategy
We sold all of our Japanese bond holdings during the summer because:
. With Japanese government bonds yielding below 1%, further price rises are
unlikely to exceed those in other developed world bond markets; and
. With a Japanese weighting of 14% in the J.P. Morgan Global Bond Index,
such a low yielding asset makes it difficult to achieve the dividend
target for the Portfolio.
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2 1998 Annual Report to Shareholders
<PAGE>
We reinvested some of our U.S. Treasury bond holdings into Canadian and
Australian government bonds to take advantage of the spread widening in those
markets which occurred over the summer. Yields on both Canadian and Australian
bonds have widened significantly compared to comparable U.S. Treasury securities
and we expect that difference to narrow in the coming months.
Over the past summer, the Portfolio benefited from its concentrated German bond
exposure. German bonds have generally outperformed other non-U.S. government
bonds during the reporting period due to the flight-to-quality that followed the
Russian debt default and the widely publicized troubles of large speculators. In
order to preserve those gains, we redistributed some of the Portfolio's German
bond holdings into the Danish market, where we believe good value exists. As
panic and the rush to liquidity subsides, we believe many investors should
regain their appetite for more risk (and possibly higher return potential) and
interest rates should begin to converge, both overall European rates versus
Germany, and in the dollar-bloc markets versus U.S. Treasury securities.
The Portfolio's performance suffered from its several emerging markets bond
holdings, in particular its Russian holdings, over the summer. Recently, several
emerging markets have begun to recover, and have outperformed developed world
bond markets by approximately 7% during October. As a result, we have begun to
cautiously rebuild some of our holdings in this asset class, but only in the
safest, most highly rated of emerging markets.
Market Outlook
While assessing long-term prospects for emerging markets, it is worthwhile
pointing out that the J.P. Morgan Emerging Markets Bond Index is trading at
levels comparable to those seen at the depths of the Mexican Peso crisis in
March 1995. Therefore, we believe that attractive re-entry opportunities should
present themselves and we are prepared to take advantage of those opportunities
as they appear.
In regards to the developed world bond markets, which typically account for 90%
to 95% of the Portfolio's holdings, we believe that while yields have been
brought to their current low levels by the world financial crisis, global
economic and inflation conditions do not warrant any significant drop in bond
prices or increase in yields. We are also cautiously optimistic that market
conditions will stabilize somewhat over the coming months and that the
volatility of recent months should diminish considerably.
We thank you for your investment in the Smith Barney World Funds--Global
Government Bond Portfolio.
/s/ Victor S. Filatov /s/ Denis Mangan
Victor S. Filatov Denis P. Mangan
Vice President Vice President
November 4, 1998
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Smith Barney World Funds, Inc. 3
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GLOBAL GOVERNMENT BOND PORTFOLIO
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Historical Performance -- Class A Shares
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<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
10/31/98 $12.22 $11.88 $0.22 $0.60 $0.45 8.08%
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10/31/97 12.55 12.22 1.22 0.08 0.00 8.21
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10/31/96 12.30 12.55 0.87 0.00 0.00 9.41
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10/31/95 11.68 12.30 0.78 0.00 0.00 12.40
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10/31/94++ 12.92 11.68 0.23 0.00 0.42 (4.64)+
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12/31/93 11.84 12.92 0.52 0.59 0.00 19.13
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12/31/92 12.90 11.84 0.97 0.19 0.00 0.93
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Inception* -- 12/31/91 12.00 12.90 0.44 0.13 0.00 12.42+
==================================================================================================
Total $5.25 $1.59 $0.87
==================================================================================================
</TABLE>
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Historical Performance -- Class B Shares
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<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
10/31/98 $12.22 $11.87 $0.19 $0.60 $0.42 7.46%
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10/31/97 12.50 12.22 1.10 0.08 0.00 7.62
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10/31/96 12.26 12.50 0.81 0.00 0.00 8.83
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Inception* -- 10/31/95 11.57 12.26 0.66 0.00 0.00 11.97+
==================================================================================================
Total $2.76 $0.68 $0.42
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</TABLE>
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Historical Performance -- Class L Shares(2)
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<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
10/31/98 $12.19 $11.86 $0.19 $0.60 $0.42 7.67%
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10/31/97 12.47 12.19 1.11 0.08 0.00 7.73
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10/31/96 12.23 12.47 0.81 0.00 0.00 8.90
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10/31/95 11.68 12.23 0.72 0.00 0.00 11.25
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10/31/94++ 12.93 11.68 0.21 0.00 0.39 (5.09)+
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Inception* -- 12/31/93 11.83 12.93 0.47 0.59 0.00 18.89+
==================================================================================================
Total $3.51 $1.27 $0.81
==================================================================================================
</TABLE>
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4 1998 Annual Report to Shareholders
<PAGE>
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GLOBAL GOVERNMENT BOND PORTFOLIO
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Historical Performance -- Class Y Shares
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<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
10/31/98 $12.03 $11.70 $0.23 $0.60 $0.46 8.50%
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10/31/97 12.39 12.03 1.28 0.08 0.00 8.61
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10/31/96 12.14 12.39 0.90 0.00 0.00 9.82
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10/31/95 11.68 12.14 0.81 0.00 0.00 11.27
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10/31/94++ 12.93 11.68 0.23 0.00 0.43 (4.62)+
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Inception* -- 12/31/93 11.97 12.93 0.37 0.59 0.00 16.49+
==================================================================================================
Total $3.82 $1.27 $0.89
==================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
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Average Annual Total Return
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Without Sales Charge(1)
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Class A Class B Class L(2) Class Y
================================================================================
Year Ended 10/31/98 8.08% 7.46% 7.67% 8.50%
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Five Years Ended 10/31/98 7.12 N/A 6.51 7.17
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Inception* through 10/31/98 8.84 9.07 8.24 8.60
================================================================================
With Sales Charge(3)
--------------------------------------------
Class A Class B Class L(2) Class Y
================================================================================
Year Ended 10/31/98 3.19% 3.09% 5.66% 8.50%
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Five Years Ended 10/31/98 6.14 N/A 6.30 7.17
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Inception* through 10/31/98 8.15 8.67 8.05 8.60
================================================================================
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Cumulative Total Return
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Without Sales Charge(1)
================================================================================
Class A (Inception* through 10/31/98) 85.30%
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Class B (Inception* through 10/31/98) 40.93
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Class L (Inception* through 10/31/98)(2) 58.57
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Class Y (Inception* through 10/31/98) 59.99
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 4.50% and 1.00%,
respectively; Class B shares reflect the deduction of a 4.50% CDSC, which
applies if shares are redeemed within one year from purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00%
per year until no CDSC is incurred. Class L shares reflect the deduction
of a 1.00% CDSC, which applies if shares are redeemed within the first
year of purchase.
++ For the period from January 1, 1994 to October 31, 1994, which reflects a
change in the fiscal year-end of the Portfolio.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B, L and Y shares are July 22, 1991, November
18, 1994, January 4, 1993 and February 19, 1993, respectively.
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Smith Barney World Funds, Inc. 5
<PAGE>
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Global Government Bond Portfolio at a Glance (unaudited)
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Growth of $10,000 Invested in Class A Shares of the
Global Government Bond Portfolio vs. J.P. Morgan Global Bond Market Index+
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July 1991--October 1998
[GRAPHIC]
<TABLE>
<CAPTION>
Global Government JP Morgan Global JP Morgan Global Bond
Bond Portfolio Bond Market Index Hedged Market Index Unhedged
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<S> <C> <C> <C>
July 1991 9,547 10,000 10,000
Oct 1991 10,364 10,459 10,685
Oct 1992 10,902 11,370 12,028
Oct 1993 12,542 12,749 13,351
Oct 1994 12,299 12,609 13,740
Oct 1995 13,824 15,048 15,319
Oct 1996 15,125 16,566 16,254
Oct 1997 16,367 18,319 16,822
Oct 1998 17,690 20,645 19,006
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A shares at
inception on July 22, 1991, assuming deduction of the maximum initial
sales charge of 4.00% at the time of investment and the reinvestment of
dividends and capital gains, if any, at net asset value through October
31, 1998. The J.P. Morgan Global Bond Market Index is a daily,
market-capitalization weighted, international fixed-income index
consisting of 13 countries. The index is unmanaged and is not subject to
the same management and trading expenses as a mutual fund. The performance
of the Portfolio's other classes may be greater or less than the Class A
shares' performance indicated on this chart, depending on whether greater
or lesser sales charges and fees were incurred by shareholders investing
in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No
adjustment has been made for shareholder tax liability on dividends or
capital gains.
<TABLE>
<CAPTION>
Top Ten Holdings* As of October 31, 1998
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<S> <C>
1. U.S. Treasury Bonds 26.2%
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2. Kingdom of Denmark 18.1
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3. Bundesobligation 10.9
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4. France O.A.T 8.4
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5. Bundesrepublik 8.0
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6. KFW International Finance 7.7
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7. Inter-American DEV BK 6.5
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8. Kingdom of Spain 5.3
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9. Poland Non-US GLB Bearer 3.3
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10. Canadian Government 2.4
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</TABLE>
* As a percentage of total bonds and U.S. government obligations.
Investment Allocation As of October 31, 1998
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[PIE CHART]
Cash Equivalent ............... 2.3%
Asia/Pacific .................. 1.3%
The Americas .................. 20.2%
U.S. Government Obligation .... 25.6%
Europe ........................ 50.6%
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6 1998 Annual Report to Shareholders
<PAGE>
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International Equity Portfolio
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Portfolio Managers
Jeffrey J. Russell is a Managing Director of Smith Barney and portfolio manager
of the Smith Barney World Funds-International Equity Portfolio. Prior to joining
the firm in 1990, he worked for Drexel Burnham Lambert. Mr. Russell holds an
undergraduate degree from Massachusetts Institute of Technology and an M.B.A.
from the University of Pennsylvania's Wharton School of Finance.
[PHOTO]
JEFFREY J.
RUSSELL, CFA
Vice President
James B. Conheady has more than 35 years experience managing international and
global equity portfolios. He has been with the International Equity team since
its formation in 1968 at Drexel Burnham Lambert and moved to Smith Barney in
1990. Mr. Conheady holds a B.S.S. degree from Georgetown University.
[PHOTO]
JAMES B. CONHEADY
Vice President
Performance Update
For the year ended October 31, 1998, Class A shares of the International Equity
Portfolio ("Portfolio") posted a total return of 0.15%. In comparison, the
Morgan Stanley Capital International EAFE Index returned 9.65% for the same
period. (The MSCI EAFE Index is a composite portfolio consisting of equity total
returns for the countries of Europe, Australia, New Zealand and the countries of
the Far East, weighted based on market capitalization.) Performance information
about the Portfolio's other classes of shares can be found on pages ten and
eleven.
Investment Strategy
We pursue a "bottom-up" approach to stock investing--namely, we look for
promising companies and industries rather than trying to discover investment
opportunities based on the present or future condition of the global economy,
the financial markets or the performance of particular markets. We seek
companies growing at a faster rate than their local countries economic growth
rate. At the same time, we strive to maintain a risk level no higher than that
of the overall international equity market through a broad diversification in a
variety of markets.
Market and Portfolio Update
Extraordinarily powerful financial forces rocked global stock markets during
1998. The first half of the year was characterized by strongly positive returns
from the developed markets while emerging market performance lagged. The global
financial crisis of late summer engulfed all stock markets, eroding virtually
all gains from the early portion of the year and driving emerging market returns
into sharply negative territory.
In our view, the International Equity Portfolio's performance lagged the
MSCI-EAFE benchmark for the twelve months ended October 31, 1998 due primarily
to the extreme investor aversion to risk of the final quarter of the fiscal
year. Our all-capitalization investment approach incorporating a modicum of
emerging market stock exposure underperformed the large capitalization index as
investors reallocated assets to more freely traded, large stocks.
The early months of the year were characterized by vibrant performance from the
European stock markets. The backdrop of corporate restructuring and accelerating
economies provided good operating earnings leverage. Those European stock
markets benefited from a liquidity surge into Europe, as
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 7
<PAGE>
globally mobile capital withdrew from Asia and emerging markets at the same time
that European individual and institutional investors increased stock market
commitments.
Asian markets underperformed European markets in the first half of the year as
expectations of macroeconomic growth for 1998 and 1999 declined precipitously.
The pronounced weakness of the Japanese yen cast a pall over the other Asian
markets and raised further fears of currency weakness. Civil unrest and
financial pressure ultimately led to the ouster of Indonesian's long-reigning
President.
Global markets suffered horrific declines during August as a most unusual
combination of financial circumstances drove investors to cash and fixed income
equivalents and out of equities. Several of the major negative influences on the
markets included:
. The Russian financial debacle, which resulted in a setback of
virtually every emerging market as well as multi-billion dollar
losses for financial institutions.
. The decline of the Japanese economy into recession combined with the
inability of the political apparatus to effect meaningful reform of
the malfunctioning financial system.
. The appearance of free-market distorting actions by governments,
such as currency controls in Malaysia.
. Continued weak commodity prices, raising the specter of global
deflation.
. Growing evidence of illiquidity in financial markets and within
major financial institutions.
Investors grappled with the short-term impact of these and tried to assess if
the global economy was decelerating (implying slowing economic growth and
potential profit downgrades) or in recession (implying far greater earnings
declines.)
Markets bottomed in mid-October as investor psychology turned from despair to a
constructive view once the U.S. Federal Reserve Board cut short-term interest
rates twice and a number of other central banks also reduced interest rates to
restore liquidity and confidence to the global financial system. Another
positive influence during October was the resumption of merger and acquisition
activity, a sign that the managers of many companies viewed the declining values
since mid-summer of acquisition targets as a real opportunity, and a slow
rebuild of corporate financing activities from a virtual standstill in the
preceding two months.
The pronounced strength of the Japanese yen (which moved from Y136 per dollar at
September end to Y116 per dollar at October end) in conjunction with easing
global interest rates ignited a sharp rally in the Asian stock markets,
especially those with currencies closely allied with the dollar historically.
The Japanese stock market also rebounded off its lows as the Japanese government
approved a significant infusion of capital into the troubled Japanese banking
sector as well as moved ahead with a variety of fiscal stimuli to revive the
contracting economy.
While European markets also rebounded sharply off their October low levels,
recent political changes in Germany and Italy combined with decelerating growth
expectations have made us modestly less enthused about Euroland. Over the final
quarter of the fiscal year we took profits in selected European stocks and used
the proceeds to modestly increase our Asian exposures. At year-end the
stock-selection driven geographic allocation was 67% in Europe, 17% in Asia, 7%
in the Americas and other emerging markets and about 9% in cash.
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8 1998 Annual Report to Shareholders
<PAGE>
During the variable conditions of the past twelve months, the international
stock markets proved resilient to numerous adverse economic and political
developments. During the past year, we have adjusted out stock positions as
industry and company trends warranted. The common aim has been to have the
International Fund positioned in the highest quality growth stocks of the
international marketplace, consistent with prudent diversification and to
control risk.
In closing, we thank you for your confidence in our investment approach. We look
forward to helping you take advantage of the growing number of investment
opportunities available in today's global economy.
/s/ Jeffrey Russell /s/ James B. Conheady
Jeffrey Russell James Conheady
November 13, 1998
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Smith Barney World Funds, Inc. 9
<PAGE>
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INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=====================================================================================
<S> <C> <C> <C> <C> <C>
10/31/98 $20.36 $20.39 $0.00 $0.00 0.15%
- -------------------------------------------------------------------------------------
10/31/97 18.64 20.36 0.01 0.00 9.30
- -------------------------------------------------------------------------------------
10/31/96 17.15 18.64 0.17 0.00 9.78
- -------------------------------------------------------------------------------------
10/31/95 18.79 17.15 0.12 0.10 (7.44)
- -------------------------------------------------------------------------------------
10/31/94++ 18.71 18.79 0.00 0.00 0.43+
- -------------------------------------------------------------------------------------
12/31/93 12.35 18.71 0.00 0.16 52.78
- -------------------------------------------------------------------------------------
12/31/92 12.31 12.35 0.02 0.00 0.49
- -------------------------------------------------------------------------------------
Inception* -- 12/31/91 11.94 12.31 0.00 0.00 3.10+
=====================================================================================
Total $0.32 $0.26
=====================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=====================================================================================
<S> <C> <C> <C> <C> <C>
10/31/98 $20.22 $20.08 $0.00 $0.00 (0.69)%
- -------------------------------------------------------------------------------------
10/31/97 18.65 20.22 0.00 0.00 8.42
- -------------------------------------------------------------------------------------
10/31/96 17.17 18.65 0.04 0.00 8.89
- -------------------------------------------------------------------------------------
Inception* -- 10/31/95 18.38 17.17 0.00 0.10 (6.00)+
=====================================================================================
Total $0.04 $0.10
=====================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class L Shares(2)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=====================================================================================
<S> <C> <C> <C> <C> <C>
10/31/98 $19.93 $19.79 $0.00 $0.00 (0.70)%
- -------------------------------------------------------------------------------------
10/31/97 18.38 19.93 0.00 0.00 8.43
- -------------------------------------------------------------------------------------
10/31/96 16.93 18.38 0.04 0.00 8.85
- -------------------------------------------------------------------------------------
10/31/95 18.54 16.93 0.00 0.10 (8.11)
- -------------------------------------------------------------------------------------
10/31/94++ 18.58 18.54 0.00 0.00 (0.22)+
- -------------------------------------------------------------------------------------
Inception* -- 12/31/93 12.35 18.58 0.00 0.16 51.73+
=====================================================================================
Total $0.04 $0.26
=====================================================================================
</TABLE>
- --------------------------------------------------------------------------------
10 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=====================================================================================
<S> <C> <C> <C> <C> <C>
10/31/98 $20.38 $20.41 $0.06 $0.00 0.45%
- -------------------------------------------------------------------------------------
10/31/97 18.64 20.38 0.06 0.00 9.68
- -------------------------------------------------------------------------------------
10/31/96 17.13 18.64 0.21 0.00 10.19
- -------------------------------------------------------------------------------------
10/31/95 18.80 17.13 0.17 0.10 (7.11)
- -------------------------------------------------------------------------------------
Inception* -- 10/31/94++ 17.64 18.80 0.00 0.00 6.58+
=====================================================================================
Total $0.50 $0.10
=====================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Z Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=====================================================================================
<S> <C> <C> <C> <C> <C>
10/31/98 $20.36 $20.39 $0.06 $0.00 0.45%
- -------------------------------------------------------------------------------------
10/31/97 18.62 20.36 0.06 0.00 9.69
- -------------------------------------------------------------------------------------
10/31/96 17.12 18.62 0.21 0.00 10.13
- -------------------------------------------------------------------------------------
Inception* -- 10/31/95 18.38 17.12 0.17 0.10 (5.03)+
=====================================================================================
Total $0.50 $0.10
=====================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge(1)
---------------------------------------------------------
Class A Class B Class L(2) Class Y Class Z
=========================================================================================
<S> <C> <C> <C> <C> <C>
Year Ended 10/31/98 0.15% (0.69)% (0.70)% 0.45% 0.45%
- -----------------------------------------------------------------------------------------
Five Years Ended 10/31/98 4.13 N/A 3.30 N/A N/A
- -----------------------------------------------------------------------------------------
Ten Years Ended 10/31/98 10.56 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------
Inception* through 10/31/98 10.50 2.47 8.76 4.29 3.63
=========================================================================================
<CAPTION>
With Sales Charge(3)
---------------------------------------------------------
Class A Class B Class L(2) Class Y Class Z
=========================================================================================
<S> <C> <C> <C> <C> <C>
Year Ended 10/31/98 (4.85)% (5.66)% (2.67)% 0.45% 0.45%
- -----------------------------------------------------------------------------------------
Five Years Ended 10/31/98 3.06 N/A 3.10 N/A N/A
- -----------------------------------------------------------------------------------------
Ten Years Ended 10/31/98 10.00 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------
Inception* through 10/31/98 10.06 2.00 8.58 4.29 3.63
=========================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 11
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (10/31/88 through 10/31/98) 172.81%
- --------------------------------------------------------------------------------
Class B (Inception* through 10/31/98) 10.20
- --------------------------------------------------------------------------------
Class L (Inception* through 10/31/98)(2) 63.06
- --------------------------------------------------------------------------------
Class Y (Inception* through 10/31/98) 20.18
- --------------------------------------------------------------------------------
Class Z (Inception* through 10/31/98) 15.25
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively. Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase. Thereafter
this CDSC declines by 1.00% per year until no CDSC is incurred. Class L
shares reflect the deduction of a 1.00% CDSC, which applies if shares are
redeemed within the first year of purchase.
++ For the period from January 1, 1994 to October 31, 1994, which reflects a
change in the fiscal year end of the Portfolio.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B, L, Y and Z shares are February 18, 1986,
November 7, 1994, January 4, 1993, June 16, 1994 and November 7, 1994,
respectively. Class A share performance includes the return on the
Fenimore International Fund whose management was assumed by Smith Barney
on November 22, 1991.
- --------------------------------------------------------------------------------
12 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio at a Glance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of the
International Equity Portfolio vs. MSCI EAFE-GDP Weighted Index and MSCI EAFE
Index+
- --------------------------------------------------------------------------------
October 1988--October 1998
[GRAPHIC]
International MSCI EAFE-GDP
Equity Portfolio Weighted Index++ MSCI EAFE Index++
- --------------------------------------------------------------------------------
Oct 1988 9,503 10,000 10,000
Oct 1989 11,127 11,222 10,840
Oct 1990 11,328 10,982 9,480
Oct 1991 14,641 11,380 10,173
Oct 1992 14,896 10,577 8,860
Oct 1993 21,181 14,472 12,216
Oct 1994 23,307 16,026 13,485
Oct 1995 21,574 16,172 13,475
Oct 1996 23,684 17,973 14,932
Oct 1997 25,888 19,552 15,667
Oct 1998 25,926 22,952 17,226
+ Hypothetical illustration of $10,000 invested in Class A shares on October
31, 1988, assuming deduction of the maximum initial sales charge of 4.50%
at the time of investment and the reinvestment of dividends and capital
gains, if any, at net asset value through October 31, 1998. The Morgan
Stanley Capital International ("MSCI") EAFE-GDP Weighted Index and the
MSCI EAFE Index are composite portfolios consisting of equity total
returns for the countries of Europe, Australia, New Zealand and countries
in the Far East. The MSCI EAFE-GDP Weighted Index is weighted based on
each country's Gross Domestic Product and the MSCI EAFE Index is weighted
based on each company's market capitalization. The Indexes are unmanaged
and are not subject to the same management and trading expenses as a
mutual fund. The performance of the Portfolio's other classes may be
greater or less than the Class A shares' performance indicated on this
chart, depending on whether greater or lesser sales charges and fees were
incurred by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
++ It is the opinion of management that the MSCI EAFE Index is a more
appropriate broad-based benchmark for the market in which the Portfolio
invests than the MSCI EAFE-GDP Weighted Index. In future reporting, the
MSCI EAFE Index will be used as a basis of comparison of total return
performance rather than the MSCI EAFE-GDP Weighted Index.
Top Ten Holdings* As of October 31, 1998
- --------------------------------------------------------------------------------
1. Nokia Oyj, Class A Shares 5.4%
- --------------------------------------------------------------------------------
2. Compass Group PLC 4.5
- --------------------------------------------------------------------------------
3. Rentokil Initial PLC 3.8
- --------------------------------------------------------------------------------
4. Bank of Ireland 3.7
- --------------------------------------------------------------------------------
5. Telecom Italia Mobile S.p.A. 3.3
- --------------------------------------------------------------------------------
6. Telefonica SA 3.1
- --------------------------------------------------------------------------------
7. Novartis AG, Registered Shares 3.0
- --------------------------------------------------------------------------------
8. Misys PLC 2.8
- --------------------------------------------------------------------------------
9. Capita Group PLC 2.6
- --------------------------------------------------------------------------------
10. Hays PLC 2.6
- --------------------------------------------------------------------------------
* As a percentage of total stocks.
Investment Allocation As of October 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART]
Cash Equivalent ............... 9.1%
Africa ........................ 3.1%
Asia/Pacific .................. 16.5%
The Americas .................. 4.3%
Europe ........................ 67.0%
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 13
<PAGE>
- --------------------------------------------------------------------------------
International Balanced Portfolio
- --------------------------------------------------------------------------------
Performance Update and Investment Strategy
The Smith Barney World Funds -- International Balanced Portfolio ("Portfolio")
seeks long-term growth of capital and current income through a balanced
investment in the stocks and bonds of non-U.S. issuers. The Portfolio gives
investors the opportunity to participate in potential profits worldwide and to
diversify assets over a number of countries' stock and bond markets. For the
year ended October 31, 1998, the International Balanced Portfolio returned
12.87% for Class A shares, an outstanding performance relative to the MSCI EAFE
Index return of 9.65% and the J.P. Morgan Global Bond Index (unhedged) return of
11.64% for the same period. Additional performance information about the
Portfolio's other share classes can be found on page fifteen.
Please note that the International Balanced Portfolio utilizes a team management
approach with the stock portion managed by Jeff Russell and James Conheady
(International Equity Portfolio) and the bond portion managed by Victor Filatov
and Denis Mangan (Global Government Bond Portfolio). For a more in-depth
discussion of economic and market events during the reporting period, please
refer to the Manager's commentary for the International Equity Portfolio that
appears on page seven and the Global Government Bond Portfolios, which can be
found on page two.
Although the stock portion of the Portfolio is managed similarly to the
International Equity Portfolio, and the bond portion is managed similarly to the
Global Government Bond Portfolio, there are some differences due to, among other
things, cash flow and the timing and availability of investment opportunities.
It is thus impossible to replicate performance. The International Balanced
Portfolio's outperformance this period was due to a significant shift out of
stocks earlier in the year in favor of an increased bond exposure. The Portfolio
benefited from the improvement in bond prices while many stocks came under heavy
selling pressure.
We thank you for your investment in the Smith Barney World Funds --
International Balanced Portfolio.
