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. 23
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
SMITH BARNEY WORLD 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)
Approximate Date of Public Offering: Continuous
It is proposed that this filing will become effective
(check appropriate box)
____ Immediately upon filing pursuant to paragraph (b)
_ XXX On February 28, 1999 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a) (1)
_____ On (date) pursuant to paragraph (a) (1)
_____ 75 days after filing pursuant to paragraph (a) (2)
_____ 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
PART A
<PAGE>
[BACKGROUND GRAPHICS]
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day./(R)/
PROSPECTUS
Emerging Markets Portfolio
Class A, B, L and Y Shares
________________________________________________________________________________
February 28, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Emerging Markets Portfolio
Contents
<TABLE>
<S> <C>
Fund goal and strategies.................................................... 2
Risks, performance and expenses............................................. 3
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 13
Buying shares............................................................... 14
Exchanging shares........................................................... 15
Redeeming shares............................................................ 16
Other things to know
about share transactions.................................................... 18
Smith Barney 401(k) and ExecChoice(TM) programs............................. 20
Dividends, distributions and taxes.......................................... 21
Share price................................................................. 22
Financial highlights........................................................ 22
</TABLE>
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.
Smith Barney Mutual Funds
1
<PAGE>
Fund goal and strategies
Investment objective
The fund seeks long-term capital appreciation through a portfolio invested pri-
marily 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, Can-
ada, Denmark, Finland, France, Germany, Holland, Ireland, Italy, Japan, Luxem-
bourg, 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 allo-
cating 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
Emerging Markets Portfolio
2
<PAGE>
Risks, performance and expenses
Principal risks of investing in the fund
Investing in emerging market securities can bring added benefits, but 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:
.Foreign stock prices decline generally or stock prices in emerging markets
countries decline
.The manager's judgment about the attractiveness, value or potential apprecia-
tion 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 decrease the fund's return
.Factors creating volatility in one emerging market 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 pric-
es. 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.
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
Smith Barney Mutual Funds
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 neces-
sarily indicate how the fund will perform in the future.
Total Return for Class A Shares
[BAR CHART APPEARS HERE]
Calendar years ended December 31
96 97 98
----- ----- ------
20.13% -9.22% -37.33%
This bar chart shows the performance of the fund's Class A shares for each of
the past three years. Class B, C and L shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
Quarterly returns
Highest: 18.38% in 4th quarter 1998; Lowest: (27.39)% in 2nd quarter 1998
Comparative performance
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
MSCI Emerging Market Free Index ("MSCI Free Index"), a broad-based 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
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
A (40.48)% n/a n/a (13.42)% 05/12/95
B (40.95)% n/a n/a (13.36)% 05/12/95
L (33.09)% n/a n/a (13.12)% 05/12/95
Y n/a n/a n/a (38.16)% 03/10/98
MSCI Free Index (13.45)% n/a n/a (4.45)% *
</TABLE>
*Index comparison begins on 5/31/95.
Emerging Markets Portfolio
4
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(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
<CAPTION>
(paid by the fund as a % of net assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee 1.00% 1.00% 1.00% 1.00%
Distribution and service (12b-1) fees .25% 1.00% 1.00% None
Other expenses 1.21% 1.24% 1.31% 0.89%
------ ----- ----- -----
Total annual fund operating expenses 2.46% 3.24% 3.31% 1.89%
</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
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $737 $1,228 $1,745 $3,156
Class B (redemption at end of period) $827 $1,298 $1,793 $3,364
Class B (no redemption) $327 $ 998 $1,693 $3,364
Class L (redemption at end of period) $530 $1,108 $1,809 $3,368
Class L (no redemption) $430 $1,108 $1,809 $3,368
Class Y (with or without redemption) $192 $ 594 $1,021 $2,212
</TABLE>
Smith Barney Mutual Funds
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 credit rating of the security is downgraded or the issuer 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 a 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, because of 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 based on the change in value of one or more securi-
ties, 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 inter-
est 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 strate-
gies 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.
Emerging Markets Portfolio
6
<PAGE>
Management
Manager The fund's investment manager is SSBC Fund Management Inc., an affili-
ate 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 serv-
ices--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
A group of Salomon Smith Barney's international equity analysts and portfolio
managers led by Scott Kalb is responsible for the fund's day-to-day investment
decisions. Maurits E. Edersheim, head of Salomon Smith Barney's international
equity team, has
general responsibility for Salomon Smith Barney's international equity invest-
ment 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 distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells 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 serv-
ice 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 cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by 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 guaran-
tee that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
Smith Barney Mutual Funds
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. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon 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
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
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
Emerging Markets Portfolio
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. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced or
waived for
large pur-
chases and
certain
investors;
no charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
- ------------------------------------------------------------------------
Exchangeable into* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds 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.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
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 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 0.00 0.00
</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. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney 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 within 90 days before you sign the letter.
Emerging Markets Portfolio
10
<PAGE>
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 cer-
tain 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 Con-
sultant or dealer representative or consult the Statement of Additional Infor-
mation ("SAI").
Smith Barney Mutual Funds
11
<PAGE>
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 pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th and 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
distributions Barney fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
</TABLE>
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.
