File No. 33-39564
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No._____
Post-Effective Amendment No. 22
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
SMITH BARNEY WORLD FUNDS, INC.
(Formerly, Smith Barney Worldwide Funds, Inc.)
(Exact name of Registrant as Specified
in the Articles of Incorporation)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices)(Zip Code)
(212) 816-6474
(Registrant's Telephone Number, Including Area Code)
Christina T. Sydor
388 Greenwich Street, New York, New York 10013 (22nd floor)
(Name and Address of Agent For Service)
Continuous
(Approximate Date of Public Offering)
It is proposed that this filing will become effective
(check appropriate box)
On (date) pursuant to paragraph (b) of Rule 485
Immediately upon filing pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a) (1) of Rule 485
75 days after filing pursuant to paragraph (a) (2) of Rule 485
XXX On February 28, 1999 pursuant to paragraph (a) (1) of Rule 485
On (date) pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
_____ This post-effective amendment designates a new effective
date for a previously filed post-effective amendment
Title of Securities Being Registered: Shares of Common Stock
PART A
- -------------------
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
- -------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
February 28, 1999 International Equity Portfolio
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
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Contents
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Fund goal and strategies........................4
More on the fund's investments..................8
Smith Barney Mutual Management......................................9
Funds offers a distinctive
family of fund choices Choosing a class of shares to buy..............10
tailored to help meet the
varying needs of large Comparing the fund's classes...................11
and small investors.
Currently, Smith Barney Sales charges..................................12
Mutual Funds offers more
than 60 individual funds More about deferred sales charges..............15
with assets of more than
$xx billion. Buying shares..................................16
Exchanging shares..............................17
Redeeming shares...............................18
Other things to know about
share transactions...........................20
Smith Barney 401(k) and ExecChoice
programs.....................................22
Dividends, distributions and
taxes........................................23
Share price....................................24
Financial highlights...........................24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
International Equity Portfolio -3-
<PAGE>
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Fund goal and strategies
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Investment objective
The fund seeks total return on its assets from growth of capital and income.
Key investments
The fund invests primarily in equity securities of foreign companies. Equity
securities include exchange traded and over-the-counter common stocks and
preferred shares, debt securities convertible into equity securities, and
warrants and rights relating to equity securities.
Selection process
The manager emphasizes individual security selection while diversifying the
fund's investments across regions and countries which can help to reduce risk.
While the manager selects investments primarily for their capital appreciation
potential, some investments have an income component as well. Companies in which
the fund invests may have large, mid or small size market capitalizations and
may operate in any market sector. Market conditions around the world change
constantly as does the location of potential investment opportunities. Depending
on the manager's assessment of overseas potential for long-term growth, the
fund's emphasis among foreign markets and types of issuers may vary. In
selecting individual companies for investment, the manager looks for the
following:
o Above average earnings growth
o High relative return on invested capital
o Experienced and effective management
o Effective research, product development and marketing
o Competitive advantages
o Strong financial condition or stable or improving credit quality
By spreading the fund's investments across many international markets, the
manager seeks to reduce volatility compared to an investment in a single region.
Unlike global mutual funds which may allocate a substantial portion of assets to
the U.S. markets, the fund invests substantially all of its assets in countries
outside of the U.S. In allocating assets among countries and regions, the
economic and political factors the manager evaluates include:
o Low or decelerating inflation which creates a favorable environment for
securities markets
o Stable governments with policies that encourage economic growth, equity
investment and development of securities markets
o Currency stability
o The range of individual investment opportunities
- -4-
<PAGE>
Principal risks of investing in the fund
While investing in foreign securities can bring added benefits, it may also
involve additional risks. Investors could lose money on their investment in the
fund, or the fund may not perform as well as other investments, if any of the
following occurs:
o Foreign stock prices decline
o Adverse governmental action or political, economic or market instability
affects a foreign country or region
o The currency in which a security is priced declines in value relative to the
U.S. dollar
o The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets in the U.S. In some foreign countries,
less information is available about foreign issuers and markets because of less
rigorous accounting and regulatory standards than in the U.S. Currency
fluctuations could erase investment gains or add to investment losses. The risk
of investing in foreign securities is greater in the case of emerging markets.
In Europe, Economic and Monetary Union (EMU) and the introduction of a single
currency is scheduled to begin on January 1, 1999. There are significant
political and economic risks associated with EMU, which may increase the
volatility of the fund's European investments and present valuation problems.
Who may want to invest
The fund may be an appropriate investment if you:
o Are seeking to participate in the long term growth potential of international
markets
o Currently have exposure to U.S. stock markets and wish to diversify your
investment portfolio by adding non-U.S. stocks that may not move in tandem with
U.S. stocks
o Are comfortable with the risks of the stock market and the special risks of
investing in foreign securities, including emerging market securities
International Equity Portfolio -5-
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[The following table was depicted as a bar graph in the printed material.]
% Total Return: Class A Shares
Calendar years ended December 31,
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -4.88 8.24 31.86 -11.87 37.8 0.49 52.78 8.9 2.64 13.6 1.91
</TABLE>
The bar chart shows the performance of the fund's Class A shares since inception
on February 18, 1986. Class B, L and Y shares would have different performance
due to their different expenses. The performance information in the chart does
not reflect sales charges, which would reduce your return.
Quarterly returns: Highest: xx% in ___ quarter 199X;
Lowest: xx% in ___ quarter 199X
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the EAFE
Index, an unmanaged index of foreign stocks. This table assumes imposition of
the maximum sales charge applicable to the class, redemption of shares at the
end of the period, and reinvestment of distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1998
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Class Inception Date 1 year 5 years 10 years Since inception
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A [x/x/86]
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B 11/07/94 n/a n/a
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L 01/04/93 n/a
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Y 06/16/94 n/a n/a
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EAFE Index n/a
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- -6-
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
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Shareholder fees
(paid directly from your investment)
Class A Class B Class L Class Y
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<S>
<C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering
5.00% None 1.00% None
price)
Maximum deferred sales charge on redemptions (as a %
of the lower of net asset value at purchase or
redemption)
None* 5.00% 1.00% None
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Annual fund operating expenses (paid by
the fund as a % of fund net assets)
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Management fee
0.85% 0.85% 0.85% 0.85%
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Distribution and service (12b-1) fee
0.25% 1.00% 1.00% None
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Other expenses
- ---- ---- ---- ----
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Total annual fund operating expenses
==== ==== ==== ====
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</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses remain the same
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Number of years you own your shares 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A $ $ $ $
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Class B $ $ $ $
Assumes redemption at end of period
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Class B $ $ $ $
Assumes no redemption
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Class L $ $ $ $
Assumes redemption at end of period
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Class L $ $ $ $
Assumes no redemption
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Class Y $ $ $ $
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International Equity Portfolio -7-
<PAGE>
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More on the fund's investments
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Currency transactions. The fund may enter into transactions to buy or sell
currencies at a future date, which may be a few days or a number of months. The
fund may enter into these forward currency contracts to:
o Settle transactions in securities quoted in foreign currencies
o Attempt to protect against the economic impact of adverse changes in the value
of the U.S. dollar.
The fund may not fully benefit from or may lose money on forward currency
transactions if changes in currency rates do not occur as anticipated or do not
correspond accurately to changes in the value of the fund's holdings.
Debt securities. The fund may invest up to 20% of its assets in debt securities
of foreign corporate and governmental issuers as well as U.S. Government
securities and money market obligations of U.S. issuers. The fund may invest in
all types of debt securities of any maturity or credit quality. These securities
may be denominated in U.S. dollars or other currencies and may pay fixed or
variable rates of interest. The value of debt securities will go down if
interest rates go up, or the issuer of the security has its credit rating
downgraded or defaults on its obligation to pay principal or interest. These
risks are greater for debt securities rated below investment grade.
Emerging markets. The fund may invest up to 20% of assets in issuers located or
doing business in emerging markets. Emerging market investments offer the
potential of significant gains but also involve greater risks than investing in
more developed countries. Political or economic stability, lack of market
liquidity and government actions such as currency controls or seizure of private
businesses or property are more likely in emerging markets.
Defensive investing. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
- -8-
<PAGE>
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Management
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Manager. The fund's investment manager is Mutual Management Corp., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial services
- -- asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world. Among these businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset Management, Travelers Life
& Annuity, and Travelers Property Casualty.
Jeffrey Russell and James Conheady, investment officers of Mutual Management
Corp. and managing directors of Salomon Smith Barney, have been responsible for
the day to day management of the fund since its inception. Maurits E. Edersheim,
head of Salomon Smith Barney's international equity team, has general
responsibility for Salomon Smith Barney's international equity investment
operations.
Management fee. For its services, the manager received a fee during the fund's
last fiscal year equal to 0.85% of the fund's average daily net assets.
Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker dealers sell fund shares to the public.
Distribution plans. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund or its service providers to correct the problem
will be successful.
International Equity Portfolio -9-
<PAGE>
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Choosing a class of shares to buy
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You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Factors you should consider when choosing a class
include:
o How much you plan to invest
o How long you expect to own the shares
o The expenses paid by each class
o Whether you qualify for any reduction or waiver of sales charges
You may buy shares from:
o A Salomon Smith Barney Financial Consultant
o An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
o The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Initial Additional
----------------------------- -----------
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
General $1,000 $5 million $50
- -------------------------------------------------------------------------------------------------
Individual Retirement Accounts, $250 $5 million $50
Self Employed Retirement Plans,
Uniform Gift to Minor Accounts
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Qualified Retirement Plans $25 $5 million $25
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Simple IRAs $1 n/a $1
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Monthly Systematic Investment Plans $25 n/a $25
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Quarterly Systematic Investment Plans $50 n/a $50
- -------------------------------------------------------------------------------------------------
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
- -10-
<PAGE>
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Comparing the fund's classes
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Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. Your Salomon Smith Barney Financial
Consultant or dealer representative may receive different compensation depending
upon which class you choose.
<TABLE>
<CAPTION>/
- -----------------------------------------------------------------------------------------------------------
Class A Class B Class L Class Y
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Key features
o Initial sales charge o No initial sales o The initial sales o No initial
o You may qualify charge charge is lower or deferred
for reduction or o Deferred sales than Class A oInvesting at least
waiver of initial charge declines o Deferred sales $5 million
sales charge over time charge for only 1 o Lower annual
o Lower annual o Convert to year expenses than the
expenses than Class Class A after 8 o Do not convert other classes
B and Class L years to Class A
o Higher annual o Higher annual
expenses than expenses than
Class A Class A
- -----------------------------------------------------------------------------------------------------------
Initial sales Up to 5.00%; None 1.00% None
charge reduced or waived
for large purchases
and certain
investors. No
charge for
purchases of
$500,000 or more
- -----------------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 5% charged 1% if you redeem None
sales charge $500,000 or more if when you redeem within 1 year of
you redeem within shares. The charge purchase
1 year of purchase is reduced over
time and there is
no deferred sales
charge after 6 years
- -----------------------------------------------------------------------------------------------------------
Annual 0.25% of average 1% of average 1% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
- -----------------------------------------------------------------------------------------------------------
Exchangeable into*
Class A shares of Class B shares of Class L shares of Class Y shares of
most Smith Barney most Smith Barney most Smith most Smith Barney
mutual funds mutual funds Barney mutual mutual funds
funds
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
International Equity Portfolio -11-
<PAGE>
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Sales charge: Class A shares
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You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends that you reinvest in additional Class A
shares.
- --------------------------------------------------------------------------------
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
- --------------------------------------------------------------------------------
Less than $25,000 5.00 5.26
- --------------------------------------------------------------------------------
$25,000 but less than $50,000 4.00 4.17
- --------------------------------------------------------------------------------
$50,000 but less than $100,000 3.50 3.63
- --------------------------------------------------------------------------------
$100,000 but less than $250,000 3.00 3.09
- --------------------------------------------------------------------------------
$250,000 but less than $500,000 2.00 2.04
- --------------------------------------------------------------------------------
$500,000 or more -0- -0-
- --------------------------------------------------------------------------------
Investments of $500,000 or more. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
o by you, or
o by members of your immediate family.
and for which a sales charge was paid with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
- -12-
<PAGE>
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney mutual funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge made within 90 days before you sign the letter.
Waivers for certain Class A investors. Class A initial sales charges are waived
for certain types of investors, including:
o Employees of members of the NASD.
o 403(b) or 401(k) retirement plans, if certain conditions are met
o Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
o Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
International Equity Portfolio -13-
<PAGE>
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Sales charge: Class B shares
- --------------------------------------------------------------------------------
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- --------------------------------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
- --------------------------------------------------------------------------------
Deferred sales charge 5% 4% 3% 2% 1% 0%
- --------------------------------------------------------------------------------
Class B conversion. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions mutual fund
- -------------------------------------------------------------------------------------------
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total Class B have converted into Class A
shares you own shares
- -------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Sales charge: Class L shares
- --------------------------------------------------------------------------------
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
- --------------------------------------------------------------------------------
Sales charge: Class Y shares
- --------------------------------------------------------------------------------
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $5,000,000 initial
investment requirement. You can use a letter of intent to meet the $5,000,000
minimum investment requirement by buying Class Y shares of the fund over a
6-month period. To qualify, you must initially invest $1,000,000.
- -14-
<PAGE>
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More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation.
You do not pay a deferred sales charge on:
o Shares exchanged for shares of another Smith Barney mutual fund
o Shares representing reinvested distributions and dividends
o Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund and be credited with the
amount of the deferred sales charge, if you notify your Salomon Smith Barney
Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
o To make payments through certain systematic withdrawal plans
o To make certain distributions from a retirement plan
o For involuntary redemptions of small account balances
o For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
International Equity Portfolio -15-
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will
Consultant be rejected
or dealer
represen- o Class of shares to be bought
tative
o Dollar amount or number of shares to be bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who are
fund's clients of the selling group are eligible to buy shares directly
transfer from the fund.
agent
o Write the transfer agent at the following address:
Smith Barney World Funds, Inc.
International Equity Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
o Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
o For more information, call the transfer agent at 1-800-451-2010
- --------------------------------------------------------------------------------
Systematic You may authorize Salomon Smith Barney, the dealer representative
investment or the transfer agent to transfer funds automatically from a
plan regular bank account, cash held in a Salomon Smith Barney
brokerage account or Smith Barney money market fund to buy shares
on a regular basis.
o Amounts transferred should be at least: $25 monthly or $50
quarterly
o If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer representative or
the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult
the SAI.
- -16-
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith You should contact your Salomon Smith Barney Financial Consultant
Barney or dealer representative to exchange into other Smith Barney
offers a mutual funds. Be sure to read the prospectus of the Smith Barney
distinctive mutual fund you are exchanging into. An exchange is a taxable
family of transaction.
mutual
funds o You may exchange shares only for shares of the same class of
tailored to another Smith Barney mutual fund. Not all Smith Barney funds
help meet offer all classes.
the varying
needs of o You must meet the minimum investment amount for each fund
both large
and small o If you hold share certificates, the transfer agent must receive
investors. the certificates endorsed for transfer or with signed stock
powers before the exchange is effective.
o The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the
additional time of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be measured
from the date of your original purchase. If the fund you exchange
into has a higher deferred sales charge, you will be subject to
that charge. If you exchange at any time into a fund with a lower
charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible,
you may make telephone exchanges on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (Eastern time).
You can only make telephone exchanges between accounts that have
identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent
at the address on the opposite page.
International Equity Portfolio -17-
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally Contact your Salomon Smith Barney Financial Consultant or dealer
representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption proceeds
will not be sent to you until your original check clears.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney World Funds, Inc.
International Equity Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
o Your account number
o The class of shares and the dollar amount or number of shares
to be redeemed
o Signatures of each owner exactly as the account is registered
- -18-
<PAGE>
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares (except those held in retirement plans) in amounts
up to $10,000 per day through the transfer agent. You must
complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by
telephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address of
record or by wire transfer to a bank account designated on your
authorization form. You may be charged a fee for wire transfers.
You must submit a new authorization form to change the bank
account designated to receive wire transfers and you may be asked
to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of your
cash shares on a monthly or quarterly basis. To qualify you must own
withdrawal shares of the fund with a value of at least $10,000 and each
plans automatic redemption must be at least $50. If your shares are
subject to a deferred sales charge, the sales charge will be
waived if your automatic payments do not exceed 1% per month of
the value of your shares subject to a deferred sales charge.
The following conditions apply:
o Your shares must not be represented by certificates
o All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial
plans Consultant or dealer representative or consult the SAI.
International Equity Portfolio -19-
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information, without which your
request will not be processed.
o Name of the fund
o Account number
o Class of shares being bought, exchanged or redeemed
o Dollar amount or number of shares being bought,
exchanged or redeemed
o Signature of each owner exactly as account is
registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees. To be in good order, your redemption request must include
a signature guarantee if you:
o Are redeeming (together with other requests submitted in the previous 10 days)
over $10,000 of shares
o Are sending signed share certificates or stock powers to the transfer agent
o Instruct the transfer agent to mail the check to an address different from the
one on your account
o Changed your account registration
o Want the check paid to someone other than the account owner(s)
o Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
- -20-
<PAGE>
The fund has the right to:
o Suspend the offering of shares
o Waive or change minimum and additional investment amounts
o Reject any purchase or exchange order
o Change, revoke or suspend the exchange privilege
o Suspend telephone transactions
o Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
Small account balances. If your account falls below $500 due to redemption of
fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
International Equity Portfolio -21-
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney 401(k) and ExecChoice(TM) programs
- --------------------------------------------------------------------------------
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's investments
in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of that class.
o Class A shares may be purchased by plans investing $1 million or more.
o Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible for exchange into Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner:
If the account was opened on or after June 21, 1996 and an aggregate of $1
million is invested in Smith Barney Funds Class L shares (other than money
market funds), they are eligible for exchange after the plan is in the
program 5 years.
If the account was opened before June 21, 1996 and $500,000 in the
aggregate is invested in Smith Barney Funds Class L shares (other than
money market funds), they are eligible for exchange on each December 31
and the exchange will occur no later than March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
- -22-
<PAGE>
- --------------------------------------------------------------------------------
Distributions, dividends and taxes
- --------------------------------------------------------------------------------
Dividends. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class you hold. The fund expects
distributions to be primarily from capital gain. You do not pay a sales charge
on reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------
Redemption or exchange of shares Usually capital gain or loss;
long-term only if shares
owned more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain
distribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult with your tax adviser about your investment
in the fund.
International Equity Portfolio -23-
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem fund shares at the net asset value, adjusted for
any applicable sales charge, next determined after receipt of your request in
good order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When market prices are not
available, or when the manager believes they are unreliable or that the value of
a security has been materially affected by events occurring after a foreign
exchange closes, the fund may price those securities at fair value. Fair value
is determined in accordance with procedures approved by the fund's board. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund that uses market quotations to price the same
securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG Peat Marwick LLP,
independent accountants, whose report, along with the fund's financial
statements, are included in the annual report (available upon request).
- -24-
<PAGE>
For a Class A share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1998 1997(1) 1996(1) 1995 1994(2)(3) 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $18.64 $17.15 $18.79 $18.71 $12.35
- ------------------------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment
income(loss) (0.04) 0.01 0.08(4) (0.01) (0.01)
Net realized and
unrealized gain (loss) 1.77 1.65 (1.50) 0.09 6.53
- ------------------------------------------------------------------------------------------------------------
Total income (loss) from
operations 1.73 1.66 (1.42) 0.08 6.52
- ------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income(5) (0.01) (0.17) (0.12) -- --
Net realized gains -- -- (0.10) -- (0.16)
- ------------------------------------------------------------------------------------------------------------
Total distributions (0.01) (0.17) (0.22) -- (0.16)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end
of year $20.36 $18.64 $17.15 $18.79 $18.71
- ------------------------------------------------------------------------------------------------------------
Total return(7) 9.30% 9.78% (7.44)% 0.43%(6) 52.78%
- ------------------------------------------------------------------------------------------------------------
Net assets, end of
year (000)'s $464,796 $513,87 $489,533 $591,598 $355,926
- ------------------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses(8) 1.31% 1.35% 1.36% 1.35%(9) 1.35%
Net investment
income (loss) (0.18) 0.17 0.50 (0.05)(9) (0.10)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 46% 42% 35% 27%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) For the period from January 1, 1994 to October 31, 1994.
(3) On October 10, 1994, Class L shares (formerly, Class C shares) were
exchanged into Class A shares. Class L share activity for the period from
January 1, 1994 to October 9, 1994 is included in Class A share activity.
(4) Includes realized gains and losses from foreign currency transactions.
(5) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(6) Not annualized.
(7) Total return does not reflect any applicable sales loads or deferred sales
charges.
(8) During the years ended October 31, 1996 and October 31, 1995, the fund
earned credits from the custodian which reduced service fees incurred. If
the credits are taken into consideration, the expense ratios would have
been 1.29% and 1.28%, respectively; numbers prior to October 31, 1995 have
not been restated to reflect these credits.
(9) Annualized.
International Equity Portfolio -25-
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1998 1997(1) 1996(1) 1995(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $18.65 $17.17 $18.38
- -----------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (0.20) (0.08) 0.06(3)
Net realized and unrealized gain (loss) 1.77 1.60 (1.17)
- -----------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.57 1.52 (1.11)
- -----------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) -- (0.04) --
Net realized gains -- -- (0.10)
- -----------------------------------------------------------------------------------------------------
Total distributions -- (0.04) (0.10)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of year $20.22 $18.65 $17.17
- -----------------------------------------------------------------------------------------------------
Total return(5) 8.42% 8.89% (6.00)%(6)
- -----------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $231,148 $212,294 $126,171
- -----------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses(7) 2.11% 2.11% 2.13%(8)
Net investment income (loss) (0.95) (.58) 0.34(8)
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 46% 42%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) For the period from November 7, 1994 (inception date) to October 31, 1995.
(3) Includes realized gains and losses from foreign currency transactions.
(4) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(5) Total return does not reflect any applicable sales loads or deferred sales
charges.
(6) Not annualized.
(7) During the year ended October 31, 1996 and the period ended October 31,
1995, the fund 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%8, respectively.
(8) Annualized.
- -26-
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1998(2) 1997(1) 1996(1) 1995(2) 1994(3) 1993(4)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of $18.38 $16.93 $18.54 $18.58 $12.35
year
- --------------------------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income (0.22) (0.13) (0.06)(5) (0.11) (0.14)
(loss)
Net realized and 1.77 1.62 (1.45) 0.07 6.25
unrealized gain (loss)
- --------------------------------------------------------------------------------------------------------------
Total income (loss) from 1.55 1.49 (1.51) (0.04) 6.39
operations
- --------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income(6) -- (0.04) -- -- --
Net realized gains -- -- (0.10) -- (0.16)
- --------------------------------------------------------------------------------------------------------------
Total distributions -- (0.04) (0.10) -- (0.16)
- --------------------------------------------------------------------------------------------------------------
Net assets value, end of year $19.93 $18.38 $16.93 $18.54 $18.58
- --------------------------------------------------------------------------------------------------------------
Total return(7) 8.43% 8.85% (8.11)% (0.22)%(8) 51.73%(8)
- --------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $200,849 $229,514 $240,090 $287,458 $114,951
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(9) 2.12% 2.15% 2.16% 2.10%(10) 2.14%(10)
Net investment income (0.97) (0.63) (0.34) (0.77)(10) (1.08)(10)
(loss)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 46% 42% 35% 27%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) Prior to June 12, 1998, Class L shares were called Class C shares. Prior
to November 7, 1994, Class C shares were called Class B shares.
(3) For the period from January 1, 1994 to October 31, 1994.
(4) For the period from January 4, 1993 (inception date) to December 31, 1993.
(5) Includes realized gains and losses from foreign currency transactions.
(6) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(7) Total return does not reflect any applicable sales loads or deferred sales
charges
(8) Not annualized.
(9) During the years ended October 31, 1996 and October 31, 1995, the fund
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.
(10) Annualized.
International Equity Portfolio -27-
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1998 1997(1) 1996(1) 1995(2) 1994(3)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning $18.64 $17.13 $18.80 $17.64
of year
- ----------------------------------------------------------------------------------------------------
Income (loss) from 0.04 0.18 0.10(4) 0.01
operations:
Net investment income 1.76 1.54 (1.50) 1.15
Net realized and
unrealized gain
(loss)
- ----------------------------------------------------------------------------------------------------
Total income (loss) from 1.80 1.72 (1.40) 1.16
operations
- ----------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(5) (0.06) (0.21) (0.17) --
Net realized gains -- -- (0.10) --
- ----------------------------------------------------------------------------------------------------
Total distributions (0.06) (0.21) (0.27) --
- ----------------------------------------------------------------------------------------------------
Net asset value, end of $20.38 $18.64 $17.13 $18.80
year
- ----------------------------------------------------------------------------------------------------
Total return 9.68% 10.19% (7.11)% 6.58%(6)
- ----------------------------------------------------------------------------------------------------
Net assets, end of year $301,852 $200,427 $97,132 $48,765
(000)'s
- ----------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses(8) 0.94% 0.96% 1.06% 1.09%(7)
Net investment income 0.23 0.56 0.91 0.29(7)
(loss)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 46% 42% 35%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) On November 7, 1994, the former Class D shares were renamed Class Y
shares.
(3) For the period from June 16, 1994 (inception date) to October 31, 1994.
(4) Includes realized gains and losses from foreign currency transactions.
(5) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(6) Not annualized.
(7) Annualized.
(8) During the years ended October 31, 1996 and October 31, 1995, the fund
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.
- -28-
<PAGE>
SALOMON SMITH BARNEY(SM)
a member of citigroup [Symbol]
International Equity Portfolio
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same information free from the Commission's
Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06290)
[FD00000 2/99]
- -------------------
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
- -------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
February 28, 1999 International Equity Portfolio
Class Z Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
The Class Z shares described in this prospectus are offered exclusively
for sale to tax-exempt employee benefit and retirement plans of
Salomon Smith Barney Inc. or any of its affiliates.
<PAGE>
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and strategies....................4
More on the fund's investments..............8
Smith Barney Mutual Management..................................9
Funds offers a distinctive
family of fund choices Buying, selling and redeeming
tailored to help meet the Class Z shares...........................10
varying needs of large
and small investors. Share price................................11
Currently, Smith Barney
Mutual Funds offers more Dividends, distributions and
than 60 individual funds taxes....................................12
with assets of more than
$xx billion. Financial highlights.......................13
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
International Equity Portfolio -- Class Z Shares -3-
<PAGE>
- --------------------------------------------------------------------------------
Fund goal and strategies
- --------------------------------------------------------------------------------
Investment objective
The fund seeks total return on its assets from growth of capital and income.
Key investments
The fund invests primarily in equity securities of foreign companies. Equity
securities include exchange traded and over-the-counter common stocks and
preferred shares, debt securities convertible into equity securities, and
warrants and rights relating to equity securities.
Selection process
The manager emphasizes individual security selection while diversifying the
fund's investments across regions and countries which can help to reduce risk.
While the manager selects investments primarily for their capital appreciation
potential, some investments have an income component as well. Companies in which
the fund invests may have large, mid or small size market capitalizations and
may operate in any market sector. Market conditions around the world change
constantly as does the location of potential investment opportunities. Depending
on the manager's assessment of overseas potential for long-term growth, the
fund's emphasis among foreign markets and types of issuers may vary. In
selecting individual companies for investment, the manager looks for the
following:
o Above average earnings growth
o High relative return on invested capital
o Experienced and effective management
o Effective research, product development and marketing
o Competitive advantages
o Strong financial condition or stable or improving credit quality
By spreading the fund's investments across many international markets, the
manager seeks to reduce volatility compared to an investment in a single region.
Unlike global mutual funds which may allocate a substantial portion of assets to
the U.S. markets, the fund invests substantially all of its assets in countries
outside of the U.S. In allocating assets among countries and regions, the
economic and political factors the manager evaluates include:
o Low or decelerating inflation which creates a favorable environment for
securities markets
o Stable governments with policies that encourage economic growth, equity
investment and development of securities markets
o Currency stability
o The range of individual investment opportunities
- -4-
<PAGE>
Principal risks of investing in the fund
While investing in foreign securities can bring added benefits, it may also
involve additional risks. Investors could lose money on their investment in the
fund, or the fund may not perform as well as other investments, if any of the
following occurs:
o Foreign stock prices decline
o Adverse governmental action or political, economic or market instability
affects a foreign country or region
o The currency in which a security is priced declines in value relative to the
U.S. dollar
o The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets in the U.S. In some foreign countries,
less information is available about foreign issuers and markets because of less
rigorous accounting and regulatory standards than in the U.S. Currency
fluctuations could erase investment gains or add to investment losses. The risk
of investing in foreign securities is greater in the case of emerging markets.
In Europe, Economic and Monetary Union (EMU) and the introduction of a single
currency is scheduled to begin on January 1, 1999. There are significant
political and economic risks associated with EMU, which may increase the
volatility of the fund's European investments and present valuation problems.
Who may want to invest
The fund may be an appropriate investment if you:
o Are seeking to participate in the long term growth potential of international
markets
o Currently have exposure to U.S. stock markets and wish to diversify your
investment portfolio by adding non-U.S. stocks that may not move in tandem with
U.S. stocks
o Are comfortable with the risks of the stock market and the special risks of
investing in foreign securities, including emerging market securities
International Equity Portfolio -- Class Z Shares -5-
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[The following table was depicted as a bar graph in the printed material.]
% Total Return: Class Z Shares
Calendar years ended December 31,
1995 1996 1997 1998
---- ---- ---- ----
3 14.06 2.22
The bar chart shows the performance of the fund's Class Z shares since inception
on _____________.
Quarterly returns: Highest: xx% in __ quarter 199X;
Lowest: xx% in ___ quarter 199X
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of Class Z shares for the periods shown to that of the EAFE
Index, an unmanaged index of foreign stocks. This table assumes the reinvestment
of distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
Inception Date 1 year 5 years 10 years Since inception
- --------------------------------------------------------------------------------
Class Z [xx/xx/xx]
- --------------------------------------------------------------------------------
EAFE Index n/a
- -6-
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Annual fund operating expenses
(paid by the fund as a % of fund net assets)
- --------------------------------------------------------------------------------
Management fee 0.85%
- --------------------------------------------------------------------------------
Other expenses
-----
- --------------------------------------------------------------------------------
Total annual fund operating expenses
=====
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends
o The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class Z $ $ $ $
International Equity Portfolio -- Class Z Shares -7-
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Currency transactions. The fund may enter into transactions to buy or sell
currencies at a future date, which may be a few days or a number of months. The
fund may enter into these forward currency contracts to:
o Settle transactions in securities quoted in foreign currencies
o Attempt to protect against the economic impact of adverse changes in the value
of the U.S. dollar.
The fund may not fully benefit from or may lose money on forward currency
transactions if changes in currency rates do not occur as anticipated or do not
correspond accurately to changes in the value of the fund's holdings.
Debt securities. The fund may invest up to 20% of its assets in debt securities
of foreign corporate and governmental issuers as well as U.S. Government
securities and money market obligations of U.S. issuers. The fund may invest in
all types of debt securities of any maturity or credit quality. These securities
may be denominated in U.S. dollars or other currencies and may pay fixed or
variable rates of interest. The value of debt securities will go down if
interest rates go up, or the issuer of the security has its credit rating
downgraded or defaults on its obligation to pay principal or interest. These
risks are greater for debt securities rated below investment grade.
Emerging markets. The fund may invest up to 20% of assets in issuers located or
doing business in emerging markets. Emerging market investments offer the
potential of significant gains but also involve greater risks than investing in
more developed countries. Political or economic stability, lack of market
liquidity and government actions such as currency controls or seizure of private
businesses or property are more likely in emerging markets.
Defensive investing. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
- -8-
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager. The fund's investment manager is Mutual Management Corp., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial services
- -- asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world. Among these businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset Management, Travelers Life
& Annuity, and Travelers Property Casualty.
Jeffrey Russell and James Conheady, investment officers of Mutual Management
Corp. and managing directors of Salomon Smith Barney, have been responsible for
the day to day management of the fund since its inception. Maurits E. Edersheim,
head of Salomon Smith Barney's international equity team, has general
responsibility for Salomon Smith Barney's international equity investment
operations.
Management fee. For its services, the manager received a fee during the fund's
last fiscal year equal to 0.85% of the fund's average daily net assets.
Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. [A selling group consisting of Salomon Smith
Barney and other broker dealers sell fund shares to the public].
Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund or its service providers to correct the problem
will be successful.
International Equity Portfolio -- Class Z Shares -9-
<PAGE>
- --------------------------------------------------------------------------------
Buying, selling and exchanging Class Z shares
- --------------------------------------------------------------------------------
Through a You may buy, sell or exchange Class Z shares only through a
qualified "qualified plan." A qualified plan is a tax-exempt employee
plan benefit or retirement plan of Salomon Smith Barney, Inc. or
one of its affiliates.
There are no minimum investment requirements for Class Z
shares. However, the fund reserves the right to change this
policy at any time.
Buying Orders to buy Class Z shares must be made in accordance
with the terms of a qualified plan. If you are a
participant in a qualified plan, you mayplace an order with
your plan to buy Class Z shares at net asset value, without
any sales charge. Payment is due to Salomon Smith Barney on
settlement date, which is the third business day after your
order is accepted. If you make payment prior to this date,
you may designate a temporary investment (such as a money
market fund of the Smith Barney Mutual Funds) for payment
until settlement date. The fund reserves the right to
reject any order to buy shares and to suspend the offering
of shares for a period of time.
Selling Qualified plans may redeem their shares on any day on which
the fund calculates its net asset value. You should consult
the terms of your qualified plan for special redemption
provisions.
Exchanging You should should consult your qualified plan for
information about available exchange options.
- -10-
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
Qualified plans may buy, exchange or redeem Class Z shares of the fund at the
net asset value next determined after receipt of your request in good order. The
fund's net asset value is the value of its assets minus its liabilities. Net
asset value is calculated separately for each class of shares. The fund
calculates its net asset value every day the New York Stock Exchange is open.
This calculation is done when regular trading closes on the Exchange (normally
4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When market prices are not
available, or when the manager believes they are unreliable or that the value of
a security has been materially affected by events occurring after a foreign
exchange closes, the fund may price those securities at fair value. Fair value
is determined in accordance with procedures approved by the fund's board. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund that uses market quotations to price the same
securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when your
qualified plan cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your qualified plan before the New York Stock Exchange closes.
If the New York Stock Exchange closes early, you must place your order with your
qualified plan prior to the actual closing time. Otherwise, you will receive the
next business day's price.
Your qualified plan must transmit all orders to buy, exchange or redeem shares
to the fund's agent before the agent's close of business.
International Equity Portfolio -- Class Z Shares -11-
<PAGE>
- --------------------------------------------------------------------------------
Distributions, dividends and taxes
- --------------------------------------------------------------------------------
Dividends. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class you hold. The fund expects
distributions to be primarily from capital gain. You do not pay a sales charge
on reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes. [In general, redeeming Class Z shares, exchanging Class Z shares and
receiving distributions (whether in cash or additional Class Z shares) are all
non-taxable events for purposes of federal income taxation.]
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. [If you do not provide your qualified plan with your correct
taxpayer identification number and any required certifications, you may be
subject to back-up withholding of 31% of your distributions, dividends, and
redemption proceeds.]
Because each shareholder's circumstances are different and special tax rules may
apply, you should consult with your tax adviser about your investment in the
fund.
- -12-
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of Class Z shares for the past 5 years. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG Peat Marwick LLP, independent accountants, whose report, along
with the fund's financial statements, are included in the annual report
(available upon request).
For a Class Z share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1998 1997(1) 1996(1) 1995(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 18.62 $ 17.12 $ 18.38
- ------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(loss) 0.05 0.14 0.13(3)
Net realized and unrealized gain 1.75 1.57 (1.12)
(loss)
- ------------------------------------------------------------------------------------------
Total income (loss) from operations 1.80 1.71 (0.99)
- ------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) (0.06) (0.21) (0.17)
Net realized gains -- -- (0.10)
- ------------------------------------------------------------------------------------------
Total distributions (0.06) (0.21) (0.27)
- ------------------------------------------------------------------------------------------
Net asset value, end of year $ 20.36 $ 18.62 $ 17.12
- ------------------------------------------------------------------------------------------
Total return 9.69% 10.13% (5.03%)(5)
- ------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $131,709 $119,408 $94,387
- ------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(6) 0.94% 0.97% 1.10%(7)
Net investment income (loss) 0.22 0.55 1.06(7)
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 46% 42%
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts caluculated using the monthly average shares method.
(2) For the period from November 7, 1994 (inception date) to October 31, 1995.
(3) Includes realized gains and losses from foreign currency transactions.
(4) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(5) Not annualized.
(6) During the year ended October 31, 1996 and the period ended October 31,
1995, the Portfolio 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%+, respectively,
(7) Annualized.
International Equity Portfolio -- Class Z Shares -13-
<PAGE>
SALOMON SMITH BARNEY(SM)
a member of citigroup [Symbol]
International Equity Portfolio
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your qualified plan or the transfer agent if you do not
want this policy to apply to you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund andis incorporated by
reference into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your
qualified plan, [by calling the fund at 1-800-451-2010, or by writing to the
fund at Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New
York 10013].
Visit our web site. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same information free from the Commission's
Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06290)
[FD00000 2/99]
- -------------------
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
- -------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
February 28, 1999 Global Government Bond
Portfolio
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and strategies...........................4
More on the fund's investments.....................8
Smith Barney Mutual
Funds offers a Management.........................................9
distinctive family of
fund choices tailored to Choosing a class of shares to buy.................10
help meet the varying
needs of large and Comparing the fund's classes......................11
small investors.
Currently, Smith Sales charges.....................................12
Barney Mutual Funds
offers more than 60 More about deferred sales charges.................15
individual funds with
assets of more than Buying shares.....................................16
$xx billion.
Exchanging shares.................................17
Redeeming shares..................................18
Other things to know about
share transactions..............................20
Smith Barney 401(k) and ExecChoice
programs........................................22
Dividends, distributions and
taxes...........................................23
Share price.......................................24
Financial highlights..............................24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Global Government Bond Portfolio -3-
<PAGE>
- --------------------------------------------------------------------------------
Fund goal and strategy
- --------------------------------------------------------------------------------
Investment objective
The fund seeks as high a level of current income and capital appreciation as is
consistent with its policy of investing principally in high quality bonds of the
United States and foreign governments.
Key investments
The fund invests primarily in high quality bonds issued or guaranteed by the
United States or foreign governments, their political subdivisions or their
agencies, authorities, or instrumentalities. These bonds may be denominated in
various currencies.
Selection process
In seeking to achieve its income objective, the manager considers and compares
the relative yields of various obligations of various developed nations. In
seeking to achieve its capital appreciation objective, the manager seeks the
best values currently available in the marketplace. In both cases, the manager
uses quantitative techniques to measure and assess risk. Depending on the
manager's outlook, the fund's emphasis among foreign markets and between capital
appreciation and income oriented investments may vary. The fund will not invest
more than 45% of its assets in a single country, other than the United States.
Allocation of the fund's investments will depend upon the relative
attractiveness of the global markets and particular issuers.
In allocating assets among countries and regions, the economic and political
factors the manager looks for include:
o Political and economic stability and favorable inflation and government
deficit prospects
o Favorable currency movements
In selecting securities of particular issuers, the manager looks for:
o Favorable yield, maturity, issue classification and quality characteristics
o Strong financial condition or stable or improving credit quality
- -4-
<PAGE>
Principal risks of investing in the fund
While investing in global government securities can bring added benefits, it may
also involve risks. Investors could lose money on their investment in the fund,
or the fund may not perform as well as other investments, if any of the
following occurs:
o Government bond investments lose their value due to an increase in market
interest rates in one or more regions, a decline in a government's credit rating
or financial condition or a default by a government
o Adverse governmental action or, political, economic or market instability
affects a foreign country or region
o An unhedged currency in which a security is priced declines in value relative
to the U.S. dollar
o The manager's judgment about the attractiveness, relative yield, value or
potential appreciation of a particular security, or the stability of a
particular government proves to be incorrect
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets in the U.S. In some foreign countries,
less information is available about governmental issuers and markets because of
less rigorous accounting and regulatory standards than in the U.S. Currency
fluctuations could erase investment gains or add to investment losses. The risk
of investing in foreign governmental securities is greater in the case of
securities of governments in less developed countries.
In Europe, Economic and Monetary Union (EMU) and the introduction of a single
currency is scheduled to begin on January 1, 1999. There are significant
political and economic risks associated with EMU, which may increase the
volatility of the fund's European investments and present valuation problems.
The fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the extent
the fund concentrates its assets in a particular issuer the fund will be more
susceptible to the negative events affecting that issuer.
Who may want to invest
The fund may be an appropriate investment if you:
o Are seeking current income and an opportunity to participate in the
international bond markets
o Currently have exposure to U.S. and foreign stock markets or U.S. bond markets
and wish to broaden your investment portfolio
o Are comfortable with the risks of fixed income securities and the special
risks of investing in foreign securities, including emerging market securities
o Are seeking higher but potentially more volatile returns than those offered by
U.S. fixed income investments
Global Government Bond Portfolio -5-
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[The following table was depicted as a bar graph in the printed material.]
% Total Return: Class A Shares
Calendar years ended December 31,
1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----
0.91 19.13 -3.99 15.56 7.52 8.15
The bar chart shows the performance of the fund's Class A shares since inception
on July 22, 1991. Class B, L and Y shares would have different performance due
to their different expenses. The performance information in the chart does not
reflect sales charges, which would reduce your return.
Quarterly returns: Highest: xx% in ___ quarter 199X;
Lowest: xx% in ___ quarter 199X
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the J.P.
Morgan Global Bond Market Index ("MGBM Index"), an unmanaged index of foreign
stocks. This table assumes the imposition of the maximum sales charge applicable
to the class, the redemption of shares at the end of the period, and the
reinvestment of distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
Class Inception Date 1 year 5 years 10 years Since inception
- --------------------------------------------------------------------------------
A 7/22/91 n/a
- --------------------------------------------------------------------------------
B 11/18/97 n/a n/a
- --------------------------------------------------------------------------------
L 01/04/93 n/a
- --------------------------------------------------------------------------------
Y 02/19/93 n/a n/a
- --------------------------------------------------------------------------------
MGBM Index n/a
- --------------------------------------------------------------------------------
- -6-
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Shareholder fees
(paid directly from your investment)
Class A Class B Class L Class Y
- ----------------------------------------------------------------------------------------------------------------
<S>
<C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price)
4.50% None None None
Maximum deferred sales charge on redemptions (as a %
of the lower of net asset value at purchase or redemption)
None* 4.50% 1.00% None
- ----------------------------------------------------------------------------------------------------------------
Annual fund operating expenses (paid by the fund as a %
of fund net assets)
- ----------------------------------------------------------------------------------------------------------------
Management fee
.75% .75% .75% .75%
- ----------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fee
.25% 0.75% 0.70% None
- ----------------------------------------------------------------------------------------------------------------
Other expenses
- ------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------
Total annual fund operating expenses
======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A $ $ $ $
- --------------------------------------------------------------------------------
Class B $ $ $ $
Assumes redemption at end of period
- --------------------------------------------------------------------------------
Class B $ $ $ $
Assumes no redemption
- --------------------------------------------------------------------------------
Class L $ $ $ $
Assumes redemption at end of period
- --------------------------------------------------------------------------------
Class L $ $ $ $
Assumes no redemption
- --------------------------------------------------------------------------------
Class Y $ $ $ $
- --------------------------------------------------------------------------------
Global Government Bond Portfolio -7-
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Other debt securities. In addition to high quality debt securities of developed
country governments, the fund may also invest up to 10% of its assets in debt
instruments, including loans and loan participations, of governmental issuers in
developing countries. Lower quality securities may be unrated or below
investment grade or in default. These securities may be speculative and involve
high risk of loss. The fund may also invest up to 35% of its assets in U.S. and
foreign non-governmental debt securities, that are rated A or better at time of
purchase or, if unrated, are of comparable quality.
Derivatives and hedging techniques. The fund may, but need not, use derivative
contracts, such as futures and options on securities, securities indices or
currencies; options on these futures; forward currency contracts; and interest
rate or currency swaps for any of the following purposes:
o To hedge against the economic impact of adverse changes in the market value of
its securities, due to changes in stock market prices, currency exchange rates
or interest rates.
o As a substitute for buying or selling currencies or securities
o To enhance the fund's return
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment that is based on the change in value of one or more
securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on the fund's stock market, currency and
interest rate exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when stock prices, currency
rates or interest rates are changing. The fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
Impact of High Portfolio Turnover. The fund may engage in active and frequent
trading. This may lead to the realization and distribution to shareholders of
higher capital gains, increasing their tax liability. Frequent trading also
increases transaction costs, which could detract from the fund's performance.
Defensive investing. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
- -8-
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager. The fund's investment manager is Mutual Management Corp., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial services
- -- asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world. Among these businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset Management, Travelers Life
& Annuity, and Travelers Property Casualty. Smith Barney Global Capital
Management, Inc., a U.S. registered investment adviser located at 10 Piccadilly,
London, England, furnishes the manager with information, advice and assistance
and is available for consultation to the fund.
Denis Mangan, investment officer of Mutual Management Corp. and managing
director of Smith Barney Global Capital Management, Inc., has been responsible
for the day to day management of the fund since 1995.
Management fee. For its services, the manager received a fee during the fund's
last fiscal year equal to 0.75% of the fund's average daily net assets.
Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker dealers sell fund shares to the public.
Distribution plans. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and over time, may cost you more than
other types of sales charges.
Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund or its service providers to correct the problem
will be successful.