Sincerely,
/s/ James B. Conheady /s/ Jeffrey J. Russell
James B. Conheady Jeffrey J. Russell
Vice President Vice President
/s/ Victor S. Filatov /s/ Denis Mangan
Victor S. Filatov Denis P. Mangan
Vice President Vice President
November 13, 1998
- --------------------------------------------------------------------------------
14 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
10/31/98 $13.32 $14.89 $0.10 $0.03 $0.00 12.87%
- --------------------------------------------------------------------------------------------------
10/31/97 13.90 13.32 0.15 0.00 0.20 (1.71)
- --------------------------------------------------------------------------------------------------
10/31/96 12.64 13.90 0.35 0.00 0.00 12.89
- --------------------------------------------------------------------------------------------------
10/31/95 12.20 12.64 0.39 0.00 0.00 7.05
- --------------------------------------------------------------------------------------------------
Inception* -- 10/31/94 12.00 12.20 0.00 0.00 0.00 1.67+
==================================================================================================
Total $0.99 $0.03 $0.20
==================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
10/31/98 $13.38 $14.93 $0.02 $0.03 $0.00 11.96%
- --------------------------------------------------------------------------------------------------
10/31/97 13.90 13.38 0.08 0.00 0.10 (2.45)
- --------------------------------------------------------------------------------------------------
10/31/96 12.65 13.90 0.26 0.00 0.00 12.05
- --------------------------------------------------------------------------------------------------
Inception* -- 10/31/95 12.08 12.65 0.29 0.00 0.00 7.33+
==================================================================================================
Total $0.65 $0.03 $0.10
==================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class L Shares(2)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
10/31/98 $13.35 $14.89 $0.01 $0.03 $0.00 11.90%
- --------------------------------------------------------------------------------------------------
10/31/97 13.87 13.35 0.08 0.00 0.10 (2.46)
- --------------------------------------------------------------------------------------------------
10/31/96 12.63 13.87 0.26 0.00 0.00 11.99
- --------------------------------------------------------------------------------------------------
10/31/95 12.18 12.63 0.29 0.00 0.00 6.29
- --------------------------------------------------------------------------------------------------
Inception* -- 10/31/94 12.00 12.18 0.00 0.00 0.00 1.50+
==================================================================================================
Total $0.64 $0.03 $0.10
==================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends quarterly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 15
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
---------------------------------
Class A Class B Class L(2)
================================================================================
Year Ended 10/31/98 12.87% 11.96% 11.90%
- --------------------------------------------------------------------------------
Inception* through 10/31/98 7.68 7.08 6.83
================================================================================
With Sales Charge(3)
---------------------------------
Class A Class B Class L(2)
================================================================================
Year Ended 10/31/98 7.24% 6.96% 9.82%
- --------------------------------------------------------------------------------
Inception* through 10/31/98 6.37 6.67 6.58
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 10/31/98) 36.31%
- --------------------------------------------------------------------------------
Class B (Inception* through 10/31/98) 31.33
- --------------------------------------------------------------------------------
Class L (Inception* through 10/31/98)(2) 31.86
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase. Thereafter,
this CDSC declines by 1.00% per year until no CDSC is incurred. Class L
shares reflect the deduction of a 1.00% CDSC, which applies if shares are
redeemed within the first year of purchase.
* Inception dates for Class A, B and L shares are August 25, 1994, November
7, 1994 and August 25, 1994, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
- --------------------------------------------------------------------------------
16 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
International Balanced Portfolio at a Glance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A and L Shares of the International Balanced
Portfolio vs. MSCI EAFE-GDP Weighted Index, MSCI EAFE Index and J.P. Morgan
Global Bond Market Index+
- --------------------------------------------------------------------------------
August 1994--October 1998
[GRAPHIC]
<TABLE>
<CAPTION>
International International
Balanced Balanced J.P. Morgan Global Bond MSCI EAFE-GDP
Portfolio--Class A Portfolio--Class L MSCI EAFE Index++ Market Index (unhedged) Weighted Index++
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aug 1994 9,501 9,901 10,000 10,000 10,000
Oct 1994 9,660 10,050 10,443 10,262 9,960
Oct 1995 10,341 10,681 10,436 12,111 9,563
Oct 1996 11,674 11,962 11,563 12,850 10,607
Oct 1997 11,474 11,667 12,133 13,300 11,539
Oct 1998 12,951 13,056 13,340 15,026 13,545
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A and L shares at
inception on August 25, 1994, assuming deduction of the maximum initial
sales charge of 4.50% at the time of investment for Class A shares and the
deduction of the 1.00% CDSC for Class L shares. It also assumes
reinvestment of dividends and capital gains, if any, at net asset value
through April 30, 1998. The Morgan Stanley Capital International ("MSCI")
EAFE-GDP Weighted Index and MSCI EAFE Index are composite portfolios
consisting of equity total returns for the countries of Europe, Australia,
New Zealand and countries in the Far East. The MSCI EAFE-GDP Weighted
Index is weighted based on each country's Gross Domestic Product and the
MSCI EAFE Index is weighted based on each company's market capitalization.
The J.P. Morgan Global Bond Market Index-Unhedged is a daily, market
capitalization weighted international fixed income index consisting of 13
countries. The indexes are unmanaged and are not subject to the same
management and trading expenses as a mutual fund. The performance of the
Portfolio's other classes may be greater or less than the Class A and L
shares' performance indicated on this chart, depending on whether greater
or lesser sales charges and fees were incurred by shareholders investing
in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No
adjustment has been made for shareholder tax liability on dividends or
capital gains.
++ It is the opinion of management that the MSCI EAFE Index is a more
appropriate broad-based benchmark for the market in which the Portfolio
invests than the MSCI EAFE-GDP Weighted Index. In future reporting, the
MSCI EAFE Index will be used as a basis of comparison of total return
performance rather than the MSCI EAFE-GDP Weighted Index.
Top Ten Holdings* As of October 31, 1998
- --------------------------------------------------------------------------------
1. Buoni Peliennali del Tesoro 15.4%
- --------------------------------------------------------------------------------
2. Japan Series 203 14.0
- --------------------------------------------------------------------------------
3. Bundesobligation 14.0
- --------------------------------------------------------------------------------
4. U.S. Treasury Bond 11.6
- --------------------------------------------------------------------------------
5. United Kingdom Treasury 11.2
- --------------------------------------------------------------------------------
6. France O.A.T. 9.7
- --------------------------------------------------------------------------------
7. Canadian Government 5.0
- --------------------------------------------------------------------------------
8. Kingdom of Denmark 4.0
- --------------------------------------------------------------------------------
9. Nokia 0Y AB 3.3
- --------------------------------------------------------------------------------
10. Serco Group PLC 3.1
- --------------------------------------------------------------------------------
* As a percentage of total stocks and bonds.
Investment Allocation As of October 31, 1998
- --------------------------------------------------------------------------------
[PIE CHART]
Cash Equivalent ............... 14.7%
Asia/Pacific .................. 17.0%
The Americas .................. 16.4%
Europe ........................ 51.9%
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 17
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments October 31, 1998
- --------------------------------------------------------------------------------
GLOBAL GOVERNMENT BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT+++ SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
BONDS -- 72.1%
Australia -- 1.3%
2,500,000 Australian Government, 7.500% due 7/15/05 $ 1,797,002
- --------------------------------------------------------------------------------------------------------
Canada -- 2.3%
4,700,000 Canadian Government, 6.000% due 6/1/08@ 3,252,023
- --------------------------------------------------------------------------------------------------------
Denmark -- 10.1%
Kingdom of Denmark:
20,000,000 4.000% due 2/15/01 3,168,628
60,000,000 7.000% due 11/15/07 11,115,452
- --------------------------------------------------------------------------------------------------------
14,284,080
- --------------------------------------------------------------------------------------------------------
France -- 8.2%
60,000,000 France O.A.T., 5.250% due 4/25/08 11,628,576
- --------------------------------------------------------------------------------------------------------
Germany -- 18.5%
23,900,000 Bundesobligation, 5.000% due 5/21/01 14,999,195
16,900,000 Bundesrepublik Deutscheland, 5.250% due 1/4/08@ 11,038,775
- --------------------------------------------------------------------------------------------------------
26,037,970
- --------------------------------------------------------------------------------------------------------
United States -- 17.9%
4,000,000++ Bulgaria, 6.688% due 7/28/11@# 2,685,000
10,000,000++ Kingdom of Denmark, 6.625% due 6/17/03 10,712,500
5,000,000++ Poland Non-US GLB Bearer, 5.000% due 10/27/14@# 4,543,750
7,000,000++ Kingdom of Spain, 5.875% due 7/28/08@ 7,323,750
- --------------------------------------------------------------------------------------------------------
25,265,000
- --------------------------------------------------------------------------------------------------------
United Kingdom -- 13.8%
5,000,000 Inter-American Development Bank, 7.125% due 11/26/04 8,925,341
5,000,000 KFW International Finance, 9.4375% due 2/27/08 10,545,409
- --------------------------------------------------------------------------------------------------------
19,470,750
- --------------------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost -- $96,128,314) 101,735,401
========================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 25.6%
U.S. Treasury Bonds:
$10,000,000 5.375% due 6/30/00+ 10,182,700
24,000,000 5.625% due 5/15/08 25,861,920
- --------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost -- $34,159,668) 36,044,620
========================================================================================================
SUB-TOTAL INVESTMENTS
(Cost -- $130,287,982) 137,780,021
========================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
18 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (continued) October 31, 1998
- --------------------------------------------------------------------------------
GLOBAL GOVERNMENT BOND PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 2.3%
$ 3,310,000 CIBC Wood Gundy Securities Inc., 5.250% due 11/2/98;
Proceeds at maturity -- $3,311,448; (Fully collateralized by
U.S. Treasury Notes, 6.375% due 5/15/99;
Market value -- $3,377,106) (Cost -- $3,310,000) $ 3,310,000
========================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $133,597,982*) $141,090,021
========================================================================================================
</TABLE>
@ All or a portion of this security is on loan (See Note 9).
# Represents current rate on floating rate security.
++ U.S. dollar denominated security.
+ Security is segregated by Custodian for open forward foreign currency
contracts.
+++ Represents local currency.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 19
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (continued) October 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
STOCKS -- 90.9%
Australia -- 1.2%
2,529,060 Coca-Cola Amatil Ltd.@ $ 9,296,649
2,475,729 Coca-Cola Beverages PLC@ 5,030,215
- --------------------------------------------------------------------------------------------------------
14,326,864
- --------------------------------------------------------------------------------------------------------
Austria -- 0.4%
85,000 Wolford AG@ 5,112,765
- --------------------------------------------------------------------------------------------------------
Brazil -- 1.7%
507,100 Petroleo Brasileiro S.A. ADR 6,376,630
200,000 Telecomunicacoes Brasileiras S.A. ADR@ 15,187,500
- --------------------------------------------------------------------------------------------------------
21,564,130
- --------------------------------------------------------------------------------------------------------
Finland -- 4.9%
650,000 Nokia Oyj, Class A Shares 60,490,624
- --------------------------------------------------------------------------------------------------------
France -- 3.0%
150,000 Axa 16,951,592
36,000 Equant NV+ 1,559,978
250,100 Companie Generale de Geophysique S.A. ADR+ 3,313,825
200,000 Sidel SA@ 14,756,163
- --------------------------------------------------------------------------------------------------------
36,581,558
- --------------------------------------------------------------------------------------------------------
Germany -- 4.5%
440,000 SAP AG Preferred ADR@ 18,562,500
24,000 SAP AG Preferred Non-voting Shares@ 11,679,748
550,000 Volkswagen AG, Preferred Non-voting Shares 25,969,085
- --------------------------------------------------------------------------------------------------------
56,211,333
- --------------------------------------------------------------------------------------------------------
Hong Kong -- 5.7%
12,197,185 Hong Kong and China Gas Co. Ltd. 17,321,073
554,417 Hong Kong and China Gas Co. Ltd. Warrants, Expire 9/30/99+ 57,259
610,398 HSBC Holdings PLC@ 13,987,302
3,000,000 Hutchison Whampoa Ltd. 21,494,965
2,479,000 Sun Hung Kai Properties Ltd. 17,281,951
- --------------------------------------------------------------------------------------------------------
70,142,550
- --------------------------------------------------------------------------------------------------------
India -- 0.0%
20,000 The India Magnum Fund, Class B Shares 560,000
- --------------------------------------------------------------------------------------------------------
Ireland -- 9.9%
2,223,883 Bank of Ireland 41,098,860
1,411,976 Grafton Group PLC 22,805,970
5,515,149 Independent Newspapers PLC 21,876,304
1,579,402 Irish Continental Group PLC 18,509,729
1,976,005 Irish Life PLC 17,516,722
- --------------------------------------------------------------------------------------------------------
121,807,585
- --------------------------------------------------------------------------------------------------------
Italy -- 4.5%
7,000,000 Istituto Nazionale delle Assicurazioni@ 19,356,020
6,350,000 Telecom Italia Mobile S.p.A.@ 36,896,474
- --------------------------------------------------------------------------------------------------------
56,252,494
- --------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
20 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (continued) October 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
Japan -- 9.6%
833,000 Canon, Inc. $ 15,762,164
96,500 Hosiden Corp. 1,584,180
472,000 Murata Manufacturing Co., Ltd. 15,918,304
5,000 NTT Data Corp.@ 21,153,351
67,000 Shohkoh Fund & Co., Ltd. 20,382,304
318,000 Sony Corp.@ 20,193,941
1,150,000 Terumo Corp.@ 24,178,323
- --------------------------------------------------------------------------------------------------------
119,172,567
- --------------------------------------------------------------------------------------------------------
Mexico -- 1.6%
14,932,000 Cifra SA de CV+ 19,500,250
- --------------------------------------------------------------------------------------------------------
Netherlands -- 6.7%
605,456 Getronics NV 25,123,328
427,218 Hunter Douglas NV 15,325,590
413,873 IHC Caland NV 18,724,778
1,500,000 ING Groep NV Warrants, Expire 3/15/01+ 18,552,230
38,900 Royal Dutch Petroleum Co. 1,878,663
61,100 Royal Dutch Petroleum Co., N.Y. Registered Shares 3,009,175
- --------------------------------------------------------------------------------------------------------
82,613,764
- --------------------------------------------------------------------------------------------------------
Norway -- 2.8%
750,000 Smedvig ASA, Class B Shares@ 6,510,946
1,000,000 Tomra Systems ASA@ 28,078,456
- --------------------------------------------------------------------------------------------------------
34,589,402
- --------------------------------------------------------------------------------------------------------
Panama -- 1.0%
600,000 Panamerican Beverages, Inc. 12,150,000
- --------------------------------------------------------------------------------------------------------
South Africa -- 3.1%
2,751,410 Dimension Data Holdings Ltd. 12,604,498
90,000 Investec Group Ltd. 3,336,898
622,400 Investec Holdings Ltd. 22,078,003
- --------------------------------------------------------------------------------------------------------
38,019,399
- --------------------------------------------------------------------------------------------------------
Spain -- 4.9%
325,000 Banco Popular Espanol SA@ 20,036,139
221,000 Superdiplo SA+ 5,708,227
763,636 Telefonica SA@ 34,415,568
- --------------------------------------------------------------------------------------------------------
60,159,934
- --------------------------------------------------------------------------------------------------------
Switzerland -- 6.0%
775,000 Mettler-Toledo International Inc.+ 16,953,125
18,866 Novartis AG, Registered Shares 33,992,792
2,000 Roche Holding AG 23,334,810
- --------------------------------------------------------------------------------------------------------
74,280,727
- --------------------------------------------------------------------------------------------------------
United Kingdom -- 19.4%
2,900,000 Capita Group PLC 29,261,287
900,000 Colt Telecom Group PLC+ 11,394,694
5,000,000 Compass Group PLC 50,492,363
2,000,000 Hays PLC 29,508,306
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 21
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (continued) October 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
United Kingdom -- 19.4% (continued)
4,530,275 Misys PLC $ 31,637,270
3,290,000 Racal Electronics PLC 14,931,504
7,000,000 Rentokil Initial PLC 43,169,714
1,640,000 Serco Group PLC 28,563,798
- --------------------------------------------------------------------------------------------------------
238,958,936
- --------------------------------------------------------------------------------------------------------
TOTAL STOCKS
(Cost -- $785,067,481) 1,122,494,882
========================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 9.1%
$111,750,000 CIBC Wood Gundy Securities Inc., 5.250% due 11/2/98;
Proceeds at maturity -- $111,798,891; (Fully collateralized
by U.S. Treasury Notes, 6.375% due 5/15/99;
Market value -- $116,084,783) (Cost -- $111,750,000) 111,750,000
========================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $896,817,481*) $1,234,244,882
========================================================================================================
</TABLE>
@ All or a portion of this security is on loan (See Note 9).
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
22 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (continued) October 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL BALANCED PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
STOCKS -- 11.6%
Australia -- 1.2%
100,000 Coca Cola Beverages PLC+ $ 203,181
- --------------------------------------------------------------------------------------------------------
Brazil -- 1.6%
15,000 Uniao de Banco Brasileiro S.A. GDR 262,500
- --------------------------------------------------------------------------------------------------------
Finland -- 2.9%
5,000 Nokia OY AB, Class A Shares 465,312
- --------------------------------------------------------------------------------------------------------
Ireland -- 0.0%
1 Bank of Ireland 9
4 CRH PLC 58
- --------------------------------------------------------------------------------------------------------
67
- --------------------------------------------------------------------------------------------------------
Japan -- 2.6%
100 NTT Data Corp. 423,067
- --------------------------------------------------------------------------------------------------------
Mexico -- 0.6%
80,800 Cifra SA de CV+ 105,519
- --------------------------------------------------------------------------------------------------------
United Kingdom -- 2.7%
25,000 Serco Group PLC 435,423
- --------------------------------------------------------------------------------------------------------
TOTAL STOCKS
(Cost -- $2,134,485) 1,895,069
========================================================================================================
<CAPTION>
FACE
AMOUNT++ SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
BONDS -- 73.7%
Australia -- 1.3%
300,000 Australian Government, 7.500% due 7/15/05 215,640
- --------------------------------------------------------------------------------------------------------
Canada -- 4.3%
1,000,000 Canadian Government, 6.000% due 6/1/08 691,919
- --------------------------------------------------------------------------------------------------------
Denmark -- 3.4%
3,000,000 Kingdom of Denmark, 7.000% due 11/15/07 555,772
- --------------------------------------------------------------------------------------------------------
France -- 8.3%
7,000,000 France O.A.T., 5.250% due 4/25/08 1,356,667
- --------------------------------------------------------------------------------------------------------
Germany -- 11.9%
3,100,000 Bundesobligation, 5.000% due 5/21/01# 1,945,509
- --------------------------------------------------------------------------------------------------------
Italy -- 13.1%
Buoni Poliennali del Tesoro:
2,480,000,000 6.000% due 2/15/00 1,557,105
830,000,000 6.750% due 2/1/07 585,825
- --------------------------------------------------------------------------------------------------------
2,142,930
- --------------------------------------------------------------------------------------------------------
Japan -- 11.9%
210,000,000 Japan Series 203, 1.800% due 6/20/08 1,947,901
- --------------------------------------------------------------------------------------------------------
United Kingdom -- 9.6%
800,000 United Kingdom Treasury, 7.250% due 12/7/07# 1,555,868
- --------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 23
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (continued) October 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL BALANCED PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT++ SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
U.S. Treasury Bond -- 9.9%
1,500,000 U.S. Treasury Bond, 5.625% due 5/15/08# $ 1,616,370
- --------------------------------------------------------------------------------------------------------
Venezuela -- 0.0%
7,140 Republic of Venezuela Warrants, Expire 4/15/20+ 0
- --------------------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost -- $10,909,121) 12,028,576
========================================================================================================
SUB-TOTAL INVESTMENTS
(Cost -- $13,043,606) 13,923,645
========================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 14.7%
$2,400,000 CIBC Wood Gundy Securities Inc., 5.250% due 11/2/98;
Proceeds at maturity -- 2,401,050; (Fully collateralized by
U.S. Treasury Notes, 6.375% due 5/15/99;
Market value -- $2,448,428) (Cost -- $2,400,000) 2,400,000
========================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $15,443,606*) $16,323,645
========================================================================================================
</TABLE>
+ Non-income producing security.
# Security is segregated by Custodian for open forward foreign currency
contracts.
++ Represents local currency.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
24 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Government International International
Bond Equity Balanced
Portfolio Portfolio Portfolio
=====================================================================================================
<S> <C> <C> <C>
ASSETS:
Investments -- Cost $130,287,982 $ 785,067,481 $13,043,606
Repurchase agreements -- Cost 3,310,000 111,750,000 2,400,000
Foreign currency -- Cost -- 5,646,065 44,434
=====================================================================================================
Investments, at value $137,780,021 $1,122,494,882 $13,923,645
Repurchase agreements, at value 3,310,000 111,750,000 2,400,000
Foreign currency, at value -- 5,671,449 44,472
Cash 47,315 -- 82,297
Collateral for securities on loan (Note 9) 14,064,000 137,421,441 --
Receivable for Fund shares sold 359,927 1,681,628 6,311
Receivable for securities sold 9,059,980 8,764,799 --
Dividends and interest receivable 4,216,259 934,301 259,737
Receivable for open forward foreign currency
contracts (Note 4) 19,767 806 21,003
- -----------------------------------------------------------------------------------------------------
Total Assets 168,857,269 1,388,719,306 16,737,465
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 9) 14,064,000 137,421,441 --
Payable for securities purchased 10,962,278 2,341,029 --
Dividends payable 407,649 -- --
Payable for open forward foreign currency
contracts (Note 4) 247,343 1,224 27,376
Payable to bank -- 20,663 --
Payable for Fund shares purchased 95,646 9,205,954 19,827
Management fees payable 88,052 772,971 11,063
Distribution fees payable 5,787 241,452 1,575
Accrued expenses 133,859 1,026,021 94,301
- -----------------------------------------------------------------------------------------------------
Total Liabilities 26,004,614 151,030,755 154,142
- -----------------------------------------------------------------------------------------------------
Total Net Assets $142,852,655 $1,237,688,551 $16,583,323
=====================================================================================================
NET ASSETS:
Par value of capital shares $ 12,075 $ 61,047 $ 1,113
Capital paid in excess of par value 136,454,404 924,648,720 9,280,946
Overdistributed net investment income (596,540) (11,347,580) --
Accumulated net realized gain (loss) from security
transactions and foreign currencies (376,351) (13,282,192) 6,418,036
Net unrealized appreciation of investments and
foreign currencies 7,359,067 337,608,556 883,228
- -----------------------------------------------------------------------------------------------------
Total Net Assets $142,852,655 $1,237,688,551 $16,583,323
=====================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 25
<PAGE>
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (continued) October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Government International International
Bond Equity Balanced
Portfolio Portfolio Portfolio
=======================================================================================================================
<S> <C> <C> <C>
Shares Outstanding:
Class A 7,478,636 22,221,902 647,495
------------------------------------------------------------------------------------------------------------------
Class B 1,227,045 9,012,838 268,176
------------------------------------------------------------------------------------------------------------------
Class L 201,636 7,708,961 197,483
------------------------------------------------------------------------------------------------------------------
Class Y 3,168,119 16,360,861 --
------------------------------------------------------------------------------------------------------------------
Class Z -- 5,743,214 --
------------------------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $11.88 $20.39 $14.89
------------------------------------------------------------------------------------------------------------------
Class B* $11.87 $20.08 $14.93
------------------------------------------------------------------------------------------------------------------
Class L** $11.86 $19.79 $14.89
------------------------------------------------------------------------------------------------------------------
Class Y (and redemption price) $11.70 $20.41 --
------------------------------------------------------------------------------------------------------------------
Class Z (and redemption price) -- $20.39 --
------------------------------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $12.44 -- --
------------------------------------------------------------------------------------------------------------------
Class A (net asset value plus 5.26% of net asset value per share) -- $21.46 $15.67
------------------------------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $11.98 $19.99 $15.04
=======================================================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC for
Global Government Bond Portfolio or by a 5.00% CDSC for the International
Equity and International Balanced Portfolios if shares are redeemed within
one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if
shares are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
26 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Operations For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Government International International
Bond Equity Balanced
Portfolio Portfolio Portfolio
=============================================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $8,194,693 $2,486,723 $1,076,074
Dividends -- 15,740,593 372,149
Less: Foreign withholding tax -- (1,556,154) (33,743)
- -------------------------------------------------------------------------------------------------------------
Total Investment Income 8,194,693 16,671,162 1,414,480
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 1,055,789 11,110,120 403,368
Distribution fees (Note 2) 371,124 4,986,948 97,182
Shareholder and system servicing fees 130,702 1,065,405 32,720
Custody 41,915 666,304 82,712
Registration fees 39,464 72,487 57,140
Audit and legal 31,727 63,936 34,814
Shareholder communications 22,617 106,181 18,826
Directors' fees 6,748 34,380 3,364
Other 6,056 21,053 10,714
- -------------------------------------------------------------------------------------------------------------
Total Expenses 1,706,142 18,126,814 740,840
- -------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 6,488,551 (1,455,652) 673,640
- -------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES (NOTES 3 AND 4):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) 1,051,586 64,399,255 7,408,455
Foreign currency transactions (4,184,991) (796,226) (399,336)
- -------------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) (3,133,405) 63,603,029 7,009,119
- -------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments and Foreign Currencies:
Beginning of year (293,729) 361,620,491 3,551,353
End of year 7,359,067 337,608,556 883,228
- -------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Unrealized Appreciation 7,652,796 (24,011,935) (2,668,125)
- -------------------------------------------------------------------------------------------------------------
Net Gain on Investments and Foreign Currencies 4,519,391 39,591,094 4,340,994
- -------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $11,007,942 $38,135,442 $5,014,634
=============================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 27
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Government International International
Bond Equity Balanced
Portfolio Portfolio Portfolio
=======================================================================================================
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 6,488,551 $ (1,455,652) $ 673,640
Net realized gain (loss) (3,133,405) 63,603,029 7,009,119
Increase (decrease) in net unrealized appreciation 7,652,796 (24,011,935) (2,668,125)
- -------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 11,007,942 38,135,442 5,014,634
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,571,347) (1,282,091) (274,304)
Net realized gains (7,063,325) -- (147,477)
Capital (5,311,989) -- --
- -------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (14,946,661) (1,282,091) (421,781)
- -------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 21,964,285 3,488,292,293 12,535,645
Net asset value of shares issued for
reinvestment of dividends 7,826,233 743,911 104,623
Cost of shares reacquired (28,999,827) (3,618,555,356) (62,556,734)
- -------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions 790,691 (129,519,152) (49,916,466)
- -------------------------------------------------------------------------------------------------------
Decrease in Net Assets (3,148,028) (92,665,801) (45,323,613)
NET ASSETS:
Beginning of year 146,000,683 1,330,354,352 61,906,936
- -------------------------------------------------------------------------------------------------------
End of year* $142,852,655 $ 1,237,688,551 $ 16,583,323
=======================================================================================================
* Includes overdistributed net investment income of: $ (596,540) $ (11,347,580) --
=======================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
28 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Year Ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Government International International
Bond Equity Balanced
Portfolio Portfolio Portfolio
============================================================================================================
<S> <C> <C> <C>
OPERATIONS:
Net investment gain (loss) $ 7,166,095 $ (4,446,616) $ 820,196
Net realized gain (loss) 7,628,774 6,344,807 (1,386,334)
Increase in net unrealized appreciation (depreciation) (3,023,160) 125,335,875 (491,304)
- ------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 11,771,709 127,234,066 (1,057,442)
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (14,761,484) (1,479,385) (584,276)
Net realized gains (895,628) -- --
Capital -- -- (771,507)
- ------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (15,657,112) (1,479,385) (1,355,783)
- ------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 48,612,809 1,530,238,808 27,220,805
Net asset value of shares issued
for reinvestment of dividends 8,530,565 1,110,321 442,806
Cost of shares reacquired (58,854,085) (1,602,262,084) (8,973,657)
- ------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Fund Share Transactions (1,710,711) (70,912,955) 18,689,954
- ------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (5,596,114) 54,841,726 16,276,729
NET ASSETS:
Beginning of year 151,596,797 1,275,512,626 45,630,207
- ------------------------------------------------------------------------------------------------------------
End of year* $146,000,683 $1,330,354,352 $ 61,906,936
============================================================================================================
* Includes overdistributed net investment income of: $ (38,960) $ (13,763,580) --
============================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 29
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Global Government Bond, International Equity and International Balanced
Portfolios ("Portfolios") are separate investment portfolios of the Smith Barney
World Funds, Inc. ("Fund"). The Fund, a Maryland corporation, is registered
under the Investment Company Act of 1940, as amended, as an open-end investment
management company and consists of these Portfolios and three other separate
investment portfolios: Emerging Markets, European and Pacific Portfolios. The
financial statements and financial highlights for the other portfolios are
presented in a separate annual report.