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 this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
Emerging Markets Portfolio
12
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney 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 at the current net asset
value 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:
.On payments made through certain systematic withdrawal plans
.On 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.
Smith Barney Mutual Funds
13
<PAGE>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your order
dealer will be rejected
representative
.Class of shares being bought
.Dollar amount or number of shares being 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 fund's
transfer
agent
Qualified retirement plans and certain other investors who
are clients of the fund's selling group are eligible 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 pur-
chases, complete and send an account application.
.For more information, call the transfer agent at 1-800-451-
2010.
- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith
plan 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 represen-
tative 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.
Emerging Markets Portfolio
14
<PAGE>
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the
varying needs .You may exchange shares only for shares of the same class of
of both large another Smith Barney fund. Not all Smith Barney funds offer
and small all classes.
investors.
.Not all Smith Barney funds may be offered in your state of
residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund.
.If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) 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 mea-
sured 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 telephone
If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete 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). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
You can make telephone exchanges only 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.
Smith Barney Mutual Funds
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 redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
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 regis-
tered
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
16
<PAGE>
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 tel-
ephone 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). Requests received after the close
of regular trading on the Exchange are priced at the net
asset value next determined.
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.
Smith Barney Mutual Funds
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 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 the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal 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 regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
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
Emerging Markets Portfolio
18
<PAGE>
.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 Securi-
ties and Exchange Commission
Small account balances If your account falls below $500 because of a 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 share-
holders. 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.
Smith Barney Mutual Funds
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 (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 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 the same class.
.Class A shares may be purchased by plans investing at least $1 million.
.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 in the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 mil-
lion is invested in Smith Barney Funds Class L and Class O shares (other
than money market funds), all Class L shares are eligible for exchange
after the plan is in the program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L and Class O shares (other than
money market funds) on December 31 in any year, all Class L shares are
eligible for exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Emerging Markets Portfolio
20
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, 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 addi-
tional fund shares of the same class that you hold. The fund expects distribu-
tions 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 trans-
fer 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 distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
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 dis-
tribution 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 tax-
payer 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 your tax adviser about your investment
in the fund.
Smith Barney Mutual Funds
21
<PAGE>
Share price
You may buy, exchange or redeem shares at net their asset value, plus 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 liabili-
ties. 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. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation 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 quota-
tions. The fund's currency conversions are done when the London stock exchange
closes, which is 12 noon Eastern time. When reliable market prices are not
readily available, or when 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 proce-
dures approved by the fund's board. A fund that uses fair value to price secu-
rities may value those securities higher or lower than another fund using
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 repre-
sentative before the New York Stock Exchange closes. If the 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 perfor-
mance 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
Emerging Markets Portfolio
22
<PAGE>
KPMG LLP, independent accountants, whose report, along with the fund's finan-
cial statements, are included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
1998/(1)/ 1997/(1)/ 1996 1995/(2)/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $12.45 $12.08 $11.06 $12.00
- --------------------------------------------------------------------------------
Loss from operations:
Net investment income
(loss)/(3)/ (0.06) (0.05) (0.02) (0.05)/(4)/
Net realized and unrealized gain
(loss) (5.36) 0.42 1.04 (0.89)
- --------------------------------------------------------------------------------
Total income (loss) from
operations (5.42) 0.37 1.02 (0.94)
- --------------------------------------------------------------------------------
Net asset value, end of year $7.03 $12.45 $12.08 $11.06
- --------------------------------------------------------------------------------
Total return/(5)/ (43.53)% 3.06% 9.22% (7.83)%/(6)/
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $5,723 $14,046 $10,691 $7,069
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses/(7)//(3)/ 2.46% 2.11% 2.25% 1.45 /(8)/
Net investment income (loss) (0.63) (0.34) (0.19) (0.63)/(8)/
- --------------------------------------------------------------------------------
Portfolio turnover rate 97% 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 loss and expense ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Increase to Expense Ratio Without
Net Investment Loss Fee Waivers
1995 1995
- ----------------------------------------------------
<S> <C> <C>
Class A $0.05 2.12%/(8)/
- ----------------------------------------------------
</TABLE>
/(4)/ Includes realized gains and losses from foreign currency transactions.
/(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 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 would have been 2.16% and 1.20%,(/9/) respectively.
/(8)/ Annualized.
Smith Barney Mutual Funds
23
<PAGE>
For a Class B share of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
1998/(1)/ 1997/(1)/ 1996/(1)/ 1995/(2)/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $12.21 $11.95 $11.02 $12.00
- --------------------------------------------------------------------------------
Loss from operations:
Net investment income loss/(3)/ (0.14) (0.14) (0.10) (0.09)/(4)/
Net realized and unrealized
gain (loss) (5.22) 0.40 1.03 (0.89)
- --------------------------------------------------------------------------------
Total income (loss) from
operations (5.36) 0.26 0.93 (0.98)
- --------------------------------------------------------------------------------
Net asset value, end of year $6.85 $12.21 $11.95 $11.02
- --------------------------------------------------------------------------------
Total return/(5)/ (43.90)% 2.18% 8.44% (8.17)%/(6)/
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $5,994 $18,107 $13,062 $7,630
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses/(7)//(3)/ 3.24% 2.88% 3.06% 2.00%/(8)/
Net investment income (loss) (1.42) (1.00) (0.94) (1.17)/(8)/
- --------------------------------------------------------------------------------
Portfolio turnover rate 97% 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 loss and expense ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Increase to Expense Ratio Without
Net Investment Loss Fee Waivers
1995 1995
- ----------------------------------------------------
<S> <C> <C>
Class B $0.05 2.68%/(8)/
- ----------------------------------------------------
</TABLE>
/(4)/ Includes realized gains and losses from foreign currency transactions.