Global Government Bond Portfolio -9-
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Factors you should consider when choosing a class
include:
o How much you plan to invest
o How long you expect to own the shares
o The expenses paid by each class
o Whether you qualify for any reduction or waiver of sales charges
You may buy shares from:
o A Salomon Smith Barney Financial Consultant
o An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
o The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Initial Additional
------------------------------------ ----------
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
General $1,000 $15 million $50
- -------------------------------------------------------------------------------------------------
Individual Retirement Accounts, $250 $15 million $50
Self Employed Retirement Plans,
Uniform Gift to Minor Accounts
- -------------------------------------------------------------------------------------------------
Qualified Retirement Plans $25 $15 million $25
- -------------------------------------------------------------------------------------------------
Simple IRAs $1 n/a $1
- -------------------------------------------------------------------------------------------------
Monthly Systematic Investment Plans $25 n/a $25
- -------------------------------------------------------------------------------------------------
Quarterly Systematic Investment Plans $50 n/a $50
- -------------------------------------------------------------------------------------------------
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
- -10-
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. Your Salomon Smith Barney Financial
Consultant or dealer representative may receive different compensation depending
upon which class you choose.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Class A Class B Class L Class Y
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Key features
o Initial sales charge o No initial sales o The initial sales o No initial or
o You may qualify charge charge is lower deferred sales charge
for reduction or o Deferred sales than Class A o Investing at least
waiver of initial charge declines o Deferred sales $15 million
sales charge over time charge for only 1 o Lower annual
o Lower annual o Convert to Class year expenses than the
expenses than Class A after 8 years o Do not convert other classes
B and Class L o Higher annual to Class A
expenses than o Higher annual
Class A expenses than
Class A
- -----------------------------------------------------------------------------------------------------------------------
Initial sales Up to 4.50%; None 1.00% None
charge reduced or waived
for large purchases
and certain
investors. No
charge for
purchases of
$500,000 or more
- -----------------------------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 4.50% 1% if you redeem None
sales charge$500,000 or more if charged when you within 1 year of
you redeem within redeem shares. purchase
1 year of purchase The charge is
reduced over time
and there is no
deferred sales
charge after 6 years
- -----------------------------------------------------------------------------------------------------------------------
Annual 0.25% of average 1% of average 1% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
- -----------------------------------------------------------------------------------------------------------------------
Exchangeable into*
Class A shares of Class B shares of Class L shares of Class Y shares of
most Smith Barney most Smith Barney most Smith most Smith Barney
mutual funds mutual funds Barney mutual mutual funds
funds
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Global Government Bond Portfolio -11-
<PAGE>
- --------------------------------------------------------------------------------
Sales charge: Class A shares
- --------------------------------------------------------------------------------
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends that you reinvest in additional Class A
shares.
- --------------------------------------------------------------------------------
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
- --------------------------------------------------------------------------------
Less than $25,000 4.50 4.71
- --------------------------------------------------------------------------------
$25,000 but less than $50,000 4.00 4.17
- --------------------------------------------------------------------------------
$50,000 but less than $100,000 3.50 3.63
- --------------------------------------------------------------------------------
$100,000 but less than $250,000 2.50 2.56
- --------------------------------------------------------------------------------
$250,000 but less than $500,000 1.50 1.52
- --------------------------------------------------------------------------------
$500,000 or more -0- -0-
- --------------------------------------------------------------------------------
Investments of $500,000 or more. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
o by you, or
o by members of your immediate family.
and for which a sales charge was paid with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
- -12-
<PAGE>
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney mutual funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge made within 90 days before you sign the letter.
Waivers for certain Class A investors. Class A initial sales charges are waived
for certain types of investors, including:
o Employees of members of the NASD.
o 403(b) or 401(k) retirement plans, if certain conditions are met
o Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
o Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
Global Government Bond Portfolio -13-
<PAGE>
- --------------------------------------------------------------------------------
Sales charge: Class B shares
- --------------------------------------------------------------------------------
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- --------------------------------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
- --------------------------------------------------------------------------------
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
- --------------------------------------------------------------------------------
Class B conversion. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions mutual fund
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total Class B have converted into Class A
shares you own shares
- ----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Sales charge: Class L shares
- --------------------------------------------------------------------------------
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
- --------------------------------------------------------------------------------
Sales charge: Class Y shares
- --------------------------------------------------------------------------------
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet the $15,000,000
minimum investment requirement by buying Class Y shares of the fund over a
13-month period. To qualify, you must initially invest $5,000,000.
- -14-
<PAGE>
- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation.
You do not pay a deferred sales charge on:
o Shares exchanged for shares of another Smith Barney mutual fund
o Shares representing reinvested distributions and dividends
o Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund and be credited with the
amount of the deferred sales charge, if you notify your Salomon Smith Barney
Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
o To make payments through certain systematic withdrawal plans
o To make certain distributions from a retirement plan
o For involuntary redemptions of small account balances
o For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Global Government Bond Portfolio -15-
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a You should contact your Salomon Smith Barney Financial
Salomon Consultant or dealer representative to open a brokerage
Smith account and make arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order
Consultant will be rejected
or dealer
represen- o Class of shares to be bought
tative o Dollar amount or number of shares to be bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who are
fund's clients of the selling group are eligible to buy shares
transfer directly from the fund.
agent
o Write the transfer agent at the following address:
Smith Barney World Funds, Inc.
Global Government Bond Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
o Enclose a check to pay for the shares. For initial
purchases, complete and send an account application.
o For more information, call the transfer agent at
1-800-451-2010
- --------------------------------------------------------------------------------
Systematic You may authorize Salomon Smith Barney, the dealer
investment representative or the transfer agent to transfer funds
plan automatically from a regular bank account, cash held in a
Salomon Smith Barney brokerage account or Smith Barney money
market fund to buy shares on a regular basis.
o Amounts transferred should be at least: $25 monthly or $50
quarterly
o If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer
representative or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
- -16-
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith You should contact your Salomon Smith Barney Financial
Barney Consultant or dealer representative to exchange into other
offers a Smith Barney mutual funds. Be sure to read the prospectus of
distinctive the Smith Barney mutual fund you are exchanging into. An
family of exchange is a taxable transaction.
mutual
funds o You may exchange shares only for shares of the same class
tailored to of another Smith Barney mutual fund. Not all Smith Barney
help meet funds offer all classes.
the varying
needs of o You must meet the minimum investment amount for each fund
both large
and small o If you hold share certificates, the transfer agent must
investors. receive the certificates endorsed for transfer or with signed
stock powers before the exchange is effective.
o The fund may suspend or terminate your exchange privilege
if you engage in an excessive pattern of exchanges
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be
measured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you will
be subject to that charge. If you exchange at any time into a
fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete
an authorization form to authorize telephone transfers. If
eligible, you may make telephone exchanges on any day the New
York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
You can only make telephone exchanges between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.
Global Government Bond Portfolio -17-
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However, if
you recently purchased your shares by check, your redemption
proceeds will not be sent to you until your original check
clears.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the transfer agent at the following address:
Smith Barney World Funds, Inc.
Global Government Bond Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
o Your account number
o The class of shares and the dollar amount or number of
shares to be redeemed
o Signatures of each owner exactly as the account is
registered
- -18-
<PAGE>
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by
telephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You may be charged a fee for wire
transfers. You must submit a new authorization form to change
the bank account designated to receive wire transfers and you
may be asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales
charge will be waived if your automatic payments do not exceed
1% per month of the value of your shares subject to a deferred
sales charge.
The following conditions apply:
o Your shares must not be represented by certificates
o All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Global Government Bond Portfolio -19-
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information, without which your
request will not be processed.
o Name of the fund
o Account number
o Class of shares being bought, exchanged or redeemed
o Dollar amount or number of shares being bought, exchanged or
redeemed
o Signature of each owner exactly as account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees. To be in good order, your redemption request must include
a signature guarantee if you:
o Are redeeming (together with other requests submitted in the previous 10 days)
over $10,000 of shares
o Are sending signed share certificates or stock powers to the transfer agent
o Instruct the transfer agent to mail the check to an address different from the
one on your account
o Changed your account registration
o Want the check paid to someone other than the account owner(s)
o Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
- -20-
<PAGE>
The fund has the right to:
o Suspend the offering of shares
o Waive or change minimum and additional investment amounts
o Reject any purchase or exchange order
o Change, revoke or suspend the exchange privilege
o Suspend telephone transactions
o Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
Small account balances. If your account falls below $500 due to redemption of
fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
Global Government Bond Portfolio -21-
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney 401(k) and ExecChoice(TM) programs
- --------------------------------------------------------------------------------
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's investments
in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of that class.
o Class A shares may be purchased by plans investing $1 million or more.
o Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible for exchange into Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner:
If the account was opened on or after June 21, 1996 and an aggregate of $1
million is invested in Smith Barney Funds Class L shares (other than money
market funds), they are eligible for exchange after the plan is in the
program 5 years.
If the account was opened before June 21, 1996 and $500,000 in the
aggregate is invested in Smith Barney Funds Class L shares (other than
money market funds), they are eligible for exchange on each December 31
and the exchange will occur no later than March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
- -22-
<PAGE>
- --------------------------------------------------------------------------------
Distributions, dividends and taxes
- --------------------------------------------------------------------------------
Dividends. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class that you hold. The fund expects
distributions to be primarily from income. You do not pay a sales charge on
reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------
Redemption or exchange of shares Usually capital gain or loss;
long-term only if shares owned more
than one year
- --------------------------------------------------------------------------------
Long-term capital gain distributions Long-term capital gain
- --------------------------------------------------------------------------------
Short-term capital gain distributions Ordinary income
- --------------------------------------------------------------------------------
Dividends Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain
distribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends that you received and any redemptions of shares
during the previous year. If you do not provide the fund with your correct
taxpayer identification number and any required certifications, you may be
subject to back-up withholding of 31% of your distributions, dividends, and
redemption proceeds. Because each shareholder's circumstances are different and
special tax rules may apply, you should consult with your tax adviser about your
investment in the fund.
Global Government Bond Portfolio -23-
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem fund shares at the net asset value, adjusted for
any applicable sales charge, next determined after receipt of your request in
good order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When market prices are not
available, or when the manager believes they are unreliable or that the value of
a security has been materially affected by events occurring after a foreign
exchange closes, the fund may price those securities at fair value. Fair value
is determined in accordance with procedures approved by the fund's board. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund that uses market quotations to price the same
securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG Peat Marwick LLP,
independent accountants, whose report, along with the fund's financial
statements, are included in the annual report (available upon request).
- -24-
<PAGE>
For a Class A share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1998 1997(1) 1996(1) 1995 1994(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.55 $ 12.30 $ 11.68 $ 12.92
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.59 0.70 0.92(3) 0.69
Net realized and 0.38 0.42 0.48 (1.28)
unrealized gain (loss)
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.97 1.12 1.40 (0.59)
- ---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) (1.22) (0.87) (0.78) (0.23)
Net realized gains (0.08) -- -- --
Capital -- -- -- (0.42)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (1.30) (0.87) (0.78) (0.65)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 12.22 $ 12.55 $ 12.30 $ 11.68
- ---------------------------------------------------------------------------------------------------------------------
Total return(5) 8.21 9.41 12.40 (4.64)(6)
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $94,957 $106,536 $123,917 $77,961
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 1.26% 1.26% 1.38% 1.32%(8)
Net investment income 4.82 5.69 7.44 6.57(8)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 367% 133% 195% 179%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) For the period from January 1, 1994 to October 31, 1994.
(3) Includes realized gains and losses from foreign currency transactions.
(4) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(5) Total return does not reflect any applicable sales loads or deferred sales
charges.
(6) Not annualized.
(7) During the years ended October 31, 1996 and October 31, 1995, the fund
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.
(8) Annualized.
Global Government Bond Portfolio -25-
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1998 1997(1) 1996(1) 1995(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 12.50 $ 12.26 $ 11.57
- ---------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.52 0.63 0.78(3)
Net realized and unrealized gain 0.38 0.42 0.57
- ---------------------------------------------------------------------------------------------------
Total income from operations 0.90 1.05 1.35
- ---------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) (1.10) (0.81) (0.66)
Net realized gains (0.08) -- --
- ---------------------------------------------------------------------------------------------------
Total distributions (1.18) (0.81) (0.66)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of year $ 12.22 $ 12.50 $ 12.26
- ---------------------------------------------------------------------------------------------------
Total return(5) 7.62% 8.83% 11.97%(6)
- ---------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $19,690 $25,970 $35,159(9)
- ---------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses(7) 1.80% 1.81% 1.92%(8)
Net investment income (loss) 4.24 5.15 6.65(8)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate 367% 133% 195%
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) For the period from November 18, 1994 (inception date) to October 31,
1995.
(3) Includes realized gains and losses from foreign currency transactions.
(4) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(5) Total return does not reflect any applicable sales loads or deferred sales
charges.
(6) Not annualized.
(7) During the year ended October 31, 1996 and the period ended October 31,
1995, the fund 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% (8), respectively.
(8) Annualized.
- -26-
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1998(2) 1997(1) 1996(1) 1995(2) 1994(3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $12.47 $12.23 $11.68 $12.93
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from operations: 0.53 0.64 0.85(4) 0.90
Net investment income 0.38 0.41 0.42 (1.55)
Net realized and
unrealized gain (loss)
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.91 1.05 1.27 (0.65)
- ---------------------------------------------------------------------------------------------------------------------
Less distributions from: (1.11) (0.81) (0.72) (0.21)
Net investment income(5) (0.08) -- -- --
Net realized gains -- -- -- (0.39)
Capital
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (1.19) (0.81) (0.72) (0.60)
- ---------------------------------------------------------------------------------------------------------------------
Net assets value, end of year $12.19 $12.47 $12.23 $11.68
- ---------------------------------------------------------------------------------------------------------------------
Total return(6) 7.73% 8.90% 11.25 (5.09)%(7)
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $3,257 $3,986 $4,141 $5,835
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(8) 1.69% 1.74% 1.84% 1.80%(9)
Net investment income (loss) 4.33% 5.22% 7.15% 6.05(9)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 367% 133% 195% 179%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) Prior to June 12, 1998, Class L shares were called Class C shares. Prior
to November 7, 1994, Class C shares were called Class B shares.
(3) For the period from January 1, 1994 to October 31, 1994.
(4) Includes realized gains and losses from foreign currency transactions.
(5) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(6) Total return does not reflect any applicable sales loads or deferred sales
charges
(7) Not annualized
(8) During the years ended October 31, 1996 and October 31, 1995, the fund
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.
(9) Annualized.
Global Government Bond Portfolio -27-
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1998 1997(1) 1996(1) 1995(2) 1994(3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.39 $ 12.14 $ 11.68 $12.93
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.63 0.73 0.78(4) 0.76
Net realized and unrealized gain (loss) 0.37 0.42 0.49 (1.35)
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.00 1.15 1.27 (0.59)
- ---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(5) (1.28) (0.90) (0.81) (0.23)
Net realized gains (0.08) -- -- --
Capital -- -- -- (0.43)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (1.36) (0.90) (0.81) (0.66)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 12.03 $ 12.39 $ 12.14 $11.68
- ---------------------------------------------------------------------------------------------------------------------
Total return 8.61% 9.82% 11.27% (4.62)%(6)
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 28,097 $15,105 $ 62 $3,202
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 0.89% 0.84% 0.98% 1.23%(8)
Net investment income (loss) 5.19 6.12 6.38 6.76(8)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 367% 133% 195% 179%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) On November 7, 1994, the former Class C shares were renamed Class Y
shares.
(3) For the period from January 1, 1994 to October 31, 1994.
(4) Includes realized gains and losses from foreign currency transactions.
(5) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(6) Not annualized.
(7) During the years ended October 31, 1996 and October 31, 1995, the fund
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.
(8) Annualized.
- -28-
<PAGE>
Salomon Smith Barney(SM)
a member of citigroup [Symbol]
Global Government Bond Portfolio
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same information free from the Commission's
Internet web site at www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06290)
[FD00000 2/99]
- -------------------
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
- -------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
February 28, 1999 International Balanced
Portfolio
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and strategies............................4
More on the fund's investments......................8
Smith Barney Mutual
Funds offers a Management..........................................9
distinctive family of
fund choices tailored to Choosing a class of shares to buy..................10
help meet the varying
needs of large and Comparing the fund's classes.......................11
small investors.
Currently, Smith Sales charges......................................12
Barney Mutual Funds
offers more than 60 More about deferred sales charges..................15
individual funds with
assets of more than Buying shares......................................16
$xx billion.
Exchanging shares..................................17
Redeeming shares...................................18
Other things to know about
share transactions...............................20
Smith Barney 401(k) and ExecChoice
programs.........................................22
Dividends, distributions and
taxes............................................23
Share price........................................24
Financial highlights...............................24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
International Balanced Portfolio -3-
<PAGE>
- --------------------------------------------------------------------------------
Fund goal and strategies
- --------------------------------------------------------------------------------
Investment objective
The fund seeks to provide a competitive total return on its assets from growth
of capital and income through a portfolio invested primarily in securities of
established non-U.S. issuers.
Key investments
The fund invests primarily in equity and debt securities of foreign issuers.
Equity securities include common stocks and preferred shares, debt securities
convertible into equity securities, depository receipts and warrants and rights
relating to equity securities. Debt securities consist primarily of foreign
government obligations, but may include corporate bonds.
Selection process
The manager selects investments for either their capital appreciation or income
potential, attempting to achieve a balance between equity and debt securities so
that neither normally comprises more than 70%, or less than 30%, of its assets.
The manager may vary its allocation, depending on the manager's assessment of
current economic and market conditions.
In selecting equity securities, the manager emphasizes individual security
selection, looking for:
o Above average earnings growth and return on invested capital
o Effective management, research, product development and marketing
o Competitive advantages
o Strong financial condition
In selecting debt securities, the manager considers and compares the relative
yields of obligations of various developed nations. The manager looks for:
o Favorable yield, maturity, issue classification and quality characteristics
o Strong financial condition or stable or improving credit quality
o Maturities which are typically in the range of two to ten years.
By spreading the fund's investments across many international markets, the
manager seeks to reduce volatility. In allocating assets among countries and
regions, the factors the manager evaluates include:
o Low or decelerating inflation
o Stable governments with policies that encourage economic growth and foster
investment
o Currency movements
- -4-
<PAGE>
Principal risks of investing in the fund
While investing in foreign securities can bring added benefits, it may also
involve additional risks. Investors could lose money on their investment in the
fund, or the fund may not perform as well as other investments, if any of the
following occurs:
o Foreign stock prices decline
o Fixed income investments lose value due to an increase in market interest
rates, a decline in issuer's credit rating or financial condition or a default
o Adverse governmental actions, or political, economic or market instability
affects a country or region
o An unhedged currency in which a security is priced declines in value relative
to the U.S. dollar
o The manager's judgment about the relative yield, value or potential
appreciation of a particular securities proves to be incorrect
Many foreign countries in which the fund invests have markets that are less
liquid and more volatile than markets in the U.S. In some foreign countries,
less information is available about foreign issuers and markets because of less
rigorous accounting and regulatory standards than in the U.S. Currency
fluctuations could erase investment gains or add to investment losses. The risk
of investing in foreign securities is greater in the case of emerging markets.
In Europe, Economic and Monetary Union (EMU) and the introduction of a single
currency is scheduled to begin on January 1, 1999. There are significant
political and economic risks associated with EMU, which may increase the
volatility of the fund's European investments and present valuation problems.
The fund is "non-diversified," which means it may invest a larger percentage of
its assets in one issuer than a diversified fund, making it more susceptible to
negative events affecting an issuer.
Who may want to invest
The fund may be an appropriate investment if you:
o Are seeking to participate in the long-term total return potential of
international markets
o Currently have exposure to U.S. stock markets and/or U.S. fixed income
securities and wish to broaden your investment portfolio
o Are comfortable with the risks of foreign securities markets and the special
risks of investing in lower quality and emerging market securities
International Balanced Portfolio -5-
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[The following table was depicted as a bar graph in the printed material.]
% Total Return: Class A Shares
Calendar years ended December 31,
1995 1996 1997 1998
---- ---- ---- ----
14.63 12.07 -6.47
The bar chart shows the performance of the fund's Class A shares since inception
on August 25, 1994. Class B, L and Y shares would have different performance due
to their different expenses. The performance information in the chart does not
reflect sales charges, which would reduce your return.
Quarterly returns: Highest: xx% in __ quarter 199X;
Lowest: xx% in __ quarter 199X
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the MSCI EAFE
GDP Weighted Index, an unmanaged index of foreign stocks ("EAFE Index"), and of
the J.P. Morgan Global Bond Market Index ("MGBM Index"), an unmanaged index of
foreign debt securities. This table assumes the imposition of the maximum sales
charge applicable to the class, the redemption of shares at the end of the
period, and the reinvestment of distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
Class Inception Date 1 year 5 years 10 years Since inception
- --------------------------------------------------------------------------------
A 8/25/94 n/a n/a
- --------------------------------------------------------------------------------
B 11/07/94 n/a n/a
- --------------------------------------------------------------------------------
L 08/25/94 n/a n/a
- --------------------------------------------------------------------------------
Y 02/07/96 n/a n/a
- --------------------------------------------------------------------------------
EAFE Index n/a
MGBM Index n/a
- --------------------------------------------------------------------------------
- -6-
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Shareholder fees
(paid directly from your investment) Class A Class B Class L Class Y
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering 5.00% None 1.00% None
price)
Maximum deferred sales charge on redemptions (as a % None* 5.00% 1.00% None
of the lower of net asset value at purchase or
redemption)
- ------------------------------------------------------------------------------------------------------------
Annual fund operating expenses (paid by
the fund as a % of fund net assets)
- ------------------------------------------------------------------------------------------------------------
Management fee .85% .85% .85% .85%
- ------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fee .25% 1.00% 1.00% None
- ------------------------------------------------------------------------------------------------------------
Other expenses
----- ----- ----- -----
- ------------------------------------------------------------------------------------------------------------
Total annual fund operating expenses
===== ===== ===== =====
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A $ $ $ $
- --------------------------------------------------------------------------------
Class B $ $ $ $
Assumes redemption at end of period
- --------------------------------------------------------------------------------
Class B $ $ $ $
Assumes no redemption
- --------------------------------------------------------------------------------
Class L $ $ $ $
Assumes redemption at end of period
- --------------------------------------------------------------------------------
Class L $ $ $ $
Assumes no redemption
- --------------------------------------------------------------------------------
Class Y $ $ $ $
- --------------------------------------------------------------------------------
International Balanced Portfolio -7-
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Debt Securities. In addition to high quality government debt securities of
developed countries, the fund may invest in other types of debt securities,
including non-governmental debt securities that are rated A or better at the
time of purchase or, if unrated, are of comparable quality. The fund may also
invest in lower quality securities that may be unrated or below investment grade
or in default. These securities may be speculative and involve high risk of
loss.
Derivatives and hedging techniques. The fund may, but need not, use derivative
contracts, such as futures and options on securities, securities indices or
currencies; options on these futures; forward currency contracts; and interest
rate or currency swaps for any of the following purposes:
o To hedge against the economic impact of adverse changes in the market value of
its securities, due to changes in stock market prices, currency exchange rates
or interest rates
o As a substitute for buying or selling currencies or securities
o To enhance the fund's return
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment that is based on the change in value of one or more
securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on the fund's stock market, currency and
interest rate exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when stock prices, currency
rates or interest rates are changing. The fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
Emerging markets. The fund may invest up to 25% of assets in debt securities of
emerging market governments. Emerging market investments offer the potential of
significant gains but also involve greater risks than investing in more
developed countries. Political or economic stability, lack of market liquidity
and government actions such as currency controls or seizure of private business
or property may be more likely in emerging markets.
Defensive investing. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
- -8-
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager. The fund's investment manager is Mutual Management Corp., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial services
- -- asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world. Among these businesses are Citibank, Commerical Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset Management, Travelers Life
& Annuity, and Travelers Property Casualty.
Jeffrey Russell, investment officer of Mutual Management Corp. and managing
director of Salomon Smith Barney, and Denis P. Mangan, investment officer of
Mutual Management Corp. and managing director of Smith Barney Global Capital
Management, Inc., have been responsible for day to day management of the fund
since its inception. Mr. Russell is reponsible for the fund's equity investments
and Mr. Mangan is responsible for its fixed income investments.
Management fee. For its services, the manager received a fee during the fund's
last fiscal year equal to 0.85% of the fund's average daily net assets.
Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith
Barney and other broker dealers sell fund shares to the public.
Distribution plans. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and over time, may cost you more than
other types of sales charges.
Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund or its service providers to correct the problem
will be successful.
International Balanced Portfolio -9-
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Factors you should consider when choosing a class
include:
o How much you plan to invest
o How long you expect to own the shares
o The expenses paid by each class
o Whether you qualify for any reduction or waiver of sales charges
You may buy shares from:
o A Salomon Smith Barney Financial Consultant
o An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
o The fund, but only if you are investing through certain qualified plans or
certain dealer representatives.
Investment minimums. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Initial Additional
------------------------------------ ----------
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
General $1,000 $15 million $50
- -------------------------------------------------------------------------------------------------
Individual Retirement Accounts, $250 $15 million $50
Self Employed Retirement Plans,
Uniform Gift to Minor Accounts
- -------------------------------------------------------------------------------------------------
Qualified Retirement Plans $25 $15 million $25
- -------------------------------------------------------------------------------------------------
Simple IRAs $1 n/a $1
- -------------------------------------------------------------------------------------------------
Monthly Systematic Investment Plans $25 n/a $25
- -------------------------------------------------------------------------------------------------
Quarterly Systematic Investment Plans $50 n/a $50
- -------------------------------------------------------------------------------------------------
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
- -10-
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. Your Salomon Smith Barney Financial
Consultant or dealer representative may receive different compensation depending
upon which class you choose.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Class A Class B Class L Class Y
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Key
features
o Initial sales charge o No initial sales o The initial sales o No initial or
o You may qualify charge charge is lower deferred sales charge
for reduction or o Deferred sales than Class A o Investing at least
waiver of initial charge declines o Deferred sales $15 million
sales charge over time charge for only 1 o Lower annual
o Lower annual o Convert to Class year expenses than the
expenses than Class A after 8 years o Do not convert other classes
B and Class L o Higher annual to Class A
expenses than o Higher annual
Class A expenses than
Class A
- ------------------------------------------------------------------------------------------------------------
Initial sales Up to 5.00%; None 1.00% None
charge reduced or waived
for large purchases
and certain
investors. No
charge for
purchases of
$500,000 or more
- ------------------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 5% charged 1% if you redeem None
sales charge $500,000 or more if when you redeem within 1 year of
you redeem within shares. The charge purchase
1 year of purchase is reduced over
time and there is
no deferred sales
charge after 6 years
- ------------------------------------------------------------------------------------------------------------
Annual 0.25% of average 1% of average 1% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
- ------------------------------------------------------------------------------------------------------------
Exchangeable into*
Class A shares of Class B shares of Class L shares of Class Y shares of
most Smith Barney most Smith Barney most Smith Barney most Smith Barney
mutual funds mutual funds mutual funds mutual funds
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
International Balanced Portfolio -11-
<PAGE>
- --------------------------------------------------------------------------------
Sales charge: Class A shares
- --------------------------------------------------------------------------------
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends that you reinvest in additional Class A
shares.
- --------------------------------------------------------------------------------
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
- --------------------------------------------------------------------------------
Less than $25,000 5.00 5.26
- --------------------------------------------------------------------------------
$25,000 but less than $50,000 4.00 4.17
- --------------------------------------------------------------------------------
$50,000 but less than $100,000 3.50 3.63
- --------------------------------------------------------------------------------
$100,000 but less than $250,000 3.00 3.09
- --------------------------------------------------------------------------------
$250,000 but less than $500,000 2.00 2.04
- --------------------------------------------------------------------------------
$500,000 or more -0- -0-
- --------------------------------------------------------------------------------
Investments of $500,000 or more. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
o by you, or
o by members of your immediate family.
and for which a sales charge was paid with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determing their
sales charge.
- -12-
<PAGE>
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney mutual funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge made within 90 days before you sign the letter.
Waivers for certain Class A investors. Class A initial sales charges are waived
for certain types of investors, including:
o Employees of members of the NASD.
o 403(b) or 401(k) retirement plans, if certain conditions are met
o Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
o Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
International Balanced Portfolio -13-
<PAGE>
- --------------------------------------------------------------------------------
Sales charge: Class B shares
- --------------------------------------------------------------------------------
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- --------------------------------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
- --------------------------------------------------------------------------------
Deferred sales charge 5% 4% 3% 2% 1% 0%
- --------------------------------------------------------------------------------
Class B conversion. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
- --------------------------------------------------------------------------------
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions mutual fund
- --------------------------------------------------------------------------------
In same proportion as the On the date the shares
number of Class B shares originally acquired would
Eight years after the converting is to total have converted into Class
date of purchase Class B shares you own A shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sales charge: Class L shares
- --------------------------------------------------------------------------------
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
- --------------------------------------------------------------------------------
Sales charge: Class Y shares
- --------------------------------------------------------------------------------
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet the $15,000,000
minimum investment requirement by buying Class Y shares of the fund over a
13-month period. To qualify, you must initially invest $5,000,000.
- -14-
<PAGE>
- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation.
You do not pay a deferrd sales charge on:
o Shares exchanged for shares of another Smith Barney mutual fund
o Shares representing reinvested distributions and dividends
o Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund and be credited with the
amount of the deferred sales charge, if you notify your Salomon Smith Barney
Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
o To make payments through certain systematic withdrawal plans
o To make certain distributions from a retirement plan
o For involuntary redemptions of small account balances
o For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult
the SAI.
International Balanced Portfolio -15-
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will
Consultant be rejected
or dealer
represen- o Class of shares to be bought
tative o Dollar amount or number of shares to be bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who are
fund's clients of the selling group are eligible to buy shares directly
transfer from the fund.
agent
o Write the transfer agent at the following address:
Smith Barney World Funds, Inc.
International Balanced Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
o Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
o For more information, call the transfer agent at 1-800-451-2010
- --------------------------------------------------------------------------------
Systematic You may authorize Salomon Smith Barney, the dealer representative
investment or the transfer agent to transfer funds automatically from a
plan regular bank account, cash held in a Salomon Smith Barney
brokerage account or Smith Barney money market fund to buy shares
on a regular basis.
o Amounts transferred should be at least: $25 monthly or $50
quarterly
o If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer representative or
the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult
the SAI.
- -16-
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith You should contact your Salomon Smith Barney Financial Consultant
Barney or dealer representative to exchange into other Smith Barney
offers a mutual funds. Be sure to read the prospectus of the Smith Barney
distinctive mutual fund you are exchanging into. An exchange is a taxable
family of transaction.
mutual
funds o You may exchange shares only for shares of the same class of
tailored to another Smith Barney mutual fund. Not all Smith Barney funds offer
help meet all classes.
the varying
needs of o You must meet the minimum investment amount for each fund
both large
and small o If you hold share certificates, the transfer agent must receive
investors. the certificates endorsed for transfer or with signed stock powers
before the exchange is effective.
o The fund may suspend or terminate your exchange privilege if you
engage in an excessive pattern of exchanges
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the
additional time of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be measured
from the date of your original purchase. If the fund you exchange
into has a higher deferred sales charge, you will be subject
to that charge. If you exchange at any time into a fund with
a lower charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible,
you may make telephone exchanges on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (Eastern time).
You can only make telephone exchanges between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent
at the address on the opposite page.
International Balanced Portfolio -17-
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally Contact your Salomon Smith Barney Financial Consultant or dealer
representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock powers
before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption proceeds
will not be sent to you until your original check clears.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be paid
by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney World Funds, Inc.
International Balanced Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
o Your account number
o The class of shares and the dollar amount or number of shares to
be redeemed
o Signatures of each owner exactly as the account is registered
- -18-
<PAGE>
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares (except those held in retirement plans) in amounts
up to $10,000 per day through the transfer agent. You must
complete an authorization form to authorize telephone redemptions.
If eligible, you may request redemptions by telephone on any day
the New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address of
record or by wire transfer to a bank account designated on your
authorization form. You may be charged a fee for wire transfers.
You must submit a new authorization form to change the bank
account designated to receive wire transfers and you may be asked
to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of your
cash shares on a monthly or quarterly basis. To qualify you must own
withdrawal shares of the fund with a value of at least $10,000 and each
plans automatic redemption must be at least $50. If your shares are
subject to a deferred sales charge, the sales charge will be
waived if your automatic payments do not exceed 1% per month of
the value of your shares subject to a deferred sales charge.
The following conditions apply:
o Your shares must not be represented by certificates
o All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
International Balanced Portfolio -19-
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information, without which your
request will not be processed.
o Name of the fund
o Account number
o Class of shares being bought, exchanged or redeemed
o Dollar amount or number of shares being bought, exchanged or redeemed
o Signature of each owner exactly as account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees. To be in good order, your redemption request must include
a signature guarantee if you:
o Are redeeming (together with other requests submitted in the previous 10 days)
over $10,000 of shares
o Are sending signed share certificates or stock powers to the transfer agent
o Instruct the transfer agent to mail the check to an address different from the
one on your account
o Changed your account registration
o Want the check paid to someone other than the account owner(s)
o Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
- -20-
<PAGE>
The fund has the right to:
o Suspend the offering of shares
o Waive or change minimum and additional investment amounts
o Reject any purchase or exchange order
o Change, revoke or suspend the exchange privilege
o Suspend telephone transactions
o Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
Small account balances. If your account falls below $500 due to redemption of
fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
International Balanced Portfolio -21-
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney 401(k) and ExecChoice(TM) programs
- --------------------------------------------------------------------------------
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's investments
in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of that class.
o Class A shares may be purchased by plans investing $1 million or more.
o Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible for exchange into Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner:
If the account was opened on or after June 21, 1996 and an aggregate of $1
million is invested in Smith Barney Funds Class L shares (other than money
market funds), they are eligible for exchange after the plan is in the
program 5 years.
If the account was opened before June 21, 1996 and $500,000 in the
aggregate is invested in Smith Barney Funds Class L shares (other than
money market funds), they are eligible for exchange on each December 31
and the exchange will occur no later than March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
- -22-
<PAGE>
- --------------------------------------------------------------------------------
Distributions, dividends and taxes
- --------------------------------------------------------------------------------
Dividends. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class that you hold. The fund expects
distributions to be from both capital gain and income. You do not pay a sales
charge on reinvested distributions or dividends. Alternatively, you can instruct
your Salomon Smith Barney Financial Consultant, dealer representative or the
transfer agent to have your distributions and/or dividends paid in cash. You can
change your choice at any time to be effective as of the next distribution or
dividend, except that any change given to the transfer agent less than five days
before the payment date will not be effective until the next distribution or
dividend is paid.
Taxes. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------
Redemption or exchange of shares Usually capital gain or loss; long-term
only if shares owned more than one year
- --------------------------------------------------------------------------------
Long-term capital gain distributions Long-term capital gain
- --------------------------------------------------------------------------------
Short-term capital gain distributions Ordinary income
- --------------------------------------------------------------------------------
Dividends Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain
distribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends that you received and any redemptions of shares
during the previous year. If you do not provide the fund with your correct
taxpayer identification number and any required certifications, you may be
subject to back-up withholding of 31% of your distributions, dividends, and
redemption proceeds. Because each shareholder's circumstances are different and
special tax rules may apply, you should consult with your tax adviser about your
investment in the fund.
International Balanced Portfolio -23-
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem fund shares at the net asset value, adjusted for
any applicable sales charge, next determined after receipt of your request in
good order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When market prices are not
available, or when the manager believes they are unreliable or that the value of
a security has been materially affected by events occurring after a foreign
exchange closes, the fund may price those securities at fair value. Fair value
is determined in accordance with procedures approved by the fund's board. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund that uses market quotations to price the same
securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG Peat Marwick LLP,
independent accountants, whose report, along with the fund's financial
statements, are included in the annual report (available upon request).
- -24-
<PAGE>
For a Class A share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1998 1997(1) 1996(1) 1995 1994(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 13.90 $ 12.64 $ 12.20 $ 12.00
- ---------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(3) 0.18 0.26 0.35 0.07
Net realized and
unrealized gain (loss) (0.41) 1.35 0.48 0.13
- ---------------------------------------------------------------------------------------------
Total income (loss) from operations (0.23) 1.61 0.83 0.20
- ---------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) (0.15) (0.35) (0.39) --
Capital (0.20) -- -- --
- ---------------------------------------------------------------------------------------------
Total distributions (0.35) (0.35) (0.39) --
- ---------------------------------------------------------------------------------------------
Net asset value, end of year $ 13.32 $ 13.90 $ 12.64 $ 12.20
- ---------------------------------------------------------------------------------------------
Total return(5) (1.71)% 12.89% 7.05% 1.67%(6)
- ---------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $11,072 $16,116 $17,667 $20,634
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 1.71% 1.81% 1.62% 1.34%(8)
Net investment income (loss) 1.32 1.94 2.89 1.37(8)
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 197% 189% 42% 6%
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(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 period 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 loss and expenses ratio would have
been as follows:
Per Share Decreases to Net Expense Ratios Without Fee
Investment Income Waivers and Custody Credits
---------------------------------------------------------------------
1995 1994 1995 1994
---- ---- ---- ----
Class A $0.04 $0.02 1.96% 2.03%(8)
(4) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(5) Total return does not reflect any applicable sales loads or deferred sales
charges.
(6) Not annualized.
(7) During the years ended October 31, 1996 and October 31, 1995, the fund
earned credits from the custodian which reduced service fees incurred. If the
credits are taken into consideration, the expense ratios of the Class A would
have been 1.72% and 1.52%, respectively; members prior to October 31, 1995 have
not been restated to reflect these credits.
(8) Annualized.
International Balanced Portfolio -25-
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
October 31:
- --------------------------------------------------------------------------------
1998 1997(1) 1996(1) 1995(2)
- --------------------------------------------------------------------------------
Net asset value, beginning of year $13.90 $12.65 $12.08
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(3) 0.07 0.15 0.36
Net realized and
unrealized gain (loss) (0.41) 1.36 0.50
- --------------------------------------------------------------------------------
Total income (loss) from operations (0.34) 1.51 0.86
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) (0.08) (0.26) (0.29)
Capital (0.10) -- --
- --------------------------------------------------------------------------------
Total distributions (0.18) (0.26) (0.29)
- --------------------------------------------------------------------------------
Net asset value, end of year $13.38 $13.90 $12.65
- --------------------------------------------------------------------------------
Total return(5) (2.45)% 12.05% 7.33%(6)
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $4,813 $5,258 $3,064
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 2.48% 2.62% 2.49%(8)
Net investment income (loss) 0.53 1.14 3.11(8)
- --------------------------------------------------------------------------------
Portfolio turnover rate 197% 189% 42%
- --------------------------------------------------------------------------------
(1) Per share amounts calculated using the monthly average shares method.
(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 loss and expenses ratio would have been as follows:
Per Share Decreases to Expense Ratios Without Fee
Net Investment Income Waivers and Custody Credits
---------------------------------------------------------
1995 1995
---- ----
Class B $0.04 2.86%(8)
(4) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(5) Total return does not reflect any applicable sales loads or deferred sales
charges.
(6) Not annualized.
(7) During the year ended October 31, 1996 and the period ended October 31,
1995, the fund 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%(8), respectively.
(8) Annualized.
- -26-
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1998(2) 1997(1) 1996(1) 1995 1994(3)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.87 $12.63 $12.18 $12.00
- -------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(4) 0.08 0.15 0.28 0.05
Net realized and unrealized
gain (loss) (0.42) 1.35 0.46 0.13
- -------------------------------------------------------------------------------------------
Total income (loss) from operations (0.34) 1.50 0.74 0.18
- -------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(5) (0.08) (0.26) (0.29) --
Capital (0.10) -- -- --
- -------------------------------------------------------------------------------------------
Total distributions (0.18) (0.26) (0.29) --
- -------------------------------------------------------------------------------------------
Net assets value, end of year $13.35 $13.87 $12.63 $12.18
- -------------------------------------------------------------------------------------------
Total return(6) (2.46)% 11.99% 6.29% 1.50%(7)
- -------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $3,642 $4,869 $4,317 $4,310
- -------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(8) 2.51% 2.62% 2.37% 2.03%(9)
Net investment income 0.60 1.14 2.33 0.79(9)
- -------------------------------------------------------------------------------------------
Portfolio turnover rate 197% 189% 42% 6%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) Prior to June 12, 1998, Class L shares were called Class C shares. Prior to
November 7, 1994, Class B shares were called Class B shares.
(3) For the period from August 25, 1994 (inception date) to October 31, 1994.
(4) The manager waived all or part of its fees for the period 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 loss and expenses ratio would have
been as follows:
Per Share Decreases to Net Expense Ratios Without Fee
Investment Income Waivers and Custody Credits
----------------------------------------------------------------
1995 1994 1995 1994
---- ---- ---- ----
Class L $0.04 $0.02 2.71% 2.74%(9)
(5) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(6) Total return does not reflect any applicable sales loads or deferred sales
charges
(7) Not annualized
(8) During the years ended October 31, 1996 and October 31, 1995, the fund
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.
(9) Annualized.
International Balanced Portfolio -27-
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
October 31:
- --------------------------------------------------------------------------------
1998 1997(1) 1996(1)(2)
- --------------------------------------------------------------------------------
Net asset value, beginning of $ 13.93 $ 13.15
year
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.25 0.32
Net realized and unrealized
gain (loss) (0.42) (0.75)
- --------------------------------------------------------------------------------
Total income (loss) from (0.17) 1.07
operations
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income(3) (0.18) (0.29)
Capital (0.23) --
- --------------------------------------------------------------------------------
Total distributions (0.41) (0.29)
- --------------------------------------------------------------------------------
Net asset value, end of year $ 13.35 $ 13.93
- --------------------------------------------------------------------------------
Total return (1.28)% 8.21%(4)
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $42,380 $19,387
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(5) 1.24% 1.21%(6)
Net investment income (loss) 1.83 2.55(6)
- --------------------------------------------------------------------------------
Portfolio turnover rate 197% 189%
- --------------------------------------------------------------------------------
(1) Per share amounts calculated using the monthly average shares method.
(2) For the period from February 7, 1996 (inception date) to October 31, 1996.
(3) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(4) Not annualized.
(5) During the years ended October 31, 1996, the fund 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
1.12%(6). Figures before October 31, 1996 have not been restated to
reflect these credits.
(6) Annualized.
- -28-
<PAGE>
Salomon Smith Barney(SM)
a member of citigroup [Symbol]
International Balanced Portfolio
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same information free from the Commission's
Internet web site at www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06290)
[FD00000 2/99]
- ----------------------------
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
- ----------------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
February 28, 1999 EUROPEAN PORTFOLIO
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
- --------------------------------------------------------------------------------
CONTENTS
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds offers a distinctive family of fund choices tailored
to help meet the varying needs of large and small investors. Currently, Smith
Barney Mutual Funds offers more than 60 individual funds with assets of more
than $xx billion.
Fund goal and strategies................................................... 4
More on the fund's investments............................................. 8
Management................................................................. 9
Choosing a class of shares to buy.......................................... 10
Comparing the fund's classes............................................... 11
Sales charges.............................................................. 12
More about deferred sales charges.......................................... 15
Buying shares.............................................................. 16
Exchanging shares.......................................................... 17
Redeeming shares........................................................... 18
Other things to know about
share transactions....................................................... 20
Smith Barney 401(k) and ExecChoice
programs................................................................. 22
Dividends, distributions and
taxes.................................................................... 23
Share price................................................................ 24
Financial highlights....................................................... 24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
European Portfolio
1
<PAGE>
- --------------------------------------------------------------------------------
FUND GOAL AND STRATEGIES
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The fund seeks long term capital appreciation by investing in equity securities
of European issuers.
KEY INVESTMENTS
The fund invests primarily in equity securities of companies based in Western
Europe and may also invest in the emerging markets of Eastern Europe. Equity
securities include common and preferred stocks, debt securities convertible
into equity securities, depositary receipts and warrants and rights relating to
equity securities.
SELECTION PROCESS
The manager emphasizes individual security selection while allocating the fund's
investments among European countries. Companies in which the fund invests may
have large, mid-sized or small market capitalizations and may operate in any
market sector. Depending on the manager's assessment of long-term growth
potential, the fund's emphasis among European markets and issuers may vary.
In selecting individual companies for investment, the manager looks for the
following:
. Above average earnings growth
. High relative return on invested capital
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
. Strong financial condition
. Favorable trends experienced by certain U.S. companies that are likely to
spread to comparable European companies
. Increasing market share
By spreading the fund's investments across several European markets, the manager
seeks to reduce volatility compared to investments in a single country. In
allocating assets among countries, the economic and political factors the
manager evaluates include:
. Interest rates and low or decelerating inflation
. Stable governments with policies toward business that encourage economic
growth and foster development of securities markets
. Currency stability
2
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
While investing in European securities can bring added benefits, it may also
involve risks. Investors could lose money on their investment in the fund, or
the fund may not perform as well as other investments, because of the following:
. European stock prices decline
. Adverse governmental action, or political, economic or market instability
affects one or more European countries
. The currency in which a security is priced declines in value relative to the
U.S. dollar
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
Economic and Monetary Union (EMU) and the introduction of a single European
currency, which is scheduled to begin on January 1, 1999, may increase the
volatility of European markets and present valuation problems for the fund. EMU
will mean sharing a single currency and official interest rate and adhering to
limits on government borrowing. Budgetary decisions will be subject to each
country's commitment to avoid "excessive deficits" and other more specific
budgetary criteria. EMU is driven by the expectation of economic benefits,
however, there are significant risks associated with EMU. Monetary and economic
union on this scale has not been attempted before. There is a significant
degree of uncertainty as to whether participating countries will remain
committed to EMU in the face of changing economic conditions.