The significant accounting policies consistently followed by the Portfolios are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing prices on the primary
exchange on which they are traded; securities listed or traded on certain
foreign exchanges or other markets whose operations are similar to the U.S.
over-the-counter market (including securities listed on exchanges where the
primary market is believed to be over-the-counter) and securities for which no
sales price was reported on that date are valued at the mean between the bid and
ask prices. Securities which are listed or traded on more than one exchange or
market are valued at the quotations on the exchange or market determined to be
the primary market for such securities; (c) securities maturing within 60 days
are valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (d) gains or losses on the sale of securities are calculated
by using the specific identification method; (e) interest income, adjusted for
amortization of premium and accretion of discount, is recorded on an accrual
basis; (f) dividend income is recorded on the ex-dividend date; foreign dividend
income is recorded on the ex-dividend date or as soon as practical after the
Portfolio determines the existence of a dividend declaration after exercising
reasonable due diligence; (g) direct expenses are charged to each Portfolio and
each class; management fees and general Fund expenses are allocated on the basis
of relative net assets; (h) dividends and distributions to shareholders are
recorded on the ex-dividend date; (i) the accounting records of each Portfolio
are maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars on the date of valuation.
Purchases and sales of securities, and income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income or expense amounts recorded and collected
or paid are adjusted when reported by the custodian; (j) the character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
October 31, 1998, reclassifications were made to the capital accounts of the
Portfolios to reflect permanent book/tax differences and income and gains
available for distributions under tax regulations. Accordingly, for the
International Equity Portfolio, a portion of overdistributed net investment
income amounting to $2,254,604 was reclassified to paid-in capital. Net
investment income, net realized gains and net assets were not affected by these
changes; (k) each Portfolio intends to comply with the applicable provisions of
the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve each Portfolio from substantially all Federal income and excise taxes;
and (l) estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ.
- --------------------------------------------------------------------------------
30 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
In addition, the Portfolios may enter into forward exchange contracts in order
to hedge against foreign currency risk. These contracts are marked to market
daily by recognizing the difference between the contract exchange rate and the
current market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
2. Management Agreement and Other Transactions
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney Holdings
Inc. ("SSBH"), acts as investment manager of the Fund. The Global Government
Bond Portfolio pays MMC a management fee calculated at an annual rate of 0.75%
of the average daily net assets of the portfolio. The International Equity and
International Balanced Portfolios pay MMC a management fee calculated at an
annual rate of 0.85% of the average daily net assets of each respective
portfolio. These fees are calculated daily and paid monthly.
On October 8, 1998, CFBDS, Inc. became the Fund's distributor. Prior to that
date Salomon Smith Barney Inc. ("SSB"), another subsidiary of SSBH, was the
Fund's distributor. SSB (as well as certain other broker-dealers) continues to
sell Fund shares to the public as members of the selling group.
SSB acts as the primary broker for its portfolio agency transactions. For the
year ended October 31, 1998, SSB received total brokerage commissions of
$179,141 from the International Equity and International Balanced Portfolios.
On June 12, 1998, the Portfolio's existing Class C shares were renamed Class L
shares. Effective June 15, 1998, Class L shares are being sold at net asset
value plus a maximum initial sales charge of 1.00%. Class L shares also have a
1.00% contingent deferred sales charge ("CDSC"), which applies if redemption
occurs within the first year of purchase.
For the Global Government Portfolio, there is a contingent deferred sales charge
("CDSC") of 4.50% on Class B shares, which applies if redemption occurs within
one year from purchase. This CDSC declines by 0.50% the first year after
purchase and thereafter by 1.00% per year until no CDSC is incurred. For the
International Equity and International Balanced Portfolios, there is a CDSC of
5.00% on Class B shares, which applies if redemption occurs within one year from
purchase. Thereafter this CDSC declines by 1.00% per year until no CDSC is
incurred. Class L shares for each Portfolio have a 1.00% CDSC, which applies if
redemption occurs within the first year of purchase. In addition, Class A shares
for each Portfolio have a 1.00% CDSC, which applies if redemption occurs within
the first year of purchase. This CDSC only applies to those purchases of Class A
shares that equal or exceed $500,000 in the aggregate. These purchases do not
incur an initial sales charge.
For the year ended October 31, 1998, SSB received sales charges of $538,000 and
$26,000 on sales of the Fund's Class A and L shares, respectively. In addition,
CDSCs paid to SSB were approximately:
Portfolio Class A Class B Class L
================================================================================
Global Government Bond -- $ 16,000 --
- --------------------------------------------------------------------------------
International Equity $5,000 568,000 $11,000
- --------------------------------------------------------------------------------
International Balanced -- 14,000 --
================================================================================
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 31
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Pursuant to a Distribution Plan, the Portfolios pay a service fee with respect
to Class A, B and L shares calculated at an annual rate of 0.25% of the average
daily net assets of each respective class's shares. The Global Government Bond
Portfolio pays a distribution fee with respect to Class B and L shares
calculated at the annual rates of 0.50% and 0.45% of the average daily net
assets of each class, respectively. The International Equity and International
Balanced Portfolios pay a distribution fee with respect to Class B and L shares
calculated at an annual rate of 0.75% of the average daily net assets for each
respective Portfolio and class. For the year ended October 31, 1998, total
Distribution Plan fees incurred by the Portfolios were:
<TABLE>
<CAPTION>
Portfolio Class A Class B Class L
====================================================================================
<S> <C> <C> <C>
Global Government Bond $222,926 $127,964 $20,234
- ------------------------------------------------------------------------------------
International Equity 1,108,230 2,106,818 1,771,900
- ------------------------------------------------------------------------------------
International Balanced 24,416 41,008 31,758
====================================================================================
</TABLE>
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the year ended October 31, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
====================================================================================
<S> <C> <C>
Global Government Bond $371,225,833 $365,228,697
- ------------------------------------------------------------------------------------
International Equity 325,867,263 525,283,714
- ------------------------------------------------------------------------------------
International Balanced 56,643,762 102,447,963
====================================================================================
</TABLE>
At October 31, 1998, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
<TABLE>
<CAPTION>
Net Unrealized
Portfolio Appreciation Depreciation Appreciation
====================================================================================
<S> <C> <C> <C>
Global Government Bond $ 7,886,799 $ (394,760) $ 7,492,039
- ------------------------------------------------------------------------------------
International Equity 407,180,589 (69,753,188) 337,427,401
- ------------------------------------------------------------------------------------
International Balanced 1,431,819 (551,780) 880,039
====================================================================================
</TABLE>
- --------------------------------------------------------------------------------
32 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
4. Forward Foreign Currency Contracts
At October 31, 1998, the Portfolios had open forward foreign currency contracts
as described below. The Portfolios bear the market risk that arises from changes
in foreign currency exchange rates. The unrealized gain (loss) on the contracts
reflected in the accompanying financial statements were as follows:
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
=====================================================================================================
<S> <C> <C> <C> <C>
Global Government Bond Portfolio
To Sell:
Australian Dollars 2,950,000 $ 1,836,411 11/25/98 $ (20,272)
Canadian Dollars 5,180,000 3,348,331 11/25/98 15,107
Danish Krone 20,509,000 3,257,718 11/3/98 4,660
Danish Krone 115,200,000 18,306,238 11/25/98 (56,964)
French Franc 66,500,000 11,982,025 11/25/98 (18,151)
German Mark 44,500,000 26,902,874 11/25/98 (57,804)
British Pound 12,250,000 20,485,509 11/25/98 (89,260)
- -----------------------------------------------------------------------------------------------------
(222,684)
- -----------------------------------------------------------------------------------------------------
To Buy:
Danish Krone 20,500,000 3,257,620 11/25/98 (4,892)
- -----------------------------------------------------------------------------------------------------
Net Unrealized Loss on
Forward Foreign Currency Contracts $(227,576)
=====================================================================================================
International Equity Portfolio
To Buy:
Mexican Peso 4,863,952 $ 480,485 11/3/98 $ 806
Mexican Peso 2,905,326 287,002 11/4/98 (1,224)
- -----------------------------------------------------------------------------------------------------
Net Unrealized Loss on
Forward Foreign Currency Contracts $ (418)
=====================================================================================================
International Balanced Portfolio
To Sell:
Danish Krone 8,700,000 $ 1,382,475 11/24/98 $ 12,873
Italian Lira 870,000,000 531,078 11/24/98 5,405
- -----------------------------------------------------------------------------------------------------
18,278
- -----------------------------------------------------------------------------------------------------
To Buy:
Danish Krone 4,650,000 738,909 11/24/98 996
German Deutschemark 3,600,000 2,176,305 11/24/98 (21,496)
German Deutschemark 1,680,000 1,015,609 11/24/98 1,729
Japanese Yen 230,000,000 1,980,788 11/24/98 (5,773)
Swedish Krona 2,400,000 307,269 11/24/98 (107)
- -----------------------------------------------------------------------------------------------------
(24,651)
- -----------------------------------------------------------------------------------------------------
Net Unrealized Loss on
Forward Foreign Currency Contracts $ (6,373)
=====================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 33
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
5. Option Contracts
Premiums paid when put or call options are purchased by the Portfolios represent
investments, which are marked-to-market daily. When a purchased option expires,
the Portfolio will realize a loss in the amount of the premium paid. When the
Portfolio enters into a closing sales transaction, the Portfolio will realize a
gain or loss depending on whether the proceeds from the closing sales
transaction are greater or less than the premium paid for the option. When the
Portfolio exercises a put option, it will realize a gain or loss from the sale
of the underlying security and the proceeds from such sale will be decreased by
the amount of the premium originally paid. When the Portfolio exercises a call
option, the cost of the security that the Portfolio purchases upon exercise will
be increased by the premium originally paid.
At October 31, 1998, the Portfolios had no open purchased call or put options.
When a Portfolio writes a call or put option, an amount equal to the premium
received by the Portfolio is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Portfolio realizes a
gain. When the Portfolio enters into a closing purchase transaction, the
Portfolio realizes a gain or loss depending upon whether the cost of the closing
transaction is greater or less than the premium originally received, without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is eliminated. When a written call option is
exercised the cost of the security sold will be decreased by the premium
originally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Portfolio purchased upon exercise. When written index options are exercised,
settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Portfolio enters into options for hedging purposes. The risk in
writing a call option is that the Portfolio gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Portfolio is
exposed to the risk of loss if the market price of the underlying security
declines.
During the year ended October 31, 1998, the Portfolios did not write any
options.
6. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. Securities equal to the initial margin amount are segregated by the
custodian in the name of the broker. Additional securities are also segregated
up to the current market value of the futures contract. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking-to-market" on a daily basis to reflect
the market value of the contract at the end of each day's trading. Variation
margin payments are received or made and recognized as assets due from or
liabilities due to broker, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Portfolio records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the closing
transactions and the Portfolio's basis in the contract.
The Portfolio enters into such contracts to hedge a portion of its portfolio.
The Portfolio bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At October 31, 1998, the Portfolios had no open futures contracts.
- --------------------------------------------------------------------------------
34 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
7. Concentration of Risk
The Portfolios' investments in foreign securities may involve risks not present
in domestic investments. Since securities may be denominated in a foreign
currency and may require settlement in foreign currencies and pay interest or
dividends in foreign currencies, changes in the relationship of these foreign
currencies to the U.S. dollar can significantly affect the value of the
investments and earnings of each of the Portfolios. Foreign investments may also
subject the Portfolios to foreign government exchange restrictions,
expropriation, taxation or other political, social or economic developments, all
of which could affect the market and/or credit risk of the investments.
In addition to the risks described above, risks may arise from forward foreign
currency contracts with respect to the potential inability of counterparties to
meet the terms of their contracts.
8. Capital Loss Carryforwards
At October 31, 1998, the International Equity Portfolio had, for Federal income
tax purposes, approximately $12,705,000 of capital loss carryforwards available
to offset future realized gains before expiration in 2003. To the extent that
these carryforward losses are used to offset gains, it is probable that the
gains so offset will not be distributed.
9. Lending of Portfolio Securities
The Portfolio has an agreement with their custodian whereby the custodian may
lend securities owned by the Portfolio to brokers, dealers, and other financial
organizations. Fees earned by the Portfolios on securities lending are recorded
as interest income. Loans of securities by the Portfolio are collateralized by
cash, U.S. government securities, high quality money market instruments or other
securities that are maintained at all times in an amount at least equal to the
current market value of the loaned securities, plus a margin which may vary
depending on the type of securities loaned. The Custodian establishes and
maintains the collateral in segregated accounts.
The Portfolios maintain exposure for the risk of any loss in the investment of
amounts received as collateral.
At October 31, 1998, the Portfolios listed below had loaned common stocks and
bonds which were collateralized by cash. In addition, the International Equity
Portfolio had loaned common stocks collateralized by securities. The market
value for the securities on loan for each portfolio was as follows:
Portfolio Value
================================================================================
Global Government Bond Portfolio $ 13,448,983
- --------------------------------------------------------------------------------
International Equity Portfolio 151,085,197
================================================================================
At October 31, 1998, the cash collateral received for these securities on loan
was invested as follows:
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 35
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Global Government Bond Portfolio
Security Description Value
================================================================================
Time Deposit:
Banque Bruxelles Lambert London, 5.563% due 11/2/98 $ 704,687
Banca Commerciale Italiano London, 5.594% due 11/2/98 704,687
Bank of Austria, 5.563% due 11/2/98 704,687
Deutsche Bank London, 5.500% due 11/2/98 704,687
Rabobank, London, 5.594% due 11/2/98 704,687
Generale Bank, 5.563% due 11/2/98 704,687
Den Norske Bank, 5.563% due 11/2/98 704,687
Credit Commerciale London, 5.625% due 11/2/98 704,687
Credit Local de France, 5.625% due 11/2/98 704,687
Dresdner Bank, 5.625% due 11/2/98 704,687
Bayerische Landesbank, London, 5.625% due 11/2/98 704,687
Citibank London, 5.781% due 11/2/98 704,687
Landesbank Hessen Thuringen, 5.750% due 11/2/98 704,687
Credit Communal De Belgique, G.C., 5.375% due 11/2/98 36,308
Commercial Paper:
General Electric Credit Corp., 5.693% due 11/2/98 704,353
Ford Motor Credit Corp., 5.692% due 11/2/98 704,353
Trident Capital Finance Inc., 5.803% due 11/2/98 704,347
New Center Asset Trust, 5.723% due 11/2/98 704,351
Associate Corp. of North America, 5.723% due 11/2/98 704,351
Goldman Sachs Group LP, 5.753% due 11/2/98 640,318
Loan Participation:
J & H Marsh & McLennan Inc., 5.850% due 11/2/98 704,688
- --------------------------------------------------------------------------------
Total $ 14,064,000
================================================================================
International Equity Portfolio
Security Description Value
================================================================================
Time Deposit:
Banque Bruxelles Lambert London, 5.563% due 11/2/98 $ 6,885,604
Banca Commerciale Italiano London, 5.594% due 11/2/98 6,885,603
Bank of Austria, 5.563% due 11/2/98 6,885,604
Deutsche Bank London, 5.500% due 11/2/98 6,885,603
Rabobank, London, 5.594% due 11/2/98 6,885,604
Generale Bank, 5.563% due 11/2/98 6,885,603
Den Norske Bank, 5.563% due 11/2/98 6,885,604
Credit Commerciale London, 5.625% due 11/2/98 6,885,603
Credit Local de France, 5.625% due 11/2/98 6,885,604
Dresdner Bank, 5.625% due 11/2/98 6,885,603
Bayerische Landesbank, London, 5.625% due 11/2/98 6,885,604
Citibank London, 5.781% due 11/2/98 6,885,603
Landesbank Hessen Thuringen, 5.750% due 11/2/98 6,885,603
Credit Communal De Belgique, G.C., 5.375% due 11/2/98 354,758
Commercial Paper:
General Electric Credit Corp., 5.693% due 11/2/98 6,882,339
Ford Motor Credit Corp., 5.693% due 11/2/98 6,882,339
Trident Capital Finance Inc., 5.803% due 11/2/98 6,882,275
New Center Asset Trust, 5.723% due 11/2/98 6,882,321
Associate Corp. of North America, 5.723% due 11/2/98 6,882,321
Goldman Sachs Group LP, 5.753% due 11/2/98 6,256,640
Loan Participation:
J & H Marsh & McLennan Inc., 5.850% due 11/2/98 6,885,603
- --------------------------------------------------------------------------------
Total $137,421,441
================================================================================
- --------------------------------------------------------------------------------
36 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
In addition to the above noted cash collateral, the International Equity
Portfolio held securities collateral with a market value of $18,015,577 as of
October 31, 1998.
Interest income earned by the Portfolios from securities loaned for the year
ended October 31, 1998 was as follows:
================================================================================
Global Government Bond Portfolio $ 30,137
- --------------------------------------------------------------------------------
International Equity Portfolio 424,601
- --------------------------------------------------------------------------------
International Balanced Portfolio 13,955
================================================================================
10. Capital Shares
At October 31, 1998, the Fund had one billion shares of capital stock authorized
with a par value of $0.001 per share. The Portfolios have the ability to issue
multiple classes of shares. Each share of a class represents an identical legal
interest in a Portfolio and has the same rights, except that each class bears
certain expenses specifically related to the distribution of its shares.
Effective June 12, 1998, the Fund adopted the renaming of existing Class C
shares as Class L shares.
At October 31, 1998, total paid-in capital amounted to the following for each
Portfolio:
<TABLE>
<CAPTION>
Portfolio Class A Class B Class L Class Y Class Z
================================================================================================
<S> <C> <C> <C> <C> <C>
Global Government Bond $ 84,004,136 $ 12,899,245 $ 2,643,850 $ 36,919,248 --
- ------------------------------------------------------------------------------------------------
International Equity 256,891,346 144,384,397 123,161,006 303,277,888 $96,995,130
- ------------------------------------------------------------------------------------------------
International Balanced 4,077,345 3,146,229 2,058,485 -- --
================================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
--------------------------- ---------------------------
Shares Amount Shares Amount
============================================================================================
<S> <C> <C> <C> <C>
Global Government Bond Portfolio
Class A
Shares sold 854,433 $ 10,070,134 265,104 $ 3,204,232
Shares issued on reinvestment 525,036 6,212,574 541,805 6,590,007
Shares redeemed (1,669,632) (19,842,022) (1,524,120) (18,624,678)
- --------------------------------------------------------------------------------------------
Net Decrease (290,163) $ (3,559,314) (717,211) $ (8,830,439)
============================================================================================
Class B
Shares sold 59,689 $ 711,346 64,923 $793,716
Shares issued on reinvestment 114,717 1,356,444 135,302 1,645,186
Shares redeemed (558,703) (6,632,006) (666,502) (8,130,886)
- --------------------------------------------------------------------------------------------
Net Decrease (384,297) $ (4,564,216) (466,277) $ (5,691,984)
============================================================================================
Class L+
Shares sold 9,865 $ 116,532 10,626 $129,906
Shares issued on reinvestment 21,786 257,215 24,330 295,171
Shares redeemed (97,100) (1,146,636) (87,408) (1,058,665)
- --------------------------------------------------------------------------------------------
Net Decrease (65,449) $ (772,889) (52,452) $ (633,588)
============================================================================================
Class Y
Shares sold 946,492 $ 11,066,273 3,699,552 $ 44,484,955
Shares issued on reinvestment -- -- 16 201
Shares redeemed (113,418) (1,379,163) (2,583,197) (31,039,856)
- --------------------------------------------------------------------------------------------
Net Increase 833,074 $ 9,687,110 1,116,371 $ 13,445,300
============================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 37
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
------------------------------- -------------------------------
Shares Amount Shares Amount
=====================================================================================================
<S> <C> <C> <C> <C>
International Equity Portfolio
Class A
Shares sold 145,287,524 $ 3,124,384,638 57,094,304 $ 1,163,554,103
Shares issued on reinvestment -- -- 17,813 341,833
Shares redeemed (145,894,274) (3,167,710,830) (61,845,885) (1,267,607,993)
- -----------------------------------------------------------------------------------------------------
Net Decrease (606,750) $ (43,326,192) (4,733,768) $ (103,712,057)
=====================================================================================================
Class B
Shares sold 8,282,267 $ 175,524,703 9,244,231 $ 186,954,945
Shares issued on reinvestment -- -- -- --
Shares redeemed (10,699,379) (225,481,466) (9,196,821) (187,319,844)
- -----------------------------------------------------------------------------------------------------
Net Increase (Decrease) (2,417,112) $ (49,956,763) 47,410 $ (364,899)
=====================================================================================================
Class L+
Shares sold 3,611,918 $ 76,814,423 2,741,869 $ 54,441,240
Shares issued on reinvestment -- -- -- --
Shares redeemed (5,982,110) (124,971,412) (5,148,932) (102,729,446)
- -----------------------------------------------------------------------------------------------------
Net Decrease (2,370,192) $ (48,156,989) (2,407,063) $ (48,288,206)
=====================================================================================================
Class Y
Shares sold 4,632,642 $ 99,224,433 5,446,442 $ 109,870,065
Shares issued on reinvestment 19,405 381,500 19,699 377,231
Shares redeemed (3,102,340) (72,862,759) (1,408,249) (29,325,663)
- -----------------------------------------------------------------------------------------------------
Net Increase 1,549,707 $ 26,743,174 4,057,892 $ 80,921,633
=====================================================================================================
Class Z
Shares sold 579,525 $ 12,344,096 773,118 $ 15,418,455
Shares issued on reinvestment 18,443 362,411 20,453 391,257
Shares redeemed (1,323,023) (27,528,889) (737,233) (15,279,138)
- -----------------------------------------------------------------------------------------------------
Net Increase (Decrease) (725,055) $ (14,822,382) 56,338 $ 530,574
=====================================================================================================
International Balanced Portfolio
Class A
Shares sold 90,635 $ 1,264,311 61,050 $ 843,398
Shares issued on reinvestment 6,185 83,320 23,664 326,084
Shares redeemed (280,571) (6,136,725) (412,944) (5,716,189)
- -----------------------------------------------------------------------------------------------------
Net Decrease (183,751) $ (4,789,094) (328,230) $ (4,546,707)
=====================================================================================================
Class B
Shares sold 30,146 $ 415,822 105,395 $ 1,461,573
Shares issued on reinvestment 876 11,818 4,766 65,979
Shares redeemed (122,702) (1,654,968) (128,598) (1,788,817)
- -----------------------------------------------------------------------------------------------------
Net Decrease (91,680) $ (1,227,328) (18,437) $ (261,265)
=====================================================================================================
Class L+
Shares sold 5,081 $ 68,946 24,414 $ 338,448
Shares issued on reinvestment 704 9,485 3,674 50,743
Shares redeemed (81,145) (1,099,592) (106,214) (1,468,651)
- -----------------------------------------------------------------------------------------------------
Net Decrease (75,360) $ (1,021,161) (78,126) $ (1,079,460)
=====================================================================================================
Class Y++
Shares sold 830,192 $ 10,786,566 1,782,664 $ 24,577,386
Shares issued on reinvestment -- -- -- --
Shares redeemed (4,004,817) (53,665,449) -- --
- -----------------------------------------------------------------------------------------------------
Net Increase (Decrease) (3,174,625) $ (42,878,883) 1,782,664 $ 24,577,386
=====================================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed Class L shares.
++ On July 30, 1998, all Class Y shares were redeemed from the International
Balanced Portfolio.
- --------------------------------------------------------------------------------
38 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class A Shares
--------------------------------------------------------------
Global Government Bond Portfolio 1998(1) 1997(1) 1996(1) 1995 1994(2)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.22 $12.55 $12.30 $11.68 $12.92
- ---------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.54 0.59 0.70 0.92* 0.69
Net realized and unrealized gain (loss) 0.39 0.38 0.42 0.48 (1.28)
- ---------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.93 0.97 1.12 1.40 (0.59)
- ---------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income(3) (0.22) (1.22) (0.87) (0.78) (0.23)
Net realized gains (0.60) (0.08) -- -- --
Capital (0.45) -- -- -- (0.42)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions (1.27) (1.30) (0.87) (0.78) (0.65)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.88 $12.22 $12.55 $12.30 $11.68
- ---------------------------------------------------------------------------------------------------------------
Total Return 8.08% 8.21% 9.41% 12.40% (4.64)%++
- ---------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $88,836 $94,957 $106,536 $123,917 $77,961
- ---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 1.22% 1.26% 1.26% 1.38% 1.32%+
Net investment income 4.58 4.82 5.69 7.44 6.57+
- ---------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 287% 367% 133% 195% 179%
===============================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) For the period from January 1, 1994 to October 31, 1994.