/(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 would have been 2.97% and 1.74%/(9)/, respectively.
/(8)/ Annualized.
Emerging Markets Portfolio
24
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
1998/(1)//(2)/ 1997/(1)/ 1996 1995/(3)/
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $12.22 $11.95 $11.02 $12.00
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment loss/(4)/ (0.15) (0.15) (0.10) (0.08)/(5)/
Net realized and unrealized
gain (loss) (5.23) 0.42 1.03 (0.90)
- ------------------------------------------------------------------------------
Total income (loss) from
operations (5.38) 0.27 0.93 (0.98)
- ------------------------------------------------------------------------------
Net assets value, end of year $6.84 $12.22 $11.95 $11.02
- ------------------------------------------------------------------------------
Total return/(6)/ (44.03)% 2.26% 8.44% (8.17)%/(7)/
- ------------------------------------------------------------------------------
Net assets, end of year
(000)'s $1,543 $4,332 $2,448 $1,604
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses/(8)/ 3.31% 2.86% 3.02% 1.95%/(9)/
Net investment income (loss) (1.47) (1.03) (0.92) (1.08)/(9)/
- ------------------------------------------------------------------------------
Portfolio turnover rate 97% 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 Octo-
ber 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:
<TABLE>
<CAPTION>
Per Share Increase to Expense Ratio Without
Net Investment Loss Fee Waivers
1995 1995
- ----------------------------------------------------
<S> <C> <C>
Class L $0.05 2.61%/(9)/
- ----------------------------------------------------
</TABLE>
/(5)/ Includes realized gains and losses from foreign currency transactions.
/(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 for the period ended Octo-
ber 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 2.92% and 1.70%/(9)/, respectively.
/(9)/ Annualized.
Smith Barney Mutual Funds
25
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Emerging
Markets Portfolio
An investment portfolio of Smith Barney World Funds, Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 Ref-
erence Room in Washington, D.C. You can get copies of these materials for a fee
by writing to the Public Reference Section of the Commission, Washington, D.C.
20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the Commis-
sion'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 law-
fully sell its shares.
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.(R)
PROSPECTUS
Global
Government
Bond Portfolio
Class A, B, L and Y Shares
--------------------------------------------------------
February 28, 1999
The Securities and Exchange Commission has not approved
or disapproved these securities or determined whether
this prospectus is accurate or complete. Any statement
to the contrary is a crime.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Global Government Bond Portfolio
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and strategies ..................................... 3
Risks, performance and expenses .............................. 4
More on the fund's investments ............................... 7
Management ................................................... 8
Choosing a class of shares to buy ............................ 9
Comparing the fund's classes .................................10
Sales charges ................................................11
More about deferred sales charges ............................14
Buying shares ................................................15
Exchanging shares ............................................16
Redeeming shares .............................................17
Other things to know about share transactions ................19
Smith Barney 401(k) and ExecChoice(TM) programs ..............21
Dividends, distributions and taxes ...........................22
Share price ..................................................23
Financial highlights .........................................23
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.
2 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fund goal and strategies
- --------------------------------------------------------------------------------
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 of any maturity
or duration and 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
Smith Barney Mutual Funds 3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investing in global government securities can bring added benefits, but 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:
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 began 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 global
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
4 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<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 for Class A Shares
- --------------------------------------------------------------------------------
Calendar years ended December 31
92 93 94 95 96 97 98
-- -- -- -- -- -- --
0.91% 19.13% -3.99% 15.56% 7.52% 8.15% 8.25%
This bar chart shows the performance of the fund's Class A shares for each of
the past seven years. Class B, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
Quarterly returns:
Highest: 5.14% in 2nd quarter 1993; Lowest: (3.61)% in 1st quarter 1992
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 with that of the J.P.