Certain European countries the fund invests in have markets that are less liquid
and more volatile than markets in the U.S. In some European countries, less
information is available about issuers and markets because of less rigorous
accounting and regulatory standards than in the U.S. Currency fluctuations
could erase investment gains or add to investment losses. The risks of
investing in the emerging markets of Eastern Europe are substantially greater
than investing in the more developed markets of Western Europe.
WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you:
. Are seeking to participate in the long term growth potential of European
markets
. Currently have exposure to U.S. stock markets and wish to broaden the
diversification of your investment portfolio
. Are comfortable with the risks of the stock market and the special risks of
concentrating in European securities
European Portfolio
3
<PAGE>
TOTAL RETURN
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
BAR CHART
Calendar years ended December 31
1995 1996 1997
---- ---- ----
17.23 29.12 1.78
The bar chart shows the performance of the fund's Class A shares since inception
on February 7, 1994. Class B, L and Y shares would have different performance
due to their different expenses. The performance information in the chart does
not reflect sales charges, which would reduce your return.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the MSCI
European Market Index ("MSCI Index"), an unmanaged index of foreign stocks.
This table assumes the imposition of the maximum sales charge applicable to the
class, the redemption of shares at the end of the period, and the reinvestment
of distributions and dividends.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class Inception Date 1 year 5 years 10 years Since inception
A 02/07/94 n/a n/a
B 11/07/94 n/a n/a
L 02/14/94 n/a n/a
Y xx/xx/98 n/a n/a
MSCI Index n/a
</TABLE>
4
<PAGE>
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
(paid directly from your investment)
Class A Class B Class L Class Y
- -----------------------------------------------------------------------------------------------------
<S>
<C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price)
5.00% None 1.00% None
Maximum deferred sales charge on redemptions (as a % of the
lower of net asset value at purchase or redemption)
None* 5.00% 1.00% None
ANNUAL FUND OPERATING EXPENSES (paid by the
fund as a % of fund net assets)
Management fee
.85% .85% .85% .85%
Distribution and service (12b-1) fee
.25% 1.00% 1.00% None
Other expenses
- ---- ---- ---- ----
Total annual fund operating expenses
==== ==== ==== ====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase you will pay a deferred sales charge of 1.00%.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $ $ $ $
Class B $ $ $ $
Assumes redemption at end of period
Class B $ $ $ $
Assumes no redemption
Class L $ $ $ $
Assumes redemption at end of period
Class L $ $ $ $
Assumes no redemption
Class Y $ $ $ $
</TABLE>
European Portfolio
5
<PAGE>
- --------------------------------------------------------------------------------
MORE ON THE FUND'S INVESTMENTS
- --------------------------------------------------------------------------------
DEBT AND OTHER SECURITIES. The fund intends to be fully invested in equity
securities. However, for cash management purposes, the fund may invest in debt
securities of U.S. and foreign corporate and governmental issuers or other
securities. Debt securities may be of any maturity, duration or credit quality
and may pay fixed or variable rates of principal and interest. The value of
debt securities will go down if interest rates go up, or the issuer of the
security has its credit rating downgraded or defaults on its obligation to pay
principal or interest. These risks are more severe for debt securities rated
below investment grade.
CURRENCY TRANSACTIONS. The fund may enter into transactions to buy or sell
currencies at a future date, which may be a few days or a number of months. The
fund may enter into these forward currency contracts to:
. Settle transactions in securities quoted in foreign currencies
. Hedge against the economic impact of adverse changes in the value of the U.S.
dollar
The fund may not fully benefit from or may lose money on forward currency
transactions if changes in currency rates do not occur as anticipated or do not
correspond accurately to changes in the value of the fund's holdings.
DEFENSIVE INVESTING. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
6
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
MANAGER. The fund's investment manager is Mutual Management Corp., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial services
- -- asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world. Among these businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset Management, Travelers Life
& Annuity, and Travelers Property Casualty.
Rein van der Does, investment officer of Mutual Management Corp. and managing
director of Salomon Smith Barney, has been responsible for day-to-day management
of the fund since inception. Maurits E. Edersheim, head of Salomon Smith
Barney's international equity team, has general responsibility for Salomon Smith
Barney's international equity investment operations.
MANAGEMENT FEE. For its services, the manager received a fee during the fund's
last fiscal year equal to 0.85% of the fund's average daily net assets.
DISTRIBUTOR. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith
Barney and other broker dealers sell fund shares to the public.
DISTRIBUTION PLANS. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and
service fees. These fees are an ongoing expense and over time, may cost you
more than other types of sales charges.
YEAR 2000 ISSUE. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund or its service providers to correct the problem
will be successful.
European Portfolio
7
<PAGE>
- --------------------------------------------------------------------------------
CHOOSING A CLASS OF SHARES TO BUY
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Factors you should consider when choosing a class
include:
. How much you plan to invest
. How long you expect to own the shares
. The expenses paid by each class
. Whether you qualify for any reduction or waiver of sales charges
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives.
INVESTMENT MINIMUMS. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
------------------------------ ---------------
<S> <C> <C> <C>
CLASSES A, B, L CLASS Y ALL CLASSES
General $1,000 $15 million $50
Individual Retirement Accounts, $ 250 $15 million $50
Self Employed Retirement Plans,
Uniform Gift to Minor Accounts
Qualified Retirement Plans $ 25 $15 million $25
Simple IRAs $ 1 n/a $ 1
Monthly Systematic Investment Plans$25 n/a $25
Quarterly Systematic Investment Plans$50 n/a $50
- --------------------------------------- -------------- -------------- ---------------
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
8
<PAGE>
- --------------------------------------------------------------------------------
COMPARING THE FUND'S CLASSES
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. Your Salomon Smith Barney Financial
Consultant or dealer representative may receive different compensation depending
upon which class you choose.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS L CLASS Y
<S> <C> <C> <C> <C>
KEY FEATURES
.Initial sales charge .No initial sales .The initial sales .No initial or
.You may qualify for charge charge is lower than deferred sales charge
reduction or waiver of .Deferred sales Class A .Investing at least
initial sales charge charge declines over .Deferred sales $15 million
.Lower annual time charge for only 1 .Lower annual
expenses than Class B .Convert to Class A year expenses than the other
and Class L after 8 years . Do not convert to classes
.Higher annual Class A
expenses than Class A .Higher annual
expenses than Class A
INITIAL SALES CHARGE
Up to 5.00%; reduced None 1.00% None
or waived for large
purchases and certain
investors. No charge
for purchases of
$500,000 or more
DEFERRED SALES CHARGE
1% on purchases of Up to 5% charged 1% if you redeem None
$500,000 or more if when you redeem within 1 year of
you redeem within shares.The charge is purchase
1 year of purchase reduced over time
and there is no
deferred sales charge
after 6 years
ANNUAL DISTRIBUTION AND SERVICE
FEES
0.25% of average daily 1% of average daily 1% of average daily None
net assets net assets net assets
EXCHANGEABLE INTO*
Class A shares of most Class B shares of Class L shares of Class Y shares of
Smith Barney mutual most Smith Barney most Smith Barney most Smith Barney
funds mutual funds mutual funds mutual funds
- ------------------- ---------------------- -------------------- -------------------- ----------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
European Portfolio
9
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE: CLASS A SHARES
- --------------------------------------------------------------------------------
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends that you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
SALES CHARGE AS A % OF
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
</TABLE>
INVESTMENTS OF $500,000 OR MORE. You do not pay an initial sales charge when
you buy $500,000 or more of Class A shares. However, if you redeem these Class
A shares within one year of purchase, you will pay a deferred sales charge of
1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family.
and for which a sales charge was paid with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
10
<PAGE>
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney mutual funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge made within 90 days before you sign the letter.
WAIVERS FOR CERTAIN CLASS A INVESTORS. Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD.
. 403(b) or 401(k) retirement plans, if certain conditions are met
. Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past
60 days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
European Portfolio
11
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE: CLASS B SHARES
- --------------------------------------------------------------------------------
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as
the number of years since your purchase increases.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
6th and
YEAR AFTER PURCHASE 1ST 2nd 3rd 4th 5th over
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DEFERRED SALES CHARGE 5% 4% 3% 2% 1% 0%
- ----------------------------------------------------------------
</TABLE>
CLASS B CONVERSION. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
SHARES ISSUED: SHARES ISSUED: SHARES ISSUED:
AT INITIAL ON REINVESTMENT OF UPON EXCHANGE FROM
PURCHASE DIVIDENDS AND ANOTHER SMITH BARNEY
DISTRIBUTIONS MUTUAL FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally
converting is to total Class B acquired would have converted
shares you own into Class A shares
- -------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
SALES CHARGE: CLASS L SHARES
- --------------------------------------------------------------------------------
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before June
22, 2001.
- --------------------------------------------------------------------------------
SALES CHARGE: CLASS Y SHARES
- --------------------------------------------------------------------------------
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet the $15,000,000
minimum investment requirement by buying Class Y shares of the fund over a 13-
month period. To qualify, you must initially invest $5,000,000.
12
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT DEFERRED SALES CHARGES
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation.
You do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney mutual fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund and be credited with the
amount of the deferred sales charge, if you notify your Salomon Smith Barney
Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for each share class will generally be waived:
. To make payments through certain systematic withdrawal plans
. To make certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
European Portfolio
13
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BUYING SHARES
- --------------------------------------------------------------------------------
<S> <C>
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will
Consultant will be rejected.
or dealer . Class of shares to be bought
represen- . Dollar amount or number of shares to be bought
tative
You should pay for your shares through your brokerage
account no later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an annual
account maintenance fee.
- -----------------------------------------------------------------------
Through the
Fund's transfer agent
Qualified retirement plans and certain other investors who are clients of the
selling group are eligible to buy shares directly from the fund.
. Write the transfer agent at the following address:
Smith Barney World Funds, Inc.
European Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
. For more information, call the transfer agent at 1-800-451-2010
- ------------------------------------------------------------------------
Systematic Investment Plan
You may authorize Salomon Smith Barney, the dealer representative
or the transfer agent to transfer funds automatically from a
regular bank account, cash held in a salomon smith barney
brokerage account or smith barney money market fund to buy shares on a
regular basis.
. Amounts transferred should be at least: $25 monthly or $50 quarterly
. If you do not have sufficient funds in your account on a transfer date,
Salomon Smith Barney, your dealer representative or the transfer agent may
charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult the SAI.
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
EXCHANGING SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Smith You should contact your Salomon Smith Barney Financial Consultant or
Barney dealer representative to exchange into other Smith Barney mutual funds
offers a Be sure to read the prospectus of the Smith Barney mutual fund
distinctive you are exchanging into. An exchange is a taxable transaction.
family of
mutual . You may exchange shares only for shares of the same class of
funds another Smith Barney mutual fund. Not all Smith Barney funds
tailored to offer all classes.
help meet . You must meet the minimum investment amount for each fund
the varying
needs of . If you hold share certificates, the transfer agent must
both large receive the certificates endorsed for transfer or with signed
and small stock powers before the exchange is effective.
investors.
. The fund may suspend or terminate your exchange privilege
if you engage in an excessive pattern of exchanges
- ------------------------------------------------------------------------
Waiver of additional
sales
charges
Your shares will not be subject to an initial sales charge at the time of
the exchange. Your deferred sales charge (if any) will continue to be
measured from the date of your original purchase. If the fund you
exchange into has a higher deferred
sales charge, you will be subject to that charge. If you exchange at any time
into to a fund with a lower charge, the sales charge will not be reduced.
- ------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible to exchange
shares through the transfer agent. You must complete an authorization form to
authorize telephone transfers. If eligible, you may make telephone exchanges
on any day the new york stock exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
You can only make telephone exchanges between accounts that have identical
registrations.
- -----------------------------------------------------------------------
By mail
If you do not have a Salomon Smith Barney brokerage account, contact your
dealer representative or write to the transfer agent at the address on the
opposite page.
</TABLE>
European Portfolio
15
<PAGE>
- --------------------------------------------------------------------------------
REDEEMING SHARES
- --------------------------------------------------------------------------------
Generally Contact your Salomon Smith Barney Financial Consultant or dealer
representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption proceeds
will not be sent to you until your original check clears.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney World Funds, Inc.
European Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of shares
to be redeemed
. Signatures of each owner exactly as the account is registered
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
By telephone
If you do not have a brokerage account, you may be eligible to redeem shares
(except those held in retirement plans) in amounts up to $10,000 per day
through the transfer agent. You must complete an authorization form to
authorize telephone redemptions. If eligible, you may request redemptions by
telephone on any day the new york stock exchange is open. Call the transfer
agent at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address of record or
by wire transfer to a bank account designated on your authorization form. You
may be charged a fee for wire transfers. You must submit a new authorization
form to change the bank account designated to receive wire transfers and you
may be asked to provide certain other documents.
- --------------------------------------------------------------------
Automatic cash withdrawal plans
You can arrange for the automatic redemption of a portion of your shares on a
cash monthly or quarterly basis. To qualify you must own shares of the
fund with a value of at least $10,000 and each automatic redemption must be
at least $50.
If your shares are subject to a deferred sales charge, the sales charge will be
waived if your automatic payments do not exceed 1% per month of the value
of your shares subject to a deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial
consultant or dealer representative or consult the SAI.
</TABLE>
European Portfolio
17
<PAGE>
- --------------------------------------------------------------------------------
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information, without which your
request will not be processed.
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees. To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming (together with other requests submitted in the previous 10
days) over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
18
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
SMALL ACCOUNT BALANCES. If your account falls below $500 due to redemption of
fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges
by the shareholder.
SHARE CERTIFICATES. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
European Portfolio
19
<PAGE>
- --------------------------------------------------------------------------------
SMITH BARNEY 401(K) AND EXECCHOICE(SM) PROGRAMS
- --------------------------------------------------------------------------------
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice program. The fund offers Class A and Class L shares to
participating plans as investment alternatives under the programs. You can meet
minimum investment and exchange amounts by combining the plan's investments in
any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of that class.
. Class A shares may be purchased by plans investing $1 million or more.
. Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible for exchange into Class A shares not later than 8
years after the plan joined the program. They are eligible for exchange sooner:
If the account was opened on or after June 21, 1996 and an aggregate of $1
million is invested in Smith Barney Funds Class L shares (other than money
market funds), they are eligible for exchange after the plan is in the program
5 years.
If the account was opened before June 21, 1996 and $500,000 in the aggregate
is invested in Smith Barney Funds Class L shares (other than money market
funds), they are eligible for exchange on each December 31 and the exchange
will occur no later than March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
20
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTIONS, DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class that you hold. The fund expects
distributions to be primarily from capital gain. You do not pay a sales charge
on reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
TAXES. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<S> <C>
TRANSACTION FEDERAL TAX STATUS
Redemption or exchange of shares Usually capital gain or loss;
long-term only
if shares owned more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain
distribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends that you received and any redemptions of shares
during the previous year. If you do not provide the fund with your correct
taxpayer identification number and any required certifications, you may be
subject to back-up withholding of 31% of your distributions, dividends, and
redemption proceeds. Because each shareholder's circumstances are different and
special tax rules may apply, you should consult with your tax adviser about your
investment in the fund.
European Portfolio
21
<PAGE>
- --------------------------------------------------------------------------------
SHARE PRICE
- --------------------------------------------------------------------------------
You may buy, exchange or redeem fund shares at the net asset value, adjusted for
any applicable sales charge, next determined after receipt of your request in
good order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When market prices are not
available, or when the manager believes they are unreliable or that the value of
a security has been materially affected by events occurring after a foreign
exchange closes, the fund may price those securities at fair value. Fair value
is determined in accordance with procedures approved by the fund's board. A
fund that uses fair value to price securities may value those securities higher
or lower than another fund that uses market quotations to price the same
securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG Peat Marwick LLP,
independent accountants, whose report, along with the fund's financial
statements, are included in the annual report (available upon request).
22
<PAGE>
For a Class A Share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
1998 1997(1) 1996 1995 1994(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 17.25 $ 14.67 $ 12.88 $ 12.50
- ------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income (loss)(3) (0.08) (0.08) 0.07 (0.11)
Net realized and unrealized gain 2.22 2.79 1.72 0.49
- ------------------------------------------------------------------------------------------
Total income from operations 2.14 2.71 1.79 0.38
- ------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) -- (0.09) -- --
Net realized gains (1.16) (0.04) -- --
- ------------------------------------------------------------------------------------------
Total distributions (1.16) (0.13) -- --
- ------------------------------------------------------------------------------------------
Net asset value, end of year $ 18.23 $ 17.25 $ 14.67 $ 12.88
- ------------------------------------------------------------------------------------------
Total return(5) 12.88% 18.65% 13.90% 3.04%/(6)/
- ------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $14,118 $10,528 $11,870 $ 5,189
- ------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses(7) 1.80% 1.85% 2.06% 1.34%/(8)/
Net investment income (loss) (0.42) (0.49) 0.51 (1.12)/(8)/
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 28% 39% 34% 21%
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(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 period ended October 31,
1995 and the period ended October 31, 1994. In addition, the Manager agreed to
reimburse the fund for $10,344 of the fund's expenses for the period ended
October 31, 1994. If such fees were not waived, the per share effect on net
investment income loss and expenses ratio would have been as follows:
Expense Ratios Without Fee
Per Share Decreases to Waivers and
Net Investment Income Custody credits
----------------------------------------------------
1995 1994 1995 1994
Class A $0.01 $0.10 2.09% 2.37%(8)
(4) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(5) Total return does not reflect any applicable sales loads or deferred sales
charges.
(6) Not annualized.
(7) During the years ended October 31, 1996 and October 31, 1995, the fund
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; members prior to October 31, 1995 have not
been restated to reflect these credits.
(8) Annualized.
European Portfolio
23
<PAGE>
For a Class B Share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
1998 1997(1) 1996 1995(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 17.09 $ 14.56 $ 12.62
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)(3) (0.20) (0.20) 0.02
Net realized and 2.19 2.77 1.92
unrealized gain (loss)
- -------------------------------------------------------------------------------
Total income (loss) from operations 1.99 2.57 1.94
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) -- -- --
Net realized gains (1.16) (0.04) --
- -------------------------------------------------------------------------------
Total distributions (1.16) (0.04) --
- -------------------------------------------------------------------------------
Net asset value, end of year $ 17.92 $ 17.09 $ 14.56
- -------------------------------------------------------------------------------
Total return(5) 12.08% 17.72% 15.37%/(6)/
- -------------------------------------------------------------------------------
Net assets, end of year (000)'s $29,221 $26,384 $ 24,825
- -------------------------------------------------------------------------------
ratios to average
Net assets:
Expenses(7) 2.52% 2.59% 3.31%/(8)/
Net investment income (loss) (1.13) (1.22) 0.26/(8)/
- -------------------------------------------------------------------------------
Portfolio turnover rate 28% 39% 34%
- -------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(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 and the period ended October 31, 1994. In addition, the manager agreed to
reimburse the fund for $10,344 of the fund's expenses for the period ended
October 31, 1994. If such fees were not waived, the per share effect on net
investment income loss and expenses ratio would have been as follows:
Expense Ratios Without
Per Share Decreases to Fee Waivers and
Net Investment Income and Custody Credits
---------------------------------------------------
1995 1994 1995 1994
Class B $0.00 -- 3.35%(8) --
(4) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(5) Total return does not reflect any applicable sales loads or deferred sales
charges.
(6) Not annualized.
(7) During the year ended October 31, 1996 and the period ended October 31,
1995, the fund 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%(8), respectively; numbers prior to
October 31, 1995 have not been restated to reflect these credits.
(8) Annualized.
24
<PAGE>
For a Class L Share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
1998(2) 1997(1) 1996 1995(2) 1994(3)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $17.04 $14.51 $12.83 $ 12.48
- --------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)(4) (0.21) (0.14) (0.08) (0.16)
Net realized and unrealized gain 2.19 2.71 1.76 0.51
- --------------------------------------------------------------------------------------------
Total income from operations 1.98 2.57 1.68 0.35
- --------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains(5) (1.16) (0.04) -- --
- --------------------------------------------------------------------------------------------
Total distributions (1.16) (0.04) -- --
- --------------------------------------------------------------------------------------------
Net assets value, end of year $17.86 $17.04 $14.51 $ 12.83
- --------------------------------------------------------------------------------------------
Total return(6) 12.06% 17.78% 13.09% 2.80%/(7)/
- --------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $3,110 $2,011 $1,311 $ 1,607
- --------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(8) 2.54% 2.52% 2.51% 2.02%/(9)/
Net investment income (loss) (1.18) (1.17) (0.64) (1.60)/(9)/
- --------------------------------------------------------------------------------------------
portfolio turnover rate 28% 39% 34% 21%
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) Prior to June 12, 1998, Class L shares were called Class C shares. Prior
to November 7, 1994, Class C shares were called Class B shares.
(3) For the period from February 14, 1994 (inception date) to October 31, 1994.
(4) The manager waived all or part of its fees for the period ended October 31,
1995 and the period ended October 31, 1994. In addition, the manager agreed to
reimburse the fund for $10,344 of the fund's expenses for the period ended
October 31, 1994. If such fees were not waived, the per share effect on net
investment income loss and expenses ratio would have been as follows:
Expense Ratios Without
Per Share Decreases to Fee Waivers and
Net Investment Income Custody Credits
-------------------------------------------------
1995 1994 1995 1994
Class L $0.01 $0.10 2.54% 3.07%(9)
(5) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(6) Total return does not reflect any applicable sales loads or deferred sales
charges
(7) Not annualized
(8) During the years ended October 31, 1996 and October 31, 1995, the fund
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 2.50% and 2.48%, respectively; numbers prior to October 31, 1995 have not
been restated to reflect these credits.
(9) Annualized.
European Portfolio
25
<PAGE>
SALOMON SMITH BARNEY(SM)
A MEMBER OF CITIGROUP [SYMBOL]
EUROPEAN PORTFOLIO
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, the
dealer representative or the transfer agent if you do not want this policy to
apply to you.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same information free from the Commission's
Internet web site at www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06290)
- ------------------------
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
- ------------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
February 28, 1999 PACIFIC PORTFOLIO
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
================================================================================
CONTENTS
================================================================================
Smith Barney Mutual Funds offers a distinctive family of fund choices tailored
to help meet the varying needs of large and small investors. Currently, Smith
Barney Mutual Funds offers more than 60 individual funds with assets of more
than $xx billion.
Fund goal and strategies......................................................4
More on the fund's investments................................................8
Management....................................................................9
Choosing a class of shares to buy............................................10
Comparing the fund's classes.................................................11
Sales charges................................................................12
More about deferred sales charges............................................15
Buying shares................................................................16
Exchanging shares............................................................17
Redeeming shares.............................................................18
Other things to know about
share transactions.........................................................20
Smith Barney 401(k) and ExecChoice
programs...................................................................22
Dividends, distributions and
taxes......................................................................23
Share price..................................................................24
Financial highlights.........................................................24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Pacific Portfolio 1
<PAGE>
- --------------------------------------------------------------------------------
Fund goal and strategies
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The fund seeks long-term capital appreciation.
KEY INVESTMENTS
The fund invests primarily in equity securities of companies in the Asia Pacific
region. Equity securities include exchange traded and over-the-counter common
stocks, preferred shares, debt securities convertible into equity securities,
depository receipts and warrants and rights relating to equity securities.
SELECTION PROCESS
The manager emphasizes individual security selection while allocating the fund's
investments among companies in the Asia Pacific region. Companies in which the
fund invests may have large, mid or small size market capitalizations and may
operate in any market sector. Depending on the manager's assessment of
long-term growth potential, the fund's emphasis among Asia Pacific region
markets and issuers may vary.
In selecting individual companies for investment, the manager looks for:
. Above average earnings growth
. High relative return on invested capital
. Experienced and effective management
. Competitive advantages, such as high market share or special licenses and
patents
. Strong financial condition
The economic and political factors the manager evaluates include:
. Inflationary trends which create a favorable environment for securities
markets
. Governmental policies toward business affecting economic growth and
securities markets
. Currency movements
. Monetary and fiscal trends
2
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
While investing in Asia Pacific region securities can bring added benefits it
may also involve risks. Investors could lose money on their investment in the
fund, or the fund may not perform as well as other investments, if any of the
following occurs:
. Stock prices of securities in the Asia Pacific region decline
. Economic, political or social instabilities significantly disrupt the
principal financial markets in the Asia Pacific region
. Factors creating volatility in one Asia Pacific region country negatively
impact values or trading in other countries in the region
. Currency fluctuations negatively impact the fund's portfolio
. The government of one or more countries in the region imposes restrictions on
currency conversion or trading
. The economies in the Asia Pacific region grow at a slow rate or experience a
downturn or recession
. In changing markets the fund may not be able to sell desired amounts of
securities at reasonable prices
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
Many Asia Pacific region countries in which the fund invests have markets that
are less liquid and more volatile than markets in the U.S. In some Asia Pacific
countries, less information is available about issuers and markets because of
less rigorous accounting and regulatory standards than in the U.S. These risks
are considered greater in the case of those Asia Pacific countries that are
emerging markets. To the extent the fund concentrates its investments in one or
more countries due to their large market capitalization in the Asia Pacific
region, such as Japan, the fund will be subject to greater risks than if its
assets were not so concentrated.
WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you:
. Are an aggressive investor seeking to participate in the long term growth
potential of the Asia Pacific markets
. Currently have exposure to U.S. or other foreign stock markets and wish to
broaden your investment portfolio by adding Asia Pacific region stocks that may
not move in tandem with U.S. stocks
. Are comfortable with the risks of the foreign stock markets and the special
risks of concentrating investments in Asia Pacific region securities and
investing in emerging market securities
Pacific Portfolio 3
<PAGE>
TOTAL RETURN
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
BAR CHART
Calendar years ended December 31
1995 1996 1997
------ ------ ------
-10.68 3.49 -29.52
The bar chart shows the performance of the fund's Class A since inception on
February 7, 1994. Class B, L and Y shares would have different performance due
to their different expenses. The performance information in the chart does not
reflect sales charges, which would reduce your return.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X;
Lowest: xx% in ___ quarter 199X
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the MSCI All
Country Asia Pacific Index ("MSCI Index"), an unmanaged index of foreign stocks.
This table assumes the imposition of the maximum sales charge applicable to the
class, the redemption of shares at the end of the period, and the reinvestment
of distributions and dividends.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1998
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class Inception Date 1 year 5 years 10 years Since inception
A 02/07/94 n/a n/a
B 11/07/94 n/a n/a
L 02/11/94 n/a n/a
Y xx/xx/98 n/a n/a
MSCI Index n/a
</TABLE>
4
<PAGE>
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
===============================================================================================================
SHAREHOLDER FEES
(paid directly from your investment)
Class A Class B Class L Class Y
===============================================================================================================
<S>
<C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price)
5.00% None 1.00% None
Maximum deferred sales charge on redemptions (as a % of the
lower of net asset value at purchase or redemption)
None* 5.00% 1.00% None
Annual fund operating expenses (paid-by the
fund as a % of fund net assets)
Management fee
.85% .85% .85% .85%
Distribution and service (12b-1) fee
.25% 1.00% 1.00% None
Other expenses
- --- --- --- ---
Total fund operating expenses
=== === === ===
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase you will pay a deferred sales charge of 1.00%.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $ $ $ $
Class B $ $ $ $
Assumes redemption at end of period
Class B $ $ $ $
Assumes no redemption
Class L $ $ $ $
Assumes redemption at end of period
Class L $ $ $ $
Assumes no redemption
Class Y $ $ $ $
</TABLE>
Pacific Portfolio 5
<PAGE>
- --------------------------------------------------------------------------------
MORE ON THE FUND'S INVESTMENTS
- --------------------------------------------------------------------------------
ASIA PACIFIC REGION. The Asia Pacific Region currently includes Australia, Hong
Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Papua New
Guinea, the People's Republic of China, the Philippines, Singapore, South Korea,
Sri Lanka, Taiwan and Thailand. The manager considers a company to be in the
Asia Pacific Region if its securities trade on exchanges in the Asia Pacific
Region, it generates at least half of its revenue from the Asia Pacific Region
or it is organized under the laws of an Asia Pacific Region country.
DEBT AND OTHER SECURITIES. The fund intends to be fully invested in equity
securities. However, for cash management purposes, the fund may invest in
investment grade debt securities of U.S. and foreign corporate and governmental
issuers or other securities. Debt securities may be of any maturity or duration
and may pay fixed or variable rates of principal and interest. The value of debt
securities will go down if interest rates go up, or the issuer of the security
has its credit rating downgraded or defaults on its obligation to pay principal
or interest.
CURRENCY TRANSACTIONS. The fund may enter into transactions to buy or sell
currencies at a future date, which may be a few days or a number of months. The
fund may enter into these forward currency contracts to:
. Settle transactions in securities quoted in foreign currencies
. Hedge against the economic impact of adverse changes in the value of the U.S.
dollar.
The fund may not fully benefit from or may lose money on forward currency
transactions if changes in currency rates do not occur as anticipated or do not
correspond accurately to changes in the value of the fund's holdings.
IMPACT OF HIGH PORTFOLIO TURNOVER. The fund may engage in active and frequent
trading to achieve its principal investment strategies. This may lead to the
realization and distribution to shareholders of higher capital gains, which
would increase their tax liability. Frequent trading also increases transaction
costs, which could detract from the fund's performance.
DEFENSIVE INVESTING. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
6
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
MANAGER. The fund's investment manager is Mutual Management Corp., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial services
- -- asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world. Among these businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset Management, Travelers Life
& Annuity, and Travelers Property Casualty.
David S. Ishibashi, investment officer of Mutual Management Corp. and vice
president of Salomon Smith Barney, and Scott Kalb, investment officer of Mutual
Management Corp. and managing director of Salomon Smith Barney, have been
responsible for day to day management of the fund since October 1996. Maurits E.
Edersheim, head of Salomon Smith Barney's international equity team, has general
responsibility for Salomon Smith Barney's international equity investment
operations.
MANAGEMENT FEE. For its services, the manager received a fee during the fund's
last fiscal year equal to 0.85% of the fund's average daily net assets.
DISTRIBUTOR. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker dealers sell fund shares to the public.
DISTRIBUTION PLANS. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and over time, may cost you more than
other types of sales charges.
YEAR 2000 ISSUE. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund or its service providers to correct the problem
will be successful.
Pacific Portfolio 7
<PAGE>
- --------------------------------------------------------------------------------
CHOOSING A CLASS OF SHARES TO BUY
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Factors you should consider when choosing a class
include:
. How much you plan to invest
. How long you expect to own the shares
. The expenses paid by each class
. Whether you qualify for any reduction or waiver of sales charges
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives.
INVESTMENT MINIMUMS. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
--------------------------------- -------------
All
Classes A, B, L Class Y Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
Individual Retirement Accounts, $250 $15 million $50
Self Employed Retirement Plans, Uniform
Gift to Minor Accounts
Qualified Retirement Plans $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
- ------------------------------------------ -------------- ----------------- -------------
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
8
<PAGE>
- --------------------------------------------------------------------------------
COMPARING THE FUND'S CLASSES
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. Your Salomon Smith Barney Financial
Consultant or dealer representative may receive different compensation depending
upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features
.Initial sales charge .No initial sales .The initial sales .No initial or
.You may qualify charge charge is lower deferred sales charge
for reduction or .Deferred sales than Class A .Investing at least
waiver of initial charge declines .Deferred sales $15 million
sales charge over time charge for only 1 . Lower annual
.Lower annual .Convert to year expenses than the
expenses than Class Class A after 8 .Do not convert other classes
B and Class L years to Class A
. Higher annual . Higher annual
expenses than expenses than
Class A Class A
Initial sales Up to 5.00% None 1.00% None
charge reduced or waived
for large purchases
and certain
investors. No
charge for
purchases of
$500,000 or more
Deferred 1% on purchases of Up to 5% charged 1% if you redeem None
sales charge $500,000 or more if when you redeem within 1 year of
you redeem within shares. The charge purchase
1 year of purchase is reduced over
time and there is
no deferred sales
charge after 6 years
Annual 0.25% of average 1% of average 1% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
Exchangeable into*
Class A shares of Class B shares of Class L shares of Class Y shares of
most Smith Barney most Smith Barney most Smith most Smith Barney
mutual funds mutual funds Barney mutual mutual funds
funds
- ---------------------- --------------------------- ---------------------- ---------------------- ---------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Pacific Portfolio 9
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE: CLASS A SHARES
- --------------------------------------------------------------------------------
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends that you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
SALES CHARGE AS A % OF
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
</TABLE>
INVESTMENTS OF $500,000 OR MORE. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family.
and for which a sales charge was paid with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
10
<PAGE>
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney mutual funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge made within 90 days before you sign the letter.
WAIVERS FOR CERTAIN CLASS A INVESTORS. Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD.
. 403(b) or 401(k) retirement plans, if certain conditions are met
. Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
Pacific Portfolio 11
<PAGE>
================================================================================
SALES CHARGE: CLASS B SHARES
================================================================================
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- -----------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
- -----------------------------------------------------------
Deferred sales charge 5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------
CLASS B CONVERSION. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<S> <C> <C>
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions mutual fund
- ------------------------------------------------------------------------------
Eight years after In same proportion as the On the date the shares originally
the date of purchase number of Class B shares acquired would have converted
converting is to total into Class A shares
Class B shares you own
</TABLE>
- --------------------------------------------------------------------------------
SALES CHARGE: CLASS L SHARES
- --------------------------------------------------------------------------------
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
- --------------------------------------------------------------------------------
SALES CHARGE: CLASS Y SHARES
- --------------------------------------------------------------------------------
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet the $15,000,000
minimum investment requirement by buying Class Y shares of the fund over a
13-month period. To qualify, you must initially invest $5,000,000.
12
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT DEFERRED SALES CHARGES
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation.
You do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney mutual fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund and be credited with the
amount of the deferred sales charge, if you notify your Salomon Smith Barney
Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. To make payments through certain systematic withdrawal plans
. To make certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Pacific Portfolio 13
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BUYING SHARES
- --------------------------------------------------------------------------------
<S> <C>
Through a You should contact your Salomon Smith Barney Financial
Salomon Consultant or dealer representative to open a brokerage
Smith account and make arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order
Consultant will be rejected
or dealer
represen- . Class of shares to be bought
tative . Dollar amount or number of shares to be bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund's are clients of the selling group are eligible to buy shares
transfer directly from the fund.
agent
. Write the transfer agent at the following address:
Smith Barney World Funds, Inc.
Pacific Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial
purchases, complete and send an account application.
. For more information, call the transfer agent at
1-800-451-2010
- --------------------------------------------------------------------------------
Systematic You may authorize Salomon Smith Barney, the dealer
investment representative or the transfer agent to transfer funds
plan automatically from a regular bank account, cash held in a
Salomon Smith Barney brokerage account or Smith Barney money
market fund to buy shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or
$50 quarterly
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer
representative or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
EXCHANGING SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Smith You should contact your Salomon Smith Barney Financial
Barney Consultant or dealer representative to exchange into other
offers a Smith Barney mutual funds. Be sure to read the prospectus of
distinctive the Smith Barney mutual fund you are exchanging into.
family of An exchange is a taxable transaction.
mutual
funds . You may exchange shares only for shares of the same
tailored to class of another Smith Barney mutual fund. Not all Smith
help meet Barney funds offer all classes.
the varying
needs of . You must meet the minimum investment amount for each fund
both large
and small . If you hold share certificates, the transfer agent must
investors. receive the certificates endorsed for transfer or with signed
stock powers before the exchange is effective.
. The fund may suspend or terminate your exchange privilege
if you engage in an excessive pattern of exchanges
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be
measured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you will
be subject to that charge. If you exchange at any time into a
fund with a lower charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible
telephone to exchange shares through the transfer agent. You must
complete an authorization form to authorize telephone
transfers. If eligible, you may make telephone exchanges on any
day the New York Stock Exchange is open. Call the transfer
agent at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m.
(Eastern time).
You can only make telephone exchanges between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.
</TABLE>
Pacific Portfolio 15
<PAGE>
- --------------------------------------------------------------------------------
REDEEMING SHARES
- --------------------------------------------------------------------------------
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However, if
you recently purchased your shares by check, your redemption
proceeds will not be sent to you until your original check
clears.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the transfer agent at the following address:
Smith Barney World Funds, Inc.
Pacific Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is
registered
16
<PAGE>
By If you do not have a brokerage account, you may be eligible
telephone to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by
telephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You may be charged a fee for wire
transfers. You must submit a new authorization form to change
the bank account designated to receive wire transfers and you
may be asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not exceed 1% per
month of the value of your shares subject to a deferred sales
charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
17
<PAGE>
- --------------------------------------------------------------------------------
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information, without which your
request will not be processed.
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES. To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming (together with other requests submitted in the previous 10 days)
over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from the
one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
18
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
SMALL ACCOUNT BALANCES. If your account falls below $500 due to redemption of
fund shares, the fund may ask you to bring your account up $500. If your account
is still below $500 after 60 days, the fund may close your account and send you
the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
SHARE CERTIFICATES. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
Pacific Portfolio 19
<PAGE>
- --------------------------------------------------------------------------------
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
- --------------------------------------------------------------------------------
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice program. The fund offers Class A and Class L shares to
participating plans as investment alternatives under the programs. You can meet
minimum investment and exchange amounts by combining the plan's investments in
any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of that class.
. Class A shares may be purchased by plans investing $1 million or more.
. Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible for exchange to Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner:
If the account was opened on or after June 21, 1996 and an aggregate
of $1 million is invested in Smith Barney Funds Class L shares (other
than money market funds), they are eligible for exchange after the
plan is in the program 5 years.
If the account was opened before June 21, 1996 and $500,000 in the
aggregate is invested in Smith Barney Funds Class L shares (other than
money market funds), they are eligible for exchange on each December
31 and the exchange will occur no later than March 31 of the following
year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
20
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTIONS, DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class that you hold. The fund expects
distributions to be primarily from capital gain. You do not pay a sales charge
on reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
TAXES. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<S> <C>
Transaction Federal tax status
Redemption or exchange of shares Usually capital gain or loss;
long-term only if
shares owned more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain
distribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends that you received and any redemptions of shares
during the previous year. If you do not provide the fund with your correct
taxpayer identification number and any required certifications, you may be
subject to back-up withholding of 31% of your distributions, dividends, and
redemption proceeds. Because each shareholder's circumstances are different and
special tax rules may apply, you should consult with your tax adviser about your
investment in the fund.
Pacific Portfolio 21
<PAGE>
- --------------------------------------------------------------------------------
SHARE PRICE
- --------------------------------------------------------------------------------
You may buy, exchange or redeem fund shares at the net asset value, adjusted for
any applicable sales charge, next determined after receipt of your request in
good order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When market prices are not
available, or when the manager believes they are unreliable or that the value of
a security has been materially affected by events occurring after a foreign
exchange closes, the fund may price those securities at fair value. Fair value
is determined in accordance with procedures approved by the fund's board. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund that uses market quotations to price the same
securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG Peat Marwick LLP,
independent accountants, whose report, along with the fund's financial
statements, are included in the annual report (available upon request).
22
<PAGE>
For a Class A share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1998 1997 1996(1) 1995 1994(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.18 $10.07 $12.92 $12.50
- ---------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)(3)
Net realized and unrealized gain (0.17) (0.14) (0.01) (0.07)
(loss) (1.55) 0.25 (2.84) 0.49
- ---------------------------------------------------------------------------------------------
Total income (loss) from operations (1.72) 0.11 (2.85) 0.42
- ---------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(4)
- ---------------------------------------------------------------------------------------------
Total distributions
- ---------------------------------------------------------------------------------------------
Net asset value, end of year $8.46 $10.18 $10.07 $12.92
- ---------------------------------------------------------------------------------------------
Total return(5) (16.90)% 1.09% (22.06)% 3.36%(6)
- ---------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $4,750 $4,929 $4,409 $7,538
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 3.37% 2.64% 1.97% 1.51%(8)
Net investment income (loss) (2.36) (1.38) (0.71) (0.82)(8)
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 154% 86% 31% 6%
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(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 period 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 fund's expenses for
the year ended October 31, 1995. If such fees were not waived, the per
share effect on net investment income loss and expenses ratio would have
been as follows:
Expense Ratios Without
Per Share Decreases to Fee Waivers and Custody
Net Investment Income Credits
----------------------------------------------------
1995 1994 1995 1994
---- ---- ---- ----
Class A $0.14 $0.03 3.18% 1.87%(8)
(4) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(5) Total return does not reflect any applicable sales loads or deferred sales
charges.
(6) Not annualized.
(7) During the years ended October 31, 1996 and October 31, 1995, the fund
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.
(8) Annualized.
Pacific Portfolio 23
<PAGE>
SALOMON SMITH BARNEY(SM)
A MEMBER OF CITIGROUP [SYMBOL]
PACIFIC PORTFOLIO
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same information free from the Commission's
Internet web site at www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06290)
- ------------------------
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
- ------------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
February 28, 1999 EMERGING MARKETS PORTFOLIO
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
- --------------------------------------------------------------------------------
CONTENTS
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds offers a distinctive family of fund choices tailored
to help meet the varying needs of large and small investors. Currently, Smith
Barney Mutual Funds offers more than 60 individual funds with assets of more
than $xx billion.
Fund goal and strategies......................................................4
More on the fund's investments................................................8
Management....................................................................9
Choosing a class of shares to buy............................................10
Comparing the fund's classes.................................................11
Sales charges................................................................12
More about deferred sales charges............................................15
Buying shares................................................................16
Exchanging shares............................................................17
Redeeming shares.............................................................18
Other things to know about
share transactions.........................................................20
Smith Barney 401(k) and ExecChoice
programs...................................................................22
Dividends, distributions and
taxes......................................................................23
Share price..................................................................24
Financial highlights.........................................................24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Emerging Markets Portfolio 1
<PAGE>
- --------------------------------------------------------------------------------
FUND GOAL AND STRATEGIES
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The fund seeks long term capital appreciation through a portfolio invested
primarily in emerging market issuers.
KEY INVESTMENTS
The fund invests primarily in equity securities of issuers in emerging market
countries, which are all countries other than Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Holland, Ireland, Italy, Japan,
Luxembourg, Norway, Sweden, Switzerland, Spain, the United Kingdom and the
United States. Equity securities include common and preferred stocks, debt
securities convertible into equity securities, and warrants and rights relating
to equity securities.
SELECTION PROCESS
The manager selects investments for their capital appreciation potential. The
manager initially assesses the relative attractiveness of different emerging
markets. After a country assessment is made, specific investment decisions are
made. Depending on the manager's outlook for long-term growth potential, the
fund's emphasis among emerging markets and issuers may vary.
By spreading the fund's investments across many emerging markets, the manager
seeks to reduce volatility compared to investment in a single region. In
allocating assets among countries and regions, the economic and political
factors the manager evaluates include:
. Interest rate and inflation outlook
. Governmental policies toward economic growth and development of securities
markets
. Currency outlook
. Comparative valuations of equity markets
In selecting individual companies for investment, the manager looks for the
following:
. Strong earnings outlook
. High relative return on invested capital
. Experienced and effective management
. Competitive advantages
. Strong financial condition
2
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
While investing in emerging market securities can bring added benefits, it also
entails substantial risks. Investors could lose money on their investment in the
fund, or the fund could not perform as well as other investments, if any of the
following occurs:
. Foreign stock prices decline generally or stock prices in emerging markets
countries decline
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
. The economies of emerging market countries grow at a slow rate
. Currency fluctuations adversely impact the fund's investments
. An emerging market government imposes restrictions on currency conversions or
trading
. Economic, political or social instability significantly disrupts the principal
financial markets in which the fund invests
. Withholding and other foreign taxes may decrease the fund's return
. Factors creating volatility in one emerging market may negatively impact
values or trading in other regions
The emerging market countries in which the fund invests have markets that are
less liquid and more volatile than markets in the U.S. In changing markets the
fund may not be able to sell desired amounts of securities at reasonable prices.
Less information is available about these issuers and markets because of less
rigorous accounting and regulatory standards than in the U.S. To the extent the
fund concentrates its investments in particular emerging market countries or
currencies the fund will be subject to greater risks than if the fund's assets
were not geographically concentrated. The fund is classified as
"non-diversified," which means it may invest a larger percentage of its assets
in one issuer than a diversified fund. To the extent the fund concentrates in a
particular issuer the fund will be more susceptible to the negative events
affecting that issuer.
WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you:
. Are an aggressive investor seeking to participate in the long term growth
potential of emerging markets
. Currently have exposure to U.S. stock markets and/or other foreign markets and
wish to broaden your investment portfolio
. Are comfortable with the risks of foreign stock markets and the special risks
and volatility of investing in emerging markets securities
Emerging Markets Portfolio 3
<PAGE>
TOTAL RETURN
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
BAR CHART
Calendar Years Ended December 31
1996 1997
------ ------
20.13 0.22
The bar chart shows the performance of the fund's Class A shares since inception
on May 12, 1995. Class B, C and L shares would have different performance due to
their different expenses. The performance information in the chart does not
reflect sales charges, which would reduce your return.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X;
Lowest: xx% in ___ quarter 199X
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the MSCI
Emerging Market Free Index ("MSCI Free Index"), an unmanaged index of foreign
stocks. This table assumes the imposition of the maximum sales charge applicable
to the class, the redemption of shares at the end of the period, and the
reinvestment of distributions and dividends.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class Inception Date 1 year 5 years 10 years Since inception
A 05/12/95 n/a n/a
B 05/12/95 n/a n/a
L 05/12/95 n/a n/a
Y xx/xx/98 n/a n/a
MSCI Free Index n/a
</TABLE>
4
<PAGE>
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
(paid directly from your investment) Class A Class B Class L Class Y
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge on redemptions (as a % of the None* 5.00% 1.00% None
lower of net asset value at purchase or redemption)
Annual fund operating expenses (paid by the
fund as a % of fund net assets)
Management fee 1.00% 1.00% 1.00% 1.00%
Distribution and service (12b-1) fee .25% 1.00% 1.00% None
Other expenses --- --- --- ---
Total annual fund operating expenses === === === ===
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase you will pay a deferred sales charge of 1.00%.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $ $ $ $
Class B $ $ $ $
Assumes redemption at end of period
Class B $ $ $ $
Assumes no redemption
Class L $ $ $ $
Assumes redemption at end of period
Class L $ $ $ $
Assumes no redemption
Class Y $ $ $ $
</TABLE>
Emerging Markets Portfolio 5
<PAGE>
- --------------------------------------------------------------------------------
MORE ON THE FUND'S INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. Although the fund invests primarily in equity securities the
fund may under certain circumstances invest up to 30% of its assets in debt
securities of U.S. and foreign corporate and governmental issuers. The fund may
invest in all types of debt securities of any maturity, duration or credit
quality. The value of debt securities will go down if interest rates go up, or
the issuer of the security has its credit rating downgraded or defaults on its
obligation to pay principal or interest. Up to 10% of the fund's assets may be
invested in debt securities that are unrated or rated below investment grade.
These securities may be speculative, are subject to greater price volatility,
are less liquid, and involve high risk of loss.
DERIVATIVES AND HEDGING TECHNIQUES. The fund may, but need not, use derivative
contracts, such as futures and options on securities, securities indices or
currencies; options on these futures; forward currency contracts; and interest
rate or currency swaps for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market value of
its securities, due to changes in stock market prices, currency exchange rates
or interest rates.
. As a substitute for buying or selling securities
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment that is based on the change in value of one or more
securities, currencies or indices. Even a small investment in derivative
contracts can have a big impact on the fund's stock market, currency and
interest rate exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when stock prices, currency
rates or interest rates are changing. The fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
DEFENSIVE INVESTING. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
6
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
MANAGER. The fund's investment manager is Mutual Management Corp., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial
services--asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading--and use diverse
channels to make them available to consumer and corporate customers around the
world. Among these businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset Management, Travelers Life
& Annuity, and Travelers Property Casualty.
Salomon Smith Barney's international equity team of analysts and portfolio
managers is responsible for the fund's day-to-day investment decisions. Maurits
E. Edersheim, head of this international equity team, has general responsibility
for Salomon Smith Barney's international equity investment operations.
MANAGEMENT FEE. For its services, the manager received a fee during the fund's
last fiscal year equal to 1.00% of the fund's average daily net assets.
DISTRIBUTOR. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker dealers sell fund shares to the public.
DISTRIBUTION PLANS. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and over time, may cost you more than
other types of sales charges.
YEAR 2000 ISSUE. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund or its service providers to correct the problem
will be successful.
Emerging Markets Portfolio 7
<PAGE>
- --------------------------------------------------------------------------------
CHOOSING A CLASS OF SHARES TO BUY
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Factors you should consider when choosing a class
include:
. How much you plan to invest
. How long you expect to own the shares
. The expenses paid by each class
. Whether you qualify for any reduction or waiver of sales charges
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
INVESTMENT MINIMUMS. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
-------------------------------------- --------------
<S> <C> <C> <C>
Classes A, B, L Class Y All Classes
General $1,000 $15 million $50
Individual Retirement Accounts, $250 $15 million $50
Self Employed Retirement Plans, Uniform
Gift to Minor Accounts
Qualified Retirement Plans $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans$25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
- ---------------------------------------------- -------------------- --------------- -------------------
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
8
<PAGE>
- --------------------------------------------------------------------------------
COMPARING THE FUND'S CLASSES
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. Your Salomon Smith Barney Financial
Consultant or dealer representative may receive different compensation depending
upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features
Initial sales charge .No initial sales .The initial sales .No initial or
.You may qualify for charge charge is lower than deferred sales
reduction or waiver of .Deferred sales Class A charge.
initial sales charge charge declines over Investing at least
time . Deferred sales $15 million
.Lower annual charge for only 1 . Lower annual
expenses than Class B .Convert to Class A year expenses than the other
and Class L after 8 years . Do not convert to classes
. Higher annual Class A
expenses than Class A . Higher annual
expenses than Class A
Initial sales Up to 5.00%; reduced None 1.00% None
charge or waived for large
purchases and certain
investors. No charge
for purchases of
$500,000 or more
Deferred 1% on purchases of Up to 5% charged 1% if you redeem None
sales charge $500,000 or more if when you redeem within 1 year of
you redeem within 1 shares. The charge is purchase
year of purchase reduced over time
and there is no
deferred sales charge
after 6 years
Annual 0.25% of average daily 1% of average daily 1% of average daily None
distribution net assets net assets net assets
and service
fees
Exchangeable into*
Class A shares of most Class B shares of Class L shares of Class Y shares of
Smith Barney mutual most Smith Barney most Smith Barney most Smith Barney
funds mutual funds mutual funds mutual funds
- ---------- --------------------- ------------- -----------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Emerging Markets Portfolio 9
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE: CLASS A SHARES
- --------------------------------------------------------------------------------
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends that you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
SALES CHARGE AS A % OF
<S> <C> <C>
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
</TABLE>
INVESTMENTS OF $500,000 OR MORE. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family.
and for which a sales charge was paid with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
10
<PAGE>
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney mutual funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge made within 90 days before you sign the letter.
WAIVERS FOR CERTAIN CLASS A INVESTORS. Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD.
. 403(b) or 401(k) retirement plans, if certain conditions are met
. Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
Emerging Markets Portfolio 11
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE: CLASS B SHARES
- --------------------------------------------------------------------------------
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- ---------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
- ---------------------------------------------------------
Deferred sales charge 5% 4% 3% 2% 1% 0%
- ---------------------------------------------------------
CLASS B CONVERSION. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<S> <C> <C>
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions mutual fund
- -------------------------------------------------------------------------------
Eight years after the In same proportion as the On the date the shares originally
date of purchase number of Class B shares acquired would have converted
converting is to total Class B into Class A shares
shares you own
</TABLE>
- -------------------------------------------------------------------------------
SALES CHARGE: CLASS L SHARES
- -------------------------------------------------------------------------------
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
- -------------------------------------------------------------------------------
SALES CHARGE: CLASS Y SHARES
- -------------------------------------------------------------------------------
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet the $15,000,000
minimum investment requirement by buying Class Y shares of the fund over a
13-month period. To qualify, you must initially invest $5,000,000.
12
<PAGE>
- -------------------------------------------------------------------------------
MORE ABOUT DEFERRED SALES CHARGES
- -------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation.
You do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney mutual fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund and be credited with the
amount of the deferred sales charge, if you notify your Salomon Smith Barney
Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. To make payments through certain systematic withdrawal plans
. To make certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Emerging Markets Portfolio 13
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BUYING SHARES
- --------------------------------------------------------------------------------
<S> <C>
Through a You should contact your Salomon Smith Barney Financial
Salomon Consultant or dealer representative to open a brokerage
Smith account and make arrangements to buy shares.
Barney
Financial If you do not provide the following information, your
Consultant order will be rejected
or dealer
represen- . Class of shares to be bought
tative . Dollar amount or number of shares to be bought
You should pay for your shares through your brokerage
account no later than the third business day after you
place your order. Salomon Smith Barney or your dealer
representative may charge an annual account maintenance
fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors
fund who are clients of the fund's selling group are eligible
transfer agent to buy shares directly from the fund.
. Write the transfer agent at the following address:
Smith Barney World Funds, Inc.
Emerging Markets Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial
purchases, complete and send an account application.
. For more information, call the transfer agent at
1-800-451-2010
- --------------------------------------------------------------------------------
Systematic You may authorize Salomon Smith Barney, the dealer
investment representative or the transfer agent to transfer funds
plan automatically from a regular bank account, cash held in a
Salomon Smith Barney brokerage account or Smith Barney
money market fund to buy shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or
$50 quarterly
. If you do not have sufficient funds in your account on
a transfer date, Salomon Smith Barney, your dealer
representative or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
EXCHANGING SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Smith You should contact your Salomon Smith Barney Financial Consultant or
Barney dealer representative to exchange into other Smith Barney mutual funds. Be
offers a sure to read the prospectus of the Smith Barney mutual fund you are
distinctive exchanging into. An exchange is a taxable transaction.
family of
mutual . You may exchange shares only for shares of the same class of another
funds Smith Barney mutual fund. Not all Smith Barney funds offer all classes.
tailored to
help meet . You must meet the minimum investment amount for each fund
the varying
needs of . If you hold share certificates, the transfer agent must receive the certificates
both larg endorsed for transfer or with signed stock powers before the exchange is
and small effective.
investors.
. The fund may suspend or terminate your exchange privilege if you engage
in an excessive pattern of exchanges
- -------------------------------------------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the time of the
additional exchange.
sales
charges Your deferred sales charge (if any) will continue to be measured from the date
of your original purchase. If the fund you exchange into has
a higher deferred sales charge, you will be subject to that
charge. If you exchange at any time into a fund with a lower
charge, the sales charge will not be reduced.
- -------------------------------------------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to exchange
telephone shares through the transfer agent. You must complete an authorization form to
authorize telephone transfers. If eligible, you may make telephone exchanges
on any day the New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
You can only make telephone exchanges between accounts that
have identical registrations.
- -------------------------------------------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.
</TABLE>
Emerging Markets Portfolio 15
<PAGE>
- -------------------------------------------------------------------------------
REDEEMING SHARES
- -------------------------------------------------------------------------------
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your
redemption proceeds will not be sent to you until your
original check clears.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other
cases, unless you direct otherwise, your redemption proceeds
will be paid by check mailed to your address of record.
- -------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written
requests to the transfer agent at the following address:
Smith Barney World Funds, Inc.
Emerging Markets Portfolio
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is
registered
16
<PAGE>
By If you do not have a brokerage account, you may be eligible
telephone to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent.
You must complete an authorization form to authorize
telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (Eastern time).
Your redemption proceeds can be sent by check to your
address of record or by wire transfer to a bank account
designated on your authorization form. You may be charged a
fee for wire transfers. You must submit a new authorization
form to change the bank account designated to receive wire
transfers and you may be asked to provide certain other
documents.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion
cash of your shares on a monthly or quarterly basis. To qualify
withdrawal you must own shares of the fund with a value of at least
plans $10,000 and each automatic redemption must be at least $50.
If your shares are subject to a deferredsales charge, the
sales charge will be waived if your automatic payments do
not exceed 1% per month of the value of your shares subject
to a deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Emerging Markets Portfolio 17
<PAGE>
- --------------------------------------------------------------------------------
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information, without which your
request will not be processed.
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES. To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming (together with other requests submitted in the previous 10
days) over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
18
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
SMALL ACCOUNT BALANCES. If your account falls below $500 due to redemption of
fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
SHARE CERTIFICATES. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
Emerging Markets Portfolio 19
<PAGE>
- --------------------------------------------------------------------------------
SMITH BARNEY 401(K) AND EXECCHOICE(SM) PROGRAMS
- --------------------------------------------------------------------------------
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(SM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's investments
in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of that class.
. Class A shares may be purchased by plans investing $1 million or more.
. Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible for exchange into Class A shares not later than 8
years after the plan joined the program. They are eligible for exchange sooner:
If the account was opened on or after June 21, 1996 and an aggregate of $1
million is invested in Smith Barney Funds Class L shares (other than money
market funds), they are eligible for exchange after the plan is in the
program 5 years.
If the account was opened before June 21, 1996 and $500,000 in the
aggregate is invested in Smith Barney Funds Class L shares (other than
money market funds), they are eligible for exchange on each December 31
and the exchange will occur no later than March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
20
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTIONS, DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class that you hold. The fund expects
distributions to be primarily from capital gain. You do not pay a sales charge
on reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
TAXES. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<S> <C>
Transaction Federal tax status
Redemption or exchange of shares Usually capital gain or loss;
long-term only if
shares owned more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain
distribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends that you received and any redemptions of shares
during the previous year. If you do not provide the fund with your correct
taxpayer identification number and any required certifications, you may be
subject to back-up withholding of 31% of your distributions, dividends, and
redemption proceeds. Because each shareholder's circumstances are different and
special tax rules may apply, you should consult with your tax adviser about your
investment in the fund.
Emerging Markets Portfolio 21
<PAGE>
- --------------------------------------------------------------------------------
SHARE PRICE
- --------------------------------------------------------------------------------
You may buy, exchange or redeem fund shares at net the asset value, adjusted for
any applicable sales charge, next determined after receipt of your request in
good order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When market prices are not
available, or when the manager believes they are unreliable or that the value of
a security has been materially affected by events occurring after a foreign
exchange closes, the fund may price those securities at fair value. Fair value
is determined in accordance with procedures approved by the fund's board. A fund
that uses fair value to price securities may value those securities higher or
lower than another fund that uses market quotations to price the same
securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG Peat Marwick LLP,
independent accountants, whose report, along with the fund's financial
statements, are included in the annual report (available upon request).
22
<PAGE>
For a Class A share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1998 1997(1) 1996 1995(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of year $12.08 $11.06 $12.00
- -------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income (loss)(3) (0.05) (0.02) (0.05)(4)
Net realized and unrealized gain (loss) 0.42 1.04 (0.89)
- -------------------------------------------------------------------------------------------
Total income (loss) from operations 0.37 1.02 (0.94)
- -------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(5) -- -- --
- -------------------------------------------------------------------------------------------
Total distributions -- -- --
- -------------------------------------------------------------------------------------------
Net asset value, end of year $12.45 $12.08 $11.06
- -------------------------------------------------------------------------------------------
Total return(6) 3.06% 9.22% (7.83)%(7)
- -------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $14,046 $10,691 $7,069
- -------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses(8) 2.11% 2.25% 1.45(9)
Net investment income (loss) (0.34) (0.19) (0.63)(9)
- -------------------------------------------------------------------------------------------
Portfolio turnover rate 99% 78% 17%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) For the period from May 12, 1995 (inception date) to October 31, 1995.
(3) waived all or part of its fees for the period ended October 31, 1995. If
such fees were not The manager waived, the per share effect on net
investment income loss and expenses ratio would have been as follows:
Per Share Increase to Net Expense Rate Without Fee
Investment Loss Waivers
------------------------- -----------------------
1995 1995
Class A $0.05 2.12%(9)
(4) Includes realized gains and losses from foreign currency transactions.
(5) Distributions from net investment income include short-term capital
gains, if any, for federal income tax purposes.
(6) Total return does not reflect any applicable sales loads or deferred
sales charges.
(7) Not annualized.
(8) During the years ended October 31, 1996 and October 31, 1995, the fund
earned credits from the custodian which reduced service fees incurred.
If the credits are taken into consideration, the expense ratios would
have been 2.16% and 1.20%,(9) respectively; numbers prior to October 31,
1995 have not been restated to reflect these credits.
(9) Annualized.
Emerging Markets Portfolio 23
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1998 1997(1) 1996(1) 1995(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.95 $11.02 $12.00
- ------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)(3) (0.14) (0.10) (0.09)(4)
Net realized and unrealized gain (loss) 0.40 1.03 (0.89)
- ------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.26 0.93 (0.98)
- ------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(5) -- -- --
- ------------------------------------------------------------------------------------------------------
Total distributions -- -- --
- ------------------------------------------------------------------------------------------------------
Net asset value, end of year $12.21 $11.95 $11.02
- ------------------------------------------------------------------------------------------------------
Total return(6) 2.18% 8.44% (8.17)%(7)
- ------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $18,107 $13,062 $7,630
- ------------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses(8) 2.88% 3.06% 2.00%(9)
Net investment income (loss) (1.00) (0.94) (1.17)(9)
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 99% 78% 17%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(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 income loss and expenses ratio would have been as follows:
Per Share Increase to Net Expense Rate Without Fee
Investment Loss Waivers
------------------------- -----------------------
1995 1995
Class B $0.05 2.68%(9)
(4) Includes realized gains and losses from foreign currency transactions.
(5) Distributions from net investment income include short-term capital
gains, if any, for federal income tax purposes.
(6) Total return does not reflect any applicable sales loads or deferred
sales charges.
(7) Not annualized.
(8) During the year ended October 31, 1996 and the period ended October 31,
1995, the fund 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%(9), respectively.
(9) Annualized
24
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1998(2) 1997(1) 1996 1995(3)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.95 $11.02 $12.00
- -------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)(4) (0.15) (0.10) (0.08)(5)
Net realized and unrealized gain (loss) 0.42 1.03 (0.90)
- -------------------------------------------------------------------------------------------
Total income (loss) from operations 0.27 0.93 (0.98)
- -------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(6) -- -- --
- -------------------------------------------------------------------------------------------
Total distributions -- -- --
- -------------------------------------------------------------------------------------------
Net assets value, end of year $12.22 $11.95 $11.02
- -------------------------------------------------------------------------------------------
Total return(7) 2.26% 8.44% (8.17)%(8)
- -------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $4,332 $2,448 $11,604
- -------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(9)
Net investment income 2.86% 3.02% 1.95%(10)
(loss) (1.03) (0.92) (1.08)(10)
- -------------------------------------------------------------------------------------------
Portfolio turnover rate 99% 78% 17%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) Prior to June 12, 1998, Class L shares were called Class C shares.
(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 income loss and expenses ratio would have been as follows:
Per Share Increase to Net Expense Rate Without Fee
Investment Loss Waivers
------------------------- ------------------------
1995 1995
Class L $0.05 2.61%(10)
(5) Includes realized gains and losses from foreign currency transactions.
(6) Distributions from net investment income include short-term capital
gains, if any, for federal income tax purposes.
(7) Total return does not reflect any applicable sales loads or deferred
sales charges
(8) Not annualized.
(9) During the years ended October 31, 1996 and October 31, 1995, the fund
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 2.92% and 1.70%(10), respectively; numbers prior
to October 31, 1995 have not been restated to reflect these credits.
(10) Annualized.
Emerging Markets Portfolio 25
<PAGE>
SALOMON SMITH BARNEY(SM)
A MEMBER OF CITIGROUP [SYMBOL]
EMERGING MARKETS PORTFOLIO
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC- 0330. You can get the same information free from the Commission's
Internet web site at www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06290)
PART B
February 28, 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY WORLD FUNDS, INC.
388 Greenwich Street
New York, New York 10013
Smith Barney World Funds, Inc. (the "Company") offers a choice of six
open-end management investment companies (each a "fund"):
The Global Government Bond Portfolio seeks as high a level of
current income and capital appreciation as is consistent with
its policy of investing primarily in high quality bonds of the
United States and foreign governments.
The International Equity Portfolio seeks total return on its
assets from growth of capital and income. The fund seeks to
achieve this objective by investing primarily in equity
securities of established foreign issuers.
The Pacific Portfolio seeks long-term capital appreciation by
investing primarily in a diversified portfolio of equity
securities of companies in the Asia Pacific Region.
The European Portfolio seeks long-term capital appreciation by
investing primarily in equity securities of issuers based in
countries of Europe.
The International Balanced Portfolio seeks a competitive total
return on its assets from growth of capital and income by
investing primarily in securities of established non-U. S.
issuers.
The Emerging Markets Portfolio seeks long-term capital
appreciation on its assets by investing primarily in
securities of emerging country issuers.
In all cases, there can be no assurance that a fund will achieve its
investment objective.
Each fund offers three classes of shares which may be purchased at the
next-determined net asset value per share plus a sales charge which, at
the election of the investor, may be imposed (i) at the time of purchase
(Class A and Class L shares) and/or (ii) on a deferred basis (Class B and
Class L shares). A fourth class of shares (the Class Y shares) is sold at
net asset value and is available only to investors investing a minimum of
$5,000,000 with respect to the International Equity Portfolio and
$15,000,000 with respect to each of the other funds. A fifth class of
shares of the International Equity Portfolio (the Class Z shares) are
offered only to tax-exempt retirement plans of Salomon Smith Barney Inc.
These alternatives permit an investor to choose the method of purchasing
shares that is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other
circumstances.
This Statement of Additional Information is not a prospectus. It is
intended to provide more detailed information about Smith Barney World
Funds, Inc. as well as matters already discussed in the Prospectus of the
applicable fund Therefore, it should be read in conjunction with each
Prospectus dated February 28, 1999 for the International Equity Portfolio,
the Global Government Bond Portfolio, the Pacific Portfolio, the European
Portfolio, the International Balanced Portfolio and the Emerging Markets
Portfolio, which may be obtained from the Company or your Salomon Smith
Barney Financial Consultant.
TABLE OF CONTENTS
Page
Directors, Advisory Director and Officers 3
Investment Policies 5
Investment Practices 11
Risk Factors 21
Investment Restrictions 25
Additional Tax Information 28
IRA and Other Prototype Retirement Plans 31
Performance Information 32
Determination of Net Asset Value 34
Purchase, Redemption and Exchange of Shares 35
Dividends and Distributions 43
Investment Management Agreement and Other Services 43
Custodian 47
Independent Auditors 47
Voting 47
Other Information about the Company 50
Financial Statements 53
Appendix - Ratings of Debt Obligations A-1
DIRECTORS, ADVISORY DIRECTOR AND OFFICERS
Overall responsibility for management and supervision of each fund rests
with the Company's Board of Directors. The directors approve all
significant agreements between the Company and the companies that furnish
services to the Company and the funds, including agreements with the
Company's distributor, investment adviser, custodian and transfer agent.
The day-to-day operations of each fund are delegated to that fund's
manager. The directors and officers of the Company are listed below.
VICTOR K. ATKINS, Director
Retired; 120 Montgomery Street, San Francisco, CA. Former President of
Lips Propellers, Inc., a ship propeller repair company. Director of two
investment companies associated with Salomon Smith Barney; 76.
ABRAHAM E. COHEN, Director
Consultant to MeesPierson, Inc., a Dutch investment bank; Consultant to
and Board Member, Chugai Pharmaceutical Co. Ltd.; Director of Agouron
Pharmaceuticals, Inc., Akzo Nobel NV, Vasomedical, Inc., Teva
Pharmaceutical Ind., Ltd., Neurobiological Technologies Inc., Vion
Pharmaceuticals, Inc., BlueStone Capital Partners, LP. and The Population
Council, an international public interest organization; 61.
ROBERT A. FRANKEL, Director
Managing Partner of Robert A. Frankel Managing Consultants, 102 Grand
Street, Croton-on-Hudson, NY. Director of seven investment companies
associated with Salomon Smith Barney. Former Vice President of The
Readers Digest Association, Inc.; 70.
RAINER GREEVEN, Director
Partner of the law firm of Greeven & Ercklentz; 630 Fifth Avenue, New
York, NY. Director of two investment companies associated with Salomon
Smith Barney; 62.
SUSAN M. HEILBRON, Director
Attorney; Lacey & Heilbron, 3 East 54th Street, New York, NY. Prior to
November 1990, Vice President and General Counsel of MacMillan, Inc. and
Executive Vice President of The Trump Organization. Director of two
investment companies associated with Salomon Smith Barney; 53.
*HEATH B. McLENDON, Chairman of the Board, President and Chief Executive
Officer
Managing Director of Salomon Smith Barney; Director of forty-two
investment companies associated with Salomon Smith Barney; Director and
President of Mutual Management Corp. (the ''Manager'') and Travelers
Investment Adviser, Inc. ("TIA"); Chairman of Smith Barney Strategy
Advisers Inc.; prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers, Inc., Vice Chairman of Shearson Asset
Management, Director of PanAgora Asset Management, Inc. and PanAgora Asset
Management Limited; 64.
*MAURITS E. EDERSHEIM, Chairman of the Company and Advisory Director
Deputy Chairman of Smith Barney International Incorporated; Director and
President of Amstel Hudson Management Corp. (offshore investment
management); Director Esfinco NV (U.S. subsidiary of Spanish Construction
Company). Formerly Deputy Chairman and Director of Drexel Burnham Lambert
Incorporated, The Drexel Burnham Lambert Group Inc., and various of their
subsidiaries; 79.
*LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Salomon Smith Barney, and Senior Vice President and
Treasurer of forty-two investment companies associated with Salomon Smith
Barney; and Director and Senior Vice President of the Manager and TIA; 40
*JAMES B. CONHEADY, Vice President and Investment Officer
Managing Director of Salomon Smith Barney. Formerly First Vice President
of Drexel Burnham Lambert Incorporated; 62.
*JEFFREY RUSSELL, Vice President and Investment Officer
Managing Director of Salomon Smith Barney. Formerly Vice President of
Drexel Burnham Lambert Incorporated; 40.
*REIN VAN DER DOES, Vice President and Investment Officer
Managing Director of Salomon Smith Barney. Formerly Managing Director of
Drexel Burnham Lambert Incorporated; 58.
*SCOTT KALB, Vice President and Investment Officer
Managing Director of Salomon Smith Barney. Formerly Vice President of
Drexel Burnham Lambert Incorporated; 41
*VICTOR S. FILATOV, Vice President and Investment Officer
Managing Director of Salomon Smith Barney, President and Director of Smith
Barney Global Capital Management Inc. Formerly Vice President of J.P.
Morgan Securities Inc.; 46.
*SIMON R. HILDRETH, Vice President and Investment Officer
Senior Vice President of Salomon Smith Barney, Managing Director of Smith
Barney Global Capital Management Inc. Formerly Director of Mercury Asset
Management Ltd; 43.
*DENIS P. MANGAN, Vice President and Investment Officer
Vice President of Smith Barney Global Capital Management Inc. Formerly
Vice President of J.P. Morgan and Citibank; 44.
*DAVID S. ISHIBASHI, Vice President and Investment Officer
Vice President of Salomon Smith Barney; Formerly Head of Japanese equities
desk at SG Warburg; 42
*IRVING DAVID, Controller
Director of Salomon Smith Barney. Formerly Assistant Treasurer of First
Investment Management Company; 37.
*CHRISTINA T. SYDOR, Secretary
Managing Director of Salomon Smith Barney and Secretary of forty-two
investment companies associated with Salomon Smith Barney; Secretary and
General Counsel of the Manager and TIA; 47.
* Designates an "interested person" as defined in the Investment Company
Act of 1940, as amended (the "1940 Act") whose business address is 388
Greenwich Street, New York, New York 10013. Such person is not separately
compensated for services as a Company officer or director.
On February __, 1999 the directors and officers owned, in the aggregate,
less than 1% of the outstanding shares of each of the funds.
The following table shows the compensation paid by the Company to each
director during the Company's last fiscal year. None of the officers of
the Company received any compensation from the Company for such period.
The Company does not pay retirement benefits to its directors and
officers. Officers and interested directors of the Company are
compensated by Salomon Smith Barney.
COMPENSATION TABLE
Name of Person
Aggregate
Compensation from the
Company
Compensation from Company
and Complex Paid to
Directors
Number of Funds for
Which Director Serves
Within Fund Complex
Victor Atkins
$
$
2
A. E. Cohen1
0
2
Robert A. Frankel
8
Ranier Greeven
2
Susan M. Heilbron
2
Heath B. McLendon
0
0
58
Bruce D.Sargent2
0
0
3
James M. Shuart3
2
1 Effective March 30, 1998, Mr. Cohen became a member of the Company's
Board of Directors.
2 Effective October 8, 1998, Mr. Sargent resigned from the Company's Board
of Directors.
3 Effective July 28, 1998, Mr. Shuart resigned from the Company's Board of
Directors.
INVESTMENT POLICIES
Each fund's investment objectives may be changed only by the ''vote of a
majority of the outstanding voting securities'' as defined in the
Investment Company Act of 1940 (the ''1940 Act''). However, each fund's
investment policies are nonfundamental, and thus may be changed by the
Board of Directors, provided such change is not prohibited by the fund's
fundamental investment restrictions (described under INVESTMENT
RESTRICTIONS) or applicable law, and any such change will first be
disclosed in the then current prospectus. Refer to the "INVESTMENT
PRACTICES" and "RISK FACTORS" for further information on the funds'
investments.
Under unusual economic or market conditions as determined by the Manager,
for defensive purposes each fund may depart from its principal investment
strategies and temporarily invest all or a major portion of its assets in
all types of money market and short-term debt securities (including U.S.
money market securities). To the extent a fund's assets are invested for
temporary defensive purposes, they will not be invested in a manner
designed to achieve that fund's investment objective.
Global Government Bond Portfolio
Under normal market conditions, the Global Government Bond Portfolio
invests at least 65% of its total assets in bonds issued or guaranteed by
the United States or foreign governments (including foreign states,
provinces, cantons and municipalities) or their agencies, authorities, or
instrumentalities denominated in various currencies, including U.S.
dollars, or in multinational currency units, such as the European Currency
Unit ("ECU"). Except with respect to government securities of less
developed countries (see below), the fund invests in foreign government
securities only if the issue or the issuer thereof is rated in the two
highest rating categories by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Ratings Group ("S&P") (see "APPENDIX - RATINGS OF
DEBT OBLIGATIONS"), or if unrated, are of comparable quality in the
determination of the Manager.
Consistent with its investment objective, under normal circumstances the
fund may invest up to 35% of its total assets in debt obligations
(including debt obligations convertible into common stock) of United
States or foreign corporations and financial institutions and
supranational entities. Supranational entities are international
organizations, organized or supported by government entities to promote
economic reconstruction or development and by international banking
institutions and related government agencies. The supranational entities
in which the fund may invest are the World Bank, The Asian Development
Bank, the European Economic Community, the European Investment Bank, the
European Coal and Steel Community, Eurofima, Euratom, Council of Europe,
the European Bank for Construction and Development, the International
Finance Corporation and the Nordic Investment Bank. Any non-government
investment would be limited to issues that are rated A or better by
Moody's or S&P, or if not rated, are determined by the Manager to be of
comparable quality. For certain risks associated with investments in
foreign issues, see "RISK FACTORS."
The fund is organized as a non-diversified series and currently
contemplates investing primarily in obligations of the U.S. and of
developed nations (i.e., industrialized countries) which the Manager
believes to pose limited credit risks. These countries currently are
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland and The United Kingdom. The fund
also will invest in securities denominated in the currencies of such
countries or in multinational currency units. Under normal market
conditions the fund invests at least 65% of its assets in issues of not
less than three different countries; issues of any one country (other than
the United States) will represent no more than 45% of the fund's total
assets. Allocation of the fund's investments will depend upon the
relative attractiveness of the global markets and particular issuers.
Concentration of the fund's assets in one or a few countries or currencies
will subject the fund to greater risks than if the fund's assets were not
geographically concentrated.
In seeking to achieve its investment objective of current income, the
Manager considers and compares the relative yields of obligations of
various developed nations; whereas, in seeking to achieve its objective of
capital appreciation, it considers all of the following factors,
especially changes in currency values against the U.S. dollar. The
Manager allocates the fund's assets among securities of countries and in
currency denominations where opportunities for meeting the fund's
investment objective are expected to be the most attractive. The Manager
selects securities of particular issuers on the basis of its views as to
the best values then currently available in the marketplace. Such values
are a function of yield, maturity, issue classification and quality
characteristics, coupled with expectations regarding the local and world
economies, movements in the general level and term of interest rates,
currency values, political developments, and variations of the supply of
funds available for investment in the world bond market relative to the
demands placed upon it. The Manager generally evaluates currencies on the
basis of fundamental economic criteria (e.g., relative inflation and
interest rates levels and trends, growth rate forecasts, balance of
payments status and economic policies) as well as technical and political
data. If the currency in which a security is denominated appreciates
against the U.S. dollar, the dollar value of the security will increase,
and conversely, a decline in the exchange rate of the currency normally
would adversely affect the value of the security expressed in dollars.
Similarly, a decline in interest rates on debt obligations generally
increases the value of debt obligations, and conversely, an increase in
interest rates generally decreases the value of such obligations.
Investments may be made from time to time in government securities,
including loan assignments and loan participations, of less developed
countries. These include all countries other than Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Holland, Ireland,
Italy, Japan, Luxembourg, Norway, Sweden, Switzerland, Spain, the United
Kingdom and the United States. Countries may be added to or deleted as
economic and political conditions warrant. Historical experience
indicates that the markets of less developed countries have been more
volatile than the markets of the more mature economies of developed
countries; however, such markets often provide rates of return to
investors commensurate with the credit and market risks. The Manager does
not intend to invest more than 10% of the fund's assets in the government
securities of less developed countries and will not invest more than 5% of
the fund's assets in the government securities of any one such country.
Such investments may be unrated or rated below investment grade or may be
in default. Securities rated below investment grade (and comparable
unrated securities) are the equivalent of high yield, high risk bonds.
Such securities are regarded as predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal in accordance
with the terms of the obligations and involve major risk exposure to
adverse business, financial, economic, and political conditions, whether
or not occurring within the issuers' borders.
International Equity Portfolio
Under normal market conditions, the International Equity Portfolio invests
at least 80% of its assets in a diversified portfolio of equity securities
consisting of dividend and non-dividend paying common stock, preferred
stock, convertible debt and rights and warrants to obtain such securities
and may invest up to 20% of the fund's assets in bonds, notes and debt
securities (consisting of securities issued in the Eurocurrency markets or
obligations of the United States or foreign governments and their
political sub-divisions) or established non-United States issuers.
In seeking to achieve its objective, the fund presently expects to invest
its assets primarily in common stocks of established non-United States
companies which in the opinion of the Manager have potential for growth of
capital. However, there is no requirement that the fund invest
exclusively in common stocks or other equity securities and, if deemed
advisable, the fund may invest up to 20% of its assets in bonds, notes and
other debt securities (including securities issued in the Eurocurrency
markets or obligations of the United States or foreign governments and
their political subdivisions).
Except as stated below, the fund will invest at least 65% of its assets in
companies organized or governments located in any area of the world other
than the United States, such as the Far East (e.g., Japan, Hong Kong,
Singapore, Malaysia), Western Europe (e.g., United Kingdom, Germany, the
Netherlands, France, Italy, Switzerland), Eastern Europe (e.g., the Czech
Republic, Hungary, Poland, and the countries of the former Soviet Union),
Central and South America (e.g., Mexico, Chile, and Venezuela), Australia,
Canada and such other areas and countries as the Manager may determine
from time to time. Allocation of the fund's investments will depend upon
the relative attractiveness of the international markets and particular
issuers. Concentration of the fund's assets in one or a few countries or
currencies will subject the fund to greater risks than if the fund's
assets were not geographically concentrated.
It is expected that fund securities will ordinarily be traded on a stock
exchange or other market in the country in which the issuer is principally
based, but may also be traded on markets in other countries including, in
many cases, the United States securities exchanges and over-the-counter
markets.
To the extent that the fund's assets are not otherwise invested as
described above, the assets may be held in cash, in any currency, or
invested in U.S. as well as foreign high quality money market instruments
and equivalents.
Pacific Portfolio
The Pacific Portfolio invests primarily in equity securities, including
American Depository Receipts ("ADRs"), of companies in the Asia Pacific
Region. The Asia Pacific Region currently includes Australia, Hong Kong,
India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Papua New
Guinea, the People's Republic of China, the Philippines, Singapore, South
Korea, Sri Lanka, Taiwan and Thailand. The Manager may change this list
at its discretion. The Manager considers a company to be in the Asia
Pacific Region if its securities trade on exchanges in the Asia Pacific
Region, it generates at least half of its revenue from the Asia Pacific
Region or it is organized under the laws of an Asia Pacific Region
country.
The fund will normally invest at least 80% of its total assets in equity
securities of companies in the Asia Pacific Region, consisting of the
securities listed above. For the purposes of the foregoing limitation
equity securities include exchange traded and over-the-counter common
stocks, preferred shares, debt securities convertible into equity
securities, depository receipts and warrants and rights relating to equity
securities. The fund may also invest up to 20% of its total assets in
debt securities and other types of investments. The fund will generally
invest its assets broadly among countries and will normally have
represented in the portfolio business activities in not less than three
different countries. However, the fund has no predetermined policy on the
allocation of funds for investment among such countries or securities and
allocation of the fund's investments will depend upon the relative
attractiveness of the Asia Pacific markets and particular issuers.
Concentration of the fund's assets in one or a few of the countries in the
Asia Pacific Region and Asia Pacific currencies will subject the fund to
greater risks than if the fund's assets were not geographically
concentrated.
It is expected that portfolio securities will ordinarily be traded on a
stock exchange or other market in the country in which the issuer is
principally based, but may also be traded on markets in other countries
including, in many cases, the United States securities exchanges and over-
the-counter markets. The fund may invest in companies, large or small,
whose earnings are believed to be in a relatively strong growth trend, or
in companies in which significant further growth is not anticipated but
whose market value per share is thought to be undervalued. It may also
invest in small and relatively less well-known companies. Debt securities
in which the fund may invest will generally be rated at the time of
purchase at least Baa by Moody's or BBB by S&P. Debt securities rated Baa
or BBB may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity of their issuers to pay interest and repay principal than is the
case with higher rated securities.
To the extent that the fund's assets are not otherwise invested as
described above, the assets may be held in cash, in any currency, or
invested in U.S. as well as foreign high quality money market instruments
and equivalents.
European Portfolio
The European Portfolio seeks to achieve its objective by investing
primarily in equity securities (common and preferred stock) of issuers in
the countries of Europe (the "Primary Investment Area"), which includes
Western Europe (e.g., France, Germany, Italy, the Netherlands,
Switzerland, United Kingdom) and Eastern Europe (e.g., the Czech Republic,
Hungary, Poland and the countries of the former Soviet Union). It is a
fundamental policy of the fund to invest, under normal circumstances, at
least 65% of its total assets in a diversified portfolio of equity
securities of issuers domiciled in the Primary Investment Area of the
fund. The fund will generally invest its assets broadly among countries
and will normally have represented in the portfolio business activities in
not less than three countries in the Primary Investment Area. Allocation
of the fund's investments will depend upon the relative attractiveness of
the markets and particular issuers. Concentration of the fund's assets in
one or a few countries will subject the fund to greater risks than if the
fund's assets were not geographically concentrated.
In addition, the fund may invest up to 35% of its total assets in other
kinds of securities, e.g., convertible bonds, warrants, Samurai and Yankee
Bonds, Eurobonds, sponsored and unsponsored ADRs and European Depository
Receipts ("EDRs"), securities issued by companies domiciled outside the
Primary Investment Area of the fund, including, but not limited to,
Eastern Europe, U.S. and foreign government securities, and U.S. and non-
U.S. money market securities. Money market securities will generally be
held by the fund for temporary defensive purposes. With respect to certain
countries, investments by the fund presently may only be made by acquiring
shares of other investment companies with local governmental authority to
invest in those countries. It is not expected that the income yield of the
fund will be significant.
The fund may also hold cash in U.S. dollars to meet redemption requests
and other expenses and cash in other currencies to meet settlement
requirements for foreign securities. The fund may engage in currency
exchange transactions with up to 100% of its assets in order to protect
against uncertainty in the level of future exchange rates between a
particular foreign currency and the U.S. dollar or between foreign
currencies in which the fund's securities are or may be denominated. The
fund may conduct its currency exchange transactions either on a "spot"
(i.e., cash) basis at the rate prevailing in the currency exchange market
or through entering into forward contracts to purchase or sell currencies.
The fund's transactions in forward foreign currency exchange contracts
will be limited to hedging involving either specific transactions or
aggregate fund positions.
The fund may invest up to 5% of its assets in yen-denominated bonds sold
in Japan by non-Japanese issuers. Such bonds are commonly called "Samurai
Bonds" and correspond to "Yankee Bonds" or dollar-denominated bonds sold
in the United States by non-U.S. issuers. As compared with domestic
issues, e.g., those of the government of Japan and its agencies, Samurai
bond issues normally carry a higher interest rate but are less actively
traded and therefore may be volatile. Moreover, as with other securities
denominated in foreign currencies, their value is affected by fluctuations
in currency exchange rates. It is the policy of the fund to invest in
Samurai bond issues only after taking into account considerations of
quality and liquidity, as well as yield. These bonds would be issued by
governments of the Organization for Economic Cooperation and Development
or would have AAA ratings.
As a fundamental policy, the fund may borrow money from a bank only as a
temporary measure for emergency or extraordinary purposes in an amount not
exceeding 10% of the value of its total assets, and may invest no more
than 15% of its total assets in securities that are illiquid (i.e.,
trading in the security is suspended or, in the case of unlisted
securities, market makers do not exist or will not entertain bids or
offers). When the fund has borrowed in excess of 5% of the value of its
total assets, the fund will not make further investments. The fund will
not invest more than 25% of the value of its total assets in the
securities of issuers engaged in any one industry (other than the U.S.
Government, its agencies and instrumentalities). The fund will invest no
more than 10% of the value of its net assets in warrants valued at the
lower of cost or market. The fund does not currently intend to engage in
transactions in options or futures contracts but may do so in the future
if determined to be in the fund's best interests by the fund's Board of
Directors.
International Balanced Portfolio
Under normal market conditions, the International Balanced Portfolio will
invest its assets in an international portfolio of equity securities
(consisting of exchange traded and over-the-counter common stocks,
preferred shares, debt securities convertible into equity securities,
depository receipts and warrants and rights relating to equity securities)
and debt securities (consisting of corporate debt securities, sovereign
debt instruments issued by governments or governmental entities, including
supranational organizations such as the World Bank, and U.S. and foreign
money market instruments). The fund attempts to achieve a balance between
equity and debt securities. However, the proportion of equity and debt
held by the fund at any one time will depend on the Manager's views on
current market and economic conditions.
Investments may be made for capital appreciation and for income or any
combination of both for the purpose of achieving a higher overall return
than might otherwise be obtained solely from investing for growth of
capital or for income. Under normal conditions, no more than 70%, nor
less than 30%, of the fund's assets will be invested in either equity or
debt securities; however, there is no limitation on the percent or amount
of the fund's assets which may be invested for growth or income and,
therefore, from time to time the investment emphasis may be placed solely
or primarily on growth of capital or solely or primarily on income.
The fund is organized as a non-diversified series, but will generally
invest its assets broadly among countries and will normally have at least
65% of its assets invested in business activities in not less than three
different countries outside of the United States. The fund may invest in
companies organized or governments located in any area of the world: the
Far East (e.g., Hong Kong, Japan, Malaysia, Singapore), Western Europe
(e.g., France, Germany, Italy, the Netherlands, Switzerland, United
Kingdom), Eastern Europe (e.g., the Czech Republic, Hungary, Poland, and
the countries of the former Soviet Union), Central and South America
(e.g., Chile, Mexico and Venezuela), the Middle East, Africa, Asia,
Australia, New Zealand and Canada. Allocation of the fund's investments
will depend upon the relative attractiveness of the international markets
and particular issuers. Concentration of the fund's assets in one or a
few countries or currencies will subject the fund to greater risks than if
the fund's assets were not geographically concentrated. Up to 25% of the
total assets of the fund may be invested in securities of emerging market
countries.
It is expected that equity securities purchased by the fund will
ordinarily be traded on a stock exchange or other market in the country in
which the issuer is principally based, but may also be traded on markets
in other countries including, in many cases, the United States securities
exchanges and over-the-counter markets.
Particular debt securities will be selected based upon credit risk
analysis of potential issuers, the characteristics of the security and
interest rate sensitivity of the various debt issues available with
respect to a particular issuer, analysis of the anticipated volatility and
liquidity of the particular debt instruments, maturity, and the tax
implications to the fund. The debt securities in which the fund expects
to invest will generally range in maturity from two to ten years. Debt
securities of developed foreign countries may be rated as investment grade
at the time of purchase. Investment grade securities are those rated in
the top four ratings categories by a nationally recognized statistical
rating organization or that are unrated but judged by the Manager to be of
comparable quality. If the rating drops below investment grade subsequent
to purchase, the Manager will not necessarily sell the security, but will
consider such an event in determining whether the fund should continue to
hold the security. Securities rated in the lowest category of investment
grade may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case for
higher grade securities. Debt securities of emerging market countries may
be rated below investment grade (commonly known as "junk bonds") and could
include securities that are in default as to payments of principal or
interest.
The relative performance of foreign currencies is an important factor in
the fund's performance. The Manager may manage the fund's exposure to
various currencies to take advantage of different yield, risk and return
characteristics that different currencies can provide for U.S. investors.
To manage exposure to currency fluctuations, the fund may enter into
currency forward contracts (agreements to exchange one currency for
another at a future date) or currency swap agreements, buy and sell
options and futures contracts relating to foreign currencies, and purchase
securities indexed to foreign currencies. The fund will use currency
forward contracts in the normal course of business to lock in an exchange
rate in connection with purchases and sales of securities denominated in
foreign currencies. The fund will use options and futures contracts
relating to foreign currencies to allow the Manager to hedge fund
securities, to shift investment exposure from one currency to another, or
to attempt to profit from anticipated declines in the value of a foreign
currency relative to the U.S. dollar. There is no overall limitation on
the amount of the fund's assets that may be committed to currency
management strategies.
Emerging Markets Portfolio
The Emerging Markets Portfolio will seek to achieve its objective by
investing substantially all its assets in equity securities of issuers in
emerging market countries (consisting of dividend and non-dividend paying
common stocks, preferred stocks, convertible securities and rights and
warrants to such securities). The fund may also invest in debt securities
having a high potential for capital appreciation, especially in countries
where direct equity investment is not permitted. Under normal conditions,
at least 70% of the fund's assets will be invested in equity securities.