(3) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(4) During the years ended October 31, 1996 and October 31, 1995, the
Portfolio had earned credits from the custodian which reduced service fees
incurred. If the credits are taken into consideration, the expense ratios
for Class A would have been 1.24% and 1.32%, respectively; numbers prior
to October 31, 1995 have not been restated to reflect these credits.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 39
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class B Shares
----------------------------------------------
Global Government Bond Portfolio 1998(1) 1997(1) 1996(1) 1995(2)
=====================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.22 $12.50 $12.26 $11.57
- -------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.47 0.52 0.63 0.78*
Net realized and unrealized gain 0.39 0.38 0.42 0.57
- -------------------------------------------------------------------------------------
Total Income From Operations 0.86 0.90 1.05 1.35
- -------------------------------------------------------------------------------------
Less Distributions From:
Net investment income(3) (0.19) (1.10) (0.81) (0.66)
Net realized gains (0.60) (0.08) -- --
Capital (0.42) -- -- --
- -------------------------------------------------------------------------------------
Total Distributions (1.21) (1.18) (0.81) (0.66)
- -------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.87 $12.22 $12.50 $12.26
- -------------------------------------------------------------------------------------
Total Return 7.46% 7.62% 8.83% 11.97%++
- -------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $14,569 $19,690 $25,970 $35,159
- -------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 1.77% 1.80% 1.81% 1.92%+
Net investment income 3.93 4.24 5.15 6.65+
- -------------------------------------------------------------------------------------
Portfolio Turnover Rate 287% 367% 133% 195%
=====================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) For the period from November 18, 1994 (inception date) to October 31,
1995.
(3) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(4) During the year ended October 31, 1996 and the period ended October 31,
1995, the Portfolio had earned credits from the custodian which reduced
service fees incurred. If the credits are taken into consideration, the
expense ratios for Class B would have been 1.78% and 1.86% (annualized),
respectively; numbers prior to October 31, 1995 have not been restated to
reflect these credits.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
40 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class L Shares(1)
--------------------------------------------------------------
Global Government Bond Portfolio 1998(2) 1997(2) 1996(2) 1995(3) 1994(4)
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.19 $12.47 $12.23 $11.68 $12.93
- -----------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.48 0.53 0.64 0.85* 0.90
Net realized and unrealized gain (loss) 0.40 0.38 0.41 0.42 (1.55)
- -----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.88 0.91 1.05 1.27 (0.65)
- -----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income(5) (0.19) (1.11) (0.81) (0.72) (0.21)
Net realized gains (0.60) (0.08) -- -- --
Capital (0.42) -- -- -- (0.39)
- -----------------------------------------------------------------------------------------------------------
Total Distributions (1.21) (1.19) (0.81) (0.72) (0.60)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.86 $12.19 $12.47 $12.23 $11.68
- -----------------------------------------------------------------------------------------------------------
Total Return 7.67% 7.73% 8.90% 11.25% (5.09)%++
- -----------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $2,391 $3,257 $3,986 $4,141 $5,835
- -----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(6) 1.68% 1.69% 1.74% 1.84% 1.80%+
Net investment income 4.01 4.33 5.22 7.15 6.05+
- -----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 287% 367% 133% 195% 179%
===========================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(3) On November 7, 1994, Class B shares were renamed Class C shares.
(4) For the period from January 1, 1994 to October 31, 1994.
(5) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(6) During the years ended October 31, 1996 and October 31, 1995, the
Portfolio had earned credits from the custodian which reduced service fees
incurred. If the credits are taken into consideration, the expense ratios
for Class L would have been 1.71% and 1.78%, respectively; numbers prior
to October 31, 1995 have not been restated to reflect these credits.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 41
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class Y Shares
---------------------------------------------------------------
Global Government Bond Portfolio 1998(1) 1997(1) 1996(1) 1995(2) 1994(3)
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.03 $12.39 $12.14 $11.68 $12.93
- -----------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.59 0.63 0.73 0.78* 0.76
Net realized and unrealized gain (loss) 0.37 0.37 0.42 0.49 (1.35)
- -----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.96 1.00 1.15 1.27 (0.59)
- -----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income(4) (0.23) (1.28) (0.90) (0.81) (0.23)
Net realized gains (0.60) (0.08) -- -- --
Capital (0.46) -- -- -- (0.43)
- -----------------------------------------------------------------------------------------------------------
Total Distributions (1.29) (1.36) (0.90) (0.81) (0.66)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.70 $12.03 $12.39 $12.14 $11.68
- -----------------------------------------------------------------------------------------------------------
Total Return 8.50% 8.61% 9.82% 11.27% (4.62)%++
- -----------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $37,057 $28,097 $15,105 $62 $3,202
- -----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(5) 0.83% 0.89% 0.84% 0.98% 1.23%+
Net investment income 5.06 5.19 6.12 6.38 6.76+
- -----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 287% 367% 133% 195% 179%
===========================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) On November 7, 1994 Class C shares were renamed Class Y shares.
(3) For the period from January 1, 1994 to October 31, 1994.
(4) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(5) During the years ended October 31, 1996 and October 31, 1995, the
Portfolio had earned credits from the custodian which reduced service fees
incurred. If the credits are taken into consideration, the expense ratios
for Class Y would have been 0.81% and 0.93%, respectively; numbers prior
to October 31, 1995 have not been restated to reflect these credits.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
42 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class A Shares
--------------------------------------------------------------------
International Equity Portfolio 1998(1) 1997(1) 1996(1) 1995 1994(2)(3)
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $20.36 $18.64 $17.15 $18.79 $18.71
- -----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) -- (0.04) 0.01 0.08* (0.01)
Net realized and unrealized gain (loss) 0.03 1.77 1.65 (1.50) 0.09
- -----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.03 1.73 1.66 (1.42) 0.08
- -----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income(4) -- (0.01) (0.17) (0.12) --
Net realized gains -- -- -- (0.10) --
- -----------------------------------------------------------------------------------------------------------------
Total Distributions -- (0.01) (0.17) (0.22) --
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $20.39 $20.36 $18.64 $17.15 $18.79
- -----------------------------------------------------------------------------------------------------------------
Total Return 0.15% 9.30% 9.78% (7.44)% 0.43%++
- -----------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $453,029 $464,796 $513,870 $489,533 $591,598
- -----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(5) 1.28% 1.31% 1.35% 1.36% 1.35%+
Net investment income (loss) 0.00 (0.18) 0.17 0.50 (0.05)+
- -----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 25% 35% 46% 42% 35%
=================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) For the period from January 1, 1994 to October 31, 1994.
(3) On October 10, 1994, Class C shares were exchanged into Class A shares;
therefore Class C share activity for the period from January 1, 1994 to
October 10, 1994 is included with Class A share activity.
(4) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(5) During the years ended October 31, 1996 and October 31, 1995, the
Portfolio had earned credits from the custodian which reduced service fees
incurred. If the credits are taken into consideration, the expense ratios
for Class A would have been 1.29% and 1.28%, respectively; numbers prior
to October 31, 1995 have not been restated to reflect these credits.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 43
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class B Shares
---------------------------------------------------------
International Equity Portfolio 1998(1) 1997(1) 1996(1) 1995(2)
======================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $20.22 $18.65 $17.17 $18.38
- ------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.18) (0.20) (0.08) 0.06*
Net realized and unrealized gain (loss) 0.04 1.77 1.60 (1.17)
- ------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.14) 1.57 1.52 (1.11)
- ------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income(3) -- -- (0.04) --
Net realized gains -- -- -- (0.10)
- ------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.04) (0.10)
- ------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $20.08 $20.22 $18.65 $17.17
- ------------------------------------------------------------------------------------------------------
Total Return (0.69)% 8.42% 8.89% (6.00)%++
- ------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $180,980 $231,148 $212,294 $126,171
- ------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 2.09% 2.11% 2.11% 2.13%+
Net investment income (loss) (0.84) (0.95) (0.58) 0.34+
- ------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 25% 35% 46% 42%
======================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) For the period from November 7, 1994 (inception date) to October 31, 1995.
(3) Distributions from net investment income included short-term capital
gains, if any, for Federal income tax purposes.
(4) During the year ended October 31, 1996 and the period ended October 31,
1995, the Portfolio had earned credits from the custodian which reduced
service fees incurred. If the credits are taken into consideration, the
expense ratios for Class B would have been 2.04% and 2.04% (annualized),
respectively.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
44 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class L Shares(1)
------------------------------------------------------------------------
International Equity Portfolio 1998(2) 1997(2) 1996(2) 1995(3) 1994(4)
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $19.93 $18.38 $16.93 $18.54 $18.58
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.17) (0.22) (0.13) (0.06)* (0.11)
Net realized and unrealized gain (loss) 0.03 1.77 1.62 (1.45) 0.07
- ---------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.14) 1.55 1.49 (1.51) (0.04)
- ---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income(5) -- -- (0.04) -- --
Net realized gains -- -- -- (0.10) --
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.04) (0.10) --
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $19.79 $19.93 $18.38 $16.93 $18.54
- ---------------------------------------------------------------------------------------------------------------------
Total Return (0.70)% 8.43% 8.85% (8.11)% (0.22)%++
- ---------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $152,569 $200,849 $229,514 $240,090 $287,458
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(6) 2.07% 2.12% 2.15% 2.16% 2.10%+
Net investment loss (0.81) (0.97) (0.63) (0.34) (0.77)+
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 25% 35% 46% 42% 35%
=====================================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(3) On November 7, 1994, Class B shares were renamed Class C shares.
(4) For the period from January 1, 1994 to October 31, 1994.
(5) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(6) During the years ended October 31, 1996 and October 31, 1995, the
Portfolio had earned credits from the custodian which reduced service fees
incurred. If the credits are taken into consideration, the expense ratios
for Class L would have been 2.09% and 2.08%, respectively; numbers prior
to October 31, 1995 have not been restated to reflect these credits.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 45
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class Y Shares
-----------------------------------------------------------------------
International Equity Portfolio 1998(1) 1997(1) 1996(1) 1995(2) 1994(3)
====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $20.38 $18.64 $17.13 $18.80 $17.64
- --------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.08 0.04 0.18 0.10* 0.01
Net realized and unrealized gain (loss) 0.01 1.76 1.54 (1.50) 1.15
- --------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.09 1.80 1.72 (1.40) 1.16
- --------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income(4) (0.06) (0.06) (0.21) (0.17) --
Net realized gains -- -- -- (0.10) --
- --------------------------------------------------------------------------------------------------------------------
Total Distributions (0.06) (0.06) (0.21) (0.27) --
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $20.41 $20.38 $18.64 $17.13 $18.80
- --------------------------------------------------------------------------------------------------------------------
Total Return 0.45% 9.68% 10.19% (7.11)% 6.58%++
- --------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $333,979 $301,852 $200,427 $97,132 $48,765
- --------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(5) 0.91% 0.94% 0.96% 1.06% 1.09%+
Net investment income 0.37 0.23 0.56 0.91 0.29+
- --------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 25% 35% 46% 42% 35%
====================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) On November 7, 1994, the Class D shares were renamed Class Y shares.
(3) For the period from June 16, 1994 (inception date) to October 31, 1994.
(4) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(5) During the years ended October 31, 1996 and October 31, 1995, the
Portfolio had earned credits from the custodian which reduced service fees
incurred. If the credits are taken into consideration, the expense ratios
for Class Y would have been 0.90% and 0.98%, respectively; numbers prior
to October 31, 1995 have not been restated to reflect these credits.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
46 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class Z Shares
------------------------------------------------------
International Equity Portfolio 1998(1) 1997(1) 1996(1) 1995(2)
==================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $20.36 $18.62 $17.12 $18.38
- --------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.08 0.05 0.14 0.13*
Net realized and unrealized gain (loss) 0.01 1.75 1.57 (1.12)
- --------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.09 1.80 1.71 (0.99)
- --------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income(3) (0.06) (0.06) (0.21) (0.17)
Net realized gains -- -- -- (0.10)
- --------------------------------------------------------------------------------------------------
Total Distributions (0.06) (0.06) (0.21) (0.27)
- --------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $20.39 $20.36 $18.62 $17.12
- --------------------------------------------------------------------------------------------------
Total Return 0.45% 9.69% 10.13% (5.03)%++
- --------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $117,132 $131,709 $119,408 $94,387
- --------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 0.92% 0.94% 0.97% 1.10%+
Net investment income 0.36 0.22 0.55 1.06+
- --------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 25% 35% 46% 42%
==================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) For the period from November 7, 1994 (inception date) to October 31, 1995.
(3) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(4) During the year ended October 31, 1996 and the period ended October 31,
1995, the Portfolio had earned credits from the custodian which reduced
service fees incurred. If the credits are taken into consideration, the
expense ratios for Class Z would have been 0.91% and 1.02% (annualized),
respectively.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 47
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class A Shares
---------------------------------------------------------------
International Balanced Portfolio 1998(1) 1997(1) 1996(1) 1995 1994(2)
=============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.32 $13.90 $12.64 $12.20 $12.00
- -------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(3) 0.51 0.18 0.26 0.35 0.07
Net realized and unrealized gain (loss) 1.19 (0.41) 1.35 0.48 0.13
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.70 (0.23) 1.61 0.83 0.20
- -------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.10) (0.15) (0.35) (0.39) --
Net realized gains (0.03) -- -- -- --
Capital -- (0.20) -- -- --
- -------------------------------------------------------------------------------------------------------------
Total Distributions (0.13) (0.35) (0.35) (0.39) --
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $14.89 $13.32 $13.90 $12.64 $12.20
- -------------------------------------------------------------------------------------------------------------
Total Return 12.87% (1.71)% 12.89% 7.05% 1.67%++
- -------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $9,639 $11,072 $16,116 $17,667 $20,634
- -------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 1.79% 1.71% 1.81% 1.62% 1.34%+
Net investment income 3.80 1.32 1.94 2.89 1.37+
- -------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 141% 197% 189% 42% 6%
=============================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) For the period from August 25, 1994 (inception date) to October 31, 1994.
(3) The Manager waived all or part of its fees for the year ended October 31,
1995 and the period ended October 31, 1994. If such fees were not waived,
the per share effect on net investment income and the expense ratios would
have been as follows:
Expense Ratios
Per Share Decreases to Without Fee Waivers
Net Investment Income and Custody Credits
---------------------- -------------------
1995 1994 1995 1994
----- ----- ----- -----
Class A $0.04 $0.02 1.96% 2.03%+
In addition, during the years ended October 31, 1996 and October 31, 1995,
the Portfolio had earned credits from the custodian which reduced service
fees incurred. If the credits are taken into consideration, the expense
ratios for Class A would have been 1.72% and 1.52%, respectively; numbers
prior to October 31, 1995 have not been restated to reflect these credits.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
48 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class B Shares
------------------------------------------------
International Balanced Portfolio 1998(1) 1997(1) 1996(1) 1995(2)
=============================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.38 $13.90 $12.65 $12.08
- ---------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(3) 0.41 0.07 0.15 0.36
Net realized and unrealized gain (loss) 1.19 (0.41) 1.36 0.50
- ---------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.60 (0.34) 1.51 0.86
- ---------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.02) (0.08) (0.26) (0.29)
Net realized gains (0.03) -- -- --
Capital -- (0.10) -- --
- ---------------------------------------------------------------------------------------------
Total Distributions (0.05) (0.18) (0.26) (0.29)
- ---------------------------------------------------------------------------------------------
Net Asset Value, End of Year $14.93 $13.38 $13.90 $12.65
- ---------------------------------------------------------------------------------------------
Total Return 11.96% (2.45)% 12.05% 7.33%++
- ---------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $4,004 $4,813 $5,258 $3,064
- ---------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 2.52% 2.48% 2.62% 2.49%+
Net investment income 3.03 0.53 1.14 3.11+
- ---------------------------------------------------------------------------------------------
Portfolio Turnover Rate 141% 197% 189% 42%
=============================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) For the period from November 7, 1994 (inception date) to October 31, 1995.
(3) The Manager waived all or part of its fees for the period ended October
31, 1995. If such fees were not waived, the per share effect on net
investment income and the expense ratio would have been as follows:
Expense Ratio
Per Share Decrease to Without Fee Waivers
Net Investment Income and Custody Credits
--------------------- -------------------
1995 1995
----- ------
Class B $0.04 2.86%+
In addition, during the year ended October 31, 1996 and the period ended
October 31, 1995, the Portfolio had earned credits from the custodian
which reduced service fees incurred. If the credits are taken into
consideration, the expense ratios for Class B would have been 2.53% and
2.39% (annualized), respectively; numbers prior to October 31, 1995 have
not been restated to reflect these credits.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 49
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class L Shares(1)
-------------------------------------------------------------
International Balanced Portfolio 1998(2) 1997(2) 1996(2) 1995(3) 1994(4)
==========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.35 $13.87 $12.63 $12.18 $12.00
- ----------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(5) 0.40 0.08 0.15 0.28 0.05
Net realized and unrealized gain (loss) 1.18 (0.42) 1.35 0.46 0.13
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.58 (0.34) 1.50 0.74 0.18
- ----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.01) (0.08) (0.26) (0.29) --
Net realized gains (0.03) -- -- -- --
Capital -- (0.10) -- -- --
- ----------------------------------------------------------------------------------------------------------
Total Distributions (0.04) (0.18) (0.26) (0.29) --
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $14.89 $13.35 $13.87 $12.63 $12.18
- ----------------------------------------------------------------------------------------------------------
Total Return 11.90% (2.46)% 11.99% 6.29% 1.50%++
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $2,940 $3,642 $4,869 $4,317 $4,310
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(5) 2.58% 2.51% 2.62% 2.37% 2.03%+
Net investment income 2.93 0.60 1.14 2.33 0.79+
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 141% 197% 189% 42% 6%
==========================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(3) On November 7, 1994, Class B shares were renamed Class C shares.
(4) For the period from August 25, 1994 (inception date) to October 31, 1994.
(5) The Manager waived all or part of its fees for the year ended October 31,
1995 and the period ended October 31, 1994. If such fees were not waived,
the per share effect on net investment income and the expense ratios would
have been as follows:
Expense Ratios
Per Share Decreases to Without Fee Waivers
Net Investment Income and Custody Credits
---------------------- -------------------
1995 1994 1995 1994
----- ----- ----- ------
Class L $0.04 $0.02 2.71% 2.74%+
In addition, during the years ended October 31, 1996 and October 31, 1995,
the Portfolio had earned credits from the custodian which reduced service
fees incurred. If the credits are taken into consideration, the expense
ratios for Class L would have been 2.53% and 2.27%, respectively; numbers
prior to October 31, 1995 have not been restated to reflect these credits.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
50 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Smith Barney World Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Global Government Bond, International
Equity and International Balanced Portfolios of Smith Barney World Funds, Inc.
as of October 31, 1998, the related statements of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the four-year period then ended, the period from January 1, 1994 to October 31,
1994 and the year ended December 31, 1993 with respect to the Global Government
Bond and International Equity Portfolios and the period from August 25, 1994
(commencement of operations) to October 31, 1994 with respect to the
International Balanced Portfolio. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian. As to securities
purchased and sold but not received and delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Global Government Bond, International Equity and International Balanced
Portfolios of Smith Barney World Funds, Inc. as of October 31, 1998, the results
of their operations for the year then ended, the statements of changes in their
net assets for the each of the years in the two-year period then ended, and the
financial highlights for each of the years in the four-year period then ended,
the period from January 1, 1994 to October 31, 1994 and the year ended December
31, 1993 with respect to the Global Government Bond and International Equity
Portfolios and the period from August 25, 1994 to October 31, 1994 with respect
to the International Balanced Portfolio, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
December 18, 1998
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 51
<PAGE>
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
For Federal tax purposes the Smith Barney World Funds, Inc. hereby designates
for the fiscal year ended October 31, 1998:
-- Long term capital gain distributions paid:
Global Government Bond Portfolio $4,276,609
International Balanced Portfolio 129,059
-- Percentages of ordinary dividends paid by the Fund from net
investment income are derived from Federal obligations and may be
exempt from taxation at the state level:
Global Government Bond Portfolio 15.13%
International Balanced Portfolio 4.97
-- The total foreign sourced income received by International Balanced
was $.9921 per share (or a total amount of $1,104,379). The total of
foreign taxes paid was $.0303 per share (or a total amount of
$33,743.
- --------------------------------------------------------------------------------
52 1998 Annual Report to Shareholders
<PAGE>
Smith Barney
World Funds, Inc.
Directors
Victor Atkins
Robert A. Frankel
Rainer Greeven
Susan M. Heilbron
Heath B. McLendon, Chairman
Officers
Maurits E. Edersheim
Chairman of the Fund
& Advisory Director
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
James B. Conheady
Vice President
Victor S. Filatov
Vice President
Simon R. Hildreth
Vice President
Denis P. Mangan
Vice President
Jeffrey J. Russell
Vice President
Irving P. David
Controller
Christina T. Sydor
Secretary
Investment Manager and Administrator
Mutual Management Corp.
Distributor
CFBDS, Inc.
Custodian
Chase Manhattan Bank
Shareholder Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of shareholders of Smith
Barney World Fund, Inc. -- Global Government, International Equity and
International Balanced Portfolios. It is not authorized for distribution to
prospective investors unless accompanied or preceded by a current Prospectus for
the Fund, which contains information concerning the Fund's investment policies
and expenses as well as other pertinent information.
SalomonSmithBarney
- ---------------------------
A member of citigroup[LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney
World Funds, Inc.
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com
FD01359 12/98
<PAGE>
[GRAPHIC]
Smith Barney
World Funds, Inc.
Emerging Markets Portfolio
European Portfolio
Pacific Portfolio
-----------------------------------
ANNUAL REPORT
-----------------------------------
October 31, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(R)
<PAGE>
Smith Barney
World Funds, Inc.
================================================================================
"We are now beginning to see a concerted global effort to correct the current
imbalances in the global economy. And while this process may take some time and
many individuals may suffer in the short term, we nonetheless remain convinced
that the long-term higher standards of living and greater freedoms that come
from free-market global capitalism are worth the price."
Heath B. McLendon
Chairman
================================================================================
The Emerging Markets Portfolio seeks long-term capital appreciation of its
assets through a portfolio invested primarily in securities of emerging country
issuers. The Portfolio follows an investment strategy involving broad geographic
diversification.
NASDAQ SYMBOL
-------------
Class A SMMAX
Class B SEMBX
The European Portfolio seeks long-term capital appreciation by investing
primarily in equity of issuers based in countries of Europe.
NASDAQ SYMBOL
-------------
Class A SBEAX
Class B SBEBX
The Pacific Portfolio's primary investment objective is long-term capital
appreciation. In seeking to achieve its objective, the Portfolio will invest
primarily in a diversified portfolio of equity securities of companies in
Australia, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan,
Papau-New Guinea, the People's Republic of China, the Philippines, Singapore,
South Korea, Sri Lanka, Taiwan and Thailand.
================================================================================
STYLE PURE FUNDS
================================================================================
The Smith Barney World Funds, Inc. are part of the Style Pure series of Smith
Barney Mutual Funds. The Style Pure funds are mutual funds that are totally
invested 100% of the time within its designated asset classes and its designated
investment style.
================================================================================
WHAT'S INSIDE
================================================================================
A Message from the Chairman ............................................... 1
Emerging Markets Portfolio
Manager Commentary ...................................................... 2
Historical Performance .................................................. 4
Portfolio at a Glance ................................................... 6
European Portfolio
Manager Commentary ...................................................... 7
Historical Performance .................................................. 9
Portfolio at a Glance ................................................... 11
Pacific Portfolio
Managers Commentary ..................................................... 12
Historical Performance .................................................. 16
Portfolio at a Glance ................................................... 18
Schedules of Investments .................................................. 19
Statements of Assets and Liabilities ...................................... 26
Statements of Operations .................................................. 27
Statements of Changes in Net Assets ....................................... 28
Notes to Financial Statements ............................................. 30
Financial Highlights ...................................................... 39
Tax Information ........................................................... 48
Independent Auditors' Report .............................................. 49
<PAGE>
================================================================================
A Message from the Chairman
================================================================================
[PHOTO]
HEATH B.
MCLENDON
Chairman
Dear Shareholder:
Globalization of the world economy has continued at an unprecedented pace since
the fall of the Berlin wall. However, globalization does not always proceed
smoothly. The long-term commercialization and growing interdependence of the
world's economies can often create major social and political problems in
specific countries over the short term. For example, U.S. autoworkers become
concerned when they see more automobiles being produced in Japan and rice
farmers in Japan also become more alarmed when rice imports from California
increase.
Problems in Detroit and in Japan can quickly translate into political problems
and result in rising protectionism and economic contraction. Ideally the
commercialization of the global economy should occur gradually over time to help
minimize any unforeseen economic, social and political disruptions. Moreover,
the role of finance with respect to globalization can also be disruptive.
Because of the speed of technology and communications today, the movement of
capital around the world is virtually instantaneous, which is good for the
capital markets, but can create short-term aberrations.
In many countries, financial market inefficiencies was the catalyst for recent
stock price volatility. Too much capital went into developing countries too
quickly and these economies were unable to employ that capital in an orderly and
productive fashion. These conditions resulted in the widely publicized problems
experienced in Asia, and later, to Eastern Europe and Latin America. It is
important to note however, these same market inefficiencies create some of the
best opportunities for global value investors.
We are now beginning to see a concerted global effort to correct the current
imbalances in the global economy. And while this process may take some time and
individuals may suffer in the short term, we nonetheless remain convinced that
the long-term higher standards of living and greater freedoms that come from
free-market global capitalism are worth the price.
The first half of 1998 saw good returns from some developed markets while
emerging market performance for the most part lagged. The global financial
crisis spread in late summer and negatively impacted all the world's stock
markets. Russia's problems, a major hedge fund rescue in the United States, the
Japanese recession, currency controls in Malaysia and global deflation dominated
the headlines. The markets bottomed out in mid-October when the Federal Reserve
Board cut short-term rates in the U.S. Since that time, the world's stock
markets have rebounded strongly, underscoring the market's higher volatility
during the reporting period.