Morgan Global Government Bond Index ("MGBM Index"), a broad-based 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 1 year 5 years 10 years Since Inception Inception Date
- --------------------------------------------------------------------------------
A 3.34% 5.89% n/a 8.20% 07/22/91
- --------------------------------------------------------------------------------
B 3.14% n/a n/a 8.91% 11/18/97
- --------------------------------------------------------------------------------
L 5.57% 6.03% n/a 8.09% 01/04/93
- --------------------------------------------------------------------------------
Y 8.63% 6.91% n/a 8.65% 02/19/93
- --------------------------------------------------------------------------------
MGBM Index 15.31% 8.08% n/a 9.6% *
- --------------------------------------------------------------------------------
* Index comparison begins on July 31, 1991
Smith Barney Mutual Funds 5
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------------------
(paid directly from your investment) Class A Class B Class L Class Y
- --------------------------------------------------------------------------------
Maximum sales charge on purchases 4.50%* None 1.00% None
(as a % of offering price)
- --------------------------------------------------------------------------------
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 % of net assets) Class A Class B Class L Class Y
- --------------------------------------------------------------------------------
Management fee 0.75% 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 0.75% 0.75% None
- --------------------------------------------------------------------------------
Other expenses 0.22% 0.27% 0.18% 0.08%
---- ---- ---- ----
- --------------------------------------------------------------------------------
Total annual fund operating expenses 1.22% 1.77% 1.68% 0.83%
- --------------------------------------------------------------------------------
* 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 (with or without redemption) $569 $820 $1090 $1861
- --------------------------------------------------------------------------------
Class B (redemption at end of period) $630 $857 $1059 $1939
- --------------------------------------------------------------------------------
Class B (no redemption) $180 $557 $959 $1939
- --------------------------------------------------------------------------------
Class L (redemption at end of period) $369 $624 $1003 $2067
- --------------------------------------------------------------------------------
Class L (no redemption) $269 $624 $1003 $2067
- --------------------------------------------------------------------------------
Class Y (with or without redemption) $85 $265 $460 $1025
- --------------------------------------------------------------------------------
6 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<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 the 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 because of changes in bond prices, currency
exchange rates or interest rates
o As a substitute for buying or selling currencies or securities
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment 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 bond, currency and interest rate exposure. Therefore,
using derivatives can disproportionately increase losses and reduce
opportunities for gains when bond 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.
Smith Barney Mutual Funds 7
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSBC Fund Management Inc., 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. 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 the manager 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 sells 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 cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by 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, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
8 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<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. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
o If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
o For Class B shares, all of your purchase amount and, for Class L shares,
more of your purchase amount (compared to Class A shares) will be
immediately invested. This may help offset the higher expenses of Class B
and Class L shares, but only if the fund performs well.
o Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
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.
- --------------------------------------------------------------------------------
Initial Additional
- --------------------------------------------------------------------------------
Classes A, B, L Class Y All Classes
- --------------------------------------------------------------------------------
General $1,000 $15 million $ 50
- --------------------------------------------------------------------------------
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $ 250 $15 million $ 50
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
* 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
Smith Barney Mutual Funds 9
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They 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 charge o Initial sales charge is o No initial or deferred
o You may qualify for o Deferred sales charge lower than Class A sales charge
reduction or waiver of declines over time o Deferred sales charge o Must invest at least
initial sales charge o Converts to Class A for only 1 year $15 million
o Lower annual expenses after 8 years o Does not convert to o Lower annual expenses
than Class B and Class o Higher annual expenses Class A than the other classes
L than Class A o Higher annual expenses
than Class A
- -----------------------------------------------------------------------------------------------------------------------------
Initial sales Up to 4.50%; reduced or None 1.00% None
charge waived for large
purchases and certain
investors; no charge for
purchases of $500,000 or
more None
- -----------------------------------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 4.50% charged when 1% if you redeem within 1 None
sales charge $500,000 or more if you you redeem shares. The year of purchase
redeem within 1 year of charge is reduced over
purchase time and there is no
deferred sales charge
after 6 years
- -----------------------------------------------------------------------------------------------------------------------------
Annual 0.25% of average daily 1% of average daily net 1% of average daily net None
distribution net assets 1% of average assets assets
and service daily net assets
fees
- -----------------------------------------------------------------------------------------------------------------------------
Exchange Class A shares of most Class B shares of most Class L shares of most Class Y shares of most
privilege* Smith Barney funds Smith Barney funds. Smith Barney funds Smith Barney funds
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant, dealer representative or
visit the web site for the Smith Barney funds available for exchange.
10 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sales charges
- --------------------------------------------------------------------------------
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 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 0.00 0.00
- --------------------------------------------------------------------------------
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.
Smith Barney Mutual Funds 11
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
o Letter of intent- lets you purchase Class A shares of the fund and other
Smith Barney 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 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 Statement of Additional
Information ("SAI").
12 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
- --------------------------------------------------------------------------------
Eight years In same proportion as On the date the shares
after the date the number of Class B originally acquired
of purchase shares converting is to would have converted
total Class B shares into Class A shares
you own
- --------------------------------------------------------------------------------
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.
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 this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
Smith Barney Mutual Funds 13
- --------------------------------------------------------------------------------
<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 or depreciation.
In addition, you do not pay a deferred sales charge on:
o Shares exchanged for shares of another Smith Barney 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 at the current net asset
value 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 On payments made through certain systematic withdrawal plans
o On 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.
14 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a Salomon Smith Barney Financial Consultant or dealer representative
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to open a brokerage account and make arrangements to buy shares.
If you do not provide the following information, your order will be rejected
o Class of shares being bought
o Dollar amount or number of shares being 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 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.
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.
- --------------------------------------------------------------------------------
Through a systematic investment plan
You may authorize Salomon Smith Barney, your 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.
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.
Smith Barney Mutual Funds 15
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney offers a distinctive family of funds tailored to help meet the
varying needs of both large and small investors.