For purposes of its investment objective, the fund considers as
"emerging" all countries other than Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Holland, Ireland, Italy, Japan,
Luxembourg, Norway, Sweden, Switzerland, Spain, the United Kingdom and the
United States. The fund is organized as a non-diversified series, but will
generally invest its assets broadly among countries and will normally have
at least 65% of its assets invested in issuers in not less than three
different countries. Allocation of the fund's investments will depend upon
the relative attractiveness of the emerging markets and particular
issuers. Concentration of the fund's assets in one or a few countries or
currencies will subject the fund to greater risks than if the fund's
assets were not geographically concentrated.
Under normal circumstances, the fund may invest up to 30% of its assets in
debt securities. These may include debt securities of issuers in
countries having smaller capital markets. Capital appreciation in debt
securities may arise as a result of a favorable change in relative foreign
exchange rates, in relative interest rate levels, or in the
creditworthiness of issuers. In accordance with its investment objective,
the fund will not seek to benefit from anticipated short-term fluctuations
in currency exchange rates. The fund may, from time to time, invest in
debt securities with relatively high yields (as compared to other debt
securities meeting the fund's investment criteria), notwithstanding that
the fund may not anticipate that such securities will experience
substantial capital appreciation. Such income can be used, however, to
offset the operating expenses of the fund.
The fund may invest in debt securities issued or guaranteed by foreign
governments (including foreign states, provinces and municipalities) or
their agencies and instrumentalities ("governmental entities"), issued
or guaranteed by international organizations designated or supported by
multiple foreign governmental entities (which are not obligations of
foreign governments) to promote economic reconstruction or development
("supranational entities"), or issued by foreign corporations or
financial institutions. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World
Bank"), the European Steel and Coal Community, the Asian Development Bank
and the Inter-American Development Bank. The governmental members, or
"stockholders," usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional
capital contributions if the supranational entity is unable to repay its
borrowings.
Up to 10% of the fund's assets may be invested in debt securities of
emerging markets that are unrated or rated below investment grade.
Securities rated below investment grade (and comparable unrated
securities) are the equivalent of high yield, high risk bonds, commonly
known as "junk bonds". Such securities are regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the obligations and
involve major risk exposure to adverse business, financial, economic, or
political conditions.
The fund may invest in the securities of foreign issuers in the form of
ADRs, EDRs, GDRs or other securities convertible into securities of
foreign issuers. The fund may invest in unsponsored ADRs. The issuers of
unsponsored ADRs are not obligated to disclose material information in the
United States, and therefore, there may not be a correlation between such
information and the market value of such ADRs. The fund may invest in U.S.
over-the-counter securities of issuers whose business interests are in
emerging countries.
INVESTMENT PRACTICES
Each of the following investment practices is subject to the limitations
set forth under "Investment Restrictions."
EQUITY SECURITIES
Common Stocks (all funds). Each fund may purchase common stocks. Common
stocks are shares of a corporation or other entity that entitle the holder
to a pro rata share of the profits of the corporation, if any, without
preference over any other shareholder or class of shareholders, including
holders of the entity's preferred stock and other senior equity. Common
stock usually carries with it the right to vote and frequently an
exclusive right to do so.
Preferred Stocks and Convertible Securities (all funds). Each fund may
invest in convertible debt and preferred stocks. Convertible debt
securities and preferred stock entitle the holder to acquire the issuer's
stock by exchange or purchase for a predetermined rate. Convertible
securities are subject both to the credit and interest rate risks
associated with fixed income securities and to the stock market risk
associated with equity securities.
Warrants (all funds). Each fund may purchase warrants. Warrants acquired
by a fund entitle it to buy common stock from the issuer at a specified
price and time. Warrants are subject to the same market risks as stocks,
but may be more volatile in price. A fund's investment in warrants will
not entitle it to receive dividends or exercise voting rights and will
become worthless if the warrants cannot be profitably exercised before the
expiration dates.
REITs (all funds). Each fund may invest in shares of real estate
investment trusts (REITs), which are pooled investment vehicles that
invest in real estate or real estate loans or interests. Investing in
REITs involves risks similar to those associated with investing in equity
securities of small capitalization companies. REITs are dependent upon
management skills, are not diversified, and are subject to risks of
project financing, default by borrowers, self-liquidation, and the
possibility of failing to qualify for the exemption from taxation on
distributed amounts under the Internal Revenue Code of 1986, as amended
(the "Code").
Illiquid and Restricted Securities (All funds). Each fund may invest up
to 15% of its assets in securities (excluding those subject to Rule 144A
under the Securities Act of 1933, as amended (the ''1933 Act'')), with
contractual or other restrictions on resale and other instruments that are
not readily marketable, including (a) repurchase agreements with
maturities greater than seven days, (b) time deposits maturing from two
business days through seven calendar days, (c) to the extent that a liquid
secondary market does not exist for the instruments, futures contracts and
options on those contracts and (d) other securities that are subject to
restrictions on resale that the Manager has determined are not liquid
under guidelines established by the Company's Board of Directors.
In addition, each fund may invest no more than 5% (10% for Emerging
Markets Portfolio) of its total assets in securities which cannot be sold
to the public without registration under the Securities Act of 1933
(restricted securities). Unless registered for sale, these securities can
only be sold in privately negotiated transactions or pursuant to an
exemption from registration. Restricted securities (excluding securities
issued pursuant to Rule 144A of the Securities Act of 1933) are considered
to be illiquid and are subject to the 15% limitation on investments in
illiquid securities. The sale of restricted securities often requires
more time and results in higher brokerage charges or dealer discounts and
other selling expenses than does the sale of securities eligible for
trading on a national securities exchange that are not subject to
restrictions on resale. Restricted securities often sell at a price lower
than similar securities that are not subject to restrictions on resale.
ADRs, EDRs and GDRs (All funds). Each fund may also purchase ADRs, EDRs
and GDRs or other securities representing underlying shares of foreign
companies. ADRs are publicly traded on exchanges or over-the-counter in
the United States and are issued through "sponsored" or "unsponsored"
arrangements. In a sponsored ADR arrangement, the foreign issuer assumes
the obligation to pay some or all of the depository's transaction fees,
whereas under an unsponsored arrangement, the foreign issuer assumes no
obligation and the depository's transaction fees are paid by the ADR
holders. In addition, less information is available in the United States
about an unsponsored ADR than about a sponsored ADR, and the financial
information about a company may not be as reliable for an unsponsored ADR
as it is for a sponsored ADR. A fund may invest in ADRs through both
sponsored and unsponsored arrangements.
FIXED INCOME SECURITIES
To the extent that each fund may invest in fixed income securities, it may
invest in the securities described below, unless otherwise noted.
Corporate Debt Obligations. Each fund may invest in corporate debt
obligations and zero coupon securities issued by financial institutions
and corporations. Corporate debt obligations are subject to the risk of
an issuer's inability to meet principal and interest payments on the
obligations and may also be subject to price volatility due to such
factors as market interest rates, market perception of the
creditworthiness of the issuer and general market liquidity. Zero coupon
securities are securities sold at a discount to par value and on which
interest payments are not made during the life of the security.
U.S. Government Securities. The U.S. Government securities in which the
funds may invest include: bills, certificates of indebtedness, and notes
and bonds issued by the U.S. Treasury or by agencies or instrumentalities
of the U.S. Government. Some U.S. Government securities, such as U.S.
Treasury bills and bonds, are supported by the full faith and credit of
the U.S. Treasury; others are supported by the right of the issuer to
borrow from the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations;
still others, such as those of the Student Loan Marketing Association and
the Federal Home Loan Mortgage Corporation ("FHLMC"), are supported only
by the credit of the instrumentality. Mortgage participation certificates
issued by the FHLMC generally represent ownership interests in a pool of
fixed-rate conventional mortgages. Timely payment of principal and
interest on these certificates is guaranteed solely by the issuer of the
certificates. Other investments will include Government National Mortgage
Association Certificates ("GNMA Certificates"), which are mortgage-
backed securities representing part ownership of a pool of mortgage loans
on which timely payment of interest and principal is guaranteed by the
full faith and credit of the U.S. Government. While the U.S. Government
guarantees the payment of principal and interest on GNMA Certificates, the
market value of the securities is not guaranteed and will fluctuate.
Sovereign Debt Obligations. A fund may purchase sovereign debt
instruments issued or guaranteed by foreign governments or their agencies,
including debt of developing countries. Sovereign debt may be in the form
of conventional securities or other types of debt instruments such as
loans or loan participations. Sovereign debt of developing countries may
involve a high degree of risk, and may be in default or present the risk
of default. Governmental entities responsible for repayment of the debt
may be unable or unwilling to repay principal and interest when due, and
may require renegotiation or rescheduling of debt payments. In addition,
prospects for repayment of principal and interest may depend on political
as well as economic factors. Although some sovereign debt, such as Brady
Bonds, is collateralized by U.S. Government securities, repayment of
principal and interest is not guaranteed by the U.S. Government.
Loans and Other Direct Debt Instruments. A fund may purchase interests in
amounts owed by a corporate, governmental, or other borrower to another
party. These interests may represent amounts owed to lenders or lending
syndicates (loans and loan participations), to suppliers of goods or
services (trade claims or other receivables), or to other parties. Direct
debt instruments involve the risk of loss in case of default or insolvency
of the borrower and may offer less legal protection to the fund in the
event of fraud or misrepresentation. In addition, loan participations
involve a risk of insolvency of the lending bank or other financial
intermediary. Direct debt instruments may also include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand.
Floating And Variable Rate Income Securities. Income securities may
provide for floating or variable rate interest or dividend payments. The
floating or variable rate may be determined by reference to a known
lending rate, such as a bank's prime rate, a certificate of deposit rate
or the London InterBank Offered Rate (LIBOR). Alternatively, the rate may
be determined through an auction or remarketing process. The rate also
may be indexed to changes in the values of interest rate or securities
indexes, currency exchange rates or other commodities. The amount by
which the rate paid on an income security may increase or decrease may be
subject to periodic or lifetime caps. Floating and variable rate income
securities include securities whose rates vary inversely with changes in
market rates of interest. Such securities may also pay a rate of interest
determined by applying a multiple to the variable rate. The extent of
increases and decreases in the value of securities whose rates vary
inversely with changes in market rates of interest generally will be
larger than comparable changes in the value of an equal principal amount
of a fixed rate security having similar credit quality, redemption
provisions and maturity.
Zero Coupon, Discount and Payment-in-kind Securities. A fund may invest
in "zero coupon" and other deep discount securities of governmental or
private issuers. Zero coupon securities generally pay no cash interest
(or dividends in the case of preferred stock) to their holders prior to
maturity. Payment-in-kind securities allow the lender, at its option, to
make current interest payments on such securities either in cash or in
additional securities. Accordingly, such securities usually are issued
and traded at a deep discount from their face or par value and generally
are subject to greater fluctuations of market value in response to
changing interest rates than securities of comparable maturities and
credit quality that pay cash interest (or dividends in the case of
preferred stock) on a current basis.
Premium Securities. A fund may invest in income securities bearing coupon
rates higher than prevailing market rates. Such "premium" securities are
typically purchased at prices greater than the principal amounts payable
on maturity. A fund will not amortize the premium paid for such
securities in calculating its net investment income. As a result, in such
cases the purchase of such securities provides a fund a higher level of
investment income distributable to shareholders on a current basis than if
the fund purchased securities bearing current market rates of interest.
If securities purchased by a fund at a premium are called or sold prior to
maturity, the fund will recognize a capital loss to the extent the call or
sale price is less than the purchase price. Additionally, a fund will
recognize a capital loss if it holds such securities to maturity.
Yankee Bonds. A fund may invest in U.S. dollar-denominated bonds sold in
the United States by non-U.S. issuers ("Yankee bonds"). As compared with
bonds issued in the United States, such bond issues normally carry a
higher interest rate but are less actively traded.
Loan Participations and Assignments. A fund may invest a portion of its
assets in loan participations ("Participations"). By purchasing a
Participation, a fund acquires some or all of the interest of a bank or
other lending institution in a loan to a corporate or government borrower.
The Participations typically will result in the fund having a contractual
relationship only with the lender and not with the borrower. The fund
will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the lender selling the
Participation and only upon receipt by the lender of the payments from the
borrower. In connection with purchasing Participations, the fund
generally will have no right to enforce compliance by the borrower with
the terms of the loan agreement relating to the loan, nor any rights of
set-off against the borrower, and the fund may not directly benefit from
any collateral supporting the loan in which it has purchased the
Participation. As a result, the fund will assume the credit risk of both
the borrower and the lender that is selling the Participation. In the
event of the insolvency of the lender selling a Participation, the fund
may be treated as a general creditor of the lender and may not benefit
from any set-off between the lender and the borrower. A fund will acquire
Participations only if the lender interpositioned between the fund and the
borrower is determined by management to be creditworthy.
A fund also may invest in assignments of portions of loans from third
parties ("Assignments"). When it purchases Assignments from lenders, the
fund will acquire direct rights against the borrower on the loan.
However, since Assignments are arranged through private negotiations
between potential assignees and assignors, the rights and obligations
acquired by the fund as the purchaser of an Assignment may differ from,
and be more limited than, those held by the assigning lender. A fund may
have difficulty disposing of Assignments and Participations. The
liquidity of such securities is limited, and the fund anticipates that
such securities could be sold only to a limited number of institutional
investors. The lack of a liquid secondary market could have an adverse
impact on the value of such securities and on the fund's ability to
dispose of particular Assignments or Participations when necessary to meet
the fund's liquidity needs or in response to a specific economic event,
such as a deterioration in the creditworthiness of the borrower. The lack
of a liquid secondary market for Assignments and Participations also may
make it more difficult for the fund to assign a value to those securities
or purposes of valuing the fund's portfolio and calculating its net asset
value.
Structured Notes. Emerging Markets Portfolio may purchase structured
notes, which are over-the-counter debt instruments where the interest rate
and/or principal are indexed to an unrelated indicator (e.g., short-term
rates in Japan, the price of oil). Sometimes the two are inversely related
(i.e., as the index goes up, the coupon rate goes down; inverse floaters
are an example of this) and sometimes they may fluctuate to a greater
degree than the underlying index (e.g., the coupon may change twice as
much as the change in the index rate). Structured notes are often issued
by high-grade corporate issuers. There is often an underlying swap
involved; the issuer will receive payments that match its obligations
under the structured note (usually from an investment bank) and, in turn,
makes more "traditional" payments to the investment bank (e.g., fixed
rate or ordinary floating rate payments). It is important to note,
however, that in such cases the fund would not be involved in the swap;
the issuer of the note would remain obligated even if its counterparty
defaulted.
Short-Term Investments. In certain circumstances the funds may invest
without limitation in all types of short-term money market instruments,
including U.S. Government securities; certificates of deposit, time
deposits and bankers' acceptances issued by domestic banks (including
their branches located outside the United States and subsidiaries located
in Canada), domestic branches of foreign banks, savings and loan
associations and similar institutions; high grade commercial paper; and
repurchase agreements. To the extent a fund is investing in short-term
investments as a temporary defensive posture, the applicable fund's
investment objective may not be achieved.
Commercial Paper. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note
(which is a type of commercial paper) represents a direct borrowing
arrangement involving periodically fluctuating rates of interest under a
letter agreement between a commercial paper issuer and an institutional
lender, such as one of the funds, pursuant to which the lender may
determine to invest varying amounts. Transfer of such notes is usually
restricted by the issuer, and there is no secondary trading market for
such notes. Each fund, therefore, may not invest in a master demand note,
if as a result more than 15% of the value of the fund's total assets would
be invested in such notes and other illiquid securities.
Commercial Bank Obligations. For the purposes of each fund's investment
policies with respect to bank obligations, obligations of foreign branches
of U.S. banks and of foreign banks may be general obligations of the
parent bank in addition to the issuing bank, or may be limited by the
terms of a specific obligation and by government regulation. As with
investment in foreign securities in general, investments in the
obligations of foreign branches of U.S. banks and of foreign banks may
subject a fund to investment risks that are different in some respects
from those of investments in obligations of domestic issuers. Although a
fund will typically acquire obligations issued and supported by the credit
of U.S. or foreign banks having total assets at the time of purchase in
excess of U.S. $1 billion (or the equivalent thereof), this U.S. $1
billion figure is not a fundamental investment policy or restriction of
the fund. For calculation purposes with respect to the U.S. $1 billion
figure, the assets of a bank will be deemed to include the assets of its
U.S. and foreign branches.
DERIVATIVE CONTRACTS
Options, Futures and Currencies (All funds). Each fund may use forward
currency contracts and certain options and futures strategies to attempt
to hedge its portfolio, i.e., reduce the overall level of investment risk
normally associated with the fund. These hedging techniques are described
in detail below. Neither International Balanced Portfolio nor Emerging
Markets Portfolio will hedge more than 25% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. In
addition, neither of these funds will buy futures or write puts whose
underlying value exceeds 25% of its total assets, or will buy calls with a
value exceeding 5% of its total assets.
Writing Covered Call Options (All funds). Each fund may write (sell)
covered call options for hedging purposes. Covered call options will
generally be written on securities and currencies which, in the opinion of
the Manager, are not expected to make any major price moves in the near
future but which, over the long term, are deemed to be attractive
investments for the fund.
A call option gives the holder (buyer) the right to purchase a security or
currency at a specified price (the exercise price) at any time until a
certain date (the expiration date). So long as the obligation of the
writer of a call option continues, he may be assigned an exercise notice
by the broker-dealer through whom such option was sold, requiring him to
deliver the underlying security or currency against payment of the
exercise price. This obligation terminates upon the expiration of the
call option, or such earlier time at which the writer effects a closing
purchase transaction by purchasing an option identical to that previously
sold. The Manager and the Company believe that writing of covered call
options is less risky than writing uncovered or "naked" options, which the
funds will not do.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations
consistent with each fund's investment objective. When writing a covered
call option, the fund, in return for the premium, gives up the opportunity
for profit from a price increase in the underlying security or currency
above the exercise price and retains the risk of loss should the price of
the security or currency decline. Unlike one who owns securities or
currencies not subject to an option, the fund has no control over when it
may be required to sell the underlying securities or currencies, since the
option may be exercised at any time prior to the option's expiration. If
a call option which the fund has written expires, the fund will realize a
gain in the amount of the premium; however, such gain may be offset by a
decline in the market value of the underlying security or currency during
the option period. If the call option is exercised, the fund will realize
a gain or loss from the sale of the underlying security or currency. The
security or currency covering the call option will be maintained in a
segregated account of the fund's custodian.
The premium the fund receives for writing a call option is deemed to
constitute the market value of an option. The premium the fund will
receive from writing a call option will reflect, among other things, the
current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the implied price
volatility of the underlying security or currency, and the length of the
option period. In determining whether a particular call option should be
written on a particular security or currency, the Manager will consider
the reasonableness of the anticipated premium and the likelihood that a
liquid secondary market will exist for those options. The premium
received by the fund for writing covered call options will be recorded as
a liability in the fund's statement of assets and liabilities. This
liability will be adjusted daily to the option's current market value,
which will be calculated as described in "DETERMINATION OF NET ASSET
VALUE." The liability will be extinguished upon expiration of the option
or delivery of the underlying security or currency upon the exercise of
the option. The liability with respect to a listed option will also be
extinguished upon the purchase of an identical option in a closing
transaction.
Closing transactions will be effected in order to realize a profit or to
limit losses on an outstanding call option, to prevent an underlying
security or currency from being called, or to permit the sale of the
underlying security or currency. Furthermore, effecting a closing
transaction will permit the fund to write another call option on the
underlying security or currency with either a different exercise price,
expiration date or both. If the fund desires to sell a particular
security or currency from its portfolio on which it has written a call
option or purchases a put option, it will seek to effect a closing
transaction prior to, or concurrently with, the sale of the security or
currency. There is no assurance that the fund will be able to effect such
closing transactions at a favorable price. If the fund cannot enter into
such a transaction, it may be required to hold a security or currency that
it might otherwise have sold, in which case it would continue to be at
market risk with respect to the security or currency.
Each fund will pay transaction costs in connection with the writing of
options and in entering into closing purchase contracts. Transaction
costs relating to options activity are normally higher than those
applicable to purchases and sales of portfolio securities.
Call options written by each fund, other than the International Balanced
Portfolio, will normally have expiration dates of less than nine months
from the date written. Call options written by the International Balanced
Portfolio will normally have expiration dates of less than twelve months
from the date written. The exercise price of the options may be below,
equal to or above the current market values of the underlying securities
or currencies at the time the options are written. From time to time, the
fund may purchase an underlying security or currency for delivery in
accordance with the exercise of an option, rather than delivering such
security or currency from its portfolio. In such cases, additional costs
will be incurred.
Each fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more, respectively,
than the premium received from the writing of the option. Because
increases in the market price of a call option will generally reflect
increases in the market price of the underlying security or currency, any
loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security or currency
owned by the fund.
See "ADDITIONAL TAX INFORMATION" for a discussion of federal income tax
treatment of covered call options.
Purchasing Put Options (All funds). Each fund may purchase put options.
As the holder of a put option, the fund has the right to sell the
underlying security or currency at the exercise price at any time during
the option period. The fund may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire.
Each fund may purchase a put option on an underlying security or currency
(a "protective put") owned by the fund as a hedging technique in order to
protect against an anticipated decline in the value of the security or
currency. Such hedge protection is provided only during the life of the
put option when the fund, as the holder of the put option, is able to sell
the underlying security or currency at the put exercise price regardless
of any decline in the underlying security's market price or currency's
exchange value. For example, a put option may be purchased in order to
protect unrealized appreciation of a security or currency when the Manager
deems it desirable to continue to hold the security or currency because of
tax considerations. The premium paid for the put option and any
transaction costs may reduce any capital gain or, in the case of currency,
ordinary income otherwise available for distribution when the security or
currency is eventually sold.
Each fund may also purchase put options at a time when the fund does not
own the underlying security or currency. By purchasing put options on a
security or currency it does not own, the fund seeks to benefit from a
decline in the market price of the underlying security or currency. If
the put option is not sold when it has remaining value, and if the market
price of the underlying security or currency remains equal to or greater
than the exercise price during the life of the put option, the fund will
lose its entire investment in the put option. In order for the purchase
of a put option to be profitable, the market price of the underlying
security or currency must decline sufficiently below the exercise price to
cover the premium and transaction costs, unless the put option is sold in
a closing sale transaction.
The premium paid by a fund when purchasing a put option will be recorded
as an asset in the fund's statement of assets and liabilities. This asset
will be adjusted daily to the option's current market value, as calculated
by the fund. The asset will be extinguished upon expiration of the option
or the delivery of the underlying security or currency upon the exercise
of the option. The asset with respect to a listed option will also be
extinguished upon the writing of an identical option in a closing
transaction.
Purchasing Call Options (All funds). Each fund may purchase call options.
As the holder of a call option, a fund has the right to purchase the
underlying security or currency at the exercise price at any time during
the option period. The fund may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire. Call
options may be purchased by the fund for the purpose of acquiring the
underlying security or currency for its portfolio. Utilized in this
fashion, the purchase of call options enables the fund to acquire the
security or currency at the exercise price of the call option plus the
premium paid. At times the net cost of acquiring the security or currency
in this manner may be less than the cost of acquiring the security or
currency directly. This technique may also be useful to the fund in
purchasing a large block of securities that would be more difficult to
acquire by direct market purchases. So long as it holds such a call
option rather than the underlying security or currency itself, the fund is
partially protected from any unexpected decline in the market price of the
underlying security or currency and in such event could allow the call
option to expire, incurring a loss only to the extent of the premium paid
for the option.
Each fund may also purchase call options on underlying securities or
currencies it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this
purpose where tax considerations make it inadvisable to realize such gains
through a closing purchase transaction. Call options may also be
purchased at times to avoid realizing losses that would result in a
reduction of the fund's current return.
Interest Rate and Currency Futures Contracts (All funds). Each fund may
enter into interest rate or currency futures contracts ("Futures" or
"Futures Contracts") as a hedge against changes in prevailing levels of
interest rates or currency exchange rates in order to establish more
definitely the effective return on securities or currencies held or
committed to be acquired by the fund. A fund's hedging may include
holding Futures as an offset against anticipated changes in interest or
currency exchange rates. A fund may also enter into Futures Contracts
based on financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt securities.
A Futures Contract provides for the future sale by one party and purchase
by another party of a specified amount of a specific financial instrument
or currency for a specified price at a designated date, time and place.
The purchaser of a Futures Contract on an index agrees to take or make
delivery of an amount of cash equal to the difference between a specified
dollar multiple of the value of the index on the expiration date of the
contract ("current contract value") and the price at which the contract
was originally struck. No physical delivery of the debt securities
underlying the index is made. Brokerage fees are incurred when a Futures
Contract is bought or sold, and margin deposits must be maintained at all
times that the Futures Contract is outstanding.
Although techniques other than sales and purchases of Futures Contracts
could be used to reduce the fund's exposure to interest rate and currency
exchange rate fluctuations, the fund may be able to hedge its exposure
more effectively and at a lower cost through using Futures Contracts.
Although Futures Contracts typically require future delivery of and
payment for financial instruments or currencies, Futures Contracts are
usually closed out before the delivery date. Closing out an open Futures
Contract sale or purchase is effected by entering into an offsetting
Futures Contract purchase or sale, respectively, for the same aggregate
amount of the identical financial instrument or currency and the same
delivery date. If the offsetting purchase price is less than the original
sale price, the fund realizes a gain; if it is more, the fund realizes a
loss. Conversely, if the offsetting sale price is more than the original
purchase price, the fund realizes a gain; if it is less, the fund realizes
a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the fund will be
able to enter into an offsetting transaction with respect to a particular
Futures Contract at a particular time. If the fund is not able to enter
into an offsetting transaction, the fund will continue to be required to
maintain the margin deposits of the underlying financial instrument or
currency on the relevant delivery date. The Company intends to enter into
Futures transactions only on exchanges or boards of trade where there
appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist for a particular contract at a
particular time.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September Treasury Bills
on an exchange may be fulfilled at any time before delivery under the
Futures Contract is required (i.e., on a specific date in September, the
"delivery month") by the purchase of another Futures Contract of September
Treasury Bills on the same exchange. In such instance the difference
between the price at which the Futures Contract was sold and the price
paid for the offsetting purchase, after allowance for transaction costs,
represents the profit or loss to the fund.
Persons who trade in Futures Contracts may be broadly classified as
"hedgers" and "speculators." Hedgers, whose business activity involves
investment or other commitment in securities or other obligations, use the
Futures markets to offset unfavorable changes in value that may occur
because of fluctuations in the value of the securities and obligations
held or committed to be acquired by them or fluctuations in the value of
the currency in which the securities or obligations are denominated.
Debtors and other obligors may also hedge the interest cost of their
obligations. The speculator, like the hedger, generally expects neither
to deliver nor to receive the financial instrument underlying the Futures
Contract, but, unlike the hedger, hopes to profit from fluctuations in
prevailing interest rates or currency exchange rates.
Each fund's Futures transactions will be entered into for traditional
hedging purposes; that is, Futures Contracts will be sold to protect
against a decline in the price of securities or currencies that the fund
owns, or Futures Contracts will be purchased to protect a fund against an
increase in the price of securities or currencies it has committed to
purchase or expects to purchase. The International Equity Portfolio, the
Pacific Portfolio, the International Balanced Portfolio and the Emerging
Market Portfolio may each also enter into Futures transactions for non-
hedging purposes, subject to applicable law.
"Margin" with respect to Futures Contracts is the amount of funds that
must be deposited by the fund with a broker in order to initiate Futures
trading and to maintain the fund's open positions in Futures Contracts. A
margin deposit made when the Futures Contract is entered into ("initial
margin") is intended to assure the fund's performance of the Futures
Contract. The margin required for a particular Futures Contract is set by
the exchange on which the Futures Contract is traded, and may be
significantly modified from time to time by the exchange during the term
of the Futures Contract. Futures Contracts are customarily purchased and
sold on margins, which may be 5% or less of the value of the Futures
Contract being traded.
If the price of an open Futures Contract changes (by increase in the case
of a sale or by decrease in the case of a purchase) so that the loss on
the Futures Contract reaches a point at which the margin on deposit does
not satisfy margin requirements, the broker will require an increase in
the margin deposit ("variation margin"). If, however, the value of a
position increases because of favorable price changes in the Futures
Contract so that the margin deposit exceeds the required margin, it is
anticipated that the broker will pay the excess to the fund. In computing
daily net asset values, the fund will mark to market the current value of
its open Futures Contracts. Each fund expects to earn interest income on
its margin deposits.
See "ADDITIONAL TAX INFORMATION" for a discussion of federal tax treatment
of Futures Contracts.
Options on Futures Contracts (All funds). Options on Futures Contracts
are similar to options on securities or currencies except that options on
Futures Contracts give the purchaser the right, in return for the premium
paid, to assume a position in a Futures Contract (a long position if the
option is a call and a short position if the option is a put), rather than
to purchase or sell the Futures Contract, at a specified exercise price at
any time during the period of the option. Upon exercise of the option,
the delivery of the Futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated
balance in the writer's Futures margin account which represents the amount
by which the market price of the Futures Contract, at exercise, exceeds
(in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the Futures Contract. If an option is
exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level
of the securities or currencies upon which the Futures Contracts are based
on the expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
As an alternative to purchasing call and put options on Futures, each fund
may purchase call and put options on the underlying securities or
currencies themselves (see "Purchasing Put Options" and "Purchasing Call
Options" above). Such options would be used in a manner identical to the
use of options on Futures Contracts.
To reduce or eliminate the leverage then employed by the fund or to reduce
or eliminate the hedge position then currently held by the fund, the fund
may seek to close out an option position by selling an option covering the
same securities or currency and having the same exercise price and
expiration date. The ability to establish and close out positions on
options on Futures Contracts is subject to the existence of a liquid
market. It is not certain that this market will exist at any specific
time.
In order to assure that the funds will not be deemed to be "commodity
pools" for purposes of the Commodity Exchange Act, regulations of the
Commodity Futures Trading Commission ("CFTC") require that each fund enter
into transactions in Futures Contracts and options on Futures Contracts
only (i) for bona fide hedging purposes (as defined in CFTC regulations),
or (ii) for non-hedging purposes, provided that the aggregate initial
margin and premiums on such non-hedging positions does not exceed 5% of
the liquidation value of the fund's assets. The Global Government Bond
Portfolio and the European Portfolio will enter into transactions in
Futures Contracts and options on Futures Contracts only for hedging
purposes.
Forward Currency Contracts, Options on Currency and Currency Swaps (All
funds). A forward currency contract is an obligation to purchase or sell
a currency against another currency at a future date and price as agreed
upon by the parties. A fund may either accept or make delivery of the
currency at the maturity of the forward contract or, prior to maturity,
enter into a closing transaction involving the purchase or sale of an
offsetting contract. Each fund engages in forward currency transactions
in anticipation of, or to protect itself against, fluctuations in exchange
rates. A fund might sell a particular foreign currency forward, for
example, when it holds bonds denominated in that currency but anticipates,
and seeks to be protected against, decline in the currency against the
U.S. dollar. Similarly, a fund might sell the U.S. dollar forward when it
holds bonds denominated in U.S. dollars but anticipates, and seeks to be
protected against, a decline in the U.S. dollar relative to other
currencies. Further, a fund might purchase a currency forward to "lock
in" the price of securities denominated in that currency which it
anticipates purchasing.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not be
precise. In addition, a fund may not always be able to enter into foreign
currency forward contracts at attractive prices and this will limit the
fund's ability to use such contract to hedge or cross-hedge its assets.
Also, with regard to a fund's use of cross-hedges, there can be no
assurance that historical correlations between the movement of certain
foreign currencies relative to the U.S. dollar will continue. Thus, at
any time poor correlation may exist between movements in the exchange
rates of the foreign currencies underlying the fund's cross-hedges and the
movements in the exchange rates of the foreign currencies in which the
fund's assets that are the subject of such cross-hedges are denominated.
Forward contracts are traded in an interbank market conducted directly
between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement and is
consummated without payment of any commission. Each fund, however, may
enter into forward contracts with deposit requirements or commissions.
A put option gives a fund, as purchaser, the right (but not the
obligation) to sell a specified amount of currency at the exercise price
until the expiration of the option. A call option gives a fund, as
purchaser, the right (but not the obligation) to purchase a specified
amount of currency at the exercise price until its expiration. A fund
might purchase a currency put option, for example, to protect itself
during the contract period against a decline in the value of a currency in
which it holds or anticipates holding securities. If the currency's value
should decline, the loss in currency value should be offset, in whole or
in part, by an increase in the value of the put. If the value of the
currency instead should rise, any gain to the fund would be reduced by the
premium it had paid for the put option. A currency call option might be
purchased, for example, in anticipation of, or to protect against, a rise
in the value of a currency in which the fund anticipates purchasing
securities.
Each fund's ability to establish and close out positions in foreign
currency options is subject to the existence of a liquid market. There
can be no assurance that a liquid market will exist for a particular
option at any specific time. In addition, options on foreign currencies
are affected by all of those factors that influence foreign exchange rates
and investments generally.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Exchange
markets for options on foreign currencies exist but are relatively new,
and the ability to establish and close out positions on the exchanges is
subject to maintenance of a liquid secondary market. Closing transactions
may be effected with respect to options traded in the over-the-counter
("OTC") markets (currently the primary markets for options on foreign
currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market
exists. Although each fund intends to purchase only those options for
which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular
option at any specific time. In such event, it may not be possible to
effect closing transactions with respect to certain options, with the
result that the fund would have to exercise those options which it has
purchased in order to realize any profit. The staff of the Securities and
Exchange Commission ("SEC") has taken the position that, in general,
purchased OTC options and the underlying securities used to cover written
OTC options are illiquid securities. However, a fund may treat as liquid
the underlying securities used to cover written OTC options, provided it
has arrangements with certain qualified dealers who agree that the fund
may repurchase any option it writes for a maximum price to be calculated
by a predetermined formula. In these cases, the OTC option itself would
only be considered illiquid to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
A fund may also enter into currency swaps. A currency swap is an
arrangement whereby each party exchanges one currency for another on a
particular date and agrees to reverse the exchange on a later date at a
specific exchange rate. Forward foreign currency contracts and currency
swaps are established in the interbank market conducted directly between
currency traders (usually large commercial banks or other financial
institutions) on behalf of their customers.
Interest Rate Swaps, Caps and Floors (All funds). Among the hedging
transactions into which the funds may enter are interest rate swaps and
the purchase or sale of interest rate caps and floors. Each fund expects
to enter into these transactions primarily to preserve a return or spread
on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the fund anticipates
purchasing at a later date. Each fund intends to use these transactions
as a hedge and not as a speculative investment. Each fund will not sell
interest rate caps or floors that it does not own. Interest rate swaps
involve the exchange by a fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The
purchase of an interest rate floor entitles the purchaser, to the extent
that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor.
A fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging
its assets or its liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted, with the
fund receiving or paying, as the case may be, only the net amount of the
two payments. Inasmuch as these hedging transactions are entered into for
good faith hedging purposes, the Manager and the funds believe such
obligations do not constitute senior securities and, accordingly will not
treat them as being subject to their borrowing restrictions. The net
amount of the excess, if any, of a fund's obligations over its
entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash or liquid securities having an aggregate
net asset value at least equal to the accrued excess will be maintained in
a segregated account by a custodian that satisfies the requirements of the
1940 Act. The funds will not enter into any interest rate swap, cap or
floor transaction unless the unsecured senior debt or the claims-paying
ability of the other party thereto is rated in the highest rating category
of at least one nationally recognized rating organization at the time of
entering into such transaction. If there is a default by the other party
to such a transaction, a fund will have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing swap
documentation. As a result, the swap market has become relatively liquid.
Caps and floors are more recent innovations for which standardized
documentation has not yet been developed and, accordingly, they are less
liquid than swaps.
New options and Futures Contracts and various combinations thereof
continue to be developed and the funds may invest in any such options and
contracts as may be developed to the extent consistent with their
investment objectives and regulatory requirements applicable to investment
companies.
OTHER PRACTICES
Repurchase Agreements (All funds). Each fund may enter into repurchase
agreements. International Equity Portfolio, Pacific Portfolio,
International Balanced Portfolio and Emerging Markets Portfolio each may
invest in repurchase agreements up to 25% of its total assets. A
repurchase agreement is a contract under which a fund acquires a security
for a relatively short period (usually not more than one week) subject to
the obligation of the seller to repurchase and the fund to resell such
security at a fixed time and price (representing the fund's cost plus
interest). It is each fund's present intention to enter into repurchase
agreements only upon receipt of fully adequate collateral and only with
commercial banks (whether U.S. or foreign) and registered broker-dealers.
Repurchase agreements may also be viewed as loans made by a fund which are
collateralized primarily by the securities subject to repurchase. A fund
bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the fund is delayed in or
prevented from exercising its rights to dispose of the collateral
securities. Pursuant to policies established by the Board of Directors,
the Manager monitors the creditworthiness of all issuers with which each
fund enters into repurchase agreements.
Reverse Repurchase Agreements (All funds). Each fund does not currently
intend to commit more than 5% of a fund's net assets to reverse repurchase
agreements. Each fund may enter into reverse repurchase agreements with
broker/dealers and other financial institutions. Such agreements involve
the sale of fund securities with an agreement to repurchase the securities
at an agreed-upon price, date and interest payment, are considered to be
borrowings by a fund and are subject to the borrowing limitations set
forth under "Investment Restrictions." Since the proceeds of reverse
repurchase agreements are invested, this would introduce the speculative
factor known as "leverage." The securities purchased with the funds
obtained from the agreement and securities collateralizing the agreement
will have maturity dates no later than the repayment date. Generally the
effect of such a transaction is that the Company can recover all or most
of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while in many cases it will be able
to keep some of the interest income associated with those securities.
Such transactions are only advantageous if the fund has an opportunity to
earn a greater rate of interest on the cash derived from the transaction
than the interest cost of obtaining that cash. Opportunities to realize
earnings from the use of the proceeds equal to or greater than the
interest required to be paid may not always be available, and the Company
intends to use the reverse repurchase technique only when the Manager
believes it will be advantageous to the fund. The use of reverse
repurchase agreements may exaggerate any interim increase or decrease in
the value of the participating fund's assets. The Company's custodian
bank will maintain a separate account for the fund with securities having
a value equal to or greater than such commitments.
Borrowing (All funds). Each fund may borrow up to 33?% (except that
Emerging Markets Portfolio may borrow only up to 10% and European
Portfolio may borrow only up to 25%) of the value of its total assets from
banks for temporary or emergency purposes, such as to meet the fund's
redemptions.
Leverage (International Balanced, International Equity and Pacific).
International Equity Portfolio, International Balanced Portfolio and
Pacific Portfolio each may borrow from banks, on a secured or unsecured
basis, up to 33?% of the value of its total assets and use the proceeds to
make additional investments. Income and appreciation from such
investments will improve a fund's performance if they exceed the
associated borrowing costs, but will impair a fund's performance if they
are less than the borrowing costs. This speculative factor is known as
"leverage."
Leverage creates an opportunity for increased returns to shareholders of a
fund but, at the same time, creates special risk considerations. For
example, leverage may exaggerate changes in the net asset value of the
fund's shares and in the fund's yield. Although the principal or stated
value of such borrowings will be fixed, the fund assets may change in
value during the time the borrowing is outstanding. Leverage will create
interest expenses for the fund which can exceed the income from the assets
retained. To the extent the income or other gain derived from securities
purchased with borrowed funds exceeds the interest the fund will have to
pay in respect thereof, the fund's net income or other gain will be
greater than if leverage had not been used. Conversely, if the income or
other gain from the incremental assets is not sufficient to cover the cost
of leverage, the net income or other gain of the fund will be less than if
leverage had not been used. If the amount of income from the incremental
securities is insufficient to cover the cost of borrowing, securities
might have to be liquidated to obtain required funds. Depending on market
or other conditions, such liquidations could be disadvantageous to the
fund.
Securities Lending (All funds). Global Government Bond Portfolio,
European Portfolio, International Balanced Portfolio and Emerging Markets
Portfolio each may lend securities in amounts up to one-third of total
assets. International Equity Portfolio and Pacific Portfolio each may
lend securities in amounts up to 15% of total assets. Each fund may seek
to increase its net investment income by lending its securities provided
such loans are callable at any time and are continuously secured by cash
or U.S. Government Obligations equal to no less than the market value,
determined daily, of the securities loaned. Each fund will receive
amounts equal to dividends or interest on the securities loaned. It will
also earn income for having made the loan because cash collateral pursuant
to these loans will be invested in short-term money market instruments.
In connection with lending of securities the Company may pay reasonable
finders, administrative and custodial fees. Management will limit such
lending to not more than one-third of the value of the total assets of
each fund. Where voting or consent rights with respect to loaned
securities pass to the borrower, management will follow the policy of
calling the loan, in whole or in part as may be appropriate, to permit the
exercise of such voting or consent rights if the issues involved have a
material effect on the fund's investment in the securities loaned. Apart
from lending its securities and acquiring debt securities of a type
customarily purchased by financial institutions, no fund will make loans
to other persons.
When-Issued and Delayed Delivery Securities (All funds). These funds each
may purchase or sell securities on a when-issued or delayed delivery
basis. When-issued or delayed delivery transactions arise when securities
are purchased or sold by a fund with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous
price and yield to the fund at the time of entering into the transaction.
The Chase Manhattan Bank, the Company's custodian (the "Custodian") will
maintain, in a segregated account of the applicable fund, cash, debt
securities of any grade or equity securities, having a value equal to or
greater than the fund's purchase commitments, provided such securities
have been determined by the Manager to be liquid and unencumbered, and are
market to market daily, pursuant to guidelines established by the
Directors. The Custodian will likewise segregate securities sold on a
delayed basis. The payment obligations and the interest rates that will
be received are each fixed at the time a fund enters into the commitment
and no interest accrues to the fund until settlement. Thus, it is
possible that the market value at the time of settlement could be higher
or lower than the purchase price if the general level of interest rates
has changed.
Short Sales. (All funds) European Portfolio may sell securities "short
against the box." While a short sale is the sale of a security the fund
does not own, it is "against the box" if at all times when the short
position is open, the fund owns an equal amount of the securities or
securities convertible into, or exchangeable without further consideration
for, securities of the same issue as the securities sold short. The
ability to use short sales to defer recognition of gains was substantially
limited by certain "constructive sale" tax provisions enacted in 1997.
* * * * * * * *
The Articles of Incorporation of the Company permit the Board of Directors
to establish additional funds of the Company from time to time. The
investment objectives, policies and restrictions applicable to additional
funds would be established by the Board of Directors at the time such
funds were established and may differ from those set forth in the
Prospectus and this Statement of Additional Information.
RISK FACTORS
General. Investors should realize that risk of loss is inherent in the
ownership of any securities and that each fund's net asset value will
fluctuate, reflecting fluctuations in the market value of its portfolio
positions.
Non-diversification and Geographic Concentration. Funds that are
"non-diversified" are permitted to invest a greater proportion of their
assets in the securities of a smaller number of issuers, and thus may be
subject to greater credit and liquidity risks with respect to their
individual portfolios than a fund that is more broadly diversified. In
addition, concentration of a fund's assets in one or a few countries or
currencies will subject the fund to greater risks than if the fund's
assets were not geographically concentrated.
Fixed Income Securities. Investments in fixed income securities may
subject the funds to risks, including the following.
Interest Rate Risk. When interest rates decline, the market value
of fixed income securities tends to increase. Conversely, when interest
rates increase, the market value of fixed income securities tends to
decline. The volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of
instrument.
Default Risk/Credit Risk. Investments in fixed income securities
are subject to the risk that the issuer of the security could default on
its obligations, causing a fund to sustain losses on such investments. A
default could impact both interest and principal payments.
Call Risk and Extension Risk. Fixed income securities may be
subject to both call risk and extension risk. Call risk exists when the
issuer may exercise its right to pay principal on an obligation earlier
than scheduled, which would cause cash flows to be returned earlier than
expected. This typically results when interest rates have declined and a
fund will suffer from having to reinvest in lower yielding securities.
Extension risk exists when the issuer may exercise its right to pay
principal on an obligation later than scheduled, which would cause cash
flows to be returned later than expected. This typically results when
interest rates have increased, and a fund will suffer from the inability
to invest in higher yield securities.
Below Investment Grade Fixed Income Securities. Securities which are
rated BBB by S&P or Baa by Moody's are generally regarded as having
adequate capacity to pay interest and repay principal, but may have some
speculative characteristics. Securities rated below Baa by Moody's or BBB
by S&P may have speculative characteristics, including the possibility of
default or bankruptcy of the issuers of such securities, market price
volatility based upon interest rate sensitivity, questionable
creditworthiness and relative liquidity of the secondary trading market.
Because high yield bonds have been found to be more sensitive to adverse
economic changes or individual corporate developments and less sensitive
to interest rate changes than higher-rated investments, an economic
downturn could disrupt the market for high yield bonds and adversely
affect the value of outstanding bonds and the ability of issuers to repay
principal and interest. In addition, in a declining interest rate market,
issuers of high yield bonds may exercise redemption or call provisions,
which may force a fund, to the extent it owns such securities, to replace
those securities with lower yielding securities. This could result in a
decreased return.
Foreign Securities. Investments in securities of foreign issuers involve
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include fluctuations in foreign exchange
rates, future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or
restrictions. Since each fund will invest heavily in securities
denominated or quoted in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will, to the extent the fund does not
adequately hedge against such fluctuations, affect the value of securities
in its portfolio and the unrealized appreciation or depreciation of
investments so far as U.S. investors are concerned. In addition, with
respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or
diplomatic developments which could adversely affect investments in those
countries.