In this report, you will find specific market commentary and performance
information on the Smith Barney World Funds, Inc. -- Emerging Markets Portfolio,
European Portfolio, and Pacific Portfolio -- beginning on page two.
We encourage you to visit our new Web site at www.smithbarney.com. In closing,
thank you for investing in our family of international funds. Despite turbulent
market conditions, we remain committed to providing our shareholders with
competitive performance in the years ahead.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
December 10, 1998
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 1
<PAGE>
================================================================================
Emerging Markets Portfolio
================================================================================
[PHOTO]
Scott E. Kalb
Vice President
Investment Team
As of November 1, 1998, the Emerging Markets Portfolio is managed by the Smith
Barney International Equity Team that is led by Scott E. Kalb.
Scott joined the Smith Barney International Equity Team in 1995. He has 11 years
of experience in research and was formerly Head of International Equity Research
at Smith Barney from 1990 to 1995, where he was responsible for the coverage of
equities in emerging markets. Prior to joining Smith Barney, Mr. Kalb served as
the First Vice President of Corporate Finance and Vice President of Equity
Research for Drexel Burnham Lambert. Previously, he worked at James Capel and
served for two years as economic consultant for the Ministry of Finance in South
Korea. Mr. Kalb lived in Asia for ten years and in London for two, speaks Korean
fluently and some Japanese. Mr. Kalb holds a B.A. from Oberlin College and an
M.A. in Economics from Harvard University.
Performance Update
For the year ended October 31, 1998, the Emerging Markets Portfolio
("Portfolio") returned a negative 43.53% for Class A shares. In comparison, the
Portfolio's benchmark, the Morgan Stanley Capital International Emerging Markets
Free Index ("Index"), returned a negative 32.88% for the same period. For
information on the Portfolio's other share classes, please see page four.
Last Year...Increased Risk for Emerging Markets
During the past twelve months, emerging markets continued to suffer from
problems stemming largely from currency imbalances in Asia and Latin America.
What first began as a regional problem in Asia spread to Russia and Latin
America, substantially eroding investor confidence in emerging market stocks and
bonds. Moreover, rising uncertainty about the sustainability of growth in Europe
and the U.S. added further pressure to the financial markets of developing
countries.
As developing countries resorted to extreme measures to address severe economic
and political problems, emerging markets investors faced new challenges and
heightened risk last year. The case of Malaysia stands out as an example of such
increased risks for investors. In an effort to slow the flight of capital from
their country, Malaysian policy-makers instituted strict currency controls that
have effectively locked up foreign capital for one year. The Emerging Market
Portfolio had two holdings in Malaysia representing approximately 4% of total
net assets. Because of the new currency restrictions, these holdings are
officially considered illiquid, as money cannot be repatriated from Malaysia
until September of 1999. While this situation is certainly not ideal, the
Portfolio assets that remain in Malaysia will continue to be invested in
high-quality companies through the deadline in an effort to try and get the best
possible returns for shareholders. In the meantime, we do not intend to invest
new funds in Malaysia until the restrictions on capital movements are removed.
Country Allocation
Regarding Asia, the Portfolio maintained an exposure of roughly 38% compared
with 23% representation in the benchmark MSCI Emerging Market Free Index. Much
of the overweighted position was concentrated in China, which is coping with its
own economic woes. But we believe there are signs that China's economy is
beginning to recover and that should help relieve pressures on its currency.
- --------------------------------------------------------------------------------
2 1998 Annual Report to Shareholders
<PAGE>
The Portfolio's exposure to Africa and Europe increased from 26% to 28% during
the reporting period due to changing conditions in the market. As of October 31,
1998, the Portfolio had approximately 4.4% of its assets in Poland. Poland's
strong central bank was able to control inflation and lower interest rates in
the midst of the Russian crisis, a very positive development. However, Polish
share prices still were affected negatively by Russia's debt and equity
sell-off.
The majority of the Portfolio's assets were invested in Latin America,
especially in telecommunication stocks. This past year, Latin America was among
the worst performers in the emerging market universe despite some very positive
developments. For example, the long-awaited privatization of Brazil's
telecommunications giant, Telebras (a Portfolio holding) was initiated
successfully. We expect that as the twelve operating subsidiaries that comprise
Telebras are made more available to investors in the form of individual American
Depository Receipts, investor sentiment toward Brazil and Latin America should
improve.
Industry Commentary
As a Style Pure Smith Barney Mutual Fund, the Portfolio remained fully invested
with little or no cash balances. Overall, telecommunication service stocks
represented 33% of total net assets, banks represented approximately 6% of total
net assets and Asian technology companies made up roughly 5% of total net
assets. Companies with related telecommunications businesses (Elektrim--a
Polish company with a large stake in a cellular company and Dimension Data--a
South African telecommunications supplier) made up a further 6% of Portfolio
assets at the end of October.
The remainder of the Portfolio was invested in diverse business operators with
attractive medium-term prospects.
Management Change
Effective November 1, 1998, the Smith Barney International Equity Team led by
Scott Kalb, took over responsibility for the Emerging Markets Portfolio. Mr.
Kalb has over ten years of experience in analyzing and investing in companies in
Asia, Latin America, South Africa and the Middle East. He also has
responsibility for managing the Pacific Portfolio, which complements work in the
emerging markets.
Based upon the team's assessment led by Mr. Kalb, some repositioning of the
portfolio will take place. He will examine the geographic allocations of the
Portfolio, compared with the benchmark MSCI Emerging Markets Free Index, to
ensure that weightings reflect our estimation of the relative attractions of
different countries. In addition, he will ensure that individual stock selection
will provide sufficient diversification from an industry standpoint as well as
market capitalization range.
Going forward, Mr. Kalb will continue to concentrate on bottom-up stock picking,
using tested disciplines to select companies with strong fundamentals and
attractive valuations. Combined with the measures noted above, the manager
believes this will lead to enhanced returns for investors while maintaining less
risk in the Portfolio.
Thank you for your investment in the Emerging Markets Portfolio.
November 20, 1998
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 3
<PAGE>
================================================================================
EMERGING MARKETS PORTFOLIO
================================================================================
================================================================================
Historical Performance -- Class A Shares
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Total
Year Ended of Year of Year Dividends Returns(1)
=================================================================================================================
<S> <C> <C> <C> <C>
10/31/98 $12.45 $7.03 $0.00 (43.53)%
- -----------------------------------------------------------------------------------------------------------------
10/31/97 12.08 12.45 0.00 3.06
- -----------------------------------------------------------------------------------------------------------------
10/31/96 11.06 12.08 0.00 9.22
- -----------------------------------------------------------------------------------------------------------------
Inception* -- 10/31/95 12.00 11.06 0.00 (7.83)+
=================================================================================================================
Total $0.00
=================================================================================================================
<CAPTION>
================================================================================
Historical Performance -- Class B Shares
================================================================================
Net Asset Value
---------------------
Beginning End Income Total
Year Ended of Year of Year Dividends Returns(1)
=================================================================================================================
<S> <C> <C> <C> <C>
10/31/98 $12.21 $6.85 $0.00 (43.90)%
- -----------------------------------------------------------------------------------------------------------------
10/31/97 11.95 12.21 0.00 2.18
- -----------------------------------------------------------------------------------------------------------------
10/31/96 11.02 11.95 0.00 8.44
- -----------------------------------------------------------------------------------------------------------------
Inception* -- 10/31/95 12.00 11.02 0.00 (8.17)+
=================================================================================================================
Total $0.00
=================================================================================================================
<CAPTION>
================================================================================
Historical Performance -- Class L Shares(2)
================================================================================
Net Asset Value
---------------------
Beginning End Income Total
Year Ended of Year of Year Dividends Returns(1)
=================================================================================================================
<S> <C> <C> <C> <C>
10/31/98 $12.22 $6.84 $0.00 (44.03)%
- -----------------------------------------------------------------------------------------------------------------
10/31/97 11.95 12.22 0.00 2.26
- -----------------------------------------------------------------------------------------------------------------
10/31/96 11.02 11.95 0.00 8.44
- -----------------------------------------------------------------------------------------------------------------
Inception* -- 10/31/95 12.00 11.02 0.00 (8.17)+
=================================================================================================================
Total $0.00
=================================================================================================================
<CAPTION>
================================================================================
Historical Performance -- Class Y Shares
================================================================================
Net Asset Value
----------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
=================================================================================================================
<S> <C> <C> <C> <C>
Inception* -- 10/31/98 $12.16 $7.07 $0.00 (41.86)%+
=================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
- --------------------------------------------------------------------------------
4 1998 Annual Report to Shareholders
<PAGE>
================================================================================
EMERGING MARKETS PORTFOLIO
================================================================================
================================================================================
Average Annual Total Returns
================================================================================
<TABLE>
<CAPTION>
Without Sales Charges(1)
--------------------------------------------------------
Class A Class B Class L(2) Class Y
=======================================================================================================================
<S> <C> <C> <C> <C>
Year Ended 10/31/98 (43.53)% (43.90)% (44.03)% N/A
- -----------------------------------------------------------------------------------------------------------------------
Inception* through 10/31/98 (14.26) (14.89) (14.93) (41.86)%+
=======================================================================================================================
<CAPTION>
Without Sales Charges(1)
--------------------------------------------------------
Class A Class B Class L(2) Class Y
=======================================================================================================================
<S> <C> <C> <C> <C>
Year Ended 10/31/98 (46.38)% (46.70)% (45.12)% N/A
- -----------------------------------------------------------------------------------------------------------------------
Inception* through 10/31/98 (15.51) (15.39) (15.17) (41.86)%+
=======================================================================================================================
<CAPTION>
================================================================================
Cumulative Total Returns
================================================================================
Without Sales Charges(1)
=======================================================================================================================
<S> <C>
Class A (Inception* through 10/31/98) (41.42)%
- -----------------------------------------------------------------------------------------------------------------------
Class B (Inception* through 10/31/98) (42.92)
- -----------------------------------------------------------------------------------------------------------------------
Class L (Inception* through 10/31/98)(2) (43.00)
- -----------------------------------------------------------------------------------------------------------------------
Class Y (Inception* through 10/31/98) (41.86)
=======================================================================================================================
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the applicable
sales charges with respect to Class A and L shares or the applicable
contingent deferred sales charge ("CDSC") with respect to Class B and L
shares.
(2) On June 12, 1998, Class C shares were renamed Class L Shares.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from initial purchase.
Thereafter, this CDSC declines by 1.00% per year until no CDSC is incurred.
Class L shares also reflect the deduction of a 1.00% CDSC, which applies if
shares are redeemed within the first year of purchase.
+ Total return is not annualized, as it may not be representative of the total
return for the year.
* The inception date for Class A, B and L shares is May 12, 1995 and the
inception date for Class Y shares is March 10, 1998.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 5
<PAGE>
================================================================================
Emerging Markets Portfolio at a Glance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A, B and L Shares of the Emerging Markets
Portfolio vs. MSCI Free World Market Index and MSCI Emerging Markets Free Index+
- --------------------------------------------------------------------------------
May 1995--October 1998
LINE GRAPH
<TABLE>
<CAPTION>
Emerging Markets Emerging Markets Emerging Markets
Portfolio -- Class A Portfolio -- Class B Portfolio -- Class L MSCI Free World MSCI Emerging
Shares Shares Shares Market Index Markets Free Index
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
May 12, 1995 9501 10000 10000 10000 10000
Oct 1995 8757 8724 9092 10497 9453
Apr 1996 9850 9800 10167 11928 10600
Oct 1996 9565 9560 9958 12264 9861
Apr 1997 11283 11292 11700 13146 10837
Oct 31, 1997 10375 9875 10183 14098 8844
Apr 1998 9572 9546 9850 16645 9079
Oct 31, 1997 5566 5594 5644 16041 5936
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A, B and L shares at
inception on May 12, 1995, assuming deduction of the maximum 5.00% sales
charge at the time of investment for Class A shares, the deduction of the
maximum 5.00% CDSC for Class B shares (which decreases by 1.00% each year)
and the deduction of the 1.00% CDSC for Class L shares. It also assumes
reinvestment of dividends and capital gains, if any, at net asset value
through October 31, 1998. The Morgan Stanley Capital International ("MSCI")
Free World Market Index measures performance for a diverse range of global
stock markets, including the United States, Canada, Europe, Australia, New
Zealand and the Far East and excludes shares which are not readily purchased
by non-local investors. The MSCI Emerging Markets Free Index consists of
emerging market companies with an average size of $800 million, the index
measures performance of emerging markets in South America, South Africa, Asia
and Eastern Europe. Each index is unmanaged and is not subject to the same
management and trading expenses as a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
++ It is the opinion of management that the MSCI Emerging Markets Free Index is
a more appropriate broad-based benchmark for the market in which the Emerging
Markets Portfolio invests than the MSCI Free World Market Index. In future
reporting, the MSCI Emerging Markets Free Index will be used as a basis of
comparison of total return performance rather than the MSCI Free World Market
Index.
Top Ten Holdings(*) As of October 31, 1998
- --------------------------------------------------------------------------------
1. Telefonica de Argentina SA 4.1%
- --------------------------------------------------------------------------------
2. Elektrim Spolka Akcyjna SA 3.4
- --------------------------------------------------------------------------------
3. Delta Electronics, Inc. 3.3
- --------------------------------------------------------------------------------
4. Cia de Telecomunicaciones de Chile SA 3.0
- --------------------------------------------------------------------------------
5. Samsung Electronics 2.7
- --------------------------------------------------------------------------------
6. Telesp Participacoes SA 2.7
- --------------------------------------------------------------------------------
7. Videsh Sanchar Nigam Ltd. 2.7
- --------------------------------------------------------------------------------
8. South African Breweries Ltd. 2.6
- --------------------------------------------------------------------------------
9. Telecomunicacoes de Brisilia SA - Telebrasilia 2.6
- --------------------------------------------------------------------------------
10. Asia Pulp & Paper Co. Ltd. 2.5
- --------------------------------------------------------------------------------
* As a percentage of total investments.
Investment Allocation as of October 31, 1998*
- --------------------------------------------------------------------------------
PIE CHART
38.0% Asia/Pacific
37.9% Latin America
16.6% Europe
7.5% Africa
* As a percentage of total investments.
- --------------------------------------------------------------------------------
6 1998 Annual Report to Shareholders
<PAGE>
================================================================================
European Portfolio
================================================================================
[PHOTO]
REIN W.
VAN DER DOES
Vice President
Portfolio Manager
Rein W. van der Does began his career with Drexel Burnham Lambert in 1968 as a
domestic research analyst. In 1975, he joined Drexel's International Research
Department and was appointed Director of International Research and Head of
Portfolio Strategy in 1985. He moved with the International Equity team to Smith
Barney in 1990. He is a member of the New York State Association for
International Investment and a member of the New York Society of Security
Analysts. Mr. van der Does was awarded a doctorate in Economics from the Dutch
Economic University in Rotterdam.
Performance Update
The European Portfolio ("Portfolio") posted a total return of 9.10% for Class A
shares for the year ended October 31, 1998. In comparison, the Portfolio's
benchmark, the Morgan Stanley Capital International European Market Index
("Index"), had a total return of 23.06%. For performance information on the
Portfolio's other classes please refer to page nine.
The Portfolio's recent underperformance relative to the Index was caused
primarily by an emphasis on several information technology stocks, all of which
experienced sharp declines in the midst of global market turmoil. In addition,
Alcatel and Baan were sold after reporting very disappointing results.
European Markets Update
After posting strong performances in the first half of 1998, European financial
markets experienced a sudden downturn as financial conditions worldwide began to
deteriorate rapidly. A declining U.S. dollar against European currencies and the
inability of many policy-makers to restore investor confidence also contributed
to the decline. Since reaching their all-time highs in late July 1998, European
stock exchanges fell roughly 35% on average under market conditions even more
difficult than U.S. stock markets.
However, European stock markets have rebounded on average 20% since the first
week of October 1998, due in large part to the decision by the Federal Reserve
Board to cut U.S. short-term interest rates by 0.25% three times. In addition,
the recovery was also helped by certain market conditions in the last four weeks
such as increased buying by short sellers seeking to cover their positions.
Moreover, investor confidence was further bolstered by a number of positive
political developments in recent weeks. The International Monetary Fund funding
package passed by the U.S. Congress and a weakening U.S. dollar helped relieve
some of the pressure on emerging market currencies. Long-awaited banking
reforms passed in Japan and interest rate cuts in Italy, Spain, Portugal, the
United Kingdom, Sweden and Canada also helped to shore up investor confidence.
Analyst consensus for European economic growth has been lowered from 2.9% to
2.2% for both 1998 and 1999 as a result of global economic weakness.
Nevertheless, we believe the underlying fundamentals remain strong enough to
withstand the impact of the emerging markets crisis. Salomon Smith Barney
research estimates that earnings of the Standard & Poor's 500 Stock Index will
advance only 1% in 1998 and be a negative 2% in 1999. Consensus estimates for
European corporate earnings call for a 7% rise in 1998 and another 8% increase
in 1999.
Investment Strategy
In selecting investments for the Portfolio, we continue to use a "bottom-up"
approach, evaluating individual companies rather than major investment trends.
While economic cycles are important when evaluating
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 7
<PAGE>
a company's outlook, we generally search for promising European companies with
excellent growth prospects regardless of the regional macroeconomic conditions.
In our opinion, this approach should provide investors with competitive returns
over the long term.
As Europe continues to undergo a rapid transformation into a more competitive
marketplace, stock selection will be key to investing success as there will be
many winners as well as losers. During the past twelve months, most investors
have been focused on large, well-established companies. Smaller companies
continued to underperform the broad-based indices. The introduction of the Dow
Jones Europe Stoxx 65 and Stoxx 655 Indices combined with the integrated
currency could accelerate the investor trend toward greater emphasis on
large-capitalization stocks.
While we remain very positive towards investment opportunities in Europe over
the medium term, we expect that there may be some share price depreciation in
the short term stemming from softening demand in Asia and a weakening U.S.
dollar. Given our optimistic outlook, we tend to view these periods of weakness
as buying opportunities. We continue to emphasize services sector and consumer
goods companies while underweighting basic materials and financial service
companies.
European Markets Outlook
Despite the turmoil in financial markets, we continue to believe that investing
in Europe will be exciting for the next few years due to:
. The creation of the European Union (more deregulation, privatization,
restructuring, and merger/acquisitions)
. The creation of one currency, the Euro (increased price transparency means
lower inflation)
. The creation of a true equity culture through cheaply-priced privatization
offerings, stock options and corporate stock buy-backs
. The implementation by European companies of the concept of enhancing
shareholder value
Because of the many changes taking place in Europe, the relative undervaluation
of many European shares and the underperformance of European markets versus the
U.S. stock market, we continue to be very optimistic about investing in this
area of the world in the years ahead.
Thank you for your investment in the European Portfolio.
/s/ Rein W. van der Does
Rein W. van der Does
Vice President
November 15, 1998
- --------------------------------------------------------------------------------
8 1998 Annual Report to Shareholders
<PAGE>
================================================================================
EUROPEAN PORTFOLIO
================================================================================
<TABLE>
<CAPTION>
=======================================================================================================
Historical Performance -- Class A Shares
=======================================================================================================
Net Asset Value
----------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=======================================================================================================
<S> <C> <C> <C> <C> <C>
10/31/98 $18.23 $19.44 $0.00 $0.39 9.10%
- -------------------------------------------------------------------------------------------------------
10/31/97 17.25 18.23 0.00 1.16 12.88
- -------------------------------------------------------------------------------------------------------
10/31/96 14.67 17.25 0.09 0.04 18.65
- -------------------------------------------------------------------------------------------------------
10/31/95 12.88 14.67 0.00 0.00 13.90
- -------------------------------------------------------------------------------------------------------
Inception* -- 10/31/94 12.50 12.88 0.00 0.00 3.04+
=======================================================================================================
Total $0.09 $1.59
=======================================================================================================
<CAPTION>
=======================================================================================================
Historical Performance -- Class B Shares
=======================================================================================================
Net Asset Value
-----------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=======================================================================================================
<S> <C> <C> <C> <C> <C>
10/31/98 $17.92 $18.95 $0.00 $0.39 8.24%
- -------------------------------------------------------------------------------------------------------
10/31/97 17.09 17.92 0.00 1.16 12.08
- -------------------------------------------------------------------------------------------------------
10/31/96 14.56 17.09 0.00 0.04 17.72
- -------------------------------------------------------------------------------------------------------
Inception* -- 10/31/95 12.62 14.56 0.00 0.00 15.37+
=======================================================================================================
Total $0.00 $1.59
=======================================================================================================
<CAPTION>
=======================================================================================================
Historical Performance -- Class L Shares(2)
=======================================================================================================
Net Asset Value
-----------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=======================================================================================================
<S> <C> <C> <C> <C> <C>
10/31/98 $17.86 $18.91 $0.00 $0.39 8.38%
- -------------------------------------------------------------------------------------------------------
10/31/97 17.04 17.86 0.00 1.16 12.06
- -------------------------------------------------------------------------------------------------------
10/31/96 14.51 17.04 0.00 0.04 17.78
- -------------------------------------------------------------------------------------------------------
10/31/95 12.83 14.51 0.00 0.00 13.09
- -------------------------------------------------------------------------------------------------------
Inception* -- 10/31/94 12.48 12.83 0.00 0.00 2.80+
=======================================================================================================
Total $0.00 $1.59
=======================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 9
<PAGE>
================================================================================
EUROPEAN PORTFOLIO
================================================================================
================================================================================
Average Annual Total Returns
================================================================================
Without Sales Charges(1)
--------------------------------
Class A Class B Class L(2)
================================================================================
Year Ended 10/31/98 9.10% 8.24% 8.38%
- --------------------------------------------------------------------------------
Inception* through 10/31/98 12.08 13.35 11.40
================================================================================
With Sales Charges(3)
--------------------------------
Class A Class B Class L(2)
================================================================================
Year Ended 10/31/98 3.64% 3.24% 6.30%
- --------------------------------------------------------------------------------
Inception* through 10/31/98 10.86 13.01 11.15
================================================================================
================================================================================
Cumulative Total Returns
================================================================================
Without Sales Charges(1)
================================================================================
Class A (Inception* through 10/31/98) 71.50%
- --------------------------------------------------------------------------------
Class B (Inception* through 10/31/98) 64.77
- --------------------------------------------------------------------------------
Class L (Inception* through 10/31/98)(2) 66.31
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from initial purchase.
Thereafter, this CDSC declines by 1.00% per year until no CDSC is incurred.
Class L shares also reflect the deduction of a 1.00% CDSC, which applies if
shares are redeemed within the first year of purchase.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B and L shares are February 7, 1994, November
7, 1994 and February 14, 1994, respectively.
- --------------------------------------------------------------------------------
10 1998 Annual Report to Shareholders
<PAGE>
================================================================================
European Portfolio at a Glance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A Shares of the
European Portfolio vs. MSCI European Market Index+
- --------------------------------------------------------------------------------
February 1994--October 1998
LINE GRAPH
European Portfolio MSCI European Index
----------------------------------------------
Feb 7 1994 9,499 10,000
Apr 1994 9,430 9,761
Oct 1994 9,788 10,064
Apr 1995 10,243 10,664
Oct 1995 11,147 11,393
Apr 1996 12,483 12,366
Oct 1996 13,227 13,383
Apr 1997 14,234 14,959
Oct 1997 14,931 16,861
Apr 30 1998 18,493 21,795
Oct 31 1997 16,290 20,812
+ Hypothetical illustration of $10,000 invested in Class A shares at
inception on February 7, 1994, assuming deduction of the maximum 4.50%
sales charge at the time of investment and the reinvestment of dividends
and capital gains, if any, at net asset value through October 31, 1998. The
Morgan Stanley Capital International ("MSCI") European Market Index is a
composite portfolio consisting of equity total returns for Europe. The
index is unmanaged and is not subject to the same management and trading
expenses as a mutual fund. The performance of the Portfolio's other classes
may be greater or less than the Class A shares' performance indicated on
this chart, depending on whether greater or lesser sales charges and fees
were incurred by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
Top Ten Holdings* As of October 31, 1998
- ------------------------------------------------------------------------------
1. Nokia Oyj, Class A Shares 6.4%
- ------------------------------------------------------------------------------
2. Mannesmann AG 5.3
- ------------------------------------------------------------------------------
3. Schering AG 4.8
- ------------------------------------------------------------------------------
4. Novartis AG 4.1
- ------------------------------------------------------------------------------
5. Tomra Systems ASA 3.8
- ------------------------------------------------------------------------------
6. CMG PLC 3.8
- ------------------------------------------------------------------------------
7. Compass Group PLC 3.3
- ------------------------------------------------------------------------------
8. Telefonica SA 3.3
- ------------------------------------------------------------------------------
9. Axa 3.1
- ------------------------------------------------------------------------------
10.Cap Gemeni SA 3.1
- ------------------------------------------------------------------------------
* As a percentage of total stocks.
Investment Allocation as of October 31, 1998**
- ------------------------------------------------------------------------------
PIE CHART
16.9% France
14.3% Germany
18.1% Netherlands
10.5% United Kingdom
5.9% Finland
6.3% Spain
8.1% Cash Equivalents
14.7% Other
5.2% Switzerland
** As a percentage of total investments.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 11
<PAGE>
================================================================================
Pacific Portfolio
================================================================================
Portfolio Managers
Scott E. Kalb joined the Smith Barney International Equity Team in 1995. He has
11 years of experience in research and was formerly Head of International Equity
Research at Smith Barney from 1990 to 1995, where he was responsible for the
coverage of equities in emerging markets. Prior to joining Smith Barney,
[PHOTO]
SCOTT E. KALB
Vice President
Mr. Kalb served as the First Vice President of Corporate Finance and Vice
President of Equity Research for Drexel Burnham Lambert. Previously, he worked
at James Capel and served for two years as economic consultant for the Ministry
of Finance in South Korea. Mr. Kalb lived in Asia for ten years and in London
for two, speaks Korean fluently and some Japanese. Mr. Kalb holds a B.A. from
Oberlin College and an M.A. in Economics from Harvard University.