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to exchange into other Smith Barney funds. Be sure to read the
prospectus of the Smith Barney fund you are exchanging into. An exchange is a
taxable transaction.
o You may exchange shares only for shares of the same class of another Smith
Barney fund. Not all Smith Barney funds offer all classes.
o Not all Smith Barney funds may be offered in your state of residence.
Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent.
o You must meet the minimum investment amount for each fund.
o If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers (documents
transferring ownership of certificates) 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 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 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). Requests received after the
close of regular trading on the Exchange are priced at the net asset value next
determined.
You can make telephone exchanges only 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.
16 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<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, which may take up to 15 days.
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 account is registered
Smith Barney Mutual Funds 17
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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). Requests received
after the close of regular trading on the Exchange are priced at the net asset
value next determined.
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
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:
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.
18 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means 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 the 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 loan institutions, but not from a notary public.
Smith Barney Mutual Funds 19
- --------------------------------------------------------------------------------
<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 because of a 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.
20 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<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 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 the same class.
o Class A shares may be purchased by plans investing at least $1 million.
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 in the following circumstances:
If the account was opened on or after June 21, 1996 and a total of
$1 million is invested in Smith Barney Funds Class L and Class O
shares (other than money market funds), all Class L shares are
eligible for exchange after the plan is in the program 5 years.
If the account was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L and Class O
shares (other than money market funds) on December 31 in any year,
all Class L shares are eligible for exchange on or about March 31 of
the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
Smith Barney Mutual Funds 21
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends The fund generally declares and pays monthly dividends and makes
capital gain distributions, 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 your tax adviser about your
investment in the fund.
22 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus 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. The Exchange is closed on certain holidays listed on the SAI. 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 reliable market prices are
not readily available, or when 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 using
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 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 since inception. 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 LLP, independent accountants, whose report, along with the
fund's financial statements, are included in the annual report (available upon
request).
Smith Barney Mutual Funds 23
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For a Class A share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998(1) 1997(1) 1996(1) 1995 1994(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 12.22 $ 12.55 $ 12.30 $ 11.68 $ 12.92
- -----------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.54 0.59 0.70 0.92(3) 0.69
Net realized and
unrealized gain (loss) 0.39 0.38 0.42 0.48 (1.28)
- -----------------------------------------------------------------------------------------------------------
Total income (loss)
from operations 0.93 0.97 1.12 1.40 (0.59)
- -----------------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) (0.22) (1.22) (0.87) (0.78) (0.23)
Net realized gains (0.60) (0.08) -- -- --
Capital (0.45) -- -- -- (0.42)
- -----------------------------------------------------------------------------------------------------------
Total distributions (1.27) (1.30) (0.87) (0.78) (0.65)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 11.88 $ 12.22 $ 12.55 $ 12.30 $ 11.68
- -----------------------------------------------------------------------------------------------------------
Total return(5) 8.08% 8.21% 9.41% 12.40% (4.64)%(6)
- -----------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 88,836 $ 94,957 $ 106,536 $ 123,917 $ 77,961
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 1.22% 1.26% 1.26% 1.38% 1.32%(8)
Net investment income (loss) 4.58 4.82 5.69 7.44 6.57(8)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 287% 367% 133% 195% 179%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) For the period from January 1, 1994 (inception date) 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 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.
24 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For a Class B share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998(1) 1997(1) 1996(1) 1995(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.22 $ 12.50 $ 12.26 $ 11.57
- -----------------------------------------------------------------------------------------------
Income from operations:
Net investment income 0.47 0.52 0.63 0.78(3)
Net realized and unrealized gain 0.39 0.38 0.42 0.57
- -----------------------------------------------------------------------------------------------
Total income from operations 0.86 0.90 1.05 1.35
- -----------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) (0.19) (1.10) (0.81) (0.66)
Net realized gains (0.60) (0.08) -- --
Capital (0.42) -- -- --
- -----------------------------------------------------------------------------------------------
Total distributions (1.21) (1.18) (0.81) (0.66)
- -----------------------------------------------------------------------------------------------
Net asset value, end of year $ 11.87 $ 12.22 $ 12.50 $ 12.26
- -----------------------------------------------------------------------------------------------
Total return(5) 7.46% 7.62% 8.83% 11.97%(6)
- -----------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 14,569 $ 19,690 $ 25,970 $ 35,159
- -----------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 1.77% 1.80% 1.81% 1.92%(8)
Net investment income (loss) 3.93 4.24 5.15 6.65(8)
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 287% 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 would have been 1.78% and 1.86% (8), respectively.
(8) Annualized.