There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting, auditing, and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. Foreign
securities markets, while growing in volume, have, for the most part,
substantially less volume than U.S. markets, and securities of many
foreign companies are less liquid and their price more volatile than
securities of comparable U.S. companies. Transaction costs on foreign
securities markets are generally higher than in the U.S. There is
generally less government supervision and regulation of exchanges, brokers
and issuers than there is in the U.S. A fund might have greater difficulty
taking appropriate legal action in foreign courts. Dividend and interest
income from foreign securities will generally be subject to withholding
taxes by the country in which the issuer is located and may not be
recoverable by the fund or the investors. Capital gains are also subject
to taxation in some foreign countries.
Currency Risks. The U.S. dollar value of securities denominated in a
foreign currency will vary with changes in currency exchange rates, which
can be volatile. Accordingly, changes in the value of the currency in
which a fund's investments are denominated relative to the U.S. dollar
will affect the fund's net asset value. Exchange rates are generally
affected by the forces of supply and demand in the international currency
markets, the relative merits of investing in different countries and the
intervention or failure to intervene of U.S. or foreign governments and
central banks. However, currency exchange rates may fluctuate based on
factors intrinsic to a country's economy. Some emerging market countries
also may have managed currencies, which are not free floating against the
U.S. dollar. In addition, emerging markets are subject to the risk of
restrictions upon the free conversion of their currencies into other
currencies. Any devaluations relative to the U.S. dollar in the
currencies in which a fund's securities are quoted would reduce the fund's
net asset value per share.
Special Risks of countries in the Asia Pacific Region. Certain of the
risks associated with international investments are heightened for
investments in these countries. For example, some of the currencies of
these countries have experienced devaluations relative to the U.S. dollar,
and adjustments have been made periodically in certain of such currencies.
Certain countries, such as Indonesia, face serious exchange constraints.
Jurisdictional disputes also exist, for example, between South Korea and
North Korea. In addition, Hong Kong reverted to Chinese administration on
July 1, 1997. The long-term effects of this reversion are not known at
this time.
Securities of Developing/Emerging Markets Countries. A developing or
emerging markets country generally is considered to be a country that is
in the initial stages of its industrialization cycle. Investing in the
equity markets of developing countries involves exposure to economic
structures that are generally less diverse and mature, and to political
systems that can be expected to have less stability, than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of the more
mature economies of developed countries; however, such markets often have
provided higher rates of return to investors.
One or more of the risks discussed above could affect adversely the
economy of a developing market or a fund's investments in such a market.
In Eastern Europe, for example, upon the accession to power of Communist
regimes in the past, the governments of a number of Eastern European
countries expropriated a large amount of property. The claims of many
property owners against those of governments may remain unsettled. There
can be no assurance that any investments that a fund might make in such
emerging markets would not be expropriated, nationalized or otherwise
confiscated at some time in the future. In such an event, the fund could
lose its entire investment in the market involved. Moreover, changes in
the leadership or policies of such markets could halt the expansion or
reverse the liberalization of foreign investment policies now occurring in
certain of these markets and adversely affect existing investment
opportunities.
Many of a fund's investments in the securities of emerging markets may be
unrated or rated below investment grade. Securities rated below investment
grade (and comparable unrated securities) are the equivalent of high
yield, high risk bonds, commonly known as "junk bonds." Such securities
are regarded as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligations and involve major risk exposure to adverse business,
financial, economic, or political conditions.
Restrictions on Foreign Investment. Some countries prohibit or impose
substantial restrictions on investments in their capital markets,
particularly their equity markets, by foreign entities such as a fund. As
illustrations, certain countries require governmental approval prior to
investments by foreign persons, or limit the amount of investment by
foreign persons in a particular company, or limit the investment by
foreign persons to only a specific class of securities of a company which
may have less advantageous terms than securities of the company available
for purchase by nationals or limit the repatriation of funds for a period
of time.
A number of countries, such as South Korea, Taiwan and Thailand, have
authorized the formation of closed-end investment companies to facilitate
indirect foreign investment in their capital markets. In accordance with
the 1940 Act, each fund may invest up to 10% of its total assets in
securities of closed-end investment companies. This restriction on
investments in securities of closed-end investment companies may limit
opportunities for a fund to invest indirectly in certain smaller capital
markets. Shares of certain closed-end investment companies may at times
be acquired only at market prices representing premiums to their net asset
values. If a fund acquires shares in closed-end investment companies,
shareholders would bear both their proportionate share of expenses in the
fund (including management and advisory fees) and, indirectly, the
expenses of such closed-end investment companies.
In some countries, banks or other financial institutions may constitute a
substantial number of the leading companies or the companies with the most
actively traded securities. Also, the 1940 Act restricts a fund's
investments in any equity security of an issuer which, in its most recent
fiscal year, derived more than 15% of its revenues from "securities
related activities," as defined by the rules thereunder. These
provisions may also restrict the fund's investments in certain foreign
banks and other financial institutions.
Smaller capital markets, while often growing in trading volume, have
substantially less volume than U.S. markets, and securities in many
smaller capital markets are less liquid and their prices may be more
volatile than securities of comparable U.S. companies. Brokerage
commissions, custodial services, and other costs relating to investment in
smaller capital markets are generally more expensive than in the United
States. Such markets have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Further, satisfactory custodial
services for investment securities may not be available in some countries
having smaller capital markets, which may result in the fund incurring
additional costs and delays in transporting and custodying such securities
outside such countries. Delays in settlement could result in temporary
periods when assets of a fund are uninvested and no return is earned
thereon. The inability of a fund to make intended security purchases due
to settlement problems could cause the fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to
settlement problems could result either in losses to a fund due to
subsequent declines in value of the portfolio security or, if the fund has
entered into a contract to sell the security, could result in possible
liability to the purchaser. Generally, there is less government
supervision and regulation of exchanges, brokers and issuers in countries
having smaller capital markets than there is in the United States.
Derivative Instruments. In accordance with its investment policies, each
fund may invest in certain derivative instruments which are securities or
contracts that provide for payments based on or "derived" from the
performance of an underlying asset, index or other economic benchmark.
Essentially, a derivative instrument is a financial arrangement or a
contract between two parties (and not a true security like a stock or a
bond). Transactions in derivative instruments can be, but are not
necessarily, riskier than investments in conventional stocks, bonds and
money market instruments. A derivative instrument is more accurately
viewed as a way of reallocating risk among different parties or
substituting one type of risk for another. Every investment by a fund,
including an investment in conventional securities, reflects an implicit
prediction about future changes in the value of that investment. Every
fund investment also involves a risk that the portfolio manager's
expectations will be wrong. Transactions in derivative instruments often
enable a fund to take investment positions that more precisely reflect the
portfolio manager's expectations concerning the future performance of the
various investments available to the fund. Derivative instruments can be
a legitimate and often cost-effective method of accomplishing the same
investment goals as could be achieved through other investment in
conventional securities.
Derivative contracts include options, futures contracts, forward
contracts, forward commitment and when-issued securities transactions,
forward foreign currency exchange contracts and interest rate, mortgage
and currency swaps. The following are the principal risks associated with
derivative instruments.
Market risk: The instrument will decline in value or that an
alternative investment would have appreciated more, but this is no
different from the risk of investing in conventional securities.
Leverage and associated price volatility: Leverage causes increased
volatility in the price and magnifies the impact of adverse market
changes, but this risk may be consistent with the investment objective of
even a conservative fund in order to achieve an average portfolio
volatility that is within the expected range for that type of fund.
Credit risk: The issuer of the instrument may default on its
obligation to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are
traded in institutional markets rather than on an exchange. Nevertheless,
many derivative instruments are actively traded and can be priced with as
much accuracy as conventional securities. Derivative instruments that are
custom designed to meet the specialized investment needs of a relatively
narrow group of institutional investors such as the funds are not readily
marketable and are subject to a fund's restrictions on illiquid
investments.
Correlation risk: There may be imperfect correlation between the
price of the derivative and the underlying asset. For example, there may
be price disparities between the trading markets for the derivative
contract and the underlying asset.
Each derivative instrument purchased for a fund's portfolio is reviewed
and analyzed by the fund's portfolio manager to assess the risk and reward
of each such instrument in relation the fund's portfolio investment
strategy. The decision to invest in derivative instruments or
conventional securities is made by measuring the respective instrument's
ability to provide value to the fund and its shareholders.
Special Risks of Using Futures Contracts. The prices of Futures Contracts
are volatile and are influenced by, among other things, actual and
anticipated changes in interest rates, which in turn are affected by
fiscal and monetary policies and national and international political and
economic events.
At best, the correlation between changes in prices of Futures Contracts
and of the securities or currencies being hedged can be only approximate.
The degree of imperfection of correlation depends upon circumstances such
as: variations in speculative market demand for Futures and for debt
securities or currencies, including technical influences in Futures
trading; and differences between the financial instruments being hedged
and the instruments underlying the standard Futures Contracts available
for trading, with respect to interest rate levels, maturities, and
creditworthiness of issuers. A decision of whether, when, and how to
hedge involves skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or
interest rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial
loss, as well as gain, to the investor. For example, if at the time of
purchase, 10% of the value of the Futures Contract is deposited as margin,
a subsequent 10% decrease in the value of the Futures Contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease
would result in a loss equal to 150% of the original margin deposit, if
the Futures Contract were closed out. Thus, a purchase or sale of a
Futures Contract may result in losses in excess of the amount invested in
the Futures Contract. A fund, however, would presumably have sustained
comparable losses if, instead of the Futures Contract, it had invested in
the underlying financial instrument and sold it after the decline. Where
a fund enters into Futures transactions for non-hedging purposes, it will
be subject to greater risks and could sustain losses which are not offset
by gains on other fund assets.
Furthermore, in the case of a Futures Contract purchase, in order to be
certain that each fund has sufficient assets to satisfy its obligations
under a Futures Contract, the fund segregates and commits to back the
Futures Contract an amount of cash and liquid securities equal in value to
the current value of the underlying instrument less the margin deposit.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a Futures Contract may
vary either up or down from the previous day's settlement price at the end
of a trading session. Once the daily limit has been reached in a
particular type of Futures Contract, no trades may be made on that day at
a price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore does not limit potential
losses, because the limit may prevent the liquidation of unfavorable
positions. Futures Contract prices have occasionally moved to the daily
limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of Futures positions and subjecting
some Futures traders to substantial losses.
Economic and Monetary Union (EMU). EMU is scheduled to occur on January
1, 1999, when 11 European countries adopt a single currency - the euro.
For participating countries, EMU will mean sharing a single currency and
single official interest rate and adhering to agreed upon limits on
government borrowing. Budgetary decisions will remain in the hands of
each participating country, but will be subject to each country's
commitment to avoid "excessive deficits" and other more specific budgetary
criteria. A European Central Bank will be responsible for setting the
official interest rate to maintain price stability within the euro zone.
EMU is driven by the expectation of a number of economic benefits,
including lower transaction costs, reduced exchange risk, greater
competition, and a broadening and deepening of European financial markets.
However, there are a number of significant risks associated with EMU.
Monetary and economic union on this scale has never been attempted before.
There is a significant degree of uncertainty as to whether participating
countries will remain committed to EMU in the face of changing economic
conditions. This uncertainty may increase the volatility of European
markets and may adversely affect the prices of securities of European
issuers in the funds' portfolios.
Year 2000. The investment management services provided to each fund by
the Manager and the services provided to shareholders by Salomon Smith
Barney depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were
encoded and calculated. That failure could have a negative impact on a
fund's operations, including the handling of securities trades, pricing
and account services. The Manager and Salomon Smith Barney have advised
each fund that they have been reviewing all of their computer systems and
actively working on necessary changes to their systems to prepare for the
year 2000 and expect that their systems will be compliant before that
date. In addition, the Manager has been advised by the funds' custodian,
transfer agent and accounting service agent that they are also in the
process of modifying their systems with the same goal. There can,
however, be no assurance that the Manager, Salomon Smith Barney or any
other service provider will be successful, or that interaction with other
non-complying computer systems will not impair funds services at that
time.
INVESTMENT RESTRICTIONS
The Company has adopted the following restrictions and fundamental
policies that cannot be changed without approval by a "vote of a majority
of the outstanding voting securities" of each fund affected by the change
as defined in the 1940 Act and Rule 18f-2 thereunder (see "Voting").
Without the approval of a majority of its outstanding voting securities,
the Global Government Bond Portfolio may not:
1. Change its subclassification as an open-end fund.;
1. Change its subclassification as a non-diversified company;
1. Invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities
in the same industry. For purposes of this limitation,
securities of the U.S. government (including its agencies and
instrumentalities) and securities of state or municipal
governments and their political subdivisions are not
considered to be issued by members of any industry.
1. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction
shall not prevent the fund from (a) investing in securities of
issuers engaged in the real estate business or the business of
investing in real estate (including interests in limited
partnerships owning or otherwise engaging in the real estate
business or the business of investing in real estate) and
securities which are secured by real estate or interests
therein; (b) holding or selling real estate received in
connection with securities it holds or held; (c) trading in
futures contracts and options on futures contracts (including
options on currencies to the extent consistent with the
fund's' investment objective and policies); or (d) investing
in real estate investment trust securities.
1. Borrow money, except that (a) the fund may borrow from banks
for temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests which might
otherwise require the untimely disposition of securities, and
(b) the fund may, to the extent consistent with its investment
policies, enter into reverse repurchase agreements, forward
roll transactions and similar investment strategies and
techniques. To the extent that it engages in transactions
described in (a) and (b), the fund will be limited so that no
more than 33 1/3% of the value of its total assets (including
the amount borrowed), valued at the lesser of cost or market,
less liabilities (not including the amount borrowed) valued at
the time the borrowing is made, is derived from such
transactions.
1. Issue senior securities.
1. Make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the fund may invest
consistent with its investment objectives and policies; (b)
repurchase agreements; and (c) loans of its portfolio
securities, to the fullest extent permitted under the 1940
Act.
1. Engage in the business of underwriting securities issued by
other persons, except to the extent that the fund may
technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, in disposing of
portfolio securities.
1. Enter into a Futures Contract or a commodity option other than
for bona fide hedging purposes and, if, as a result thereof,
more than 5% of the fund's total assets (taken at market value
at the time of entering into the contract or commodity option)
would be committed to initial margin on futures contracts and
premiums on commodity options all within the meaning of
Regulation 4.5 of the CFTC.
In addition, the following policies have also been adopted by the Global
Government Bond Portfolio but are not fundamental and accordingly may be
changed by approval of the Board of Directors. The fund may not:
1. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and
sales of portfolio securities) or sell any securities short
(except "against the box"). For purposes of this restriction,
the deposit or payment by the fund of underlying securities
and other assets in escrow and collateral agreements with
respect to initial or maintenance margin in connection with
futures contracts and related options and options on
securities, indexes or similar items is not considered to be
the purchase of a security on margin.
1. Have more than 15% of its total assets at any time invested in
or subject to puts, calls or combinations thereof.
1. Invest in companies for the purpose of exercising control or
management.
1. Purchase or otherwise acquire any security if, as a result,
more than 15% of its net assets would be invested in
securities that are illiquid.
1. Invest in securities of another investment company except as
permitted by Section 12(d)(1)(a) of the 1940 Act, or as part
of a merger, consolidation, or acquisition.
1. Invest in securities of an issuer if the investment would
cause the fund to own more than 10% of any class of securities
of any one issuer.
1. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that
the fund may invest in, or sponsor such programs.
1. Invest more than 5% of its total assets in securities of
companies having, together with their predecessors, a record
of less than three years of continuous operation.
Without the approval of a majority of its outstanding voting securities,
the International Equity Portfolio, the Pacific Portfolio, the European
Portfolio, the International Balanced Portfolio and the Emerging Markets
Portfolio each may not:
1. With respect to each of the European Portfolio, the
International Equity Portfolio and the Pacific Portfolio,
invest in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the rules,
regulations and orders thereunder
1. With respect to each of the Emerging Markets Portfolio and the
International Balanced Portfolio, deviate from its
subclassification as a non-diversified company.
1. Invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities
in the same industry. For purposes of this limitation,
securities of the U.S. government (including its agencies and
instrumentalities) and securities of state or municipal
governments and their political subdivisions are not
considered to be issued by members of any industry.
1. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction shall
not prevent the fund from (a) investing in securities of
issuers engaged in the real estate business or the business of
investing in real estate (including interests in limited
partnerships owning or otherwise engaging in the real estate
business or the business of investing in real estate) and
securities which are secured by real estate or interests
therein; (b) holding or selling real estate received in
connection with securities it holds or held; (c) trading in
futures contracts and options on futures contracts (including
options on currencies to the extent consistent with the funds'
investment objective and policies); or (d) investing in real
estate investment trust securities.
1. With respect to each of the Emerging Markets Portfolio and the
European Portfolio, borrow money, except that (a) the fund may
borrow from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests which
might otherwise require the untimely disposition of
securities, and (b) the fund may, to the extent consistent
with its investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar investment
strategies and techniques. To the extent that it engages in
transactions described in (a) and (b), the fund will be
limited so that no more than 33 1/3% of the value of its total
assets (including the amount borrowed), valued at the lesser
of cost or market, less liabilities (not including the amount
borrowed) valued at the time the borrowing is made, is derived
from such transactions.
1. With respect to each of the International Balanced Portfolio,
the International Equity Portfolio and the Pacific Portfolio,
borrow money, except that (a) the Portfolio may borrow from
banks under certain circumstances where the fund's Manager
reasonably believes that (i) the cost of borrowing and related
expenses will be exceeded by the fund's return from
investments of the proceeds of the borrowing in portfolio
securities, or (ii) the meeting of redemption requests might
otherwise require the untimely disposition of securities, in
an amount not exceeding 33 1/3% of the value of the fund's
total assets (including the amount borrowed), valued at the
lesser of cost or market, less liabilities (not including the
amount borrowed) valued at the time the borrowing is made and
(b) the fund may, to the extent consistent with its investment
policies, enter into reverse repurchase agreements, forward
roll transactions and similar investment strategies and
techniques.
1. Make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the fund may invest
consistent with its investment objectives and policies; (b)
repurchase agreements; and (c) loans of its portfolio
securities, to the fullest extent permitted under the 1940
Act.
1. Engage in the business of underwriting securities issued by
other persons, except to the extent that the fund may
technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, in disposing of portfolio
securities.
1. Issue "senior securities" as defined in the 1940 Act and the
rules, regulations and orders thereunder, except as permitted
under the 1940 Act and the rules, regulations and orders
thereunder.
In addition, the following policies have also been adopted by the European
Portfolio, the Emerging Markets Portfolio, the International Balanced
Portfolio, the International Equity Portfolio and the Pacific Portfolio,
but are not fundamental and accordingly may be changed by approval of the
Board of Directors. The funds may not:
1. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and
sales of portfolio securities) or sell any securities short
(except "against the box"). For purposes of this restriction,
the deposit or payment by the fund of underlying securities
and other assets in escrow and collateral agreements with
respect to initial or maintenance margin in connection with
futures contracts and related options and options on
securities, indexes or similar items is not considered to be
the purchase of a security on margin.
1. Purchase interests in oil, gas and/or mineral exploration or
development programs (including mineral leases), except for
purchases of currencies and futures and options and other
related contracts as described in the Prospectus from time to
time and except for the purchase of marketable securities
issued by companies that have such interests.
1. Purchase securities of any other registered investment
company, except in connection with a merger, consolidation,
reorganization or acquisition of assets; provided, however,
that each of the funds may also purchase shares of other
investment companies pursuant to Section 12(d)(1)(A) of the
1940 Act.
1. Make investments in securities for the purpose of exercising
control over or managing the issuer.
1. Purchase securities of any issuer (including any predecessor)
which has been in operation for less than three years if
immediately after such purchase more than 5% of the value of
the total assets of the fund would be invested in such
securities.
1. Purchase or otherwise acquire any security if, as a result,
more than 15% of its net assets would be invested in
securities that are illiquid.
1. Purchase warrants if as a result the fund would then have more
than 5% of its net assets (determined at the time of
investment) invested in warrants. Warrants will be valued at
the lower of cost or market and investment in warrants which
are not listed on the New York Stock Exchange ("NYSE") or
American Stock Exchange ("AMEX") will be limited to 2% of the
fund's net assets (determined at the time of investment). For
the purpose of this limitation, warrants acquired in units or
attached to securities are deemed to be without value.
ADDITIONAL TAX INFORMATION
The following is a summary of the material federal tax considerations
affecting a fund of the Company. In addition to the considerations
described below there may be other federal, state, local or foreign tax
applications to consider. Because taxes are a complex matter, prospective
shareholders are urged to consult their tax advisors for more detailed
information with respect to the tax consequences of any investment.
General
Each fund intends to qualify, as it has in prior years, under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), for tax
treatment as a separate regulated investment company so long as such
qualification is in the best interest of its shareholders. In each
taxable year that each fund qualifies, each fund will pay no federal
income tax on its net investment income and net short-term and long-term
capital gains that are distributed to shareholders in compliance with the
Code's timing and other requirements.
To so qualify, a fund must, among other things, (i) derive at least 90% of
its gross income in each taxable year from dividends, interest, proceeds
from loans of stock and securities, gains from the sale or other
disposition of stock, securities or foreign currency, or certain other
income (including but not limited to gains from options, Futures and
forward contracts) derived from its business of investing in stock,
securities or currency; and (ii) diversify its holdings so that, at the
end of each quarter of its taxable year, the following two conditions are
met: (a) at least 50% of the market value of the fund's total assets is
represented by cash, U.S. Government securities, securities of other
regulated investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of the fund's assets and not more than 10% of the outstanding
voting securities of such issuer; and (b) not more than 25% of the value
of the fund's assets is invested in securities of any one issuer (other
than U.S. Government securities or securities of other regulated
investment companies) or two or more issuers controlled by the fund and
engaged in the same, similar or related trades or businesses. The
diversification requirements described above may limit the fund's ability
to engage in hedging transactions by writing or buying options or by
entering into Futures or forward contracts.
Foreign currency gains that are not directly related to a fund's principal
business of investing in stock or securities, or options or forward
contracts thereon, might be excluded by regulations from income that
counts toward the 90% gross income requirement described above.
As a regulated investment company, each fund will not be subject to U.S.
federal income tax on net investment income and net short-term and long-
term capital gains distributed to shareholders if, as is intended, the
fund distributes at least 90% of its net ordinary income and any excess of
its net short-term capital gain over its net long-term capital loss to the
fund's shareholders for each taxable year of the fund.
Each fund, however, will generally be subject to a nondeductible federal
excise tax of 4% to the extent that it does not meet certain minimum
distribution requirements as of the end of each calendar year. Each fund
intends to make timely distributions of its income (including any net
capital gains) in compliance with these requirements. As a result, it is
anticipated that each fund will not be subject to the excise tax.
For federal income tax purposes, dividends declared by each fund in
October, November or December as of a record date in such month and which
are actually paid in January of the following year will be treated as if
they were paid on December 31. These dividends will be taxable to
shareholders in the year declared, and not in the year in which
shareholders actually receive the dividend.
Gains or losses that a fund recognizes upon the sale or other disposition
of stock or securities will be treated as long-term capital gains or
losses if the securities have been held by it for more than one year,
except in certain cases where the fund sells the stock or security short
or acquires a put or writes a call thereon or it is otherwise subject to
the straddle rules described below. Other gains or losses on the sale of
stock or securities will be short-term capital gains or losses. Gains and
losses on the sale, lapse or other termination of options on stock or
securities will generally be treated as gains and losses from the sale of
stock or securities but may in some cases be subject to the mark-to-market
rules described below. If an option written for a fund lapses or is
terminated through a closing transaction the fund may realize a short-term
capital gain or loss, depending on whether the premium income is greater
or less than the amount paid in the closing transaction and subject to
possible recharacterization for certain listed nonequity options under the
"60/40 rule" described below. If a fund sells stock or securities
pursuant to the exercise of a call option written by it, the fund will add
the premium received to the sale price of the stock or securities
delivered in determining the amount of gain or loss on the sale.
Under the Code, gains or losses attributable to foreign currency forward
contracts or certain foreign currency options or futures contracts, or to
fluctuations in exchange rates between the time a fund accrues income or
receivables or expenses or other liabilities denominated in a foreign
currency and the time the fund actually collects such income or pays such
liabilities, are treated as ordinary income or ordinary loss. Similarly,
gains or losses on the disposition of debt securities held by the fund
denominated in foreign currency, to the extent attributable to
fluctuations in exchange rates between the acquisition and disposition
dates, are also treated as ordinary income or loss.
Forward currency contracts, options and Futures contracts entered into by
a fund may create "straddles" for federal income tax purposes and this may
affect the character and timing of gains or losses realized by the fund on
such contracts or options or on the underlying securities and therefore
affect the fund's distributions.
Certain options, Futures and foreign currency contracts held by a fund at
the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes; that is, treated as having been sold at
market value. Generally, sixty percent of any capital gain or loss
recognized on these deemed sales and on actual dispositions will be
treated as long-term capital gain or loss, and 40% will be treated as
short-term capital gain or loss (the "60/40 rule"), regardless of how long
the fund has held such options or contracts. Certain of these gains or
losses that relate to some currency-related futures, options, or forwards
will be recharacterized as ordinary income or loss. Constructive sale
rules may also require the recognition of gains (but not losses) if a fund
engages in short sales or certain other transactions.
If a fund purchases shares in certain foreign investment entities,
referred to as "passive foreign investment companies," the fund itself may
be subject to U.S. federal income tax and an additional charge in the
nature of interest on a portion of any "excess distribution" from such
company or gain from the disposition of such shares, even if the
distribution or gain is distributed by the fund to its shareholders in a
manner that satisfies the requirements described above. If the fund were
able and elected to treat a passive foreign investment company as a
"qualified electing fund," in lieu of the treatment described above, the
fund would be required each year to include in income, and distribute to
shareholders in accordance with the distribution requirements described
above, the fund's pro rata share of the ordinary earnings and net capital
gains of the company, whether or not actually received by the fund. The
funds generally should be able to make an alternative election to mark
these investments to market annually, resulting in the recognition of
ordinary income (rather than capital gain) or ordinary loss, subject to
limitations on the ability to use any such loss.
A fund may be required to treat amounts as taxable income or gain, subject
to the distribution requirements referred to above, even though no
corresponding amounts of cash are received concurrently, as a result of
(1) mark to market, constructive sale or other rules applicable to passive
foreign investment companies or partnerships in which the fund invests or
to certain options, futures, forward contracts, or "appreciated financial
positions" or (2) the inability to obtain cash distributions or other
amounts due to currency controls or restrictions on repatriation imposed
by a foreign country with respect to the fund's investments in issuers in
such country or (3) tax rules applicable to debt obligations acquired with
"original issue discount," including zero-coupon or deferred payment bonds
and pay-in-kind debt obligations, or to market discount if an election is
made with respect to such market discount. The fund may therefore be
required to obtain cash to be used to satisfy these distribution
requirements by selling portfolio securities at times that it might not
otherwise be desirable to do so or borrowing the necessary cash, thereby
incurring interest expenses.
Income (including, in some cases, capital gains) received by a fund from
sources within foreign countries may be subject to withholding and other
taxes imposed by such countries. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes. It is impossible
to determine the rate of foreign tax in advance since the amount of the
fund's assets to be invested in various countries is not known. Such
foreign taxes would reduce the income of the fund distributed to
shareholders.
If, at the end of a fund's taxable year, more than 50% of the value of
that fund's total assets consist of stock or securities of foreign
corporations, the fund may make an election pursuant to which qualified
foreign income taxes paid by it will be treated as paid directly by its
shareholders. A fund will make this election only if it deems the election
to be in the best interests of shareholders, and will notify shareholders
in writing each year if it makes the election and the amount of foreign
taxes to be treated as paid by the shareholders. If a fund makes such an
election, the amount of such qualified foreign taxes would be included in
the income of shareholders, and a shareholder other than a foreign
corporation or non-resident alien individual could claim either a credit,
provided that certain holding period requirements are satisfied, or,
provided the shareholder itemizes deductions, a deduction for U.S. federal
income tax purposes for such foreign taxes. Tax-exempt shareholders
generally will not be able to use any credit or deduction. Shareholders
who choose to utilize a credit (rather than a deduction) for foreign taxes
will be subject to the limitation that the credit may not exceed the
shareholders' U.S. tax (determined without regard to the availability of
the credit) attributable to their total foreign source taxable income. For
this purpose, the portion of dividends and distributions paid by the fund
from its foreign source ordinary income will be treated as foreign source
income. The fund's gains and losses from the sale of securities and from
certain foreign currency gains and losses will generally be treated as
derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source ''passive income,'' such as the
portion of dividends received from the fund that qualifies as foreign
source income. In addition, the foreign tax credit is allowed to offset
only 90% of the alternative minimum tax imposed on corporations and
individuals. Because of these limitations, shareholders may be unable to
claim a credit for the full amount of their proportionate share of the
qualified foreign income taxes paid by a fund.
Prior to investing in shares of the fund, investors should consult with
their tax advisors concerning the federal, state and local tax
consequences of such an investment.
Distributions
If the net asset value of shares of a fund is reduced below a
shareholder's cost as a result of distribution by the fund, such
distribution will be taxable even though it represents a return of
invested capital.
Dividends from net investment income and distributions of realized short-
term capital gains, whether paid in cash or automatically invested in
additional shares of the fund, are taxable to shareholders as ordinary
income. The funds' dividends will not qualify for the dividends received
deduction for corporations. Dividends and distributions by the funds may
also be subject to state and local taxes. Distributions out of net long-
term capital gains (i.e., net long-term capital gain in excess of net
short-term capital loss) are taxable to shareholders as long-term capital
gains. Information as to the tax status of dividends paid or deemed paid
in each calendar year will be mailed to shareholders as early in the
succeeding year as practical but not later than January 31.
The Company is required to withhold and remit to the U.S. Treasury 31% of
dividends, distributions and redemption proceeds to shareholders who fail
to provide a correct taxpayer identification number (the Social Security
number in the case of an individual) or to make the required
certifications, or who have been notified by the Internal Revenue Service
that they are subject to backup withholding and who are not otherwise
exempt. The 31% withholding tax is not an additional tax, but is
creditable against a shareholder's federal income tax liability.
Distributions to nonresident aliens and foreign entities may also be
subject to other withholding taxes.
Redemption of Shares
Any gain or loss realized on the redemption or exchange of fund shares by
a shareholder who is not a dealer in securities will be treated as long-
term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss, provided in each
case that the transaction is properly treated as a sale rather than a
dividend for tax purposes.
However, any loss realized by such a shareholder upon the redemption or
exchange of fund shares held six months or less will be treated as long-
term capital loss to the extent of any long-term capital gain
distributions received by the shareholder with respect to such shares.
Additionally, any loss realized on a redemption or exchange of fund shares
will be disallowed to the extent the shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days
after such disposition, such as pursuant to reinvestment of dividends in
fund shares.
In determining gain or loss, a shareholder who redeems or exchanges shares
in a fund within 90 days of the acquisition of such shares will not be
entitled to include in tax basis the sales charges incurred in acquiring
such shares to the extent of any subsequent reduction in sales charges due
to any reinvestment right for investing in the same fund or a different
fund, such as pursuant to the rights discussed in ''Exchange Privilege.''
IRA AND OTHER PROTOTYPE RETIREMENT PLANS
Copies of the following plans with custody or trust agreements have been
approved by the Internal Revenue Service and are available from the
Company or Salomon Smith Barney; investors should consult with their own
tax or retirement planning advisors prior to the establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension - IRA
The Small Business Job Protection Act of 1996 changed the eligibility
requirements for participants in Individual Retirement Accounts ("IRAs").
Under these new provisions, if you or your spouse have earned income, each
of you may establish an IRA and make maximum annual contributions equal to
the lesser of earned income or $2,000. As a result of this legislation,
married couples where one spouse is non-working may now contribute a total
of $4,000 annually to their IRAs.
The Taxpayer Relief Act of 1997 has changed the requirements for
determining whether or not you are eligible to make a deductible IRA
contribution. Under the new rules effective beginning January 1, 1998, if
you are considered an active participant in an employer-sponsored
retirement plan, you may still be eligible for a full or partial deduction
depending upon your combined adjusted gross income ("AGI"). For married
couples filing jointly for 1998, a full deduction is permitted if your
combined AGI is $50,000 or less ($30,000 for unmarried individuals); a
partial deduction will be allowed when AGI is between $50,000-$60,000
($30,000-$40,000 for an unmarried individual); and no deduction when AGI
is above $60,000 ($40,000 for an unmarried individual). However, if you
are married and your spouse is covered by a employer-sponsored retirement
plan, but you are not, you will be eligible for a full deduction if your
combined AGI is $150,000 or less. A partial deduction is permitted if
your combined AGI is between $150,000-$160,000 and no deduction is
permitted after $160,000.
The rules applicable to so-called "Roth IRAs" differ from those described
above.
A Rollover IRA is available to defer taxes on lump sum payments and other
qualifying rollover amounts (no maximum) received from another retirement
plan.
An employer who has established a Simplified Employee Pension - IRA ("SEP-
IRA") on behalf of eligible employees may make a maximum annual
contribution to each participant's account of 15% (up to $24,000) of each
participant's compensation. Compensation is capped at $160,000 for 1998.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and non-corporate
entities may purchase shares of the Company through the Salomon Smith
Barney Prototype Paired Defined Contribution Plan (the "Prototype"). The
Prototype permits adoption of profit-sharing provisions, money purchase
pension provisions, or both, to provide benefits for eligible employees
and their beneficiaries. The Prototype provides for a maximum annual tax
deductible contribution on behalf of each Participant of up to 25% of
compensation, but not to exceed $30,000 (provided that a money purchase
pension plan or both a profit-sharing plan and a money purchase pension
plan are adopted thereunder).
PERFORMANCE INFORMATION
From time to time the Company may advertise a fund's total return, average
annual total return and yield in advertisements. In addition, in other
types of sales literature the Company may include a fund's current
dividend return. These figures are based on historical earnings and are
not intended to indicate future performance. The total return shows what
an investment in the fund would have earned over a specified period of
time (one, five or ten years) assuming the payment of the maximum sales
load when the investment was first made and that all distributions and
dividends by the fund were invested on the reinvestment dates during the
period, less all recurring fees. The average annual total return is
derived from this total return, which provides the ending redeemable
value. The Company may also quote the fund's total return for present
shareholders that eliminates the sales charge on the initial investment.
The following chart reflects the financial performance of the funds
through the period ended October 31, 1998 for the one, and five year
periods and since inception:
Average Annual Total Returns
SEC Returns
5 Year
5 Year
Since Inception
Name of fund
Class
1 Year
Annualized
Cumulative
Annualized
Cumulative
International
Equity1
inception: 11-22-91
inception: 11-7-94
inception: 1-4-93
inception: 6-16-94
inception: 11-7-94
A
B
L
Y
Z
%
%
%
%
%
%
- --
- --
- --
- --
%
- --
%*
%
%
%
%
%*
%
%
%
%
Global Government
Bond
inception: 7-22-91
inception: 11-18-94
inception: 1-4-93
inception: 2-19-93
A
B
L
Y
%
%
%
%
%
- --
- --
- --
%
- --
- --
- --
%
%
%
%
%
%
%
%
International
Balanced
inception: 8-25-94
inception: 11-7-94
inception: 8-25-94
inception: 2-7-96
A
B
L
Y
%
%
%
%
- --
- --
- --
- --
- --
- --
- --
- --
%
%
%
%
%
%
%
%
Pacific
inception: 2-7-94
inception: 11-7-94
inception: 2-11-94
A
B
L
%
%
%
- --
- --
- --
- --
- --
- --
%
%
%
%
%
%
European
inception: 2-7-94
inception: 11-7-94
inception: 2-14-94
A
B
L
%
%
%
- --
- --
- --
- --
- --
- --
%
%
%
%
%
%
Emerging Markets
inception: 5-12-95
inception: 5-12-95
inception: 5-12-95
A
B
L
%
%
%
- --
- --
- --
- --
- --
- --
%
%
%
%
%
%
1 The International Equity Portfolio's performance record includes the
performance of the Fenimore International Fund through November 22, 1991.
The shareholders of the Fenimore International Fund approved a
reorganization with the fund at their October 31, 1991 shareholder's
meeting. As a result, all shares of the Fenimore International Fund were
exchanged at the close of business on November 22, 1991 for shares of the
fund. Prior to November 22, 1991 the fund had not made an offering of its
shares.
*These numbers represent the financial performance for the ten-year period
ended October 31, 1998.
Note that, (i) prior to June 12, 1998, Class L shares were called Class C
shares; (ii) prior to November 7, 1994, Class C shares were called Class B
shares; and (iii) prior to November 7, 1994, Class Y shares of Global
Government Bond Portfolio were called Class C shares. Note further, that
effective October 3, 1994, with respect to the International Equity,
International Balanced, European and Pacific Portfolios, Class C shares of
each such fund were reclassified as additional Class A shares.
The Global Government Bond Portfolio's yield is computed by dividing the
net investment income per share earned during a specified thirty day
period by the maximum offering price per share on the last day of such
period and analyzing the result. For purposes of the yield calculation,
interest income is determined based on a yield to maturity percentage for
each long-term debt obligation in the portfolio; income on short-term
obligations is based on current payment rate.
The Company calculates current dividend return for each fund by dividing
the dividends from investment income declared during the most recent
twelve months by the net asset value or the maximum public offering price
(including sales charge) on the last day of the period for which current
dividend return is presented. From time to time, the Company may include
the fund's current dividend return in information furnished to present or
prospective shareholders and in advertisements.
Each fund's current dividend return may vary from time to time depending
on market conditions, the composition of its investment portfolio and
operating expenses. These factors and possible differences in the methods
used in calculating current dividend return should be considered when
comparing the fund's current dividend return to yields published for other
investment companies and other investment vehicles. Current dividend
return should also be considered relative to changes in the value of the
fund's shares and to the risks associated with the fund's investment
objective and policies. For example, in comparing current dividend
returns with those offered by Certificates of Deposit ("CDs"), it should
be noted that CDs are insured (up to $100,000) and offer a fixed rate of
return.
Standard total return information may also be accompanied with nonstandard
total return information for differing periods computed in the same manner
but without annualizing the total return or taking sales charges into
account. Each fund calculates current dividend return for each Class by
dividing the current dividend by the net asset value or the maximum public
offering price (including sales charge) on the last day of the period for
which current dividend return is presented. The current dividend return
for each Class may vary from time to time depending on market conditions,
the composition of its investment portfolio and operating expenses. These
factors and possible differences in the methods used in calculating
current dividend return should be considered when comparing a Class'
current return to yields published for other investment companies and
other investment vehicles.
Performance information may be useful in evaluating a fund and for
providing a basis for comparison with other financial alternatives. Since
the performance of the fund changes in response to fluctuations in market
conditions, interest rates and fund expenses, no performance quotation
should be considered a representation as to the fund's performance for any
future period.
A fund may from time to time compare its investment results with the
following:
(1) Various Salomon Smith Barney World Bond Indices and J.P. Morgan
Global Bond Indices, which measure the total return performance of
high-quality securities in major sectors of the worldwide bond
markets.
(2) The Lehman Brothers Government/Corporate Bond Index, which is a
comprehensive measure of all public obligations of the U.S. Treasury
(excluding flower bonds and foreign targeted issues), all publicly
issued debt of agencies of the U.S. Government (excluding mortgage-
backed securities), and all public, fixed-rate, non-convertible
investment grade domestic corporate debt rated at least Baa by
Moody's Investors Service ("Moody's") or BBB by Standard and Poor's
Ratings Group ("S&P"), or, in the case of nonrated bonds, BBB by
Fitch Investors Service (excluding Collateralized Mortgage
Obligations), or other similar indices.
(3) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on
figures supplied by the U.S. League of Savings Institutions).
Savings accounts offer a guaranteed rate of return on principal, but
no opportunity for capital growth. During a portion of the period,
the maximum rates paid on some savings deposits were fixed by law.
(4) The Consumer Price Index, which is a measure of the average
change in prices over time in a fixed market basket of goods and
services (e.g., food, clothing, shelter, fuels, transportation
fares, charges for doctors' and dentists' services, prescription
medicines, and other goods and services that people buy for day-to-
day living).
(5) Data and mutual fund rankings published or prepared by Lipper
Analytical Services, Inc., which ranks mutual funds by overall
performance, investment objectives and assets.
(6) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(7) Standard & Poor's 500 Index ("S&P 500") which is a widely
recognized index composed of the capitalization-weighted average of
the price of 500 of the largest publicly traded stocks in the U.S.
(8) Smith Barney Broad Investment Grade Bond Index which is a widely
used index composed of U.S. domestic government, corporate and
mortgage-back fixed income securities.
(9) Dow Jones Industrial Average which is a price-weighted average
of 30 actively traded stocks of highly reputable companies prepared
by Dow Jones & Co.
(10) Financial News Composite Index.
(11) Morgan Stanley Capital International World Indices, including,
among others, the Morgan Stanley Capital International Europe,
Australia, Far East Index ("EAFE Index"). The EAFE Index is an
unmanaged index of more than 800 companies of Europe, Australia and
the Far East.
(12) Data and comparative performance rankings published or
prepared by CDA Investment Technologies, Inc.
(13) Data and comparative performance rankings published or
prepared by Wiesenberger Investment Company Service.
Indices prepared by the research departments of such financial
organizations as Salomon Smith Barney, Inc., Merrill Lynch, Bear Stearns &
Co., Inc., Morgan Stanley, and Ibbottson Associates may be used, as well
as information provided by the Federal Reserve Board. In addition,
performance rankings and ratings reported periodically in national
financial publications, including but not limited to Money Magazine,
Forbes, Business Week, The Wall Street Journal and Barron's may also be
used. Each fund may also include comparative performance information in
advertising or marketing its shares. Such performance information may
include data from Lipper Analytical Services, Inc., Morningstar, Inc. and
other financial publications.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each fund normally is determined as of
the close of regular trading on the NYSE on each day that the NYSE is
open, by dividing the value of the fund's net assets attributable to each
Class by the total number of shares of the Class outstanding. If the NYSE
closes early, the fund accelerates the calculation of its net asset value
to the actual closing time. The NYSE is closed for the following
holidays: New Year's Day, Martin Luther King Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Securities for which market quotations are readily available are valued at
current market value or, in their absence, at fair value. Securities
traded on an exchange are valued at last sales prices on the principal
exchange on which each such security is traded, or if there were no sales
on that exchange on the valuation date, the last quoted sale, up to the
time of valuation, on the other exchanges. If instead there were no sales
on the valuation date with respect to these securities, such securities
are valued at the mean of the latest published closing bid and asked
prices. Over-the-counter securities are valued at last sales price or, if
there were no sales that day, at the mean between the bid and asked
prices. Options, futures contracts and options thereon that are traded on
exchanges are also valued at last sales prices as of the close of the
principal exchange on which each is listed or if there were no such sales
on the valuation date, the last quoted sale, up to the time of valuation,
on the other exchanges. In the absence of any sales on the valuation date,
valuation shall be the mean of the latest closing bid and asked prices.
Securities with a remaining maturity of 60 days or less are valued at
amortized cost where the Board of Directors has determined that amortized
cost is fair value. Premiums received on the sale of call options will be
included in the fund's net assets, and current market value of such
options sold by the fund will be subtracted from the fund's net assets.
Any other investments of the fund, including restricted securities and
listed securities for which there is a thin market or that trade
infrequently (i.e., securities for which prices are not readily
available), are valued at a fair value determined by the Board of
Directors in good faith. This value generally is determined as the amount
that the fund could reasonably expect to receive from an orderly
disposition of these assets over a reasonable period of time but in no
event more than seven days. The value of any security or commodity
denominated in a currency other than U.S. dollars will be converted into
U.S. dollars at the prevailing market rate as determined by the Manager.
Foreign securities trading may not take place on all days on which the
NYSE is open. Further, trading takes place in various foreign markets on
days on which the NYSE is not open. Accordingly, the determination of the
net asset value of the fund may not take place contemporaneously with the
determination of the prices of investments held by such fund. Events
affecting the values of investments that occur between the time their
prices are determined and 4:00 P.M. on each day that the NYSE is open will
not be reflected in the fund's net asset value unless the Manager, under
the supervision of the Company's Board of Directors, determines that the
particular event would materially affect net asset value. As a result, a
fund's net asset value may be significantly affected by such trading on
days when a shareholder has no access to that fund.
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
Purchase of Shares
General. Each fund offers four Classes of shares, except for
International Equity Portfolio, which offers five classes. Class A and
Class L shares are sold to investors with an initial sales charge. Class
B shares are sold without an initial sales charge but are subject to a
CDSC payable upon certain redemptions. Class L shares are also subject to
a CDSC payable upon certain redemptions. Class Y shares are sold without
an initial sales charge or CDSC and are available only to investors
investing a minimum of $15,000,000 (except for purchases of Class Y shares
of (i) International Equity Portfolio - $5 million minimum initial
investment and (ii) Smith Barney Concert Allocation Series Inc., for which
there is no minimum purchase amount). See the applicable Prospectus for a
discussion of factors to consider in selecting which Class of shares to
purchase. Class Z shares (of International Equity Portfolio only) are
offered exclusively to tax-exempt employee benefit and retirement plans of
Salomon Smith Barney and its affiliates. Information regarding how to
purchase, sell and exchange Class Z shares is contained in the Class Z
shares prospectus.
Purchases of shares of a fund must be made through a brokerage account
maintained with Salomon Smith Barney, an Introducing Broker or an
investment dealer in the selling group. In addition, certain investors,
including qualified retirement plans and certain other institutional
investors, may purchase shares directly from the Company through the
transfer agent. When purchasing shares of a fund, investors must specify
whether the purchase is for Class A, Class B, Class L or Class Y shares.