David Ishibashi joined Smith Barney International Equity team as a Vice
President and Portfolio Manager in 1993. Mr. Ishibashi came to Smith Barney from
S.G. Warburg, where he was responsible for Japanese equities and headed the
Japan desk. Previously, he was at Baring Securities, Inc., where he was
responsible for Japan and
[PHOTO]
DAVID ISHIBASHI
Vice President
Southeast Asia, opening and operating Baring's first West Coast office. He also
spent four years at Nomura Securities International brokering Japanese
securities and establishing the Nomura Finance Collection at the Crocker School
of Business and Business Library. Prior to that, he served as a financial
analyst at Rockwell International. Mr. Ishibashi has a B.A. from California
State College at Los Angeles and attended the post-graduate studies program in
Tokyo at the Inter-Cultural Japanese Language Institute.
Performance Update
For the year ended October 31, 1998, the Smith Barney World Funds - Pacific
Portfolio returned a negative 20.45% for Class A shares. In comparison, the
Lipper Inc. Pacific Region peer group posted a total return of negative 21.64%.
The Morgan Stanley Capital International (MSCI) All Country Asia Pacific Index
returned a negative 13.91% for the same period. (The MSCI All Country Asia
Pacific Index comprises stocks in Australia, New Zealand, Japan and the Far
East.) For information on the Portfolio's other share classes please see page
16.
Because events and market conditions in Asia are changing rapidly, we have
addressed our commentary in this report mostly to developments within the last
six months. What a half-year it's been for the Asian markets! During the first
part of the six-month period ended October 31, 1998, Asia was rocked by an
avalanche of bad news including political turmoil in Indonesia, huge
non-performing loans in Thailand, labor unrest in Korea and nuclear bomb
detonations in India. In August, this negative trend worsened as Russian stocks
and bonds collapsed, global bond yields widened and investors everywhere sought
out the safety of U.S. Treasurys. Asian markets hit rock bottom in August and in
a desperate effort to stem further losses, the Malaysian government introduced
capital controls, while the Hong Kong government intervened in the stock market.
In September and October, investor sentiment improved dramatically, as the U.S.
began to cut interest rates and Japan announced an historic reform and spending
package leading to a 25% increase in the value of the yen vis-a-vis the dollar.
In this environment, Asian currencies stabilized, current
- -------------------------------------------------------------------------------
12 1998 Annual Report to Shareholders
<PAGE>
accounts moved into surplus and interest rates started to come down. The result
was a strong rally in share prices over the last two months and a sense that
much of the region is on the road to economic recovery sooner than expected.
During the six-month period, the Pacific Portfolio declined by 11.7%, falling
behind the benchmark MSCI All Country Asia Pacific Index, which was down by 8.4%
for the same period. Almost all of the under-performance against the benchmark
occurred during the month of October, when the yen jumped suddenly in value and
our slight underweight position in Japanese equities had an adverse impact.
Going forward, we believe the outlook for Asian share price appreciation is
bright over the next 12 months.
Market Review
Asia (except Japan)
Of the many eye-opening events that occurred during the last six months in Asia
ex-Japan, three really stand out. First, in Indonesia, the world's third-most
populous country, widespread rioting caused much of the ethnic Chinese and
foreign community to flee the country and speedily led to the resignation of
President Suharto. The new Habibe regime has garnered some popular support and
the International Monetary Fund is repositioning to help the country, but the
country's political troubles are far from over and Indonesian economy has come
to a standstill. We expect GDP to contract by 10%-15% in 1998. Given the risks
that remain, we are zero weighted in Indonesia.
Second, global investors were shocked by the Hong Kong government's sudden
purchase of over $15 billion in blue chip stocks and Hang Seng Index futures.
The government decided to use Hong Kong's sizable surplus directly to discourage
hedge fund manipulation of the stock market and relieve pressure on the Hong
Kong dollar peg to the U.S. dollar. Investors were at first very negative about
this action and felt it undermined Hong Kong's "free market" status. However, as
share prices stabilized and moved higher, and the government emphasized the
long-term nature of its efforts, investors became more comfortable. We have
increased our holdings in Hong Kong over the last few months, and have become
more bullish on the prospects for recovery in Hong Kong.
Third, Malaysia introduced capital controls, effectively putting a concrete wall
around the country's capital markets. Locals can no longer send money out of the
country while foreigners have to wait 12 months before repatriating capital, and
then they can do so only under strict limitations. Unlike Hong Kong, Malaysia's
actions were a case of desperate times calling for desperate measures. The
Malaysian ringgit had devalued by over 50% while share prices had fallen by 80%
over the previous 18 months. The government hoped that it's actions would lead
to a temporary respite from global funds flow pressures, allowing the country to
regroup and restart its economic engine. However, as a consequence of these
developments, Malaysia has been removed from many important benchmark indices,
including the MSCI EAFE index and all MSCI free indices. We remain zero weighted
in Malaysia.
Japan
Japan also had its share of eye-opening events during the period under review.
Most importantly, after many false starts the government announced a record
package, totaling about 60 trillion yen or 12% of GDP, aimed at stimulating
growth and helping the country's faltering banks. The measures were delayed by
bickering between the majority and opposition parties over terms and
requirements for the package, leading to some confusion as well as stock price
volatility. Moreover, figures released during past months indicated the
recession in Japan is worse than originally expected, while the size of the bad
loan problem may be as large as one trillion dollars. Nevertheless, when the
plan was finalized in October, the yen appreciated by nearly 20% against
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 13
<PAGE>
the dollar, a strong vote of confidence that confounded most currency
forecasters. We steadily increased our weighting in Japanese stocks as the
spending and reform package became more concrete and Japanese shares now
comprise over half of the Portfolio.
Market Outlook
We believe October marked a turning point for Asian stock markets and that a
variety of positive factors make Asia a compelling place to invest going
forward. Below we highlight some of these positive factors:
. Lower interest rates in the U.S. and Europe. Interest rate cuts in the U.S.
and Europe restored liquidity to the international banking system. We are
seeing signs that some of this liquidity is being recycled to Asia in the
form of renewed credit lines, loans and debt restructuring.
. Asian currencies appreciating, interest rates down sharply. Currencies in
most Asian countries have stabilized and appreciated over the last few
months, allowing local governments to cut interest rates and inject
liquidity for the first time in 18 months. This is taking pressure off of
banks and corporations and improving the outlook for economic recovery in
1999.
. Asian economies set to bottom by second quarter 1999. Asian economies now
appear likely to bottom in the first or second quarter of 1999, earlier than
originally expected. Stock markets have a way of discounting the year ahead,
and although calendar 1999 will still be a sub-par year for most countries
in the region, Asia will be one of the few places in the world where
economies will be on an improving trend next year.
. Local investors are buying stocks again. As currencies have stabilized and
interest rates fallen, local investors are taking cash out of the bank and
short-term money instruments and putting it into stocks for the first time
in nearly two years. This is a good indication that share prices have
discounted the worst.
. The "three lows" are back. The strong yen provides a protective umbrella
under which Asian economies can recover. In the 1980s when Asia was
thriving, economists pointed to the "three lows" as a significant boost to
the region: low oil prices, low international interest rates and the low
dollar vis-a-vis the yen. The same beneficial conditions are in place today.
The rest of Asia does not need a strong Japan in order to recover
economically, it merely needs for Japan not to blow-up.
. China is growing, will not devalue. China has staved off concerns about a
currency crisis and its economy is continuing to grow despite the regional
contraction. This helps take pressure off Hong Kong and neighboring
countries.
. Global funds underweight Asia. Global funds remain highly underweighted in
Asia and will likely increase weightings, in our view, as the outlook for
U.S. and European stocks becomes less certain. Moreover, the basic
conditions for foreign investment in Asia are at hand: lower interest rates,
stable currencies, and current account surpluses.
. Negative sentiment on Japan could be a contra-indicator.
We are disappointed by the reticence of Japanese officials to initiate
necessary reforms, and feel that the emphasis remains on spending as it has
for the last ten years. Nevertheless, we note the government has substantial
capital at its disposal to stimulate growth, a positive for the stock market
at least in the short term. We note too that despite its problems, the
Japanese stock market has emerged as a safe haven relative to the rest of
Asia and in dollar terms has out-performed many world stock markets
recently. The sharp and unexpected reversal in the yen indicates how
perilous it is to underestimate Japan.
Portfolio Changes
Earlier in the year as most Asian economies were struggling, we maintained a
defensive posture in the portfolio, with a heavy weighting in utilities and
- -------------------------------------------------------------------------------
14 1998 Annual Report to Shareholders
<PAGE>
export-oriented companies set to prosper from currency devaluation. However, as
the economic outlook for much of the region began to improve, with interest
rates falling and currencies appreciating, we switched into many of the classic
blue-chips in the region that we felt would benefit from domestic stimulation
measures. Such companies include Sun Hung Kai Properties Cheung Kong and New
World Development in Hong Kong, City Development in Singapore and Commonwealth
Bank in Australia. In Japan we raised our weighting to 55% by the end of October
and over 60% going into November. Here we added such names as Chugai
Pharmaceutical, Kao, Nissin Foods and Sekisui House, all expected beneficiaries
of the domestic stimulation measures taking place in Japan.
Thank you for investing in the Smith Barney World Funds-Pacific Portfolio. We
look forward to continuing to help you pursue your investment goals.
/s/ Scott E. Kalb /s/ David Ishibashi
Scott E. Kalb David Ishibashi
Vice President Vice President
November 20, 1998
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 15
<PAGE>
================================================================================
PACIFIC PORTFOLIO
================================================================================
================================================================================
Historical Performance -- Class A Shares
================================================================================
Net Asset Value
---------------------
Beginning End Income Total
Year Ended of Year of Year Dividends Returns(1)
================================================================================
10/31/98 $ 8.46 $ 6.73 $0.00 (20.45)%
- --------------------------------------------------------------------------------
10/31/97 10.18 8.46 0.00 (16.90)
- --------------------------------------------------------------------------------
10/31/96 10.07 10.18 0.00 1.09
- --------------------------------------------------------------------------------
10/31/95 12.92 10.07 0.00 (22.06)
- --------------------------------------------------------------------------------
Inception* -- 10/31/94 12.50 12.92 0.00 3.36+
================================================================================
Total $0.00
================================================================================
================================================================================
Historical Performance -- Class B Shares
================================================================================
Net Asset Value
--------------------
Beginning End Income Total
Year Ended of Year of Year Dividends Returns(1)
================================================================================
10/31/98 $ 8.25 $ 6.51 $0.00 (21.09)%
- --------------------------------------------------------------------------------
10/31/97 10.01 8.25 0.00 (17.58)
- --------------------------------------------------------------------------------
10/31/96 9.99 10.01 0.00 0.20
- --------------------------------------------------------------------------------
Inception* -- 10/31/95 12.64 9.99 0.00 (20.97)+
================================================================================
Total $0.00
================================================================================
================================================================================
Historical Performance -- Class L Shares(2)
================================================================================
Net Asset Value
-------------------
Beginning End Income Total
Year Ended of Year of Year Dividends Returns(1)
================================================================================
10/31/98 $ 8.21 $ 6.48 $0.00 (21.07)%
- --------------------------------------------------------------------------------
10/31/97 9.98 8.21 0.00 (17.74)
- --------------------------------------------------------------------------------
10/31/96 9.95 9.98 0.00 0.30
- --------------------------------------------------------------------------------
10/31/95 12.86 9.95 0.00 (22.63)
- --------------------------------------------------------------------------------
Inception* --10/31/94 12.50 12.86 0.00 2.88+
================================================================================
Total $0.00
================================================================================
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
- --------------------------------------------------------------------------------
16 1998 Annual Report to Shareholders
<PAGE>
================================================================================
PACIFIC PORTFOLIO
================================================================================
================================================================================
Average Annual Total Returns
================================================================================
Without Sales Charges(1)
----------------------------------
Class A Class B Class L(2)
================================================================================
Year Ended 10/31/98 (20.45)% (21.09)% (21.07)%
- --------------------------------------------------------------------------------
Inception(*) through 10/31/98 (12.27) (15.34) (12.99)
================================================================================
With Sales Charges(3)
----------------------------------
Class A Class B Class L(2)
================================================================================
Year Ended 10/31/98 (24.47)% (25.04)% (22.62)%
- --------------------------------------------------------------------------------
Inception(*) through 10/31/98 (13.21) (15.77) (13.18)
================================================================================
================================================================================
Cumulative Total Returns
================================================================================
Without Sales Charges(1)
================================================================================
Class A (Inception* through 10/31/98) (46.16)%
- --------------------------------------------------------------------------------
Class B (Inception* through 10/31/98) (48.50)
- --------------------------------------------------------------------------------
Class L (Inception* through 10/31/98)(2) (48.16)
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from initial purchase.
Thereafter, this CDSC declines by 1.00% per year until no CDSC is incurred.
Class L shares also reflect the deduction of a 1.00% CDSC, which applies if
shares are redeemed within the first year of purchase.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B and L shares are February 7, 1994, November
7, 1994 and February 11, 1994, respectively.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 17
<PAGE>
================================================================================
Pacific Portfolio at a Glance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A Shares of the
Pacific Portfolio vs. MSCI All Country Asia Pacific Index+
- --------------------------------------------------------------------------------
February 1994--October 1998
LINE GRAPH
Pacific Portfolio MSCI All Country Asia Pacific Index
-----------------------------------------------------------
Feb 1994 9,499 10,000
Apr 1994 9,415 10,012
Oct 1994 9,848 10,716
Apr 1995 8,078 10,248
Oct 1995 7,652 9,438
Apr 1996 8,533 11,076
Oct 1996 7,736 9,650
Apr 1997 8,245 8,873
Oct 1997 6,429 7,703
Apr 1997 5,790 7,040
Oct 31 1998 5,114 6,634
+ Hypothetical illustration of $10,000 invested in Class A shares at
inception on February 7, 1994, assuming deduction of the maximum 4.50%
sales charge at the time of investment and the reinvestment of dividends
and capital gains, if any, at net asset value through October 31, 1998. The
Morgan Stanley Capital International ("MSCI") All Country Asia Pacific
Index is a composite portfolio consisting of equity total returns for the
countries of Australia, New Zealand and countries in the Far East. The
index is unmanaged and is not subject to the same management and trading
expenses of a mutual fund. The performance of the Portfolio's other classes
may be greater or less than the Class A shares' performance indicated on
this chart, depending on whether greater or lesser sales charges and fees
were incurred by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
Top Ten Holdings* As of October 31, 1998
- ------------------------------------------------------------------------------
1. Kao Corp. 5.3%
- ------------------------------------------------------------------------------
2. Orix Corp. 5.0
- ------------------------------------------------------------------------------
3. Seven-Eleven Japan Co., Ltd. 4.9
- ------------------------------------------------------------------------------
4. NTT Data Corp. 4.9
- ------------------------------------------------------------------------------
5. Nidec Corp. 4.5
- ------------------------------------------------------------------------------
6. Nissin Food Products 4.3
- ------------------------------------------------------------------------------
7. Youngone Corp. 4.2
- ------------------------------------------------------------------------------
8. Shohkoh Fund & Co., Ltd. 4.0
- ------------------------------------------------------------------------------
9. Sony Corp. 3.7
- ------------------------------------------------------------------------------
10. Natsteel Electronics Ltd. 3.5
- ------------------------------------------------------------------------------
* As a percentage of total investments.
Investment Allocation as of October 31, 1998*
- -----------------------------------------------------------------------------
PIE CHART
10.3% Hong Kong
58.3% Japan
7.8% Australia
5.6% Thailand
6.0% South Korea
8.1% Singapore
3.9% Other
* As a percentage of total investments.
- -------------------------------------------------------------------------------
18 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Schedules of Investments October 31, 1998
================================================================================
EMERGING MARKETS PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=========================================================================================
<S> <C> <C> <C>
STOCK -- 100.0%
Argentina -- 4.1%
17,000 Telefonica de Argentina SA(a) $ 562,063
- -----------------------------------------------------------------------------------------
Brazil -- 13.8%
12,500 Aracruz Celulose SA ADR 104,688
524,000 Companhia Cervejaria Brahma 245,989
25,931,250 Companhia Paranaense de Energia-Copel 202,164
9,131,250 Companhia Siderurgica Nacional SA 137,784
3,500,000 Embratel Participacoes SA(b) 49,292
1,762,500 Petroleo Brasileiro SA - Petrobras 221,624
15,000,000 Tele Sudeste Celular Participacoes SA(b) 59,100
436,646 Telebrasilia Celular SA(b) 17,497
4,704 Telecomunicacoes Brasileiras SA(a)(b) 357,210
436,646 Telecomunicacoes de Brasilia SA - Telebrasilia 35,140
43,000,000 Telemig Celular Participacoes SA(b) 43,256
6,750,000 Telesp Celular Participacoes SA(b) 50,360
14,500,000 Telesp Participacoes SA 370,735
- -----------------------------------------------------------------------------------------
1,894,839
- -----------------------------------------------------------------------------------------
Chile -- 5.0%
19,000 Cia de Telecomunicaciones de Chile SA 416,813
10,700 Vina Concha y Toro SA ADR 274,856
- -----------------------------------------------------------------------------------------
691,669
- -----------------------------------------------------------------------------------------
China -- 1.7%
1,155,000 Shanghai China International Travel Service Co., Ltd. 226,380
- -----------------------------------------------------------------------------------------
Croatia -- 1.6%
15,000 Pliva d.d.(c) 220,500
- -----------------------------------------------------------------------------------------
Greece -- 5.2%
10,000 Hellenic Telecommunication Organization SA 227,333
1,871 National Bank of Greece SA 265,838
8,150 STET Hellas Telecommunications SA(b) 213,938
- -----------------------------------------------------------------------------------------
707,109
- -----------------------------------------------------------------------------------------
Hong Kong -- 4.6%
115,600 China Telecom (Hong Kong) Ltd. 217,142
720 Hubei Sanonda Co. Ltd. 146
639,800 Shandong Chenming Paper Holdings Ltd. 232,925
936,000 Zhehuang Expressway Co. Ltd. 183,672
- -----------------------------------------------------------------------------------------
633,885
- -----------------------------------------------------------------------------------------
Hungary -- 1.7%
221,932 Fotex Rt 116,640
3,400 Richter Gedeon Rt 111,918
- -----------------------------------------------------------------------------------------
228,558
- -----------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 19
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1998
================================================================================
EMERGING MARKETS PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=========================================================================================
<S> <C> <C> <C>
India -- 4.4%
34,900 Larson and Toubro Ltd. GDR $ 235,575
35,000 Videsh Sanchar Nigam Ltd. 366,625
- -----------------------------------------------------------------------------------------
602,200
- -----------------------------------------------------------------------------------------
Malaysia -- 3.7%
151,400 Genting Berhad 242,880
28 ING Baring 45,382
144,000 Telekom Malaysia Berhad 224,362
- -----------------------------------------------------------------------------------------
512,624
- -----------------------------------------------------------------------------------------
Mexico -- 11.3%
91,200 Grupo Carso SA de CV 314,872
219,500 Grupo Financiero Banamex Accival, SA de CV 229,843
42,400 Grupo Industrial Durango, SA ADR 212,000
594,400 Grupo Posadas SA 217,255
9,450 Grupo Televisa SA(a)(b) 256,332
6,000 Telefonos de Mexico SA ADR(a) 316,875
- -----------------------------------------------------------------------------------------
1,547,177
- -----------------------------------------------------------------------------------------
Peru -- 2.3%
24,000 Telefonica del Peru SA(a) 312,000
- -----------------------------------------------------------------------------------------
Philippines -- 1.5%
9,900,000 Digital Telecommunications Phils., Inc.(b) 211,003
- -----------------------------------------------------------------------------------------
Poland -- 4.4%
8,435 Debica SA 138,319
39,200 Elektrim Spolka Akcyjna SA 466,463
- -----------------------------------------------------------------------------------------
604,782
- -----------------------------------------------------------------------------------------
Singapore -- 2.5%
42,000 Asia Pulp & Paper Co. Ltd.(a) 349,125
- -----------------------------------------------------------------------------------------
South Africa -- 7.5%
57,033 Dimension Data Holdings Ltd. 261,274
286,372 Metro Cash and Carry Ltd. 193,977
11,140 Nedcor Ltd. 222,402
18,500 South African Breweries Ltd. 358,788
- -----------------------------------------------------------------------------------------
1,036,441
- -----------------------------------------------------------------------------------------
South Korea -- 6.4%
7,600 LG Information & Communication 174,520
9,179 Samsung Display Devices Co. 344,343
8,900 Samsung Electronics 364,228
- -----------------------------------------------------------------------------------------
883,091
- -----------------------------------------------------------------------------------------
Sri Lanka -- 0.1%
134,600 Lanka Walltile Ltd. 14,046
- -----------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
20 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1998
================================================================================
EMERGING MARKETS PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=========================================================================================
<S> <C> <C>
Taiwan -- 10.4%
305,200 Chinatrust Commercial Bank $ 212,467
157,200 Delta Electronics, Inc. 452,754
22,400 Fubon Insurance Co.(b)(c) 282,800
18,000 Taiwan Semiconductor Manufacturing Co.(a) 268,875
160,800 Yuanta Securities Corp. 211,500
- -----------------------------------------------------------------------------------------
1,428,396
- -----------------------------------------------------------------------------------------
Thailand -- 2.7%
38,750 Advanced Info Service Public Co., Ltd.(b) 267,860
84,500 Thai Farmers Bank Public Co. Ltd.(b) 106,932
- -----------------------------------------------------------------------------------------
374,792
- -----------------------------------------------------------------------------------------
Turkey -- 3.7%
1,536,500 Brisa Bridgestone Sabanci Lastik Sanaret ve Ticaret AS 128,040
991,250 Ege Biracilik ve Malt Sanayii AS 258,134
2,926,172 Turk Sise ve Cam Fabrikalari AS 125,985
- -----------------------------------------------------------------------------------------
512,159
- -----------------------------------------------------------------------------------------
Venezuela -- 1.4%
12,000 Compania Anonima Nacional Telefonos de Venezuela 186,000
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $19,486,398*) $13,738,839
=========================================================================================
</TABLE>
(a) A portion of this security is on loan (See Note 9).
(b) Non-income producing security.
(c) Security is exempt from registration under Rule 144a of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, generally to qualified institutional buyers.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 21
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1998
================================================================================
EUROPEAN PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=========================================================================================
<S> <C> <C> <C>
STOCK--91.9%
Austria--1.4%
12,000 VA Technolgie AG $ 1,112,208
- -----------------------------------------------------------------------------------------
Canada--0.1%
242,957 International UNP Holdings Ltd.(a) 37,693
- -----------------------------------------------------------------------------------------
Finland--5.9%
50,000 Nokia Oyj, Class A Shares 4,653,125
- -----------------------------------------------------------------------------------------
France--16.9%
5,000 Alcatel 556,955
10,000 Atos SA 1,885,910
20,000 Axa 2,260,212
15,000 Cap Gemini SA 2,253,914
10,000 Christian Dior SA 1,056,325
10,000 Coflexip SA 899,766
10,391 Guilbert SA(b) 1,509,004
35,000 Schlumberger Ltd. 1,837,500
10,000 Total SA, Class B Shares 1,153,500
- -----------------------------------------------------------------------------------------
13,413,086
- -----------------------------------------------------------------------------------------
Germany--14.3%
950 Buderus AG 392,917
21,000 Daimler Benz AG(b) 1,650,888
40,000 Mannesmann AG 3,873,928
4,000 SAP AG Preferred 1,946,624
30,000 Schering AG 3,505,011
- -----------------------------------------------------------------------------------------
11,369,368
- -----------------------------------------------------------------------------------------
Ireland--2.3%
30,000 Computer Management Systems PLC 358,125
362,614 Independent Newspapers PLC 1,438,339
- -----------------------------------------------------------------------------------------
1,796,464
- -----------------------------------------------------------------------------------------
Italy--5.1%
20,000 Gucci Group NV, NY Registered Shares 762,500
60,000 Industrie Natuzzi S.p.A 1,091,250
800,000 Istituto Nazionale delle Assicurazioni 2,212,117
- -----------------------------------------------------------------------------------------
4,065,867
- -----------------------------------------------------------------------------------------
Netherlands--18.1%
100,000 Aot NV 1,242,170
71,842 Fugro NV 1,946,354
42,090 Hunter Douglas NV 1,509,895
40,370 IHC Caland NV 1,826,452
40,294 ING Groep NV 1,950,301
60,526 Koninklijke Ahrend Groep NV 1,228,214
62,400 Ordina NV 1,623,730
105,018 Samas Groep NV 1,748,699
50,000 Vedior NV 1,274,295
- -----------------------------------------------------------------------------------------
14,350,110
- -----------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
22 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1998
================================================================================
EUROPEAN PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=========================================================================================
<S> <C> <C> <C>
Norway--4.6%
50,000 Orkla ASA $ 844,388
100,000 Tomra Systems ASA(b) 2,807,846
- -----------------------------------------------------------------------------------------
3,652,234
- -----------------------------------------------------------------------------------------
Spain--6.3%
50,000 Amper SA(a) 956,633
12,250 Azkoyen SA(b) 1,649,306
53,600 Telefonica SA 2,415,646
- -----------------------------------------------------------------------------------------
5,021,585
- -----------------------------------------------------------------------------------------
Sweden--1.2%
30,000 Mandator AB 959,435
Switzerland--5.2%
51,000 Mettler-Toledo International Inc. 1,115,625
1,664 Novartis AG 2,998,198
- -----------------------------------------------------------------------------------------
4,113,823
- -----------------------------------------------------------------------------------------
United Kingdom--10.5%
120,000 CMG PLC 2,793,408
240,000 Compass Group PLC 2,423,633
600,000 Corporate Services Group PLC 1,497,186
200,000 SEMA Group PLC 1,597,669
- -----------------------------------------------------------------------------------------
8,311,896
=========================================================================================
TOTAL STOCK
(Cost -- $58,811,532) 72,856,894
=========================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
=========================================================================================
REPURCHASE AGREEMENT -- 8.1%
$6,400,000 CIBC Wood Gundy Securities Inc., 5.250% due 11/2/98;
Proceeds at maturity -- $6,402,800; (Fully collateralized
by U.S. Treasury Notes, 5.875% due 8/31/99;
Market value -- $6,527,892) (Cost -- $6,400,000) 6,400,000
=========================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $65,211,532*) $79,256,894
=========================================================================================
</TABLE>
(a) Non-income producing security.
(b) A portion of this security is on loan (See Note 9).