Smith Barney Mutual Funds 25
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For a Class L share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998(1)(2) 1997(1) 1996(1) 1995(2) 1994(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 12.19 $ 12.47 $ 12.23 $ 11.68 $ 12.93
- -----------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.48 0.53 0.64 0.85(4) 0.90
Net realized and unrealized
gain (loss) 0.40 0.38 0.41 0.42 (1.55)
- -----------------------------------------------------------------------------------------------------------
Total income (loss)
from operations 0.88 0.91 1.05 1.27 (0.65)
- -----------------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(5) (0.19) (1.11) (0.81) (0.72) (0.21)
Net realized gains (0.60) (0.08) -- -- --
Capital (0.42) -- -- -- (0.39)
- -----------------------------------------------------------------------------------------------------------
Total distributions (1.21) (1.19) (0.81) (0.72) (0.60)
- -----------------------------------------------------------------------------------------------------------
Net assets value, end of year $ 11.86 $ 12.19 $ 12.47 $ 12.23 $ 11.68
- -----------------------------------------------------------------------------------------------------------
Total return(6) 7.67% 7.73% 8.90% 11.25% (5.09)%(7)
- -----------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 2,391 $ 3,257 $ 3,986 $ 4,141 $ 5,835
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(8) 1.68% 1.69% 1.74% 1.84% 1.80%(9)
Net investment income (loss) 4.01 4.33 5.22 7.15 6.05(9)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 287% 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 (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) 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 1.71% and 1.78%, respectively; numbers prior to October 31, 1995 have
not been restated to reflect these credits.
(9) Annualized.
26 Global Government Bond Portfolio
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For a Class Y share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998(1) 1997(1) 1996(1) 1995(2) 1994(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.03 $ 12.39 $ 12.14 $ 11.68 $ 12.93
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.59 0.63 0.73 0.78(4) 0.76
Net realized and unrealized gain (loss) 0.37 0.37 0.42 0.49 (1.35)
- -------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.96 1.00 1.15 1.27 (0.59)
- -------------------------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(5) (0.23) (1.28) (0.90) (0.81) (0.23)
Net realized gains (0.60) (0.08) -- -- --
Capital (0.46) -- -- -- (0.43)
- -------------------------------------------------------------------------------------------------------------------
Total distributions (1.29) (1.36) (0.90) (0.81) (0.66)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 11.70 $ 12.03 $ 12.39 $ 12.14 $ 11.68
- -------------------------------------------------------------------------------------------------------------------
Total return 8.50% 8.61% 9.82% 11.27% (4.62)%(6)
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 37,057 $ 28,097 $ 15,105 $ 62 $ 3.202
- -------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses(7) 0.83% 0.89% 0.84% 0.98% 1.23%(8)
Net investment income (loss) 5.06 5.19 6.12 6.38 6.76(8)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 287% 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 (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) 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 0.81% and 0.93%, respectively; numbers prior to October 31, 1995 have
not been restated to reflect these credits.
(8) Annualized.
Smith Barney Mutual Funds 27
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALOMON SMITH BARNEY
----------------------------
A member of citigroup [LOGO]
Global Government Bond Portfolio
An investment portfolio of Smith Barney Worlds, Inc.
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. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. 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.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(R)
PROSPECTUS
International [GRAPHIC OMITTED]
Balanced
Portfolio
Class A, B, L and Y Shares
--------------------------
February 28, 1999
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
- --------------------------------------------------------------------------------
<PAGE>
International Balanced Portfolio
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and strategies ..................................... 3
Risks, performance and expenses .............................. 4
More on the fund's investments ............................... 7
Management ................................................... 8
Choosing a class of shares to buy ............................ 9
Comparing the fund's classes .................................10
Sales charges ................................................11
More about deferred sales charges ............................14
Buying shares ................................................15
Exchanging shares ............................................16
Redeeming shares .............................................17
Other things to know about share
transactions .................................................19
Smith Barney 401(k) and ExecChoice(TM)
programs .....................................................21
Dividends, distributions and taxes ...........................22
Share price ..................................................23
Financial highlights .........................................23
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.
2 International Balanced Portfolio
<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
Smith Barney Mutual Funds 3
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investing in foreign securities can bring added benefits, but 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:
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 security 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 began 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
4 International Balanced Portfolio
<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.
- --------------------------------------------------------------------------------
Total Return for Class A Shares
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
95 14.63%
96 12.07%
97 -6.47%
98 20.34%
Calendar years ended December 31
This bar chart shows the performance of the fund's Class A shares for each of
the past four years. Class B, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
Quarterly returns:
Highest: 8.67% in 2nd quarter 1995; Lowest: (9.91)% in 4th quarter 1997
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 with that of the MSCI
EAFE GDP Weighted Index, a broad-based unmanaged index of foreign stocks ("EAFE
Index"), and of the J.P. Morgan Global Government Bond Index ("MGBM Index"), a
broad-based 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 1 year 5 years 10 years Since Inception Inception Date
- --------------------------------------------------------------------------------
A 14.34% n/a n/a 6.75% 08/25/94
- --------------------------------------------------------------------------------
B 14.28% n/a n/a 7.22% 11/07/94
- --------------------------------------------------------------------------------
L 17.06% n/a n/a 6.91% 08/25/94
- --------------------------------------------------------------------------------
Y 20.05% n/a n/a 7.57% 02/07/96
- --------------------------------------------------------------------------------
EAFE Index (2.06)% n/a n/a 4.60% *
- --------------------------------------------------------------------------------
MGBM Index 15.31% n/a n/a 9.3% *
- --------------------------------------------------------------------------------
* Index comparison begins on August 31, 1994
Smith Barney Mutual Funds 5
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------------------
(paid directly from your investment) Class A Class B Class L Class Y
- --------------------------------------------------------------------------------
Maximum sales charge on purchases 5.00%* None 1.00% None
(as a % of offering 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Annual fund operating expenses**
- --------------------------------------------------------------------------------
(paid by the fund as % of net assets) Class A Class B Class L Class Y
- --------------------------------------------------------------------------------
Management fee 0.85% 0.85% 0.85% 0.85%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
- --------------------------------------------------------------------------------
Other expenses 0.69% 0.67% 0.73% 0.69%
------ ------ ------ ------
- --------------------------------------------------------------------------------
Total annual fund operating expenses 1.79% 2.52% 2.58% 1.54%
- --------------------------------------------------------------------------------
*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%.