Salomon Smith Barney and other broker/dealers may charge their customers
an annual account maintenance fee in connection with a brokerage account
through which an investor purchases or holds shares. Accounts held
directly at the transfer agent are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account by
making an initial investment of at least $1,000 for each account, or $250
for an IRA or a Self-Employed Retirement Plan, in a fund. Investors in
Class Y shares may open an account by making an initial investment of
$15,000,000 (for International Equity Fund, $5,000,000). Subsequent
investments of at least $50 may be made for all Classes. For participants
in retirement plans qualified under Section 403(b)(7) or Section 401(a) of
the Code, the minimum initial and subsequent investment requirement for
Class A, Class B and Class L shares and the subsequent investment
requirement for all Classes in a fund is $25. For shareholders purchasing
shares of a fund through the Systematic Investment Plan on a monthly
basis, the minimum initial investment requirement for Class A, Class B and
Class L shares and the subsequent investment requirement for all Classes
is $25. For shareholders purchasing shares of a fund through the
Systematic Investment Plan on a quarterly basis, the minimum initial
investment requirement for Class A, Class B and Class L shares and the
subsequent investment requirement for all Classes is $50. There are no
minimum investment requirements in Class A shares for employees of
Travelers and its subsidiaries, including Salomon Smith Barney, Directors
or Trustees of any of the Smith Barney Mutual Funds, and their spouses and
children. The Company reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the offering of
shares from time to time. Shares purchased will be held in the
shareholder's account by the transfer agent. Share certificates are issued
only upon a shareholder's written request to the transfer agent.
Purchase orders received by the Company or Salomon Smith Barney prior to
the close of regular trading on the NYSE, on any day the funds calculate
their net asset values, are priced according to the net asset value
determined on that day (the ''trade date''). Orders received by dealers
or Introducing Brokers prior to the close of regular trading on the NYSE
on any day the funds calculate their net asset values, are priced
according to the net asset value determined on that day, provided the
order is received by the Company's agent prior to he agent's close of
business. For shares purchased through Salomon Smith Barney and
Introducing Brokers purchasing through Salomon Smith Barney, payment for
shares of a fund is due on the third business day after the trade date. In
all other cases, payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make additions to their
accounts at any time by purchasing shares through a service known as the
Systematic Investment Plan. Under the Systematic Investment Plan, Salomon
Smith Barney or the transfer agent is authorized through preauthorized
transfers of at least $25 on a monthly basis or at least $50 on a
quarterly basis to charge the regular bank account or other financial
institution indicated by the shareholder, to provide systematic additions
to the shareholder's fund account. A shareholder who has insufficient
funds to complete the transfer will be charged a fee of up to $25 by
Salomon Smith Barney or the transfer agent. The Systematic Investment
Plan also authorizes Salomon Smith Barney to apply cash held in the
shareholder's Salomon Smith Barney brokerage account or redeem the
shareholder's shares of a Smith Barney money market fund to make additions
to the account. Additional information is available from the Company or a
Salomon Smith Barney Financial Consultant.
Initial Sales Charge Alternative - Class A Shares. The sales charges
applicable to purchases of Class A shares of a fund are as follows:
Global Government Bond Portfolio
All other funds
Amount of
Investment
Sales Charge as
% of
Offering Price
Sales Charge as
% of Amount
Invested
Sales Charge as
% of
Offering Price
Sales Charge as
% of Amount
Invested
Less than
$25,000
4.50%
4.71%
5.00%
5.26%
$ 25,000 -
49,999
4.00
4.17
4.00
4.17
50,000 - 99,999
3.50
3.63
3.50
3.63
100,000 -
249,999
2.50
2.56
3.00
3.09
250,000 -
499,999
1.50
1.52
2.00
2.04
500,000 and
over
- -0-
- -0-
- -0-
- -0-
* Purchases of Class A shares of $500,000 or more will be made at net
asset value without any initial sales charge, but will be subject to
a CDSC of 1.00% on redemptions made within 12 months of purchase.
The CDSC on Class A shares is payable to Salomon Smith Barney, which
compensates Salomon Smith Barney Financial Consultants and other
dealers whose clients make purchases of $500,000 or more. The CDSC
is waived in the same circumstances in which the CDSC applicable to
Class B and Class L shares is waived. See ''Deferred Sales Charge
Alternatives'' and ''Waivers of CDSC.''
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of a fund as defined in the 1933 Act.
The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the fund made at one time by ''any person,'' which
includes an individual and his or her immediate family, or a trustee or
other fiduciary of a single trust estate or single fiduciary account.
Initial Sales Charge Alternative - Class L Shares. For purchases of
Class L shares, there is a sales charge of 1% of the offering price (1.01%
of the net amount invested).
Initial Sales Charge Waivers for Class A Shares. Purchases of Class A
shares may be made at net asset value without a sales charge in the
following circumstances: (a) sales to (i) Board Members and employees of
Travelers and its subsidiaries and any of the Smith Barney Mutual Funds
(including retired Board Members and employees); the immediate families of
such persons (including the surviving spouse of a deceased Board Member or
employee); and to a pension, profit-sharing or other benefit plan for such
persons and (ii) employees of members of the National Association of
Securities Dealers, Inc., provided such sales are made upon the assurance
of the purchaser that the purchase is made for investment purposes and
that the securities will not be resold except through redemption or
repurchase; (b) offers of Class A shares to any other investment company
to effect the combination of such company with a fund by merger,
acquisition of assets or otherwise; (c) purchases of Class A shares by any
client of a newly employed Salomon Smith Barney Financial Consultant (for
a period up to 90 days from the commencement of the Financial Consultant's
employment with Salomon Smith Barney), on the condition the purchase of
Class A shares is made with the proceeds of the redemption of shares of a
mutual fund which (i) was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the Financial Consultant and
(iii) was subject to a sales charge; (d) purchases by shareholders who
have redeemed Class A shares in the fund (or Class A shares of another
fund of the Smith Barney Mutual Funds that are offered with a sales
charge) and who wish to reinvest their redemption proceeds in the same
fund, provided the reinvestment is made within 60 calendar days of the
redemption; (e) purchases by accounts managed by registered investment
advisory subsidiaries of Travelers; (f) direct rollovers by plan
participants of distributions from a 401(k) plan offered to employees of
Travelers or its subsidiaries or a 401(k) plan enrolled in the Salomon
Smith Barney 401(k) Program (Note: subsequent investments will be subject
to the applicable sales charge); (g) purchases by separate accounts used
to fund certain unregistered variable annuity contracts; and (h) purchases
by investors participating in a Salomon Smith Barney fee-based
arrangement. In order to obtain such discounts, the purchaser must provide
sufficient information at the time of purchase to permit verification that
the purchase would qualify for the elimination of the sales charge.
Right of Accumulation. Class A shares of a fund may be purchased by ''any
person'' (as defined above) at a reduced sales charge or at net asset
value determined by aggregating the dollar amount of the new purchase and
the total net asset value of all Class A shares of the fund and of funds
sponsored by Salomon Smith Barney, which are offered with a sales charge,
listed under ''Exchange Privilege'' then held by such person and applying
the sales charge applicable to such aggregate. In order to obtain such
discount, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the
reduced sales charge. The right of accumulation is subject to
modification or discontinuance at any time with respect to all shares
purchased thereafter.
Letter of Intent. A Letter of Intent for amounts of $50,000 or more
provides an opportunity for an investor to obtain a reduced sales charge
by aggregating investments over a 13 month period, provided that the
investor refers to such Letter when placing orders. For purposes of a
Letter of Intent, the ''Amount of Investment'' as referred to in the
preceding sales charge table includes purchases of all Class A shares of
the funds and other funds of the Smith Barney Mutual Funds offered with a
sales charge over the 13 month period based on the total amount of
intended purchases plus the value of all Class A shares previously
purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales
charge applicable to the total amount of the investment goal. If the goal
is not achieved within the period, the investor must pay the difference
between the sales charges applicable to the purchases made and the charges
previously paid, or an appropriate number of escrowed shares will be
redeemed. Please contact a Salomon Smith Barney Financial Consultant or
the transfer agent to obtain a Letter of Intent application.
A Letter of Intent may also be used as a way for investors to meet the
minimum investment requirement for Class Y shares. For International
Equity Portfolio, investors must make an initial minimum purchase of
$1,000,000 in Class Y shares of a fund and agree to purchase a total of
$5,000,000 of Class Y shares of International Equity Fund within 6 months
from the date of the Letter. For all of the other funds, the investor
must make an initial minimum purchase of $5,000,000 in Class Y shares of a
fund and agree to purchase a total of $15,000,000 of Class Y shares of the
same fund within 13 months from the date of the Letter. If a total
investment of $15,000,000 is not made within the 13-month period, all
Class Y shares purchased to date will be transferred to Class A shares,
where they will be subject to all fees (including a service fee of 0.25%)
and expenses applicable to the fund's Class A shares, which may include a
CDSC of 1.00%. Please contact a Salomon Smith Barney Financial Consultant
or the transfer agent for further information.
Deferred Sales Charge Alternatives. CDSC Shares are sold at net asset
value next determined without an initial sales charge so that the full
amount of an investor's purchase payment may be immediately invested in a
fund. A CDSC, however, may be imposed on certain redemptions of these
shares. ''CDSC Shares'' are: (a) Class B shares; (b) Class L shares; and
(c) Class A shares that were purchased without an initial sales charge but
subject to a CDSC.
Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their net asset value at
the time of redemption. CDSC Shares that are redeemed will not be subject
to a CDSC to the extent that the value of such shares represents: (a)
capital appreciation of fund assets; (b) reinvestment of dividends or
capital gain distributions; (c) with respect to Class B shares, shares
redeemed more than five years after their purchase; or (d) with respect to
Class L shares and Class A shares that are CDSC Shares, shares redeemed
more than 12 months after their purchase.
Class L shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in
which the CDSC is imposed on Class B shares, the amount of the charge will
depend on the number of years since the shareholder made the purchase
payment from which the amount is being redeemed. Solely for purposes of
determining the number of years since a purchase payment, all purchase
payments made during a month will be aggregated and deemed to have been
made on the last day of the preceding Salomon Smith Barney statement
month. The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders, except in the case of Class
B shares held under the Salomon Smith Barney 401(k) Program, as described
below. See ''Purchase of Shares-Smith Barney 401(k) and ExecChoiceTM
Programs.''
Year Since Purchase
Payment Was Made
CDSC
Global Government Bond Fund
CDSC
All other funds
First
5.00%
4.50%
Second
4.00
4.00
Third
3.00
3.00
Fourth
2.00
2.00
Fifth
1.00
1.00
Sixth and
thereafter
0.00
0.00
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer
be subject to any distribution fees. There will also be converted at that
time such proportion of Class B Dividend Shares owned by the shareholder
as the total number of his or her Class B shares converting at the time
bears to the total number of outstanding Class B shares (other than Class
B Dividend Shares) owned by the shareholder.
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next
of shares representing the reinvestment of dividends and capital gain
distributions and finally of other shares held by the shareholder for the
longest period of time. The length of time that CDSC Shares acquired
through an exchange have been held will be calculated from the date that
the shares exchanged were initially acquired in one of the other Smith
Barney Mutual Funds, and fund shares being redeemed will be considered to
represent, as applicable, capital appreciation or dividend and capital
gain distribution reinvestments in such other funds. For Federal income
tax purposes, the amount of the CDSC will reduce the gain or increase the
loss, as the case may be, on the redemption. The amount of any CDSC will
be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares of
a fund at $10 per share for a cost of $1,000. Subsequently, the investor
acquired 5 additional shares of the fund through dividend reinvestment.
During the fifteenth month after the purchase, the investor decided to
redeem $500 of his or her investment. Assuming at the time of the
redemption the net asset value had appreciated to $12 per share, the value
of the investor's shares would be $1,260 (105 shares at $12 per share).
The CDSC would not be applied to the amount which represents appreciation
($200) and the value of the reinvested dividend shares ($60). Therefore,
$240 of the $500 redemption proceeds ($500 minus $260) would be charged at
a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
Waivers of CDSC. The CDSC will be waived on: (a) exchanges (see
''Exchange Privilege''); (b) automatic cash withdrawals in amounts equal
to or less than 1.00% per month of the value of the shareholder's shares
at the time the withdrawal plan commences (see ''Automatic Cash Withdrawal
Plan'') (provided, however, that automatic cash withdrawals in amounts
equal to or less than 2.00% per month of the value of the shareholder's
shares will be permitted for withdrawal plans that were established prior
to November 7, 1994); (c) redemptions of shares within twelve months
following the death or disability of the shareholder; (d) redemptions of
shares made in connection with qualified distributions from retirement
plans or IRAs upon the attainment of age 591/2; (e) involuntary redemptions;
and (f) redemptions of shares to effect the combination of a fund with any
other investment company by merger, acquisition of assets or otherwise. In
addition, a shareholder who has redeemed shares from other funds of the
Smith Barney Mutual Funds may, under certain circumstances, reinvest all
or part of the redemption proceeds within 60 days and receive pro rata
credit for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Salomon Smith
Barney in the case of shareholders who are also Salomon Smith Barney
clients or by the transfer agent in the case of all other shareholders) of
the shareholder's status or holdings, as the case may be.
Smith Barney 401(k) and ExecChoiceTM Programs. Investors may be eligible
to participate in the Smith Barney 401(k) Program or the Smith Barney
ExecChoiceTM Program. To the extent applicable, the same terms and
conditions, which are outlined below, are offered to all plans
participating (''Participating Plans'') in these programs.
Each fund offers to Participating Plans Class A and Class L shares as
investment alternatives under the Smith Barney 401(k) and ExecChoiceTM
Programs. Class A and Class L shares acquired through the Participating
Plans are subject to the same service and/or distribution fees as the
Class A and Class L shares acquired by other investors; however, they are
not subject to any initial sales charge or CDSC. Once a Participating Plan
has made an initial investment in a fund, all of its subsequent
investments in the fund must be in the same Class of shares, except as
otherwise described below.
Class A Shares. Class A shares of each fund are offered without any
sales charge or CDSC to any Participating Plan that purchases $1,000,000
or more of Class A shares of one or more funds of the Smith Barney Mutual
Funds.
Class L Shares. Class L shares of each fund are offered without any
sales charge or CDSC to any Participating Plan that purchases less than
$1,000,000 of Class L shares of one or more funds of the Smith Barney
Mutual Funds.
401(k) and ExecChoiceTM Plans Opened On or After June 21, 1996. If, at
the end of the fifth year after the date the Participating Plan enrolled
in the Smith Barney 401(k) Program or ExecChoiceTM Program, a Participating
Plan's total Class L holdings in all non-money market Smith Barney Mutual
Funds equal at least $1,000,000, the Participating Plan will be offered
the opportunity to exchange all of its Class L shares for Class A shares
of the funds. (For Participating Plans that were originally established
through a Salomon Smith Barney retail brokerage account, the five-year
period will be calculated from the date the retail brokerage account was
opened.) Such Participating Plans will be notified of the pending exchange
in writing within 30 days after the fifth anniversary of the enrollment
date and, unless the exchange offer has been rejected in writing, the
exchange will occur on or about the 90th day after the fifth anniversary
date. If the Participating Plan does not qualify for the five-year
exchange to Class A shares, a review of the Participating Plan's holdings
will be performed each quarter until either the Participating Plan
qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if its
total Class L holdings in all non-money market Smith Barney Mutual Funds
equal at least $500,000 as of the calendar year-end, the Participating
Plan will be offered the opportunity to exchange all of its Class L shares
for Class A shares of the same fund. Such Plans will be notified in
writing within 30 days after the last business day of the calendar year
and, unless the exchange offer has been rejected in writing, the exchange
will occur on or about the last business day of the following March.
Any Participating Plan in the Smith Barney 401(k) or ExecChoiceTM Program,
whether opened before or after June 21, 1996, that has not previously
qualified for an exchange into Class A shares will be offered the
opportunity to exchange all of its Class L shares for Class A shares of
the same fund regardless of asset size, at the end of the eighth year
after the date the Participating Plan enrolled in the Smith Barney 401(k)
or ExecChoiceTM Program. Such Plans will be notified of the pending
exchange in writing approximately 60 days before the eighth anniversary of
the enrollment date and, unless the exchange has been rejected in writing,
the exchange will occur on or about the eighth anniversary date. Once an
exchange has occurred, a Participating Plan will not be eligible to
acquire additional Class L shares, but instead may acquire Class A shares
of the same fund. Any Class L shares not converted will continue to be
subject to the distribution fee.
Participating Plans wishing to acquire shares of a fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoiceTM Program must
purchase such shares directly from the transfer agent. For further
information regarding these Programs, investors should contact a Salomon
Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares: Class B shares of
each fund are not available for purchase by Participating Plans opened on
or after June 21, 1996, but may continue to be purchased by any
Participating Plan in the Smith Barney 401(k) Program opened prior to such
date and originally investing in such Class. Class B shares acquired are
subject to a CDSC of 3.00% of redemption proceeds if the Participating
Plan terminates within eight years of the date the Participating Plan
first enrolled in the Smith Barney 401(k) Program.
At the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) Program, the Participating Plan will
be offered the opportunity to exchange all of its Class B shares for Class
A shares of the fund. Such Participating Plan will be notified of the
pending exchange in writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth
anniversary date. Once the exchange has occurred, a Participating Plan
will not be eligible to acquire additional Class B shares, but instead may
acquire Class A shares of the same fund. If the Participating Plan elects
not to exchange all of its Class B shares at that time, each Class B share
held by the Participating Plan will have the same conversion feature as
Class B shares held by other investors. See ''Purchase of Shares-Deferred
Sales Charge Alternatives.''
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net
asset value of the shares purchased through reinvestment of dividends or
capital gain distributions, plus the current net asset value of Class B
shares purchased more than eight years prior to the redemption, plus
increases in the net asset value of the shareholder's Class B shares above
the purchase payments made during the preceding eight years. Whether or
not the CDSC applies to the redemption by a Participating Plan depends on
the number of years since the Participating Plan first became enrolled in
the Smith Barney 401(k) Program, unlike the applicability of the CDSC to
redemptions by other shareholders, which depends on the number of years
since those shareholders made the purchase payment from which the amount
is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection
with lump-sum or other distributions made by a Participating Plan as a
result of: (a) the retirement of an employee in the Participating Plan;
(b) the termination of employment of an employee in the Participating
Plan; (c) the death or disability of an employee in the Participating
Plan; (d) the attainment of age 591/2 by an employee in the Participating
Plan; (e) hardship of an employee in the Participating Plan to the extent
permitted under Section 401(k) of the Code; or (f) redemptions of shares
in connection with a loan made by the Participating Plan to an employee.
Exchange Privilege
As your needs change, you may wish to reposition your investments. With
Smith Barney Mutual Funds, you have the ability to exchange your shares of
most Smith Barney mutual funds for those of others within the family.
Except as otherwise noted below, shares of each Class of each fund may be
exchanged for shares of the same Class of certain Smith Barney Mutual
Funds, to the extent shares are offered for sale in the shareholder's
state of residence. Exchanges of Class A, Class B and Class L shares are
subject to minimum investment requirements and all shares are subject to
the other requirements of the fund into which exchanges are made.
Class B Exchanges. In the event a Class B shareholder wishes to exchange
all or a portion of his or her shares in any of the funds imposing a
higher CDSC than that imposed by a fund, the exchanged Class B shares will
be subject to the higher applicable CDSC. Upon an exchange, the new Class
B shares will be deemed to have been purchased on the same date as the
Class B shares of the fund that have been exchanged.
Class L Exchanges. Upon an exchange, the new Class L shares will be
deemed to have been purchased on the same date as the Class L shares of
the fund that have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of a
fund who wish to exchange all or a portion of their shares for shares of
the respective Class in any of the funds identified above may do so
without imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to a fund's performance and its
shareholders. The Manager may determine that a pattern of frequent
exchanges is excessive and contrary to the best interests of a fund's
other shareholders. In this event, the Company may, at its discretion,
decide to limit additional purchases and/or exchanges by the shareholder.
Upon such a determination, the Company will provide notice in writing or
by telephone to the shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the shareholder will be
required to (a) redeem his or her shares in the fund or (b) remain
invested in the fund or exchange into any of the funds of the Smith Barney
Mutual Funds ordinarily available, which position the shareholder would be
expected to maintain for a significant period of time. All relevant
factors will be considered in determining what constitutes an abusive
pattern of exchanges.
Certain shareholders may be able to exchange shares by telephone. See
''Redemption of Shares-Telephone Redemptions and Exchange Program.''
Exchanges will be processed at the net asset value next determined.
Redemption procedures discussed below are also applicable for exchanging
shares, and exchanges will be made upon receipt of all supporting
documents in proper form. If the account registration of the shares of
the fund being acquired is identical to the registration of the shares of
the fund exchanged, no signature guarantee is required. An exchange
involves a taxable redemption of shares, subject to the tax treatment
described in "ADDITIONAL TAX INFORMATION" above, followed by a purchase of
shares of a different. Before exchanging shares, investors should read
the current prospectus describing the shares to be acquired. The Company
reserves the right to modify or discontinue exchange privileges upon 60
days' prior notice to shareholders.
Redemption of Shares
The Company is required to redeem the shares of a fund tendered to it, as
described below, at a redemption price equal to their net asset value per
share next determined after receipt of a written request in proper form at
no charge other than any applicable CDSC. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value next determined.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a
failure to specify which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will be delayed until the
transfer agent receives further instructions from Salomon Smith Barney, or
if the shareholder's account is not with Salomon Smith Barney, from the
shareholder directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper tender, except
on any days on which the NYSE is closed or as permitted under the 1940 Act
in extraordinary circumstances. Generally, if the redemption proceeds are
remitted to a Salomon Smith Barney brokerage account, these funds will not
be invested for the shareholder's benefit without specific instruction and
Salomon Smith Barney will benefit from the use of temporarily uninvested
funds. Redemption proceeds for shares purchased by check, other than a
certified or official bank check, will be remitted upon clearance of the
check, which may take up to ten days or more.
Shares held by Salomon Smith Barney as custodian must be redeemed by
submitting a written request to a Salomon Smith Barney Financial
Consultant. Shares other than those held by Salomon Smith Barney as
custodian may be redeemed through an investor's Financial Consultant,
Introducing Broker or dealer in the selling group or by submitting a
written request for redemption to:
Smith Barney World Funds, Inc./[name of fund]
Class A, B, L or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account
number and (c) be signed by each registered owner exactly as the shares
are registered. If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or be accompanied by
an endorsed stock power) and must be submitted to the transfer agent
together with the redemption request. Any signature appearing on a share
certificate, stock power or written redemption request in excess of $2,000
must be guaranteed by an eligible guarantor institution, such as a
domestic bank, savings and loan institution, domestic credit union, member
bank of the Federal Reserve System or member firm of a national securities
exchange. Written redemption requests of $2,000 or less do not require a
signature guarantee unless more than one such redemption request is made
in any 10-day period. Redemption proceeds will be mailed to an investor's
address of record. The transfer agent may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees or guardians. A redemption request will not be deemed properly
received until the transfer agent receives all required documents in
proper form.
Automatic Cash Withdrawal Plan. Each fund offers shareholders an
automatic cash withdrawal plan, under which shareholders who own shares
with a value of at least $10,000 may elect to receive cash payments of at
least $50 monthly or quarterly. Retirement plan accounts are eligible for
automatic cash withdrawal plans only where the shareholder is eligible to
receive qualified distributions and has an account value of at least
$5,000. The withdrawal plan will be carried over on exchanges between
funds or Classes of a fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the
value of the shareholder's shares subject to the CDSC at the time the
withdrawal plan commences. (With respect to withdrawal plans in effect
prior to November 7, 1994, any applicable CDSC will be waived on amounts
withdrawn that do not exceed 2.00% per month of the value of the
shareholder's shares subject to the CDSC.) For further information
regarding the automatic cash withdrawal plan, shareholders should contact
a Salomon Smith Barney Financial Consultant.
Telephone Redemption and Exchange Program. Shareholders who do not have a
brokerage account may be eligible to redeem and exchange shares by
telephone. To determine if a shareholder is entitled to participate in
this program, he or she should contact the transfer agent at 1-800-451-
2010. Once eligibility is confirmed, the shareholder must complete and
return a Telephone/Wire Authorization Form, along with a signature
guarantee, that will be provided by the transfer agent upon request.
(Alternatively, an investor may authorize telephone redemptions on the new
account application with the applicant's signature guarantee when making
his/her initial investment in a fund.)
Redemptions. Redemption requests of up to $10,000 of any class or
classes of shares of a fund may be made by eligible shareholders by
calling the transfer agent at 1-800-451-2010. Such requests may be made
between 9:00 a.m. and 5:00 p.m. (New York City time) on any day the NYSE
is open. Redemptions of shares (i) by retirement plans or (ii) for which
certificates have been issued are not permitted under this program.
A shareholder will have the option of having the redemption proceeds
mailed to his/her address of record or wired to a bank account
predesignated by the shareholder. Generally, redemption proceeds will be
mailed or wired, as the case may be, on the next business day following
the redemption request. In order to use the wire procedures, the bank
receiving the proceeds must be a member of the Federal Reserve System or
have a correspondent relationship with a member bank. The Company
reserves the right to charge shareholders a nominal fee for each wire
redemption. Such charges, if any, will be assessed against the
shareholder's account from which shares were redeemed. In order to change
the bank account designated to receive redemption proceeds, a shareholder
must complete a new Telephone/Wire Authorization Form and, for the
protection of the shareholder's assets, will be required to provide a
signature guarantee and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is identical
to the registration of the shares of the fund exchanged. Such exchange
requests may be made by calling the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (New York City time) on any day on which
the NYSE is open.
Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Company, a fund nor any of their agents will be
liable for following instructions communicated by telephone that are
reasonably believed to be genuine. The Company, the funds and their
agents will employ procedures designed to verify the identity of the
caller and legitimacy of instructions (for example, a shareholder's name
and account number will be required and phone calls may be recorded). The
Company reserves the right to suspend, modify or discontinue the telephone
redemption and exchange program or to impose a charge for this service at
any time following at least seven (7) days prior notice to shareholders.
Redemptions in Kind. In conformity with applicable rules of the SEC,
redemptions may be paid in portfolio securities, in cash or any
combination of both, as the Board of Directors may deem advisable;
however, payments shall be made wholly in cash unless the Board of
Directors believes that economic conditions exist that would make such a
practice detrimental to the best interests of the Company and its
remaining shareholders. If a redemption is paid in portfolio securities,
such securities will be valued in accordance with the procedures described
under "Determination of Net Asset Value" in the Prospectus and a
shareholder would incur brokerage expenses if these securities were then
converted to cash.
DIVIDENDS AND DISTRIBUTIONS
Each fund declares and pays income dividends at least annually on its
shares and makes annual distributions of capital gains, if any, on such
shares. If a shareholder does not otherwise instruct, dividends and
capital gain distributions will be reinvested automatically in additional
shares of the same Class at net asset value, subject to no initial or
deferred sales charges.
Income dividends and capital gain distributions that are invested are
credited to shareholders' accounts in additional shares at the net asset
value as of the close of business on the payment date. A shareholder may
change the option at any time by notifying his or her Salomon Smith Barney
Financial Consultant. Accounts held directly by the transfer agent should
notify the transfer agent in writing at least five business days prior to
the payment date to permit the change to be entered in the shareholder's
account.
The per share dividends on Class B and Class L shares of the fund may be
lower than the per share dividends on Class A and Class Y shares
principally as a result of the distribution fee applicable with respect to
Class B and Class L shares. The per share dividends on Class A shares of
the fund may be lower than the per share dividends on Class Y shares
principally as a result of the service fee applicable to Class A shares.
Distributions of capital gains, if any, will be in the same amount for
Class A, Class B, Class L and Class Y shares.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Manager
Mutual Management Corp. (formerly, Smith Barney Mutual Funds Management
Inc.) (the ''Manager'') serves as each fund's investment manager. The
Manager is a wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
(''Holdings''). Holdings is a wholly owned subsidiary of Travelers Group
Inc. The Manager was incorporated on March 12, 1968 under the laws of
Delaware. As of [November 30, 1998] the Manager had aggregate assets under
management of approximately [$xx billion]. The Manager, Salomon Smith
Barney and Holdings are each located at 388 Greenwich Street, New York,
New York 10013. The term ''Smith Barney'' in the title of the Company and
the funds has been adopted by permission of Salomon Smith Barney and is
subject to the right of Salomon Smith Barney to elect that the Company
stop using the term in any form or combination of its name.
The Manager manages the day-to-day operations of each fund pursuant to a
management agreement entered into by the Company on behalf of the fund
under which the Manager is responsible for furnishing or causing to be
furnished to the fund advice and assistance with respect to the
acquisition, holding or disposal of securities and recommendations with
respect to other aspects and affairs of the fund and furnishes the fund
with bookkeeping, accounting and administrative services, office space and
equipment, and the services of the officers and employees of the Company.
By written agreement the Research and other departments and staff of
Salomon Smith Barney furnish the Manager with information, advice and
assistance and are available for consultation on the fund, thus Salomon
Smith Barney may also be considered an investment adviser to the Company.
Salomon Smith Barney's services are paid for by the Manager on the basis
of direct and indirect costs to Salomon Smith Barney of performing such
services; there is no charge to the Company for such services. For the
services provided by the Manager, the management agreement provides that
each fund will pay the Manager an annual fee calculated as a percentage of
the fund's average daily net assets, paid monthly.
The Management Agreement for the Global Government Bond fund provides for
an annual fee calculated at the rate of 0.75% of the fund's average daily
net assets, paid monthly; each of the Management Agreements for the
International Equity Portfolio, the Pacific Portfolio, the European
Portfolio and the International Balanced Portfolio provides for an annual
fee calculated at the rate of 0.85% of the fund's average daily net
assets, paid monthly; and the Management Agreement for the Emerging
Markets Portfolio provides for an annual fee calculated at the rate of
1.00% of the fund's average daily net assets, paid monthly.
For the fiscal years 1996, 1997 and 1998 the management fees for each fund
were as follows:
Fund
1996
1997
1998
International Equity
$
$
$
Global Government Bond
European
Pacific
International Balanced
Emerging Markets
Each Management Agreement provides that all other expenses not
specifically assumed by the Manager under the Management Agreement on
behalf of the fund are borne by the Company. Expenses payable by the
Company include, but are not limited to, all charges of custodians
(including sums as custodian and sums for keeping books and for rendering
other services to the Company) and shareholder servicing agents, expenses
of preparing, printing and distributing all prospectuses, proxy material,
reports and notices to shareholders, all expenses of shareholders' and
directors' meetings, filing fees and expenses relating to the registration
and qualification of the Company's shares and the Company under Federal or
state securities laws and maintaining such registrations and
qualifications (including the printing of the Company's registration
statements), fees of auditors and legal counsel, costs of performing
portfolio valuations, out-of-pocket expenses of directors and fees of
directors who are not "interested persons" as defined in the Act,
interest, taxes and governmental fees, fees and commissions of every kind,
expenses of issue, repurchase or redemption of shares, insurance expense,
association membership dues, all other costs incidental to the Company's
existence and extraordinary expenses such as litigation and
indemnification expenses. Direct expenses are charged to each fund;
general corporate expenses are allocated on the basis of the relative net
assets.
The Manager also acts as investment adviser to numerous other open-end
investment companies. Salomon Smith Barney also advises profit-sharing
and pension accounts. Salomon Smith Barney and its affiliates may in the
future act as investment advisers for other accounts.
Distributor
CFBDS, 20 Milk Street, Boston, MA 02109-5408, distributes shares of each
fund as principal underwriter and as such conducts a continuous offering
pursuant to a ''best efforts'' arrangement requiring CFBDS to take and pay
for only such securities as may be sold to the public. Pursuant to a plan
of distribution adopted by each fund under Rule 12b-1 under the 1940 Act
(a ''Plan''), CFBDS is paid a service fee with respect to Class A, Class B
and Class L shares of each fund at the annual rate of 0.25% of the average
daily net assets attributable to these Classes. CFBDS is also paid a
distribution fee with respect to Class B and Class L shares at the annual
rate of 0.75% of the average daily net assets attributable to these
Classes. Class B shares that automatically convert to Class A shares
eight years after the date of original purchase will no longer be subject
to a distribution fee. The fees are used by CFBDS to pay its Financial
Consultants for servicing shareholder accounts and, in the case of Class B
and Class L shares, to cover expenses primarily intended to result in the
sale of those shares. These expenses include: advertising expenses; the
cost of printing and mailing prospectuses to potential investors; payments
to and expenses of Salomon Smith Barney Financial Consultants and other
persons who provide support services in connection with the distribution
of shares; interest and/or carrying charges; and indirect and overhead
costs of CFBDS associated with the sale of fund shares, including lease,
utility, communications and sales promotion expenses.
The payments to Salomon Smith Barney Financial Consultants for selling
shares of a Class include a commission or fee paid by the investor or
CFBDS at the time of sale and, with respect to Class A, Class B and Class
L shares, a continuing fee for servicing shareholder accounts for as long
as a shareholder remains a holder of that Class. Salomon Smith Barney
Financial Consultants may receive different levels of compensation for
selling different Classes of shares.
Payments under each Plan with respect to Class B and Class L shares are
not tied exclusively to the distribution and shareholder services expenses
actually incurred by Salomon Smith Barney and the payments may exceed
distribution expenses actually incurred. The Company's Board of Directors
will evaluate the appropriateness of each Plan and its payment terms on a
continuing basis and in so doing will consider all relevant factors,
including expenses borne by CFBDS, amounts received under the Plan and
proceeds of the CDSC.
Prior to October 8, 1998 Salomon Smith Barney served as principal
underwriter of the funds' shares under the funds' prior 12b-1 distribution
plans (the "Prior Plans"). The prior plans were substantially similar to
the Plans. For the year ended October 31, 1998, the table below
represents the fees which have been accrued and/or paid to Salomon Smith
Barney under the Prior Plans or CFBDS under the Plans pursuant to Rule
12b-1 for the funds. The distribution expenses for 1998 included
compensation of financial consultants and printing costs of prospectuses
and marketing materials. Pursuant to the Plans, CFBDS incurs the
expenses of distributing the Company's Class A, Class B and Class L
shares.
Fund
Class A
Class B
Class L
Total
International Equity
$
$
$
$
Global Government Bond
European
Pacific
International Balanced
Emerging Markets
During the fiscal years 1996 and 1997 aggregate sales commissions of
$1,438,000 and $1,613,000, respectively, were paid to Salomon Smith Barney
by the purchasers of shares. During the fiscal year 1998 aggregate sales
commissions of $___________________ were paid by the purchasers of shares
($______________ to Salomon Smith Barney and and ____________ to CFBDS).
A contingent deferred sales charge ("CDSC") may be imposed on certain
redemptions of Class A, Class B shares and Class L shares. For Class B
shares, for each of the funds, except the Global Government Bond
Portfolio, the maximum CDSC is 5.00% of redemption proceeds, declining by
1.00% each year after the date of purchase to zero. For Class B shares of
the Global Government Bond Portfolio the maximum CDSC is 4.50% of
redemption proceeds, declining by 0.50% the first year after purchase and
by 1.00% each year thereafter to zero. A CDSC of 1% is imposed on
redemptions of Class L shares. A CDSC of 1.00% is also imposed on
redemptions of Class A shares that were purchased without an initial sales
charge but subject to a CDSC if such redemptions occur within 12 months
from the date such investment was made. Any sales charge imposed on
redemptions is paid to the distributor of the shares.
CFBDS will pay for the printing, at printer's overrun cost, of
prospectuses and periodic reports after they have been prepared, set in
type and mailed to shareholders, and will also pay the cost of
distributing such copies used in connection with the offering to
prospective investors and will also pay for supplementary sales literature
and other promotional costs. Such expenses incurred by CFBDS are
distribution expenses within the meaning of the Plans and may be paid from
amounts received by CFBDS from the Company under the Plans.
Brokerage and Portfolio Transactions
The Manager is responsible for allocating the Company's brokerage. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Salomon Smith Barney. No fund will deal with
Salomon Smith Barney in any transaction in which Salomon Smith Barney acts
as principal.
The Company attempts to obtain the most favorable execution of each
portfolio transaction in the International Equity Portfolio, the Pacific
Portfolio, the European Portfolio, the International Balanced Portfolio
and the Emerging Markets Portfolio, that is, the best combination of net
price and prompt reliable execution. In the opinion of the Manager,
however, it is not possible to determine in advance that any particular
broker will actually be able to effect the most favorable execution
because, in the context of a constantly changing market, order execution
involves judgments as to price, commission rates, volume, the direction of
the market and the likelihood of future change. In making its decision as
to which broker or brokers are most likely to provide the most favorable
execution, the management of the Company takes into account the relevant
circumstances. These include, in varying degrees, the size of the order,
the importance of prompt execution, the breadth and trends of the market
in the particular security, anticipated commission rates, the broker's
familiarity with such security including its contacts with possible buyers
and sellers and its level of activity in the security, the possibility of
a block transaction and the general record of the broker for prompt,
competent and reliable service in all aspects of order processing,
execution and settlement.
Commissions are negotiated and take into account the difficulty involved
in execution of a transaction, the time it took to conclude, the extent of
the broker's commitment of its own capital, if any, and the price
received. Anticipated commission rates are an important consideration in
all trades and are weighed along with the other relevant factors affecting
order execution set forth above. In allocating brokerage among those
brokers who are believed to be capable of providing equally favorable
execution, the Company takes into consideration the fact that a particular
broker may, in addition to execution capability, provide other services to
the Company such as research and statistical information. It is not
possible to place a dollar value on such services nor does their
availability reduce the Manager's expenses in a determinable amount.
These various services may, however, be useful to the Manager or Salomon
Smith Barney in connection with its services rendered to other advisory
clients and not all such services may be used in connection with the
Company.
The Board of Directors of the Company has adopted certain policies and
procedures incorporating the standard of Rule 17e-1 issued by the SEC
under the 1940 Act which requires that the commissions paid to Salomon
Smith Barney must be "reasonable and fair compared to the commission fee
or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities
during a comparable period of time." The Rule and the policy and
procedures also contain review requirements and require the Manager to
furnish reports to the Board of Directors and to maintain records in
connection with such reviews. In all trades directed to Salomon Smith
Barney, the Company has been assured that its orders will be accorded
priority over those received from Salomon Smith Barney for its own
accounts or for any of its directors, officers or employees. The Company
will not deal with Salomon Smith Barney in any transaction in which
Salomon Smith Barney acts as principal.
In placing orders for the Global Government Bond Portfolio's transactions,
the Manager seeks to obtain the best net results. The Manager has no
agreement or commitment to place orders with any broker-dealer. Debt
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without stated commission, although the
price of the security usually includes a profit to the dealer. United
States and foreign government securities and money market instruments are
generally traded in the OTC markets. In underwritten offerings,
securities are usually purchased at a fixed price which includes an amount
of compensation to the underwriter. On occasion, securities may be
purchased directly from an issuer, in which case no commissions or
discounts are paid. Dealers may receive commissions on Futures, currency
and options transactions purchased on behalf of the fund. Commissions or
discounts in foreign securities exchanges or OTC markets typically are
fixed and generally are higher than those in U.S. securities exchanges or
OTC markets.
The Company effects transactions with a view towards attaining each fund's
investment objective, and although it is not limited by a predetermined
rate of portfolio turnover, it is expected that the annual turnover rate
for each of the International Equity Portfolio, the Global Government Bond
Portfolio, the European Portfolio, the Pacific Portfolio and the equity
portion of each of the International Balanced Portfolio and the Emerging
Markets Portfolio will not exceed 100% in normal circumstances and that
the annual turnover rate for the debt portion of each of the International
Balanced Portfolio and the Emerging Markets Portfolio will not exceed 200%
in normal circumstances. A high portfolio turnover results in
correspondingly greater transaction costs in the form of brokerage
commissions or dealer spreads that a fund will bear directly, and may
result in the realization of net capital gains, distributions of which are
taxable to shareholders.
Shown below are the total brokerage fees paid by the Company on behalf of
the International Equity Portfolio, European Portfolio, Pacific Portfolio,
International Balanced Portfolio and the Emerging Markets Portfolio during
1996, 1997 and 1998. Also shown is the portion paid to Salomon Smith
Barney and the portion paid to other brokers for the execution of orders
allocated in consideration of research and statistical services or solely
for their ability to execute the order. During fiscal year 1998, the
total amount of commissionable transactions was $___________ of which
$____________(x%) was directed to Salomon Smith Barney and executed by
unaffiliated brokers and $_____________(xx%) of which was directed to
other brokers.
Commissions
Total
To Salomon
Smith Barney
To Others
1996
$3,971,236
$31,857*
(.80%)
$3,939,379
(99.20%)
1997
3,310,496
52,098* (1.57%)
3,258,398
(98.43%)
1998
__________
____* ____%
_______
_______%
_________________
* Directed to Salomon Smith Barney and executed by unaffiliated brokers.
CUSTODIAN
Portfolio securities and cash owned by the Company are held in the custody
of The Chase Manhattan Bank, Chase Metrotech Center, Brooklyn, New York
11245.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been
selected as the Company's independent auditors to examine and report on
the financial statements and financial highlights of the Company for its
fiscal year ending October 31, 1998.
VOTING
As permitted by Maryland law, there will normally be no meetings of
shareholders for the purpose of electing directors unless and until such
time as less than a majority of the directors holding office have been
elected by shareholders. At that time, the directors then in office will
call a shareholders' meeting for the election of directors. The directors
must call a meeting of shareholders for the purpose of voting upon the
question of removal of any director when requested in writing to do so by
the record holders of not less than 10% of the outstanding shares of the
Company. At such a meeting, a director may be removed after the holders
of record of at least 75% of the outstanding shares of the Company have
declared that the director be removed either by declaration in writing or
by votes cast in person or by proxy. The Company will assist shareholders
in calling such a meeting as required by the 1940 Act. Except as set forth
above, the directors shall continue to hold office and may appoint
successor directors.
As used in the Prospectus and this Statement of Additional Information, a
"vote of a majority of the outstanding voting securities" means the
affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Company (or the affected fund or class) or (b) 67% or more
of such shares present at a meeting if more than 50% of the outstanding
shares of the Company (or the affected fund or class) are represented at
the meeting in person or by proxy.
The following table contains a list of shareholders who of record or
beneficially owned at least 5% of the outstanding shares of a particular
class of shares of a fund of the Company as of December 18, 1998.
EUROPEAN PORTFOLIO CLASS A
PERCENTAGE OF SHARES
1
David Hokin
SSB IRA Custodian
40 Skokie Blvdroad
Suite 105
Northbrook, IL 600621614
5.1517
INTERNATIONAL BALANCED PORTFOLIO CLASS L
PERCENTAGE OF SHARES
Hr Ernest H Lorch
200 East End Avenue
New York, NY 10128-7831
7.4479
PACIFIC PORTFOLIO CLASS A
PERCENTAGE OF SHARES
Glenn L. Plemmons and Sheila R. Plemmons JTTEN
4832 NW Bruno Place
Corvallis, OR 97330-2242
21.8741
Sheila R. Plemmons
SSB Spousal IRA Custodian
4832 NW Bruno Place
Corvallis, OR 97330-2242
5.4685
PACIFIC PORTFOLIO CLASS L
PERCENTAGE OF SHARES
Holly F. Greene and George C. Greene JTWROS
P.O. Box 30712
Charleston, SC 29417-0712
5.2404
GLOBAL GOVERNMENT BOND PORT CLASS A
PERCENTAGE OF SHARES
Srs. Of Providence Community
Support Trust - Intl Inv.
Generalate - Finance Office
Owens Hall
St. Mary of the W, IN 47876-1096
8.0754
Smith Barney Inc.
333 W 34th Street
New York, NY 10001
5.7036
GLOBAL GOVERNMENT BOND PORTFOLIO CLASS L
PERCENTAGE OF SHARES
Alberto N. Roca
Smith Barney Inc. Rollover Cust.
13702 Teal Shore Ct.
Houston, TX 77077-3421
5.9051
Kenneth A. Dishell
Special Acct #1
26721 Carol
Franklin. MI 48025-1722
5.4967
GLOBAL GOVERNMENT BOND PORTFOLIO CLASS Y
PERCENTAGE OF SHARES
Smith Barney
Concert Series, Inc.
Balanced Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
63.2855
Smith Barney
Concert Series, Inc.
Conservative Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
17.5281
Smith Barney
Concert Series, Inc.
Select Balanced Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
14.8431
INTERNATIONAL EQUITY PORTFOLIO CLASS Y
PERCENTAGE OF SHARES
Smith Barney
Concert Series, Inc.
Growth Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
24.2776
Smith Barney
Concert Series, Inc.
High Growth Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
18.7541
Wachovia Bank of NC NA TTEE
USAA Retirement Trust
Smith Barney International Equity
Attn: Mutual Funds MC: NC-31051
301 North Main Street
Winston-Salem, NC 27150
13.0528
Wachovia Bank of North Carolina NA
Successor Trustee U/A DRD 7-1-95
For USAA Savings & Investment Plan
Attn: Mutual Funds
301 North Main Street - MC: MC-31051
Winston-Salem, NC 27150
9.7173
5
Smith Barney
Concert Series, Inc
Balanced Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113-1522
7.5276
INTERNATIONAL EQUITY PORTFOLIO CLASS Z
PERCENTAGE OF SHARES
Citibank N A TTEE
Travelers Group Master Trust
Smith Barney 401K Savings Plan
111 Wall Street
20th Floor - Attn: N. Krowenberg
New York, NY 10043
99.9921
EMERGING MARKETS PORTFOLIO CLASS Y
PERCENTAGE OF SHARES
Smith Barney
Concert Series, Inc.