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 23
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1998
================================================================================
PACIFIC PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=========================================================================================
<S> <C> <C> <C>
STOCK--96.1%
Australia -- 7.8%
12,659 Australian Gas Light Co. Ltd. $ 90,657
4,300 Brambles Industries Ltd. 93,898
4,270 Commonwealth Bank of Australia 52,853
20,000 Leighton Holdings Ltd. 73,930
13,500 Woolworths Ltd. 47,298
- -----------------------------------------------------------------------------------------
358,636
- -----------------------------------------------------------------------------------------
Hong Kong -- 10.3%
36,000 Asia Satellite Telecommunications Holdings Ltd. 63,672
8,000 Cheung Kong (Holdings) Ltd. 54,738
36 HSBC Holdings PLC 824
35,000 New World Development Co. Ltd.(a) 81,332
25,000 Shanghai Industrial Holdings Ltd. 57,772
13,000 Sun Hung Kai Properties Ltd. 90,628
34,000 VTech Holdings Ltd. 127,510
- -----------------------------------------------------------------------------------------
476,476
- -----------------------------------------------------------------------------------------
Japan -- 58.3%
2,500 Benesse Corp. 114,778
8,000 Canon, Inc.(a) 151,378
17,000 Chugai Pharmaceutical Co., Ltd. 154,639
1,200 Hosiden Corp. 19,700
12,000 Kao Corp. 243,028
1,500 Mabuchi Motor Co., Ltd. 97,828
5,700 Meitec Corp. 110,058
4,000 Murata Manufacturing Co., Ltd. 134,900
2,300 Nidec Corp. 209,414
10,000 Nissin Food Products 198,661
530 NTT Data Corp.(b) 224,225
3,200 Orix Corp. 229,298
10,000 Sekisui House Ltd. 99,631
3,000 Seven-Eleven Japan Co., Ltd. 228,095
600 Shohkoh Fund & Co., Ltd. 182,528
2,700 Sony Corp. 171,458
6,000 Terumo Corp. 126,148
- -----------------------------------------------------------------------------------------
2,695,767
- -----------------------------------------------------------------------------------------
New Zealand -- 1.0%
24,000 Telecom Corp. of New Zealand Ltd.(b) 46,756
- -----------------------------------------------------------------------------------------
Singapore -- 8.1%
16,000 City Developments Ltd. 57,975
48,000 Datacraft Asia Ltd. 154,560
78,500 Natsteel Electronics Ltd. 161,020
- -----------------------------------------------------------------------------------------
373,555
- -----------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
24 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Schedules of Investments (continued) October 31, 1998
================================================================================
PACIFIC PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=========================================================================================
<S> <C> <C> <C>
South Korea -- 6.0%
2,000 Samsung Electronics $ 81,849
7,700 Youngone Corp. 193,740
- -----------------------------------------------------------------------------------------
275,589
- -----------------------------------------------------------------------------------------
Taiwan -- 1.9%
18,200 Hon Hai Precision Industry 87,456
- -----------------------------------------------------------------------------------------
Thailand -- 2.7%
52,000 GSS Array Technology PLC 63,328
17,000 The Pizza Co. Ltd. 61,994
- -----------------------------------------------------------------------------------------
125,322
- -----------------------------------------------------------------------------------------
TOTAL STOCK
(Cost -- $3,961,369) 4,439,557
=========================================================================================
<CAPTION>
FACE
AMOUNT+ SECURITY VALUE
=========================================================================================
CONVERTIBLE BONDS -- 3.9%
Philippines -- 1.0%
70,000 International Container Terminal, 1.750% due 3/13/04 48,650
- -----------------------------------------------------------------------------------------
Thailand -- 2.9%
180,000 Tipco Asphalt Co., 2.750% due 9/19/06 132,300
- -----------------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS
(Cost -- $200,282) 180,950
=========================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $4,161,651*) $4,620,507
=========================================================================================
</TABLE>
(a) Non-income producing security.
(b) A portion of this security is on loan (See Note 9).
+ Represents local currency.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 25
<PAGE>
================================================================================
Statements of Assets and Liabilities October 31, 1998
================================================================================
<TABLE>
<CAPTION>
Emerging
Markets European Pacific
Portfolio Portfolio Portfolio
================================================================================================================
<S> <C> <C> <C>
ASSETS:
Investments, at cost $19,486,398 $65,211,532 $4,161,651
Foreign currency, at cost 3,191 -- 238,319
================================================================================================================
Investments, at value $13,738,839 $79,256,894 $4,620,507
Foreign currency, at value 3,228 -- 243,858
Cash 168,749 -- 181,585
Collateral for securities on loan (Note 9) 1,974,190 1,645,499 272,220
Receivable for Fund shares sold 248,761 237,171 65,879
Dividends and interest receivable 20,191 111,004 6,788
Receivable for securities sold -- 1,722,914 40,854
Receivable for open forward foreign
currency contracts (Note 4) 2,947 1,482 5
- ----------------------------------------------------------------------------------------------------------------
Total Assets 16,156,905 82,974,964 5,431,696
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 9) 1,974,190 1,645,499 272,220
Payable for securities purchased 147,206 688,722 143,132
Management fees payable 9,797 50,902 6,565
Payable for Fund shares purchased 6,978 1,166,825 10
Distribution fees payable 4,389 13,480 2,541
Foreign currency payable to bank -- 685,370 --
Payable to bank -- 208,139 --
Payable for open forward foreign
currency contracts (Note 4) -- 534 69
Accrued expenses 45,067 100,026 77,716
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities 2,187,627 4,559,497 502,253
- ----------------------------------------------------------------------------------------------------------------
Total Net Assets $13,969,278 $78,415,467 $ 4,929,443
================================================================================================================
NET ASSETS:
Par value of capital shares $ 2,015 $ 4,103 $ 749
Capital paid in excess of par value 26,221,786 63,020,334 8,503,666
Accumulated net investment loss -- -- (82,953)
Accumulated net realized gain (loss) from
security transactions and foreign currencies (6,506,119) 1,343,363 (3,957,457)
Net unrealized appreciation (depreciation)
of investments and foreign currencies (5,748,404) 14,047,667 465,438
- ----------------------------------------------------------------------------------------------------------------
Total Net Assets $13,969,278 $78,415,467 $ 4,929,443
================================================================================================================
Shares Outstanding:
Class A 813,582 1,418,204 265,800
- ----------------------------------------------------------------------------------------------------------------
Class B 875,491 2,115,353 331,674
- ----------------------------------------------------------------------------------------------------------------
Class L 225,426 569,022 151,656
- ----------------------------------------------------------------------------------------------------------------
Class Y 100,286 -- --
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $7.03 $19.44 $6.73
- ----------------------------------------------------------------------------------------------------------------
Class B* $6.85 $18.95 $6.51
- ----------------------------------------------------------------------------------------------------------------
Class L** $6.84 $18.91 $6.48
- ----------------------------------------------------------------------------------------------------------------
Class Y (and redemption price) $7.07 -- --
- ----------------------------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $7.40 $20.46 $7.08
- ----------------------------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $6.91 $19.10 $6.55
================================================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from initial purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
26 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Statements of Operations For the Year Ended October 31, 1998
================================================================================
<TABLE>
<CAPTION>
Emerging
Markets European Pacific
Portfolio Portfolio Portfolio
===================================================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 9) $ 21,853 $ 311,243 $ 21,288
Dividends 467,744 951,286 73,808
Less: Foreign withholding tax (46,568) (131,789) (4,872)
- -------------------------------------------------------------------------------------------------------------------
Total Investment Income 443,029 1,130,740 90,224
- -------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 242,829 530,065 50,789
Distribution fees (Note 2) 170,167 462,546 43,497
Custody 117,397 40,166 23,571
Shareholder and system servicing fees 72,114 122,747 30,768
Registration fees 40,379 59,738 51,137
Shareholder communications 31,973 32,408 12,886
Audit and legal 26,414 28,157 20,809
Directors' fees 2,809 4,160 2,647
Other 7,340 4,216 7,369
- -------------------------------------------------------------------------------------------------------------------
Total Expenses 711,422 1,284,203 243,473
- -------------------------------------------------------------------------------------------------------------------
Net Investment Loss (268,393) (153,463) (153,249)
- -------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN
CURRENCIES (NOTES 3 AND 4):
Realized Gain (Loss) From:
Security transactions (5,510,743) 1,344,718 (1,679,931)
Foreign currency transactions (193,247) (4,308) (7,357)
- -------------------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) (5,703,990) 1,340,410 (1,687,288)
- -------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments and Foreign Currencies:
Beginning of year 778,521 16,657,557 (257,451)
End of year (5,748,404) 14,047,667 465,438
- -------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) (6,526,925) (2,609,890) 722,889
- -------------------------------------------------------------------------------------------------------------------
Net Loss on Investments and Foreign Currencies (12,230,915) (1,269,480) (964,399)
- -------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Operations $(12,499,308) $ (1,422,943) $(1,117,648)
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 27
<PAGE>
================================================================================
Statements of Changes in Net Assets For the Year Ended October 31, 1998
================================================================================
<TABLE>
<CAPTION>
Emerging
Markets European Pacific
Portfolio Portfolio Portfolio
====================================================================================================================
<S> <C> <C> <C>
OPERATIONS:
Net investment loss $ (268,393) $ (153,463) $ (153,249)
Net realized gain (loss) (5,703,990) 1,340,410 (1,687,288)
Change in net unrealized appreciation (depreciation) (6,526,925) (2,609,890) 722,889
- --------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Operations (12,499,308) (1,422,943) (1,117,648)
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains -- (971,550) --
- --------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders -- (971,550) --
- --------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 16,605,085 232,181,828 29,892,372
Net asset value of shares issued
for reinvestment of dividends -- 914,761 --
Cost of shares reacquired (26,621,269) (198,735,480) (33,645,977)
- --------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Fund Share Transactions (10,016,184) 34,361,109 (3,753,605)
- --------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (22,515,492) 31,966,616 (4,871,253)
NET ASSETS:
Beginning of year 36,484,770 46,448,851 9,800,696
- --------------------------------------------------------------------------------------------------------------------
End of year* $ 13,969,278 $ 78,415,467 $ 4,929,443
====================================================================================================================
* Includes accumulated net investment loss of: -- -- $82,953
====================================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
28 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Statements of Changes in Net Assets For the Year Ended October 31, 1997
================================================================================
<TABLE>
<CAPTION>
Emerging
Markets European Pacific
Portfolio Portfolio Portfolio
===================================================================================================================
<S> <C> <C> <C>
OPERATIONS:
Net investment loss $ (284,810) $ (428,508) $ (261,594)
Net realized gain (loss) (945,031) 891,582 (530,519)
Change in net unrealized appreciation (depreciation) 208,848 4,808,121 (479,484)
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (1,020,993) 5,271,195 (1,271,597)
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains -- (2,644,023) --
- -------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders -- (2,644,023) --
- -------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 35,138,483 59,471,115 27,795,046
Net asset value of shares issued
for reinvestment of dividends -- 2,505,751 --
Cost of shares reacquired (23,833,181) (57,078,021) (27,272,602)
- -------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 11,305,302 4,898,845 522,444
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 10,284,309 7,526,017 (749,153)
NET ASSETS:
Beginning of year 26,200,461 38,922,834 10,549,849
- -------------------------------------------------------------------------------------------------------------------
End of year* $ 36,484,770 $ 46,448,851 $ 9,800,696
===================================================================================================================
* Includes accumulated net investment loss of: -- -- $(133,696)
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 29
<PAGE>
================================================================================
Notes to Financial Statements
================================================================================
1. Significant Accounting Policies
The Emerging Markets, European and Pacific Portfolios ("Portfolios") are
separate investment portfolios of the Smith Barney World Funds, Inc. ("Fund").
The Fund, a Maryland corporation, is registered under the Investment Company Act
of 1940, as amended, as an open-end investment management company. The Fund
consists of these Portfolios and three other separate investment portfolios:
Global Government Bond, International Equity and International Balanced
Portfolios. The financial statements and financial highlights for the other
portfolios are presented in a separate annual report.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing prices on the primary
exchange on which they are traded; securities listed or traded on certain
foreign exchanges or other markets whose operations are similar to the U.S.
over-the-counter market (including securities listed on exchanges where the
primary market is believed to be over-the-counter) and securities for which no
sales price was reported on that date are valued at the mean between the bid and
ask prices. Securities which are listed or traded on more than one exchange or
market are valued at the quotations on the exchange or market determined to be
the primary market for such securities; (c) securities for which market
quotations are not available will be valued in good faith at fair value by or
under the direction of the Board of Directors; (d) securities maturing within 60
days are valued at cost plus accreted discount, or minus amortized premium,
which approximates value; (e) gains or losses on the sale of securities are
calculated by using the specific identification method; (f) interest income,
adjusted for amortization of premium and accretion of discount, is recorded on
an accrual basis; (g) dividend income is recorded on the ex-dividend date;
foreign dividend income is recorded on the ex-dividend date or as soon as
practical after the Fund determines the existence of a dividend declaration
after exercising reasonable due diligence; (h) direct expenses are charged to
each Portfolio and class; management fees and general Portfolio expenses are
allocated on the basis of relative net assets by class; (i) dividends and
distributions to shareholders are recorded on the ex-dividend date; (j) the
accounting records of each Portfolio are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars on the date of valuation. Purchases and sales of securities, and income
and expenses are translated at the rate of exchange quoted on the respective
date that such transactions are recorded. Differences between income or expense
amounts recorded and collected or paid are adjusted when reported by the
custodian; (k) the character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At October 31, 1998, reclassifications
were made to the capital accounts of the Portfolios to reflect permanent
book/tax differences and income and gains available for distributions under tax
regulations. Accordingly, a portion of accumulated net investment loss amounting
to $461,640, $157,771 and $158,273 was reclassified to paid-in capital for the
Emerging Markets, European and Pacific Portfolios, respectively. Net investment
income (loss), net realized gains and net assets were not affected by these
adjustments; (l) each Portfolio intends to comply with the applicable provisions
of the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve each Portfolio from substantially all Federal income and excise taxes;
and (m) estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ.
- --------------------------------------------------------------------------------
30 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
In addition, the Portfolios may enter into forward exchange contracts in order
to hedge against foreign currency risk. These contracts are marked-to-market
daily by recognizing the difference between the contract exchange rate and the
current market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
2. Management Agreement and Other
Transactions
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney Holdings
Inc. ("SSBH"), acts as investment manager of the Portfolios. The European and
Pacific Portfolios pay MMC a management fee calculated at an annual rate of
0.85% of the average daily net assets of each respective Portfolio. The Emerging
Markets Portfolio pays MMCa management fee calculated at an annual rate of 1.00%
of the average daily net assets of the Portfolio. These fees are calculated
daily and paid monthly.
On October 8, 1998, CFBDS, Inc. became the Portfolios' distributor. Prior to
that date, Salomon Smith Barney Inc. ("SSB"), was the Portfolios' distributor.
SSB (as well as certain other broker-dealers) continues to sell shares of the
Portfolios to the public as a member of the selling group.
SSB acts as the primary broker for the Fund's portfolio agency transactions. For
the year ended October 31, 1998, SSB received brokerage commissions of $10,502.
On June 12, 1998, the Portfolios' existing Class C shares were renamed Class L
shares. Effective June 15, 1998, Class L shares are being sold at net asset
value plus a maximum initial sales charge of 1.00%. Class L shares also have a
1.00% contingent deferred sales charge ("CDSC"), which applies if redemption
occurs within the first year of purchase.
There is also a CDSC of 5.00% on Class B shares, which applies if redemption
occurs within one year from initial purchase. Thereafter this CDSC declines by
1.00% per year until no CDSC is incurred. In addition, Class A shares for each
Portfolio have a 1.00% CDSC, which applies if redemption occurs within the first
year of purchase. This CDSC only applies to those purchases of Class A shares
that equal or exceed $500,000 in the aggregate. These purchases do not incure an
initial sales charge.
For the year ended October 31, 1998, CDSC's paid to SSB were approximately:
CDSC's
--------------------------------
Portfolio Class A Class B Class L
==========================================================
Emerging Markets -- $72,000 $1,000
- ----------------------------------------------------------
European $7,000 259,000 8,000
- ----------------------------------------------------------
Pacific 1,000 25,000 --
==========================================================
For the year ended October 31, 1998, sales charges received by SSB were
approximately:
Sales Charges
--------------------------------
Portfolio Class A Class L
==========================================================
Emerging Markets $ 15,000 --
- ----------------------------------------------------------
European 242,000 $62,000
- ----------------------------------------------------------
Pacific 33,000 --
==========================================================
Pursuant to a Distribution Plan, the Portfolios pay a service fee with respect
to Class A, B and L shares calculated at the annual rate of 0.25% of the average
daily net assets of each respective class' shares. The Portfolios also pay a
distribution fee with respect to Class B and L shares calculated at the annual
rate of 0.75% of the average daily net assets for each respective Portfolio and
class. For the year ended October 31, 1998, total Distribution Plan fees
incurred by the Portfolios were:
Portfolio Class A Class B Class L
==========================================================
Emerging Markets $23,548 $117,539 $29,080
- ----------------------------------------------------------
European 53,687 350,335 58,524
- ----------------------------------------------------------
Pacific 5,418 28,064 10,015
==========================================================
All officers and one Director of the Fund are employees of SSB.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 31
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
3. Investments
During the year ended October 31, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
Portfolio Purchases Sales
====================================================
Emerging Markets $22,801,168 $29,117,429
- ----------------------------------------------------
European 43,769,600 15,686,302
- ----------------------------------------------------
Pacific 7,768,289 8,911,539
====================================================
At October 31, 1998, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
Net Unrealized
Appreciation
Portfolio Appreciation Depreciation (Depreciation)
=============================================================================
Emerging Markets $ 715,064 $6,463,468 $(5,748,404)
- -----------------------------------------------------------------------------
European 21,206,903 7,161,541 14,045,362
- -----------------------------------------------------------------------------
Pacific 710,220 251,364 458,856
=============================================================================
4. Forward Foreign Currency Contracts
At October 31, 1998, the Portfolios had open forward foreign currency contracts
as described below. The Portfolios bear the market risk that arises from changes
in foreign currency exchange rates. The unrealized gain (loss) on the contracts
reflected in the accompanying financial statements were as follows:
<TABLE>
<CAPTION>
Emerging Markets Portfolio
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain
======================================================================================================
<S> <C> <C> <C> <C>
To Buy:
South African Rand 825,827 $146,955 11/3/98 $2,947
- ------------------------------------------------------------------------------------------------------
Total Unrealized Gain on
Forward Foreign Currency Contracts $2,947
======================================================================================================
<CAPTION>
European Portfolio
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
======================================================================================================
<S> <C> <C> <C> <C>
To Buy:
German Mark 777,485 $469,508 11/2/98 $1,482
- ------------------------------------------------------------------------------------------------------
To Sell:
German Mark 1,215,780 734,257 11/4/98 (534)
- ------------------------------------------------------------------------------------------------------
Total Unrealized Gain on
Forward Foreign Currency Contracts $ 948
======================================================================================================
<CAPTION>
Pacific Portfolio
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
======================================================================================================
<S> <C> <C> <C> <C>
To Buy:
Hong Kong Dollar 528,666 $68,244 11/2/98 $ 5
Singapore Dollar 31,185 19,208 11/3/98 0
Singapore Dollar 58,734 36,153 11/4/98 (69)
- ------------------------------------------------------------------------------------------------------
Total Unrealized Loss on
Forward Foreign Currency Contracts $(64)
======================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
32 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
5. Option Contracts
Premiums paid when put or call options are purchased by the Portfolios represent
investments, which are marked-to-market daily. When a purchased option expires,
the Portfolio will realize a loss in the amount of the premium paid. When the
Portfolio enters into a closing sales transaction, the Portfolio will realize a
gain or loss depending on whether the proceeds from the closing sales
transaction are greater or less than the premium paid for the option. When the
Portfolio exercises a put option, it will realize a gain or loss from the sale
of the underlying security and the proceeds from such sale will be decreased by
the amount of the premium originally paid. When the Portfolio exercises a call
option, the cost of the security that the Portfolio purchases upon exercise will
be increased by the premium originally paid.
At October 31, 1998, the Portfolios had no open purchased call or put options.
When a Portfolio writes a call or put option, an amount equal to the premium
received by the Portfolio is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Portfolio realizes a
gain equal to the amount of the premium received. When the Portfolio enters into
a closing purchase transaction, the Portfolio realizes a gain or loss depending
upon whether the cost of the closing transaction is greater or less than the
premium originally received without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised, the cost of the security sold will be
decreased by the premium originally received. When a written put option is
exercised, the amount of the premium originally received will reduce the cost of
the security that the Portfolio purchased upon exercise. When written index
options are exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Portfolio enters into options for hedging purposes. The risk in
writing a call option is that the Portfolio gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Portfolio is
exposed to the risk of a loss if the market price of the underlying security
declines.
During the year ended October 31, 1998, the Portfolios did not write any call or
put options.
6. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. Securities equal to the initial margin amount are segregated by the
custodian in the name of the broker. Additional securities are also segregated
up to the current market value of the futures contract. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking-to-market" on a daily basis to reflect
the market value of the contract at the end of each day's trading. Variation
margin payments are received or made and recognized as assets due from or
liabilities due to broker, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Portfolio records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the closing
transactions and the Portfolio's basis in the contract. The Portfolio enters
into such contracts to hedge a portion of its portfolio. The Portfolio bears the
market risk that arises from changes in the value of the financial instruments
and securities indices (futures contracts).
At October 31, 1998, the Portfolios had no open futures contracts.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 33
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
7. Concentration of Risk
The Portfolios' investments in foreign securities may involve risks not present
in domestic investments. Since securities may be denominated in a foreign
currency and may require settlement in foreign currencies and pay interest or
dividends in foreign currencies, changes in the relationship of these foreign
currencies to the U.S. dollar can significantly affect the value of the
investments and earnings of each of the Portfolios. Foreign investments may also
subject the Portfolios to foreign government exchange restrictions,
expropriation, taxation or other political, social or economic developments, all
of which could affect the market and/or credit risk of the investments. As of
October 31, 1998, 58.3% of the Pacific Portfolio's total investments were
concentrated in Japan.
In addition to the risks described above, risks may arise from forward foreign
currency contracts with respect to the potential inability of counterparties to
meet the terms of their contracts.
8. Capital Loss Carryforwards
At October 31, 1998, the Emerging Markets and Pacific Portfolios had, for
Federal income tax purposes, approximately $6,458,000 and $3,949,000,
respectively, of capital loss carryforwards available to offset future realized
gains. To the extent that these carryforward losses are used to offset gains, it
is probable that the gains so offset will not be distributed. The amount and
date of expiration of the carryforward losses for each Portfolio is indicated
below:
<TABLE>
<CAPTION>
Portfolio 10/31/02 10/31/03 10/31/04 10/31/05 10/31/06 Total
=======================================================================================
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets -- $46,000 -- $879,000 $5,533,000 $6,458,000
- ---------------------------------------------------------------------------------------
Pacific $37,000 1,426,000 $246,000 515,000 1,725,000 3,949,000
=======================================================================================
</TABLE>
9. Lending of Portfolio Securities
The Portfolios have an agreement with their custodian whereby the custodian may
lend securities owned by the Portfolios to brokers, dealers and other financial
organizations. Fees earned by the Portfolios on securities lending are recorded
as interest income. Loans of securities by the Portfolios are collateralized by
cash, U.S. government securities, high quality money market instruments or other
securities that are maintained at all times in an amount at least equal to the
current market value of the loaned securities, plus a margin depending on the
type of securities loaned. The custodian establishes and maintains the
collateral in a segregated account. The Portfolios maintain exposure for the
risk of any losses in the investment of amounts received as collateral.
At October 31, 1998, the Portfolios listed below had loaned common stocks which
were collateralized by cash and securities. The market value for the securities
on loan for each portfolio was as follows:
Portfolio Value
===============================================================================
Emerging Markets Portfolio $1,978,055
- -------------------------------------------------------------------------------
European Portfolio 1,769,555
- -------------------------------------------------------------------------------
Pacific Portfolio 562,278
===============================================================================
- --------------------------------------------------------------------------------
34 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
At October 31, 1998, the Portfolios held the following collateral for loaned
securities:
Emerging Markets Portfolio Security Description Value
=========================================================================
Time Deposits:
Banca Commerciale Italiano, London, 5.594% due 11/2/98 $ 88,396
Bank of Austria, 5.563% due 11/2/98 88,396
Banque Bruxelles Lambert London, 5.563% due 11/2/98 88,396
Bayerische Landesbank, London, 5.625% due 11/2/98 88,396
Citibank London, 5.781% due 11/2/98 88,396
Credit Commerciale, 5.625% due 11/2/98 4,554
Credit Communal De Belgique, G.C., 5.375% due 11/2/98 88,396
Credit Local De France, 5.625% due 11/2/98 88,396
Den Norske Bank, 5.563% due 11/2/98 88,396
Deutsche Bank London, 5.500% due 11/2/98 88,396
Dresdner Bank, 5.625% due 11/2/98 88,396
Generale Bank, 5.563% due 11/2/98 88,396
Landesbank Hessen Thuringen, 5.750% due 11/2/98 88,396
Rabobank, London, 5.594% due 11/2/98 88,396
Cash:
Chase Manhattan Bank, 5.659% 210,000
Commercial Paper:
Associates Corp. of North America, 5.723% due 11/2/98 88,354
Ford Motor Credit Corp., 5.693% due 11/2/98 88,354
General Electric Credit, 5.693% due 11/2/98 88,354
Goldman Sachs Group LP, 5.753% due 11/2/98 80,322
New Center Asset Trust, 5.723% due 11/2/98 88,354
Trident Capital Finance Inc., 5.803% due 11/2/98 88,354
Loan Participation:
J&H Marsh & McLennan Inc., 5.850% due 11/2/98 88,396
=========================================================================
Total $1,974,190
=========================================================================
European Portfolio Security Description Value
=========================================================================
Time Deposits:
Banca Commerciale Italiano, London, 5.594% due 11/2/98 $ 82,449
Bank of Austria, 5.563% due 11/2/98 82,449
Banque Bruxelles Lambert London, 5.563% due 11/2/98 82,449
Bayerische Landesbank, London, 5.625% due 11/2/98 82,449
Citibank London, 5.781% due 11/2/98 82,449
Credit Commerciale, 5.625% due 11/2/98 4,248
Credit Communal De Belgique, G.C., 5.375% due 11/2/98 82,449
Credit Local De France, 5.625% due 11/2/98 82,449
Den Norske Bank, 5.563% due 11/2/98 82,449
Deutsche Bank London, 5.500% due 11/2/98 82,449
Dresdner Bank, 5.625% due 11/2/98 82,449
Generale Bank, 5.563% due 11/2/98 82,449
Landesbank Hessen Thuringen, 5.750% due 11/2/98 82,449
Rabobank, London, 5.594% due 11/2/98 82,449
Commercial Paper:
Associates Corp. of North America, 5.723% due 11/2/98 82,409
Ford Motor Credit Corp., 5.693% due 11/2/98 82,410
General Electric Credit, 5.693% due 11/2/98 82,410
Goldman Sachs Group LP, 5.753% due 11/2/98 74,917
New Center Asset Trust, 5.723% due 11/2/98 82,410
Trident Capital Finance Inc., 5.803% due 11/2/98 82,409
Loan Participation:
J&H Marsh & McLennan Inc., 5.850% due 11/2/98 82,449
=========================================================================
Total $1,645,499
=========================================================================
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 35
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
Pacific Portfolio Security Description Value
=======================================================================
Time Deposits:
Banca Commerciale Italiano, London, 5.594% due 11/2/98 $ 13,640
Bank of Austria, 5.563% due 11/2/98 13,640
Banque Bruxelles Lambert London, 5.563% due 11/2/98 13,640
Bayerische Landesbank, London, 5.625% due 11/2/98 13,640
Citibank London, 5.781% due 11/2/98 13,640
Credit Commerciale, 5.625% due 11/2/98 702
Credit Communal De Belgique, G.C., 5.375% due 11/2/98 13,640
Credit Local De France, 5.625% due 11/2/98 13,640
Den Norske Bank, 5.563% due 11/2/98 13,640
Deutsche Bank London, 5.500% due 11/2/98 13,640
Dresdner Bank, 5.625% due 11/2/98 13,640
Generale Bank, 5.563% due 11/2/98 13,640
Landesbank Hessen Thuringen, 5.750% due 11/2/98 13,640
Rabobank, London, 5.594% due 11/2/98 13,640
Commercial Paper:
Associates Corp. of North America, 5.723% due 11/2/98 13,633
Ford Motor Credit Corp., 5.693% due 11/2/98 13,633
General Electric Credit, 5.693% due 11/2/98 13,633
Goldman Sachs Group LP, 5.753% due 11/2/98 12,394
New Center Asset Trust, 5.723% due 11/2/98 13,633
Trident Capital Finance Inc., 5.803% due 11/2/98 13,633
Loan Participation:
J&H Marsh & McLennan Inc., 5.850% due 11/2/98 13,639
=======================================================================
Total $272,220
=======================================================================
In addition to the above noted cash collateral, the Portfolios held securities
collateral with market values of $224,978 and $284,884 for the European and
Pacific Portfolios, respectively, as of October 31, 1998.