**For Class Y shares, "Other Expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y shares were outstanding for the
year ended October 31, 1998.
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 (with or without redemption) $673 $1035 $1421 $2500
- --------------------------------------------------------------------------------
Class B (redemption at end of period) $755 $1085 $1440 $2669
- --------------------------------------------------------------------------------
Class B (no redemption) $255 $785 $1340 $2669
- --------------------------------------------------------------------------------
Class L (redemption at end of period) $459 $894 $1457 $2986
- --------------------------------------------------------------------------------
Class L (no redemption) $359 $894 $1457 $2986
- --------------------------------------------------------------------------------
Class Y (with or without redemption) $157 $486 $839 $1834
- --------------------------------------------------------------------------------
6 International Balanced Portfolio
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Debt securities Debt securities of developed foreign countries must be
rated as investment grade at the time of purchase. Investment grade
securities are rated in the top four ratings categories by a nationally
recognized statistical ratings organization or, if unrated judged by the
manager to be of comparable quality. If the rating drop below investment
grade subsequent to purchase, the manager will not necessarily sell the
security, but will consider whether the fund should continue to hold the
security. Debt securities of developing countries may be rated below
investment grade (commonly known as "junk bonds") and could include
securities that are in default. These securities may be speculative
and involve a 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, because of changes in stock and bond prices,
currency exchange rates or interest rates
o As a substitute for buying or selling currencies or securities
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment 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 and bond price, 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.
Smith Barney Mutual Funds 7
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSBC Fund Management Inc., 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 equity 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. Smith Barney Global Capital Management, Inc., a U.S. registered
investment adviser located at 10 Piccadilly, London, England, furnishes the fund
with information, advice and assistance for the portion of its assets invested
in debt securities.
Jeffrey Russell, investment officer of the manager and managing director of
Salomon Smith Barney, and Denis P. Mangan, investment officer of the manager 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 sells 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 cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by 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, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
8 International Balanced Portfolio
<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. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
o If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
o For Class B shares, all of your purchase amount and, for Class L shares,
more of your purchase amount (compared to Class A shares) will be
immediately invested. This may help offset the higher expenses of Class B
and Class L shares, but only if the fund performs well.
o Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
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.
- --------------------------------------------------------------------------------
Initial Additional
- --------------------------------------------------------------------------------
Classes A,B,L Class Y All Classes
- --------------------------------------------------------------------------------
General $1,000 $15 million $50
- --------------------------------------------------------------------------------
IRAs, Self Employed Retirement
Plans, Uniform Gift to Minor
Accounts $ 250 $15 million $50
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
*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
Smith Barney Mutual Funds 9
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They 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 charge o Initial sales charge is o No initial or deferred
o You may qualify for o Deferred sales charge lower than Class A sales charge
reduction or waiver of declines over time o Deferred sales charge o Must invest at least
initial sales charge o Converts to Class A for only 1 year $15 million
o Lower annual expenses after 8 years o Does not convert to o Lower annual expenses
than Class B and Class L o Higher annual expenses Class A than the other classes
than Class A o Higher annual expenses
than Class A
- ------------------------------------------------------------------------------------------------------------------------------
Initial sales Up to 5.00%; reduced or None 1.00% None
charge waived for large
purchases and certain
investors; no charge for
purchases of $500,000 or
more None
- ------------------------------------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 5.00% charged when 1% if you redeem within 1 None
sales charge $500,000 or more if you you redeem shares. The year of purchase
redeem within 1 year of charge is reduced over
purchase time and there is no
deferred sales charge
after 6 years
- ------------------------------------------------------------------------------------------------------------------------------
Annual 0.25% of average daily 1% of average daily net 1% of average daily net None
distribution net assets assets assets
and service
fees
- ------------------------------------------------------------------------------------------------------------------------------
Exchange Class A shares of most Class B shares of most Class L shares of most Class Y shares of most
privilege* Smith Barney funds Smith Barney funds. Smith Barney funds Smith Barney funds
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant, dealer representative or
visit the web site for the Smith Barney funds available for exchange.
10 International Balanced Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Sales charges
- --------------------------------------------------------------------------------
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 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 0.00 0.00
- --------------------------------------------------------------------------------
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.
Smith Barney Mutual Funds 11
<PAGE>
Letter of intent -- lets you purchase Class A shares of the fund and other Smith
Barney 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 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 Statement of Additional
Information ("SAI").
12 International Balanced Portfolio
<PAGE>
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.