Global Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113-1522
100.00
OTHER INFORMATION ABOUT THE COMPANY
General. The Company, an open-end investment company, was incorporated in
Maryland on March 22, 1991. The Company has an authorized capital of
1,000,000,000 shares with a par value of $.001 per share. The Board of
Directors has authorized the issuance of six series of shares, each
representing shares in one of six separate funds and may authorize the
issuance of additional series of shares in the future. The assets of each
fund are segregated and separately managed and a shareholder's interest is
in the assets of the fund in which he or she holds shares. Class A, Class
B, Class L, Class Y shares of a fund (and Class Z shares of International
Equity Fund) represent interests in the assets of the fund and have
identical voting, dividend, liquidation and other rights on the same terms
and conditions except that expenses related to the distribution of each
Class of shares are borne solely by each Class and each Class of shares
has exclusive voting rights with respect to provisions of the Fund's Rule
12b-1 distribution plan which pertain to a particular Class.
Shareholder Meetings. As described under ''Voting,'' the Company
ordinarily will not hold meetings of shareholders annually; however,
shareholders have the right to call a meeting upon a vote of 10% of the
Company's outstanding shares for the purpose of voting to remove
directors, and the Company will assist shareholders in calling such a
meeting as required by the 1940 Act. Shares do not have cumulative voting
rights or preemptive rights and are fully paid, transferable and
nonassessable when issued for payment as described in this Prospectus.
Minimum Account Size. The Company reserves the right to involuntarily
liquidate any shareholder's account in the fund if the aggregate net asset
value of the shares held in the fund account is less than $500. (If a
shareholder has more than one account in this fund, each account must
satisfy the minimum account size.) The Company, however, will not redeem
shares based solely on market reductions in net asset value. Before the
Company exercises such right, shareholders will receive written notice and
will be permitted 60 days to bring accounts up to the minimum to avoid
involuntary liquidation.
Transfer Agent. The funds' transfer agent is First Data Investors'
Services, located at Exchange Place, Boston, Massachusetts 02109, serves
as the Company's transfer agent.
Annual and Semi-Annual Reports. Management's discussion and analysis, and
additional performance information regarding the funds during the fiscal
year ended October 31, 1998 is included in the annual report dated October
31, 1998. A copy of the annual report may be obtained upon request and
without charge from a Salomon Smith Barney Financial Consultant or by
writing or calling the Company at the address or phone number listed on
page one of this statement of additional information.
The Company sends its shareholders a semi-annual report and an audited
annual report, which include listings of the investment securities held by
the Company at the end of the period covered. In an effort to reduce the
Company's printing and mailing costs, the Company plans to consolidate the
mailing of its semi-annual and annual reports by household. This
consolidation means that a household having multiple accounts with the
identical address of record will receive a single copy of each report.
Shareholders who do not want this consolidation to apply to their account
should contact their Salomon Smith Barney Financial Consultant or the
transfer agent.
The Smith Barney Mutual Fund family. The Smith Barney Mutual Fund Family
encompasses more than 60 mutual funds, representing approximately $87
billion of shareholder assets under management as September 30, 1998.
This places us among the largest mutual fund companies in the United
States. Our portfolio managers average approximately 25 years of
experience in the financial field-of which, on average, 18 have been with
Smith Barney.
By building a core portfolio of mutual funds with complementary investment
styles, individuals can work toward specific goals of capital
appreciation, regular income and preservation of investment principal.
Your Salomon Smith Barney Financial Consultant can recommend and provide a
prospectus for one or more mutual funds designed to help you meet your
individual goals for education funding, retirement and changing lifestyle
needs.
Smith Barney Mutual Funds provides a broad selection of funds to suit
every investment goal, from capital appreciation to preservation of
investment principal. Our Family is divided into these main categories:
? Growth-For individuals seeking long-term capital appreciate through
investments in common stocks. Some of our growth funds also give
equal emphasis to income.
? Taxable Fixed Income-for individuals seeking current income.
? Tax-Exempt fixed Income Fund for individuals seeking a tax-exempt
investment that allows them to keep more of what they earn for
current spending or future investment.
? Global/International-for individuals seeking to diversity their
portfolio to include long-term capital appreciation or income from
investments in markets around the world.
? Concert Allocation Series
Smith Barney Family of Funds. Investors can be different in how they wish
to reach their financial goals. That's why Smith Barney offers four
different Series of funds. Some investors, guided by their Financial
Consultant, prefer to take an active role in allocating their investment
portfolio. For these investors we offer the Style Pure Series. Others
prefer to rely on the asset allocation decisions of experienced portfolio
managers, and may fund solutions to their investment needs in our Classic
Series. For investors who want to explore opportunities using a narrower
focus, we offer the Speciality Series. The Concern Allocation Series
allows investors to invest in a diversified "fund of funds."
Style Pure Series. Smith Barney mutual funds designated as Style Pure are
the basic building blocks of asset allocation. Other than maintaining
minimal cash, or under extraordinary market conditions, each of these
funds if 100% invested, 100% of the time within its designated asset
classes and designated investment style. The Style Pure Series enables
you and your Salomon Smith Barney Financial Consultant to control your
asset allocation decisions using funds managed by experienced portfolio
managers:
Global/International Funds
Taxable Fixed Income Funds
Emerging Markets Portfolio
Adjustable Rate Government
Income Fund
Government Securities Fund
European Portfolio
High Income Fund
Pacific Portfolio
Investment Grade Bond Fund
Managed Governments Fund
Growth Funds
Short-Term High Grade Bond Fund
Large Cap Blend Fund
U.S. Government Securities Fund
Large Capitalization Growth Fund
Large Cap Value Fund
Tax-Exempt Fixed Income
Mid Cap Blend Fund
Limited Term Portfolio
Small Cap Blend
Municipal High Income Fund
National Portfolio
Class Series. The Classic Series lets you participate in mutual funds
whose investment decisions are determined by experienced portfolio
managers, based on each fund's investment objectives and guidelines.
Funds in the Smith Barney Classic Series invest across asset classes and
sectors, utilizing a range of strategies in order to achieve their
objectives:
Global/International Fund
Taxable Fixed Income Funds
Global Government Bond Fund
Diversified Strategic Income Fund
Hansberger Global Small Cap Value
Fund
Total Return Bond Fund
Hansberger Global Value Fund
Tax-Exempt Fixed Income Fund
International Balanced Portfolio
Managed Municipals Fund
International Equity Portfolio
Growth Funds
Aggressive Growth Fund
Appreciation Fund
Balanced Fund
Concert Peachtree Growth Fund
Contarian Fund
Fundamental Value Fund
Premium Total Return Fund
Special Equities Fund
Specialty Series. Mutual funds included in Smith Barney's Specialty
Series explore opportunities in a narrower sector of the market or by
using a narrower investment focus:
Growth Funds
State-Specific, Intermediate-Term
Tax-Exempt Fixed Income Funds
Concert Social Awareness Fund
Intermediate Maturity California
Convertible Fund
Municipals Fund
Natural Resources Fund
Intermediate Maturity New York
S&P 500 Index Fund
State-Specific Tax-Exempt Fixed
Income Funds
Arizona
New Jersey
California
New York
Florida
Oregon
Georgia
Pennsylvania
Massachusetts
Concert Allocation Series. These "funds of funds" are designed to provide
you with targeted objectives, but at diversification levels that are
significantly greater than an investment in a single fund can provide.
Currently, available options include Global, High Growth, Growth, Balanced
conservative and Income Portfolios. These Portfolios' objectives are
achieved through stock and bond fund allocations that range from 100%
stocks to 10% stocks/90% bonds, allowing you to match "funds of funds" in
the Concern Allocation Series with your changing financial goals and risk
tolerance.
The Global Portfolio
The Balanced Portfolio
The High Growth Portfolio
The Conservative Portfolio
The Growth Portfolio
The Income Portfolio
Help Along the Way
A professionally trained Salomon Smith Barney Financial Consultant is
ready, willing and able to serve as a reliable financial guide throughout
your financial journey. Talk with you Financial Consultant, before you
invest in order to help prioritize your goals. Once you've set your
sights on clear objectives, rely on the expertise of this dedicated
professional to help you determine which investment mix may be suited to
your unique circumstances.
Your Financial Consultant knows from experience that allocating assets is
a key part of determining the long-term success of investment strategies.
As you circumstances and life style change, your Financial Consultant will
suggest adjustments to your strategy in order to keep you on the right
road and on track for achieving your financial goals.
Should I Consider International Investment? Whether you're a conservative
or aggressive investor, just starting to save nearing retirement, chances
are you could benefit from investing a portion of your overall portfolio
in international stocks and bonds. The Smith Barney mutual fund family
has a variety of international mutual funds designed to help you gain
access to:
Expanded horizons. Today, approximately 55% of the world's stock and bond
opportunities are found beyond U.S. boundaries. And non-U.S. markets
represent some of the fastest-growing economies in the world.
Potential for higher returns. Taken as a whole, foreign markets have
outperformed their domestic counterparts on a long-term basis. Foreign
markets do not outperform the U.S. every quarter of every year, but they
have delivered superior returns over time.
Enhanced diversification. One of the most significant benefits of
investing abroad is the potential for reducing risk. Intentionally
diversified portfolios tend to experience less overall price volatility
than portfolios invested in single markets. Since world markets do no
necessarily move in tandem with those of the U.S. many international
markets may be on the rise when U.S. markets are down.
Tax-Exempt Fixed Income Funds. Tax-exempt fixed income funds, also known
as "municipal bond mutual funds", seek to provide tax-exempt income by
investing in portfolios of select municipal bonds. Cities, states, and
municipalities issue municipal bonds to finance ongoing operations and
public projects. These tax-exempt funds have remained tax-free and offer
the potential to provide shareholders with income and capital growth at
levels that may equal or exceed total returns from taxable investments on
an after-tax basis. Maturity and credit quality can be important factors
in determining the potential risks and rewards of a municipal bond
investment. Longer-term bond funds generally offer higher yields but your
principal will be more affected by interest rate changes, therefore, are
more risky. Municipal bonds that are of lower credit quality tend to be
riskier because they are subject to credit risk, however, they generally
offer higher yields. Tax-exempt funds may be appropriate for investors in
high tax brackets. If you are risk-averse, or have shorter-term goals, an
intermediate or shorter-term investment may be more appropriate.
Investors with longer time horizons or a greater tolerance for risk may
benefit from the higher yields offered by longer-term municipal funds.
FINANCIAL STATEMENTS
The following financial information is hereby incorporated by reference to
the indicated pages of the Company's 1998 Annual Report to Shareholders,
copies of which are furnished with this Statement of Additional
Information.
Page(s) in Annual Report (Global
Government Bond, International
Balanced and International
Equity Portfolios)
Page(s) in Annual Report
(Emerging Markets,
European and Pacific
Portfolios)
Average Annual Total Return
Line Graph Showing Growth of
$10,000 Investment
Statements of Assets and
Liabilities
Statements of Operations
Statement of Changes in Net
Assets
Notes to Financial Statements
Financial Highlights
Independent Auditor's Report
APPENDIX - RATINGS OF DEBT OBLIGATIONS
BOND (AND NOTE) RATINGS
Moody's Investors Service, Inc. ("Moody's")
Aaa - Bonds that are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make the long term
risks appear somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present that suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked short-comings.
C - Bonds that are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Ratings Group ("Standard & Poors")
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small
degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B and CCC - Bonds rated BB and B are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
represents a lower degree if speculation than B and CCC the highest degree
of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C - The rating C is reserved for income bonds on which no interest
is being paid.
D - Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major
rating categories, except in the AAA category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection;
broad margins in earnings coverage of fixed financial charges and high
internal cash generation; well-established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard & Poor's Ratings Group
A-1 - This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
48
PART C Other Information
Item 23. Exhibits
a.1 Articles of Incorporation (1)
a.2 Articles Supplementary to Articles of Incorporation for
International Equity Portfolio (2)
a.3 Articles of Amendment to the Articles of Incorporation
for the Fund dated November 10, 1992 (3)
a.4 Articles Supplementary to Articles of Incorporation for
the Fund dated December 8, 1992 (3)
a.5 Articles Supplementary to Articles of Incorporation for
Pacific Portfolio and European Portfolio(10)
a.6 Articles Supplementary to Articles of Incorporation for
International Balanced Portfolio (11)
a.7 Form of Articles Supplementary to Articles of
Incorporation for Emerging Markets Portfolio(12)
a.8 Articles of Amendment to the Articles of Incorporation
for the Fund dated June 4, 1991(13)
a.9 Articles Supplementary to Articles of Incorporation for
the Fund dated July 13, 1994 (13)
a.10 Articles of Amendment to Articles of Incorporation for
the Fund dated November 3, 1994(13)
a.11 Articles of Amendment to Articles of Incorporation for
the Fund dated November 3, 1994(13)
a.12 Articles Supplementary to Articles of Incorporation for
the Fund dated November 3, 1994(13)
a.13 Articles Supplementary to Articles of Incorporation for
Emerging Markets Portfolio dated November 10, 1994(13)
b. Bylaws (4)
c. Form of Stock Certificates for the International
Equity Portfolio, the Global Government Bond
Portfolio, the Pacific Portfolio and the European
Portfolio (9)
d.1 Form of Management Agreement for Global Government Bond Portfolio
(16)
d.2 Form of Management Agreement for International Equity Portfolio (16)
d.3 Form of Management Agreement for Pacific Portfolio (16)
d.4 Form of Management Agreement for European Portfolio (16)
d.5 Form of Management Agreement for International Balanced Portfolio
(16)
d.6 Form of Management Agreement for Emerging Markets Portfolio (16)
d.7 Form of Subadvisory Agreements(16)
e.1 Form of Distribution Agreement (16)
e.2 Form of Selling Group Agreement (6)
e.3 Form of Distribution Agreement is filed herewith.
f. Not applicable
g. Form of Custodian Agreement (15)
h. Form of Transfer Agency Agreement (16)
i. Opinion and Consent of Counsel (6)
j. Auditors' Consent *
k. Not applicable
l. Form of Subscription Agreement (4)
m.1 Form of Amended Plan of Distribution Pursuant to Rule 12b-1 is filed
herewith.
m.2 Plan of Distribution Pursuant to Rule 12b-1for Global Government
Bond Portfolio (16)
m.3 Plan of Distribution Pursuant to Rule 12b-1for International Equity
Portfolio (16)
m.4 Plan of Distribution Pursuant to Rule 12b-1 for Pacific Portfolio
(16)
m.5 Plan of Distribution Pursuant to Rule 12b-1 for European Portfolio
(16)
m.6 Plan of Distribution Pursuant to Rule 12b-1 for International
Balanced Portfolio (16)
m.7 Plan of Distribution Pursuant to Rule 12b-1 for Emerging Markets
Portfolio(16)
n. Financial Data Schedule (*)
o. Rule 18f-3 Plan (14)
Footnotes:
(1) Incorporated by reference to to the Fund's Registration
Statement on Form N-1A filed on March 26, 1991.
(2) Incorporated by reference to Post-Effective Amendment
No. 2 to the Fund's Registration Statement on Form N-1A filed
on September 24, 1991.
(3) Incorporated by reference to Post-Effective Amendment
No. 6 to the Fund's Registration Statement on Form N-1A filed
on December 21, 1992.
(4) Incorporated by reference to Pre-Effective Amendment
No. 1 to the Fund's Registration Statement on Form N-1A filed
on May 27, 1991.
(5) Intentionally left blank.
(6) Incorporated by reference to Pre-Effective Amendment
No. 2 to the Fund's Registration Statement on Form N-1A filed
on June 14, 1991.
(7) Intentionally left blank.
(8) Incorporated by reference to Post-Effective Amendment
No. 3 to the Fund's Registration Statement on Form N-1A filed
on January 17, 1992.
(9) Incorporated by reference to Post-Effective Amendment
No. 8 to the Fund's Registration Statement on Form N-1A filed
on November 5, 1993.
(10) Incorporated by reference to Post-Effective Amendment
No. 9 to the Fund's Registration Statement on Form N-1A filed
on January 4, 1994.
(11) Incorporated by reference to Post-Effective Amendment
No. 12 to the Fund's Registration Statement on Form N-1A filed
on July 27, 1994.
(12) Incorporated by reference to Post-Effective Amendment
No. 14 to the Fund's Registration Statement on Form N-1A filed
on October 31, 1994.
(13) Incorporated by reference to Post-Effective Amendment
No. 15 to the Fund's Registration Statement on Form N-1A filed
on February 28, 1995.
(14) Incorporated by reference to Post-Effective Amendment
No. 17 to the Fund's Registration Statement on Form N-1A filed
on February 28, 1996.
(15) Incorporated by reference to Post-Effective Amendment
No. 18 to the Fund's Registration Statement on Form N-1A filed
on December 27, 1996.
(16) Incorporated by reference to Post-Effective Amendment
No. 19 to the Fund's Registration Statement on Form N-1A filed
on February 21, 1997.
* To be filed by amendment.
Item 24. Persons Controlled by or under Common
Control with Registrant
None.
Item 25. Indemnification
Reference is made to Article IX, of Registrant's Articles
of Incorporation for a complete statement of its terms.
Registrant is a named assured on a joint insured bond pursuant
to Rule 17g-1 of the Investment Company Act of 1940. Other
assureds include Mutual Management Corp.
(Registrant's Adviser) and affiliated investment companies.
Item 26. Business and other Connections of Investment Adviser
See the material under the caption "Management of the Fund" included
in Part A (Prospectus) of this Registration Statement and the
material appearing under the caption "Management Agreement"
included in Part B (Statement of Additional Information)
of this Registration Statement.
Information as to the Directors and Officers of Mutual Management
Corp. is included in its Form ADV (File No. 801-8314), filed
with the Commission, which is incorporated herein by reference
thereto.
Item 27. Principal Underwriters
(a) CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is also the
distributor for the following Smith Barney funds: Concert Investment
Series, Consulting Group Capital Markets Funds, Greenwich Street Series
Fund, Smith Barney Adjustable Rate Government Income Fund, Smith Barney
Aggressive Growth Fund Inc., Smith Barney Appreciation Fund Inc., Smith
Barney Arizona Municipals Fund Inc., Smith Barney California Municipals
Fund Inc., Smith Barney Concert Allocation Series Inc., Smith Barney
Equity Funds, Smith Barney Fundamental Value Fund Inc., Smith Barney
Funds, Inc., Smith Barney Income Funds, Smith Barney Institutional Cash
Management Fund, Inc., Smith Barney Investment Funds Inc., Smith Barney
Investment Trust, Smith Barney Managed Governments Fund Inc., Smith
Barney Managed Municipals Fund Inc., Smith Barney Massachusetts
Municipals Fund, Smith Barney Money Funds, Inc., Smith Barney Muni
Funds, Smith Barney Municipal Money Market Fund, Inc., Smith Barney New
Jersey Municipals Fund Inc., Smith Barney Oregon Municipals Fund Inc.,
Smith Barney Principal Return Fund, Smith Barney Small Cap Blend Fund,
Inc., Smith Barney Telecommunications Trust, Smith Barney Variable
Account Funds, Smith Barney Natural Resources Fund Inc., Travelers
Series Fund Inc., and various series of unit investment trusts.
CFBDS also serves as the distributor for the following funds: The
Travelers Fund UL for Variable Annuities, The Travelers Fund VA for
Variable Annuities, The Travelers Fund BD for Variable Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers Fund BD III for
Variable Annuities, The Travelers Fund BD IV for Variable Annuities, The
Travelers Fund ABD for Variable Annuities, The Travelers Fund ABD II for
Variable Annuities, The Travelers Separate Account PF for Variable
Annuities, The Travelers Separate Account PF II for Variable Annuities,
The Travelers Separate Account QP for Variable Annuities, The Travelers
Separate Account TM for Variable Annuities, The Travelers Separate Account
TM II for Variable Annuities, The Travelers Separate Account Five for
Variable Annuities, The Travelers Separate Account Six for Variable
Annuities, The Travelers Separate Account Seven for Variable Annuities,
The Travelers Separate Account Eight for Variable Annuities, The Travelers
Fund UL for Variable Annuities, The Travelers Fund UL II for Variable
Annuities, The Travelers Variable Life Insurance Separate Account One, The
Travelers Variable Life Insurance Separate Account Two, The Travelers
Variable Life Insurance Separate Account Three, The Travelers Variable
Life Insurance Separate Account Four, The Travelers Separate Account MGA,
The Travelers Separate Account MGA II, The Travelers Growth and Income
Stock Account for Variable Annuities, The Travelers Quality Bond Account
for Variable Annuities, The Travelers Money Market Account for Variable
Annuities, The Travelers Timed Growth and Income Stock Account for
Variable Annuities, The Travelers Timed Short-Term Bond Account for
Variable Annuities, The Travelers Timed Aggressive Stock Account for
Variable Annuities, The Travelers Timed Bond Account for Variable
Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the distributor
for CitiFunds Multi-State Tax Free Trust, CitiFunds Premium Trust,
CitiFunds Institutional Trust, CitiFunds Tax Free Reserves, CitiFunds
Trust I, CitiFunds Trust II, CitiFunds Trust III, CitiFunds International
Trust, CitiFunds Fixed Income Trust, CitiSelect VIP Folio 200, CitiSelect
VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500,
CitiFunds Small Cap Growth VIP Portfolio. CFBDS is also the placement
agent for Large Cap Value Portfolio, Small Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio, Intermediate Income
Portfolio, Short-Term Portfolio, Growth & Income Portfolio, U.S. Fixed
Income Portfolio, Large Cap Growth Portfolio, Small Cap Growth Portfolio,
International Equity Portfolio, Balanced Portfolio, Government Income
Portfolio, Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following Salomon
Brothers funds: Salomon Brothers Opportunity Fund Inc., Salomon Brothers
Investors Fund Inc., Salomon Brothers Capital Fund Inc., Salomon Brothers
Series Funds Inc., Salomon Brothers Institutional Series Funds Inc.,
Salomon Brothers Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the Centurion Funds, Inc.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to Schedule A
of Form BD filed by CFBDS pursuant to the Securities and Exchange Act of
1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records
The Chase Manhattan Bank of New York,
Chase Metrotech Center, Brooklyn, New York 11245,
and First Data Investor Services Group, Inc.,
Exchange Place Boston, Massachusetts 02109, will
maintain the custodian and the shareholder servicing agent
records, respectively, required by Section 31(a).
All other records required by Section 31 (a) are maintained
at the offices of the Registrant at 388 Greenwich Street, New
York, New York 10013 (and preserved for the period
specified by Rule 31a-2).
Item 29. Management Services
There are no management related service contracts not
discussed in Part A or Part B.
Item 30. Undertakings
None.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, and where applicable, the true and lawful
attorney-in-fact, thereto duly authorized, in the City of New York and
State of New York on the 29th day of December 1998.
SMITH BARNEY WORLD FUNDS, INC.
BY /s/ Heath B. McLendon
Heath B. McLendon,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been
signed below by the
following persons in the capacities and on the date indicated.
Signatures Title Date
/s/ Heath B. McLendon Director, and
(Heath B. McLendon) Chief Executive Officer
12/29/98
Victor Atkins* Director
(Victor Atkins)
Director
Abraham E. Cohen
Robert Frankel* Director
(Robert Frankel)
Rainer Greeven* Director
(Rainer Greeven)
Susan M. Heilbron * Director
(Susan M. Heibron)
/s/ Lewis E. Daidone Treasurer (Principal Financial
12/29/98
(Lewis E. Daidone) Officer)and Principal Accounting
Officer
*By:/s/ Christina T. Sydor 12/29/98
(Christina T. Sydor)
Pursuant to Power of Attorney
EXHIBIT INDEX
e.3 Form of Distribution Agreement
m.1 Form of Amended Plan of Distribution Pursuant to Rule 12b-1 is filed
herewith.
SMITH BARNEY WORLD FUNDS, INC.
DISTRIBUTION AGREEMENT
October 8, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements
hereinafter contained, the above-named investment company (the "Fund")
has agreed that you shall be, for the period of this Agreement, the non-
exclusive principal underwriter and distributor of shares of the Fund and
each Series of the Fund set forth on Exhibit A hereto, as such Exhibit may
be revised from time to time (each, including any shares of the Fund not
designated by series, a "Series"). For purposes of this Agreement, the
term "Shares" shall mean shares of the each Series, or one or more
Series, as the context may require.
1. Services as Principal Underwriter and Distributor
1.1 You will act as agent for the distribution of Shares
covered by, and in accordance with, the registration statement,
prospectus and statement of additional information then in effect under
the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act"), and will
transmit or cause to be transmitted promptly any orders received by you or
those with whom you have sales or servicing agreements for purchase or
redemption of Shares to the Transfer and Dividend Disbursing Agent for the
Fund of which the Fund has notified you in writing.
1.2 You agree to use your best efforts to solicit orders for
the sale of Shares. It is contemplated that you will enter into sales or
servicing agreements with registered securities dealers and banks and into
servicing agreements with financial institutions and other industry
professionals, such as investment advisers, accountants and estate
planning firms. In entering into such agreements, you will act only on
your own behalf as principal underwriter and distributor. You will not be
responsible for making any distribution plan or service fee payments
pursuant to any plans the Fund may adopt or agreements it may enter into.
1.3 You shall act as principal underwriter and distributor of
Shares in compliance with all applicable laws, rules, and regulations,
including, without limitation, all rules and regulations made or adopted
from time to time by the Securities and Exchange Commission (the "SEC")
pursuant to the 1933 Act or the 1940 Act or by any securities association
registered under the Securities Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such action is warranted for
any reason, including, without limitation, market, economic or political
conditions, the Fund's officers may decline to accept any orders for, or
make any sales of, any Shares until such time as those officers deem it
advisable to accept such orders and to make such sales and the Fund shall
advise you promptly of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and expenses in
connection with the registration of Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data to
be furnished by the Fund hereunder, and all expenses in connection with
the preparation and printing of the Fund's prospectuses and statements of
additional information for regulatory purposes and for distribution to
shareholders; provided however, that nothing contained herein shall be
deemed to require the Fund to pay any of the costs of advertising or
marketing the sale of Shares.
2.2 The Fund agrees to execute any and all documents and to
furnish any and all information and otherwise to take any other actions
that may be reasonably necessary in the discretion of the Fund's officers
in connection with the qualification of Shares for sale in such states and
other U.S. jurisdictions as the Fund may approve and designate to you from
time to time, and the Fund agrees to pay all expenses that may be incurred
in connection with such qualification. You shall pay all expenses
connected with your own qualification as a securities broker or dealer
under state or Federal laws and, except as otherwise specifically provided
in this Agreement, all other expenses incurred by you in connection with
the sale of Shares as contemplated in this Agreement.
2.3 The Fund shall furnish you from time to time, for use in
connection with the sale of Shares, such information reports with respect
to the Fund or any relevant Series and the Shares as you may reasonably
request, all of which shall be signed by one or more of the Fund's duly
authorized officers; and the Fund warrants that the statements contained
in any such reports, when so signed by the Fund's officers, shall be true
and correct. The Fund also shall furnish you upon request with (a) the
reports of annual audits of the financial statements of the Fund for each
Series made by independent certified public accountants retained by the
Fund for such purpose; (b) semi-annual unaudited financial statements
pertaining to each Series; (c) quarterly earnings statements prepared by
the Fund; (d) a monthly itemized list of the securities in each Series'
portfolio; (e) monthly balance sheets as soon as practicable after the end
of each month; (f) the current net asset value and offering price per
share for each Series on each day such net asset value is computed and (g)
from time to time such additional information regarding the financial
condition of each Series of the Fund as you may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration statements,
prospectuses and statements of additional information filed by the Fund
with the SEC under the 1933 Act and the 1940 Act with respect to the
Shares have been prepared in conformity with the requirements of said Acts
and the rules and regulations of the SEC thereunder. As used in this
Agreement, the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration
statement, prospectus and statement of additional information filed by the
Fund with the SEC and any amendments and supplements thereto filed by the
Fund with the SEC. The Fund represents and warrants to you that any
registration statement, prospectus and statement of additional
information, when such registration statement becomes effective and as
such prospectus and statement of additional information are amended or
supplemented, will include at the time of such effectiveness, amendment or
supplement all statements required to be contained therein in conformance
with the 1933 Act, the 1940 Act and the rules and regulations of the SEC;
that all statements of material fact contained in any registration
statement, prospectus or statement of additional information will be true
and correct when such registration statement becomes effective; and that
neither any registration statement nor any prospectus or statement of
additional information when such registration statement becomes effective
will include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of the Fund's Shares.
The Fund may, but shall not be obligated to, propose from time to time
such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus or statement of additional
information as, in the light of future developments, may, in the opinion
of the Fund, be necessary or advisable. If the Fund shall not propose
such amendment or amendments and/or supplement or supplements within
fifteen days after receipt by the Fund of a written request from you to do
so, you may, at your option, terminate this Agreement or decline to make
offers of the Fund's Shares until such amendments are made. The Fund
shall not file any amendment to any registration statement or supplement
to any prospectus or statement of additional information without giving
you reasonable notice thereof in advance; provided, however, that nothing
contained in this Agreement shall in any way limit the Fund's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus or statement of additional information, of
whatever character, as the Fund may deem advisable, such right being in
all respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any prospectus or
statement of additional information furnished by the Fund from time to
time, in connection with the sale of Shares. The Fund agrees to
indemnify, defend and hold you, your several officers and directors, and
any person who controls you within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending
such claims, demands or liabilities and any such counsel fees incurred in
connection therewith) which you, your officers and directors, or any such
controlling person, may incur under the 1933 Act or under common law or
otherwise, arising out of or based upon any untrue statement, or alleged
untrue statement, of a material fact contained in any registration
statement, any prospectus or any statement of additional information or
arising out of or based upon any omission, or alleged omission, to state a
material fact required to be stated in any registration statement, any
prospectus or any statement of additional information or necessary to make
the statements in any of them not misleading; provided, however, that the
Fund's agreement to indemnify you, your officers or directors, and any
such controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of any statements or representations
made by you or your representatives or agents other than such statements
and representations as are contained in any prospectus or statement of
additional information and in such financial and other statements as are
furnished to you pursuant to paragraph 2.3 of this Agreement; and further
provided that the Fund's agreement to indemnify you and the Fund's
representations and warranties herein before set forth in paragraph 3 of
this Agreement shall not be deemed to cover any liability to the Fund or
its shareholders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of
your duties, or by reason of your reckless disregard of your obligations
and duties under this Agreement. The Fund's agreement to indemnify you,
your officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon the Fund's being notified of any
action brought against you, your officers or directors, or any such
controlling person, such notification to be given by letter or by telegram
addressed to the Fund at its principal office in New York, New York and
sent to the Fund by the person against whom such action is brought, within
ten days after the summons or other first legal process shall have been
served. The failure so to notify the Fund of any such action shall not
relieve the Fund from any liability that the Fund may have to the person
against whom such action is brought by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission, otherwise than
on account of the Fund's indemnity agreement contained in this paragraph
4.1. The Fund will be entitled to assume the defense of any suit brought
to enforce any such claim, demand or liability, but, in such case, such
defense shall be conducted by counsel of good standing chosen by the Fund.
In the event the Fund elects to assume the defense of any such suit and
retains counsel of good standing, the defendant or defendants in such suit
shall bear the fees and expenses of any additional counsel retained by any
of them; but if the Fund does not elect to assume the defense of any such
suit, the Fund will reimburse you, your officers and directors, or the
controlling person or persons named as defendant or defendants in such
suit, for the fees and expenses of any counsel retained by you or them.
The Fund's indemnification agreement contained in this paragraph 4.1 and
the Fund's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of you, your officers and directors, or any
controlling person, and shall survive the delivery of any of the Fund's
Shares. This agreement of indemnity will inure exclusively to your
benefit, to the benefit of your several officers and directors, and their
respective estates, and to the benefit of the controlling persons and
their successors. The Fund agrees to notify you promptly of the
commencement of any litigation or proceedings against the Fund or any of
its officers or Board members in connection with the issuance and sale of
any of the Fund's Shares.
4.2 You agree to indemnify, defend and hold the Fund, its
several officers and Board members, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) that
the Fund, its officers or Board members or any such controlling person may
incur under the 1933 Act, or under common law or otherwise, but only to
the extent that such liability or expense incurred by the Fund, its
officers or Board members, or such controlling person resulting from such
claims or demands shall arise out of or be based upon (a) any unauthorized
sales literature, advertisements, information, statements or
representations or (b) any untrue, or alleged untrue, statement of a
material fact contained in information furnished in writing by you to the
Fund and used in the answers to any of the items of the registration
statement or in the corresponding statements made in the prospectus or
statement of additional information, or shall arise out of or be based
upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by you to the Fund
and required to be stated in such answers or necessary to make such
information not misleading. Your agreement to indemnify the Fund, its
officers or Board members, and any such controlling person, as aforesaid,
is expressly conditioned upon your being notified of any action brought
against the Fund, its officers or Board members, or any such controlling
person, such notification to be given by letter or telegram addressed to
you at your principal office in Boston, Massachusetts and sent to you by
the person against whom such action is brought, within ten days after the
summons or other first legal process shall have been served. You shall
have the right to control the defense of such action, with counsel of your
own choosing, satisfactory to the Fund, if such action is based solely
upon such alleged misstatement or omission on your part or with the Fund's
consent, and in any event the Fund, its officers or Board members or such
controlling person shall each have the right to participate in the defense
or preparation of the defense of any such action with counsel of its own
choosing reasonably acceptable to you but shall not have the right to
settle any such action without your consent, which will not be
unreasonably withheld. The failure to so notify you of any such action
shall not relieve you from any liability that you may have to the Fund,
its officers or Board members, or to such controlling person by reason of
any such untrue, or alleged untrue, statement or omission, or alleged
omission, otherwise than on account of your indemnity agreement contained
in this paragraph 4.2. You agree to notify the Fund promptly of the
commencement of any litigation or proceedings against you or any of your
officers or directors in connection with the issuance and sale of any of
the Fund's Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the Fund under any of
the provisions of this Agreement and no orders for the purchase or sale of
such Shares under this Agreement shall be accepted by the Fund if and so
long as the effectiveness of the registration statement then in effect or
any necessary amendments thereto shall be suspended under any of the
provisions of the 1933 Act, or if and so long as a current prospectus as
required by Section 5(b) (2) of the 1933 Act is not on file with the SEC;
provided, however, that nothing contained in this paragraph 5 shall in any
way restrict or have an application to or bearing upon the Fund's
obligation to repurchase its Shares from any shareholder in accordance
with the provisions of the Fund's prospectus, statement of additional
information or charter documents, as amended from time to time.
6. Offering Price
Shares of any class of any Series of the Fund offered for sale by
you shall be offered for sale at a price per share (the "offering
price") equal to (a) their net asset value (determined in the manner set
forth in the Fund's charter documents and the then-current prospectus and
statement of additional information) plus (b) a sales charge, if
applicable, which shall be the percentage of the offering price of such
Shares as set forth in the Fund's then-current prospectus relating to such
Series. In addition to or in lieu of any sales charge applicable at the
time of sale, Shares of any class of any Series of the Fund offered for
sale by you may be subject to a contingent deferred sales charge as set
forth in the Fund's then-current prospectus and statement of additional
information. You shall be entitled to receive any sales charge levied at
the time of sale in respect of the Shares without remitting any portion to
the Fund. Any payments to a broker or dealer through whom you sell Shares
shall be governed by a separate agreement between you and such broker or
dealer and the Fund's then-current prospectus and statement of additional
information
7. Notice to You
The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for
amendments to the registration statement,
prospectus or statement of additional
information then in effect or for additional
information;
(b) in the event of the issuance by the
SEC of any stop order suspending the
effectiveness of the registration statement,
prospectus or statement of additional
information then in effect or the initiation of
any proceeding for that purpose;
(c) of the happening of any event that
makes untrue any statement of a material fact
made in the registration statement, prospectus
or statement of additional information then in
effect or that requires the making of a change
in such registration statement, prospectus or
statement of additional
information in order to make the statements
therein not misleading; and
(d) of all actions of the SEC with
respect to any amendment to the registration
statement, or any supplement to the prospectus
or statement of additional information which
may from time to time be filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the date hereof, shall have
an initial term of one year from the date hereof, and shall continue for
successive annual periods thereafter so long as such continuance is
specifically approved at least annually by (a) the Fund's Board or (b) by
a vote of a majority (as defined in the 1940 Act) of the Fund's
outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board members of the
Fund who are not interested persons (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 30 days' notice by the Fund's Board or by vote of
holders of a majority of the relevant Series outstanding voting
securities, or on 90 days' notice by you. This Agreement will also
terminate automatically, as to the relevant Series, in the event of its
assignment (as defined in the 1940 Act and the rules and regulations
thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising under this
Agreement (collectively, a "Dispute") shall be settled by arbitration
administered under the rules of the American Arbitration Association
("AAA") in New York, New York. Any arbitration and award of the
arbitrators, or a majority of them, shall be final and the judgment upon
the award rendered may be entered in any state or federal court having
jurisdiction. No punitive damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter and distributor of
Shares, you shall not perform any services for any entity other than
investment companies advised or administered by Citigroup Inc. or its
subsidiaries. The Fund recognizes that the persons employed by you to
assist in the performance of your duties under this Agreement may not
devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict your or any of your
affiliates right to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature. This
Agreement and the terms and conditions set forth herein shall be governed
by, and construed in accordance with, the laws of the State of New York.
11. Limitation of Liability (Massachusetts business trusts only)
The Fund and you agree that the obligations of the Fund under this
Agreement shall not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future,
of the Fund, individually, but are binding only upon the assets and
property of the Fund, as provided in the Master Trust Agreement. The
execution and delivery of this Agreement have been authorized by the
Trustees and signed by an authorized officer of the Fund, acting as such,
and neither such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Fund as provided in its Master
Trust Agreement.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning to us
the enclosed copy, whereupon this Agreement will become binding on you.
Very truly yours,
SMITH BARNEY WORLD FUNDS, INC.
By: _____________________
Authorized Officer
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
Tg:\legal\general\forms\agreemts\dist12b1\SBWorldFunds
EXHIBIT A
Smith Barney World Funds, Inc.
Emerging Markets Portfolio
European Portfolio
Global Government Bond Portfolio
International Balanced Portfolio
International Equity Portfolio
Pacific Portfolio
Page: 3
4
FORM OF
AMENDED AND RESTATED
SHAREHOLDER SERVICES AND DISTRIBUTION PLAN
This Amended and Restated Shareholder Services and
Distribution Plan (the "Plan") is adopted in accordance with
Rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by [Name of Fund], a
[business trust organized under the laws of the Commonwealth of
Massachusetts (the "Trust") on behalf of its sub-trust] / [a
corporation organized under the laws of the State of Maryland
(the "Fund")], subject to the following terms and conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The [Trust/Fund] will pay
to Smith Barney Inc., a corporation organized under the
laws of the State of Delaware ("Smith Barney"), a
service fee under the Plan at an annual rate of [ %]
of the average daily net assets of the Fund attributable
to the Class A shares sold and not redeemed (the "Class A
Service Fee").
(b) Service Fee for Class B shares. The [Trust/Fund] will pay
to Smith Barney a service fee under the Plan at the
annual rate of [ %] of the average daily net assets of
the Fund attributable to the Class B shares sold and not
redeemed (the "Class B Service Fee").
(c) Distribution Fee for Class B shares. In addition to the
Class B Service Fee, the [Trust/Fund] will pay Smith
Barney a distribution fee under the Plan at the annual
rate of [ %] of the average daily net assets of the
Fund attributable to the Class B shares sold and not
redeemed (the "Class B Distribution Fee").
(d) Service Fee for Class L shares. The [Trust/Fund] will
pay to Smith Barney a service fee under the plan at the
annual rate of [ %] of the average daily net assets of
the Fund attributable to the Class L shares sold and not
redeemed (the "Class L Service Fee").
(e) Distribution Fee for Class L shares. In addition to the
Class L Service Fee, the [Trust/Fund] will pay Smith
Barney a distribution fee under the Plan at the annual
rate of [ %] of the average daily net assets of the
Fund attributable to the Class L shares sold and not
redeemed (the "Class L Distribution Fee").
(f) Payment of Fees. The Service Fees and Distribution Fees
will be calculated daily and paid monthly by the
[Trust/Fund] with respect to the foregoing classes of the
Fund's shares (each a "Class" and together, the
"Classes") at the annual rates indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class, its
respective Service Fee and/or Distribution Fee may be used by
Smith Barney for: (a) costs of printing and distributing the
[Trust's/Fund's] prospectuses, statements of additional
information and reports to prospective investors in the
[Trust/Fund]; (b) costs involved in preparing, printing and
distributing sales literature pertaining to the [Trust/Fund];
(c) an allocation of overhead and other branch office
distribution-related expenses of Smith Barney; (d) payments made
to, and expenses of, Smith Barney's financial consultants and
other persons who provide support services to [Trust/Fund]
shareholders in connection with the distribution of the
[Trust's/Fund's] shares, including but not limited to, office
space and equipment, telephone facilities, answering routine
inquires regarding the [Trust/Fund] and its operation,
processing shareholder transactions, forwarding and collecting
proxy material, changing dividend payment elections and
providing any other shareholder services not otherwise provided
by the [Trust's/Fund's] transfer agent; and (e) accruals for
interest on the amount of the foregoing expenses that exceed the
Distribution Fee for that Class and, in the case of Class B and
Class L shares, any contingent deferred sales charges received
by Smith Barney; provided, however, that (i) the Distribution
Fee for a particular Class may be used by Smith Barney only to
cover expenses primarily intended to result in the sale of
shares of that Class, including, without limitation, payments to
the financial consultants of Smith Barney and other persons as
compensation for the sale of the shares, and (ii) the Service
Fees are intended to be used by Smith Barney primarily to pay
its financial consultants for servicing shareholder accounts,
including a continuing fee to each such financial consultant,
which fee shall begin to accrue immediately after the sale of
such shares.
Section 3. Approval by Shareholders
The Plan will not take effect, and no fees will be payable
in accordance with Section 1 of
the Plan, with respect to a Class until the Plan has been
approved by a vote of at least a majority
of the outstanding voting securities of the Class. The Plan
will be deemed to have been approved
with respect to a Class so long as a majority of the outstanding
voting securities of the Class votes
for the approval of the Plan, notwithstanding that: (a) the
Plan has not been approved by a majority of the outstanding
voting securities of any other Class, or (b) the Plan has not
been
approved by a majority of the outstanding voting securities of
the [Trust/Fund].
Section 4. Approval by [Trustees/Directors.]
Neither the Plan nor any related agreements will take effect
until approved by a majority vote of both (a) the Board of
[Trustees/Directors] and (b) those [Trustees/Directors] who are
not interested persons of the [Trust/Fund] and who have no
direct or indirect financial interest in the operation of the
Plan or in any agreements related to it (the "Qualified
[Trustees/Directors]"), cast in person at a meeting called for
the purpose of voting on the Plan and the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each Class
until [ , 1999] and thereafter for successive twelve-month
periods with respect to each Class; provided, however, that such
continuance is specifically approved at least annually by the
[Trustees/Directors] of the [Trust/Fund] and by a majority of
the Qualified [Trustees/Directors].
Section 6. Termination.
The Plan may be terminated at any time with respect to a Class
(i) by the [Trust/Fund] without the payment of any penalty, by
the vote of a majority of the outstanding voting securities of
such Class or (ii) by a majority vote of the Qualified
[Trustees/Directors]. The Plan may remain in effect with respect
to a particular Class even if the Plan has been terminated in
accordance with this Section 6 with respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class so as to
increase materially the amounts of the fees described in Section
1 above, unless the amendment is approved by a vote of holders
of at least a majority of the outstanding voting securities of
that Class. No material amendment to the Plan may be made unless
approved by the [Trust's/Fund's] Board of [Trustees/Directors]
in the manner described in Section 4 above.
Section 8. Selection of Certain [Trustees/Directors].
While the Plan is in effect, the selection and nomination of
the [Trust's/Fund's] [Trustees/Directors] who are not interested
persons of the [Trust/Fund] will be committed to the discretion
of the [Trustees/Directors] then in office who are not
interested persons of the [Trust/Fund].
Section 9. Written Reports
In each year during which the Plan remains in effect, any
person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or any related
agreement will prepare and furnish to the [Trust's/Fund's] Board
of [Trustees/Directors] and the Board will review, at least
quarterly, written reports complying with the requirements of
the Rule, which set out the amounts expended under the Plan and
the purposes for which those expenditures were made.
Section 10. Preservation of Materials.
The [Trust/Fund] will preserve copies of the Plan, any
agreement relating to the Plan and any report made pursuant to
Section 9 above, for a period of not less than six years (the
first two years in an easily accessible place) from the date of
the Plan, agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed
to have the same meaning that those terms have under the rules
and regulations under the 1940 Act, subject to any exemption
that may be granted to the [Trust/Fund] under the 1940 Act, by
the Securities and Exchange Commission.
Section 12. Limitation of Liability. (Massachusetts business
trusts only)
The obligations of the Trust under this Agreement shall not
be binding upon any of the Trustees, shareholders, nominees,
officers, employees or agents, whether past, present or future,
of the Trust, individually, but are binding only upon the assets
and property of the Trust, as provided in the Master Trust
Agreement. The execution of this Plan has been authorized by
the Trustees and signed by an authorized officer of the Trust,
acting as such, and neither such authorization by such Trustees
nor such execution by such officer shall be deemed to have been
made by any of them individually or to impose any liability on
any of them personally, but shall bind only the trust property
of the Trust as provided in its Master Trust Agreement.
IN WITNESS WHEREOF, the Fund has executed the Plan as of July
_____, 1998.
[NAME OF TRUST/FUND] On behalf of
By:
____________________________________
Heath B. McLendon
Chairman of the Board
g:\legal\general\forms\agreemts\dist12b1\12b1Plan