Interest income earned by the Portfolios from securities loaned for the year
ended October 31, 1998 was as follows:
Emerging
Markets European Pacific
Portfolio Portfolio Portfolio Portfolio
==============================================================================
Income from securities lending $8,086 $31,857 $1,612
==============================================================================
10. Capital Shares
At October 31, 1998, the Fund had one billion shares of capital stock authorized
with a par value of $0.001 per share. The Portfolios have the ability to issue
multiple classes of shares. Each share of a class represents an identical legal
interest in a Portfolio and has the same rights, except that each class bears
certain expenses specifically related to the distribution of its shares.
At October 31, 1998, total paid-in capital amounted to the following for each
Portfolio:
Portfolio Class A Class B Class L Class Y
==============================================================================
Emerging Markets $10,167,885 $12,018,142 $ 3,188,759 $849,015
- ------------------------------------------------------------------------------
European 22,572,762 29,007,940 11,443,735 --
- ------------------------------------------------------------------------------
Pacific 3,386,891 3,217,950 1,899,574 --
==============================================================================
- --------------------------------------------------------------------------------
36 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
------------------------ ------------------------
Shares Amount Shares Amount
========================================================================================================
<S> <C> <C> <C> <C>
Emerging Markets Portfolio
Class A
Shares sold 1,137,419 $ 10,738,376 976,387 $ 14,159,665
Shares redeemed (1,452,183) (14,275,725) (732,804) (10,604,436)
- --------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (314,764) $ (3,537,349) 243,583 $ 3,555,229
========================================================================================================
Class B
Shares sold 464,368 $ 4,405,558 1,261,047 $ 17,982,006
Shares redeemed (1,071,606) (10,500,886) (871,681) (12,363,356)
- --------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (607,238) $ (6,095,328) 389,366 $ 5,618,650
========================================================================================================
Class L(1)
Shares sold 54,700 $ 603,227 212,076 $ 2,996,812
Shares redeemed (183,794) (1,844,658) (62,423) (865,389)
- --------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (129,094) $ (1,241,431) 149,653 $ 2,131,423
========================================================================================================
Class Y*
Shares sold 100,286 $ 857,924 -- --
Shares redeemed -- -- -- --
- --------------------------------------------------------------------------------------------------------
Net Increase 100,286 $ 857,924 -- --
========================================================================================================
European Portfolio
Class A
Shares sold 7,081,251 $ 145,667,578 753,014 $ 13,546,213
Shares issued on reinvestment 17,388 292,645 39,393 670,082
Shares redeemed (6,454,939) (132,333,615) (628,399) (11,429,037)
- --------------------------------------------------------------------------------------------------------
Net Increase 643,700 $ 13,626,608 164,008 $ 2,787,258
========================================================================================================
Class B
Shares sold 3,390,677 $ 67,508,019 2,437,568 $ 43,249,301
Shares issued on reinvestment 34,196 564,579 100,838 1,696,102
Shares redeemed (2,940,383) (56,380,398) (2,451,593) (43,812,735)
- --------------------------------------------------------------------------------------------------------
Net Increase 484,490 $ 11,692,200 86,813 $ 1,132,668
========================================================================================================
Class L(1)
Shares sold 922,946 $ 19,006,231 148,958 $ 2,675,601
Shares issued on reinvestment 3,496 57,537 8,322 139,567
Shares redeemed (531,482) (10,021,467) (101,215) (1,836,249)
- --------------------------------------------------------------------------------------------------------
Net Increase 394,960 $ 9,042,301 56,065 $ 978,919
========================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
* For the period from March 10, 1998 (inception date) to October 31, 1998.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 37
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
------------------------ ------------------------
Shares Amount Shares Amount
=======================================================================================================
<S> <C> <C> <C> <C>
Pacific Portfolio
Class A
Shares sold 3,240,998 $ 22,974,473 727,722 $ 7,499,628
Shares redeemed (3,536,658) (25,734,908) (650,293) (7,183,758)
- -------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (295,660) $ (2,760,435) 77,429 $ 315,870
=======================================================================================================
Class B
Shares sold 357,395 $ 2,621,087 1,620,231 $ 16,776,361
Shares redeemed (457,136) (3,300,568) (1,589,348) (16,734,838)
- -------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (99,741) $ (679,481) 30,883 $ 41,523
=======================================================================================================
Class L(1)
Shares sold 648,151 $ 4,296,812 336,933 $ 3,519,057
Shares redeemed (678,354) (4,610,501) (316,621) (3,354,006)
- -------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (30,203) $ (313,689) 20,312 $ 165,051
=======================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
38 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class A Shares
--------------------------------------------------------------------
Emerging Markets Portfolio 1998(1) 1997(1) 1996 1995(2)
==================================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.45 $12.08 $11.06 $12.00
- ----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss(3) (0.06) (0.05) (0.02) (0.05)#
Net realized and unrealized gain (loss) (5.36) 0.42 1.04 (0.89)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (5.42) 0.37 1.02 (0.94)
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 7.03 $12.45 $12.08 $11.06
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return (43.53)% 3.06% 9.22% (7.83)%++
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $5,723 $14,046 $10,691 $7,069
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio to Average Net Assets:
Expenses(3) 2.46% 2.11% 2.25% 1.45%+
Net investment loss (0.63) (0.34) (0.19) (0.63)+
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 97% 99% 78% 17%
==================================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the period from May 12, 1995 (inception date) to October 31, 1995.
(3) The Manager waived all or part of its fees for the period ended October 31,
1995. If such fees were not waived, the per share effect on net investment
loss and the expense ratio would have been as follows:
Per Share Increase Expense Ratio
to Net Investment Loss Without Fee Waivers
---------------------- -------------------
1995 1995
---- ----
Class A $0.05 2.12%+
In addition, during the year ended October 31, 1996 and the period ended
October 31, 1995, the Portfolio had earned credits from the custodian which
reduced service fees incurred. If the credits are taken into consideration,
the expense ratios for Class A would have been 2.16% and 1.20%
(annualized), respectively.
# Includes realized gains and losses on foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 39
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class B Shares
-------------------------------------------------------------
Emerging Markets Portfolio 1998(1) 1997(1) 1996 1995(2)
===========================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.21 $11.95 $11.02 $12.00
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss(3) (0.14) (0.14) (0.10) (0.09)#
Net realized and unrealized gain (loss) (5.22) 0.40 1.03 (0.89)
- ---------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (5.36) 0.26 0.93 (0.98)
- ---------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 6.85 $12.21 $11.95 $11.02
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (43.90)% 2.18% 8.44% (8.17)%++
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $5,994 $18,107 $13,062 $7,630
- ---------------------------------------------------------------------------------------------------------------------------
Ratio to Average Net Assets:
Expenses(3) 3.24% 2.88% 3.06% 2.00%+
Net investment loss (1.42) (1.00) (0.94) (1.17)+
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 97% 99% 78% 17%
===========================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the period from May 12, 1995 (inception date) to October 31, 1995.
(3) The Manager waived all or part of its fees for the period ended October 31,
1995. If such fees were not waived, the per share effect on net investment
loss and the expense ratio would have been as follows:
Per Share Increase Expense Ratio
to Net Investment Loss Without Fee Waivers
---------------------- -------------------
1995 1995
---- ----
Class B $0.05 2.68%+
In addition, during the year ended October 31, 1996 and the period ended
October 31, 1995, the Portfolio had earned credits from the custodian which
reduced service fees incurred. If the credits are taken into consideration,
the expense ratios for Class B would have been 2.97% and 1.74%
(annualized), respectively.
# Includes realized gains and losses on foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
40 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class L Shares(1)
------------------------------------------------
Emerging Markets Portfolio 1998(2) 1997(2) 1996 1995(3)
==============================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.22 $11.95 $11.02 $12.00
- --------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss(4) (0.15) (0.15) (0.10) (0.08)#
Net realized and unrealized gain (loss) (5.23) 0.42 1.03 (0.90)
- --------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (5.38) 0.27 0.93 (0.98)
- --------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 6.84 $12.22 $11.95 $11.02
- --------------------------------------------------------------------------------------------------------------
Total Return (44.03)% 2.26% 8.44% (8.17)%++
- --------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 1,543 $4,332 $2,448 $1,604
- --------------------------------------------------------------------------------------------------------------
Ratio to Average Net Assets:
Expenses(4) 3.31% 2.86% 3.02% 1.95%+
Net investment loss (1.47) (1.03) (0.92) (1.08)+
- --------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 97% 99% 78% 17%
==============================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from May 12, 1995 (inception date) to October 31, 1995.
(4) The Manager waived all or part of its fees for the period ended October 31,
1995. If such fees were not waived, the per share effect on net investment
loss and the expense ratio would have been as follows:
Per Share Increase Expense Ratio
to Net Investment Loss Without Fee Waivers
---------------------- -------------------
1995 1995
---- ----
Class L $0.05 2.61%+
In addition, during the year ended October 31, 1996 and the period ended
October 31, 1995, the Portfolio had earned credits from the custodian which
reduced service fees incurred. If the credits are taken into consideration,
the expense ratios for Class C would have been 2.92% and 1.70%
(annualized), respectively.
# Includes realized gains and losses on foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 41
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each share of capital stock outstanding throughout the year ended
October 31:
Class Y Shares
------------------------
Emerging Markets Portfolio 1998(1)(2)
=========================================================================
Net Asset Value, Beginning of Year $12.16
- -------------------------------------------------------------------------
Loss From Operations:
Net investment loss (0.01)
Net realized and unrealized loss (5.08)
- -------------------------------------------------------------------------
Total Loss From Operations (5.09)
- -------------------------------------------------------------------------
Less Distributions From:
Net investment income --
- -------------------------------------------------------------------------
Total Distributions --
- -------------------------------------------------------------------------
Net Asset Value, End of Year $ 7.07
- -------------------------------------------------------------------------
Total Return++ (41.86)%++
- -------------------------------------------------------------------------
Net Assets, End of Year (000s) $709
- -------------------------------------------------------------------------
Ratio to Average Net Assets+:
Expenses 1.89%
Net investment loss (0.16)
- -------------------------------------------------------------------------
Portfolio Turnover Rate 97%
=========================================================================
(1) For the period from March 10, 1998 (inception date) to October 31, 1998.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
42 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class A Shares
---------------------------------------------------------
European Portfolio 1998(1) 1997(1) 1996 1995 1994(2)
=============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $18.23 $17.25 $14.67 $12.88 $12.50
- -------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss)(3) 0.06 (0.08) (0.08) 0.07 (0.11)
Net realized and unrealized gain 1.54 2.22 2.79 1.72 0.49
- -------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.60 2.14 2.71 1.79 0.38
- -------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.09) -- --
Net realized gains (0.39) (1.16) (0.04) -- --
- -------------------------------------------------------------------------------------------------------------
Total Distributions (0.39) (1.16) (0.13) -- --
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $19.44 $18.23 $17.25 $14.67 $12.88
- -------------------------------------------------------------------------------------------------------------
Total Return 9.10% 12.88% 18.65% 13.90% 3.04%++
- -------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $27,563 $14,118 $10,528 $11,870 $5,189
- -------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 1.56% 1.80% 1.85% 2.06% 1.34%+
Net investment income (loss) 0.30 (0.42) (0.49) 0.51 (1.12)+
- -------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 27% 28% 39% 34% 21%
=============================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the period from February 7, 1994 (inception date) to October 31, 1994.
(3) The Manager waived all or part of its fees for the year ended October 31,
1995 and the period ended October 31, 1994. In addition, the manager agreed
to reimburse the European Portfolio for $10,344 of the Portfolio's expenses
for the period ended October 31, 1994. If such fees and expenses were not
waived or reimbursed, the per share effect on net investment income (loss)
and the expense ratios would have been as follows:
Expense Ratios
Per Share Decreases to Without Fee Waivers
Net Investment Income (Loss) and Custody Credits
---------------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
Class A $0.01 $0.10 2.09% 2.37%+
In addition, during the years ended October 31, 1996 and October 31, 1995,
the Portfolio had earned credits from the custodian which reduced service
fees incurred. If the credits are taken into consideration, the expense
ratios for Class A would have been 1.82% and 2.02%, respectively; numbers
prior to October 31, 1995 have not been restated to reflect these credits.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 43
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class B Shares
--------------------------------------------------
European Portfolio 1998(1) 1997(1) 1996 1995(2)
================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $17.92 $17.09 $14.56 $12.62
- ----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss)(3) (0.11) (0.20) (0.20) 0.02
Net realized and unrealized gain 1.53 2.19 2.77 1.92
- ----------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.42 1.99 2.57 1.94
- ----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains (0.39) (1.16) (0.04) --
- ----------------------------------------------------------------------------------------------------------------
Total Distributions (0.39) (1.16) (0.04) --
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $18.95 $17.92 $17.09 $14.56
- ----------------------------------------------------------------------------------------------------------------
Total Return 8.24% 12.08% 17.72% 15.37%++
- ----------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $40,090 $29,221 $26,384 $24,825
- ----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 2.32% 2.52% 2.59% 3.31%+
Net investment income (loss) (0.56) (1.13) (1.22) 0.26+
- ----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 27% 28% 39% 34%
================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the period from November 7, 1994 (inception date) to October 31, 1995.
(3) The Manager waived all or part of its fees for the year ended October 31,
1995. If such fees were not waived, the per share effect on net investment
income and the expense ratio would have been as follows:
Expense Ratio
Per Share Decrease to Without Fee Waivers
Net Investment Income and Custody Credits
--------------------- --------------------
1995 1995
---- ----
Class B $0.00* 3.35%+
In addition, during the year ended October 31, 1996 and the period ended
October 31, 1995, the Portfolio had earned credits from the custodian which
reduced service fees incurred. If the credits are taken into consideration,
the expense ratios for Class B would have been 2.56% and 3.26%
(annualized), respectively; numbers prior to October 31, 1995 have not been
restated to reflect these credits.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
44 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class L Shares(1)
------------------------------------------------------------------
European Portfolio 1998(2) 1997(2) 1996 1995(3) 1994(4)
===================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $17.86 $17.04 $14.51 $12.83 $12.48
- -------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss(5) (0.07) (0.21) (0.14) (0.08) (0.16)
Net realized and unrealized gain 1.51 2.19 2.71 1.76 0.51
- -------------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.44 1.98 2.57 1.68 0.35
- -------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains (0.39) (1.16) (0.04) -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions (0.39) (1.16) (0.04) -- --
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $18.91 $17.86 $17.04 $14.51 $12.83
- -------------------------------------------------------------------------------------------------------------------
Total Return 8.38% 12.06% 17.78% 13.09% 2.80%++
- -------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $10,762 $3,110 $2,011 $1,311 $1,607
- -------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(5) 2.18% 2.54% 2.52% 2.51% 2.02%+
Net investment loss (0.37) (1.18) (1.17) (0.64) (1.60)+
- -------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 27% 28% 39% 34% 21%
===================================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) On November 7, 1994, the former Class B shares were renamed Class C shares.
(4) For the period from February 14, 1994 (inception date) to October 31, 1994.
(5) The Manager waived all or part of its fees for the year ended October 31,
1995 and the period ended October 31, 1994. In addition, the manager agreed
to reimburse the European Portfolio for $10,344 of the Portfolio's expenses
for the period ended October 31, 1994. If such fees and expenses were not
waived or reimbursed, the per share effect on net investment income and the
expense ratios would have been as follows:
Expense Ratios
Per Share Decreases to Without Fee Waivers
Net Investment Loss and Custody Credits
---------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
Class L $0.01 $0.10 2.54% 3.07%+
In addition, during the years ended October 31, 1996 and October 31, 1995,
the Portfolio had earned credits from the custodian which reduced service
fees incurred. If the credits are taken into consideration, the expense
ratios for Class C would have been 2.50% and 2.48%, respectively; numbers
prior to October 31, 1995 have not been restated to reflect these credits.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 45
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class A Shares
---------------------------------------------------------
Pacific Portfolio 1998(1) 1997 1996(1) 1995 1994(2)
==============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $8.46 $10.18 $10.07 $12.92 $12.50
- --------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss(3) (0.12) (0.17) (0.14) (0.01) (0.07)
Net realized and unrealized gain (loss) (1.61) (1.55) 0.25 (2.84) 0.49
- --------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (1.73) (1.72) 0.11 (2.85) 0.42
- --------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $6.73 $ 8.46 $10.18 $10.07 $12.92
- --------------------------------------------------------------------------------------------------------------
Total Return (20.45)% (16.90)% 1.09% (22.06)% 3.36%++
- --------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $1,788 $4,750 $4,929 $4,409 $7,538
- --------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 3.47% 3.37% 2.64% 1.97% 1.51%+
Net investment loss (1.66) (2.36) (1.38) (0.71) (0.82)+
- --------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 135% 154% 86% 31% 6%
==============================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the period from February 7, 1994 (inception date) to October 31, 1994.
(3) The Manager waived all or part of its fees for the year ended October 31,
1995 and the period ended October 31, 1994. In addition, the Manager agreed
to reimburse the Pacific Portfolio for $30,862 of the Portfolio's expenses
for the year ended October 31, 1995. If such fees and expenses were not
waived or reimbursed, the per share effect on net investment loss and the
expense ratios would have been as follows:
Expense Ratios
Per Share Decreases to Without Fee Waivers
Net Investment Loss and Custody Credits
---------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
Class A $0.14 $0.03 3.18% 1.87%+
In addition, during the years ended October 31, 1996 and October 31, 1995,
the Portfolio had earned credits from the custodian which reduced service
fees incurred. If the credits are taken into consideration, the expense
ratios for Class A would have been 2.51% and 1.70%, respectively; numbers
prior to October 31, 1995 have not been restated to reflect these credits.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
46 1998 Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class B Shares
----------------------------------------------
Pacific Portfolio 1998(1) 1997 1996(1) 1995(2)
==============================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $8.25 $10.01 $ 9.99 $12.64
- --------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss(3) (0.22) (0.27) (0.23) (0.01)
Net realized and unrealized gain (loss) (1.52) (1.49) 0.25 (2.64)
- --------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (1.74) (1.76) 0.02 (2.65)
- --------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $6.51 $ 8.25 $10.01 $ 9.99
- --------------------------------------------------------------------------------------------------------------
Total Return (21.09)% (17.58)% 0.20% (20.97)%++
- --------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $2,159 $3,558 $4,009 $1,031
- --------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 4.45% 4.24% 3.65% 3.39%+
Net investment loss (3.14) (3.07) (2.26) (1.47)+
- --------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 135% 154% 86% 31%
==============================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the period from November 7, 1994 (inception date) to October 31, 1995.
(3) The Manager waived all or part of its fees for the period ended October 31,
1995. In addition, the Manager agreed to reimburse the Pacific Portfolio
for $30,862 of the Portfolio's expenses for the period ended October 31,
1995. If such fees and expenses were not waived or reimbursed, the per
share effect on net investment loss and the expense ratio would have been
as follows:
Expense Ratio
Per Share Decrease to Without Fee Waivers
Net Investment Loss and Custody Credits
--------------------- --------------------
1995 1995
---- ----
Class B $0.16 4.90%+
In addition, during the year ended October 31, 1996 and the period ended
October 31, 1995, the Portfolio had earned credits from the custodian which
reduced service fees incurred. If the credits are taken into consideration,
the expense ratios for Class B would have been 3.47% and 3.06%
(annualized), respectively; numbers prior to October 31, 1995 have not been
restated to reflect these credits.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 47
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class L Shares(1)
-------------------------------------------------------------
Pacific Portfolio 1998(2) 1997 1996(2) 1995(3) 1994(4)
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $8.21 $9.98 $9.95 $12.86 $12.50
- ------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss(5) (0.20) (0.27) (0.24) (0.02) (0.11)
Net realized and unrealized gain (loss) (1.53) (1.50) 0.27 (2.89) 0.47
- ------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (1.73) (1.77) 0.03 (2.91) 0.36
- ------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $6.48 $8.21 $9.98 $ 9.95 $12.86
- ------------------------------------------------------------------------------------------------------------------
Total Return (21.07)% (17.74)% 0.30% (22.63)% 2.88%++
- ------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $982 $1,493 $1,612 $1,952 $3,167
- ------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(5) 4.28% 4.44% 3.46% 2.69% 2.29%+
Net investment loss (2.90) (3.21) (2.22) (1.45) (1.49)+
- ------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 135% 154% 86% 31% 6%
==================================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) On November 7, 1994, the former Class B shares were renamed Class C shares.
(4) For the period from February 11, 1994 (inception date) to October 31, 1994.
(5) The Manager waived all or part of its fees for the year ended October 31,
1995 and the period ended October 31, 1994. In addition, the Manager agreed
to reimburse the Portfolio for $30,862 of the Portfolio's expense for the
year ended October 31, 1995. If such fees and expenses were not waived or
reimbursed, the per share effect on net investment loss and the expense
ratios would have been as follows:
Expense Ratios
Per Share Decreases to Without Fee Waivers
Net Investment Loss and Custody Credits
---------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
Class L $0.13 $0.03 3.88% 2.70%+
In addition, during the years ended October 31, 1996 and October 31, 1995,
the Portfolio had earned credits from the custodian which reduced service
fees incurred. If the credits are taken into consideration, the expense
ratios for Class L would have been 3.29% and 2.42%, respectively; numbers
prior to October 31, 1995 have not been restated to reflect these credits.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
================================================================================
Tax Information (unaudited)
================================================================================
For Federal tax purposes the European Portfolio hereby designates for the
fiscal year ended October 31, 1998:
. long-term capital gain distributions paid of $971,552.
- -------------------------------------------------------------------------------
48 1998 Annual Report to Shareholders
<PAGE>
===============================================================================
Independent Auditors' Report
===============================================================================
The Shareholders and Board of Directors of
Smith Barney World Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Emerging Markets, European, and Pacific
Portfolios of Smith Barney World Funds, Inc. as of October 31, 1998, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the two-year period then
ended and for the period from May 12, 1995 (commencement of operations) to
October 31, 1995, with respect to the Emerging Markets Portfolio, and for each
of the years in the three-year period then ended and the period from February 7,
1994 (commencement of operations) to October 31, 1994 with respect to the
European and Pacific Portfolios. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Emerging Markets, European and Pacific Portfolios of Smith Barney World Funds,
Inc. as of October 31, 1998, and the results of their operations for the year
then ended, the changes in their net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the two-year period then ended and for the period from May 12, 1995 to
October 31, 1995 with respect to the Emerging Markets Portfolio, and for each of
the years in three-year period then ended and for the period from February 7,
1994 to October 31, 1994 with respect to the European and Pacific Portfolios, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
December 18, 1998
- -------------------------------------------------------------------------------
Smith Barney World Funds, Inc. 49
<PAGE>
Smith Barney
World Funds, Inc.
Directors
Victor Atkins
Abraham E. Cohen
Robert A. Frankel
Rainer Greeven
Susan M. Heilbron
Heath B. McLendon, Chairman
Officers
Maurits E. Edersheim
Chairman of the Fund
& Advisory Director
Heath B. McLendon
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
David Ishibashi
Vice President
Scott E. Kalb
Vice President
Rein W. van der Does
Vice President
Irving P. David
Controller
Christina T. Sydor
Secretary
Investment Manager
Mutual Management Corp.
Distributor
CFBDS, Inc.
Custodian
The Chase Manhattan Bank, N.A.
Shareholder Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of shareholders of Smith
Barney World Funds, Inc. -- Emerging Markets, European and Pacific Portfolios.
It is not authorized for distribution to prospective investors unless
accompanied or preceded by a current Prospectus for the Fund, which contains
information concerning the Fund's investment policies and expenses as well as
other pertinent information.
SalomonSmithBarney
- ----------------------------
A member of citigroup[LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney
World Funds, Inc.
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com
FD01358 12/98