- --------------------------------------------------------------------------------
Year after purchase 1st 2nd 3rd 4th 5th 6th and 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 fund
- --------------------------------------------------------------------------------
Eight years In same proportion as On the date the shares
after the date the number of Class B originally acquired
of purchase shares converting is to would have converted
total Class B shares into Class A shares
you own
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.
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 this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
Smith Barney Mutual Funds 13
<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 or depreciation.
In addition, you do not pay a deferred sales charge on:
o Shares exchanged for shares of another Smith Barney 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 at the current net asset
value 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 On payments made through certain systematic withdrawal plans
o On 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.
14 International Balanced Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a Salomon Smith Barney Financial Consultant or dealer representative
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to open a brokerage account and make arrangements to buy shares.
If you do not provide the following information, your order will be rejected
o Class of shares being bought
o Dollar amount or number of shares being 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 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.
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.
- --------------------------------------------------------------------------------
Through a systematic investment plan
You may authorize Salomon Smith Barney, your 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.
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
For more information, contact your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent or consult the SAI.
Smith Barney Mutual Funds 15
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney offers a distinctive family of funds tailored to help meet the
varying needs of both large and small investors.
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to exchange into other Smith Barney funds. Be sure to read the
prospectus of the Smith Barney fund you are exchanging into. An exchange is a
taxable transaction.
o You may exchange shares only for shares of the same class of another Smith
Barney fund. Not all Smith Barney funds offer all classes.
o Not all Smith Barney funds may be offered in your state of residence.
Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent.
o You must meet the minimum investment amount for each fund.
o If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers (documents
transferring ownership of certificates) 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 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 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). Requests received after the
close of regular trading on the Exchange are priced at the net asset value next
determined.
You can make telephone exchanges only 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.
16 International Balanced Portfolio
<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, which may take up to 15 days.
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
Smith Barney Mutual Funds 17
<PAGE>
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). Requests received
after the close of regular trading on the Exchange are priced at the net asset
value next determined.
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
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:
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.
18 International Balanced Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means 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 the 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 loan institutions, but not from a notary public.
Smith Barney Mutual Funds 19
<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 because of a 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.
20 International Balanced Portfolio
<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 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 the same class.
o Class A shares may be purchased by plans investing at least $1 million.
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 in the following circumstances:
If the account was opened on or after June 21, 1996 and a total of
$1 million is invested in Smith Barney Funds Class L and Class O
shares (other than money market funds), all Class L shares are
eligible for exchange after the plan is in the program 5 years.
If the account was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L and Class O
shares (other than money market funds) on December 31 in any year,
all Class L shares are eligible for exchange on or about March 31 of
the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
Smith Barney Mutual Funds 21
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends The fund generally declares and pays dividends quarterly and makes
capital gain distributions, 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 your tax adviser about your
investment in the fund.
22 International Balanced Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus 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. The Exchange is closed on certain holidays listed in the SAI. 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 reliable market prices are
not readily available, or when 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 using
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 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 since inception. 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 LLP, independent accountants, whose report, along with the
fund's financial statements, are included in the annual report (available upon
request).
Smith Barney Mutual Funds 23
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
For a Class A share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------------------------------
1998(1) 1997(1) 1996(1) 1995 1994(2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 13.32 $ 13.90 $ 12.64 $ 12.20 $ 12.00
- --------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(3) 0.51 0.18 0.26 0.35 0.07
Net realized and
unrealized gain (loss) 1.19 (0.41) 1.35 0.48 0.13
- --------------------------------------------------------------------------------------------------------
Total income (loss)
from operations 1.70 (0.23) 1.61 0.83 0.20
- --------------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) (0.10) (0.15) (0.35) (0.39) --
Net realized gains (0.03) -- -- -- --
Capital -- (0.20) -- -- --
- --------------------------------------------------------------------------------------------------------
Total distributions (0.13) (0.35) (0.35) (0.39) --
- --------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 14.89 $ 13.32 $ 13.90 $ 12.64 $ 12.20
- --------------------------------------------------------------------------------------------------------
Total return(5) 12.87% (1.71)% 12.89% 7.05% 1.67%(6)
- --------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 9,639 $ 11,072 $ 16,116 $ 17,667 $ 20,634
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 1.79% 1.71% 1.81% 1.62% 1.34%(8)
Net investment income 3.80 1.32 1.94 2.89 1.37(8)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 141% 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 year ended October 31,
1995 and the period ended October 31, 1994. If such fees were not waived,
the per share effect on net investment income and the expense ratios would
have been as follows:
Per Share Expense Ratios
Decreases to Net Without Fee Waivers
Investment Income 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 would have
been 1.72% and 1.52%, respectively; numbers prior to October 31, 1995 have
not been restated to reflect these credits.
(8) Annualized.
24 International Balanced Portfolio
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
For a Class B share of capital stock
outstanding throughout each year ended October 31:
- -------------------------------------------------------------------------------------------------
1998(1) 1997(1) 1996(1) 1995(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 13.38 $ 13.90 $ 12.65 $ 12.08
- -------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(3) 0.41 0.07 0.15 0.36
Net realized and unrealized gain (loss) 1.19 (0.41) 1.36 0.50
- -------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.60 (0.34) 1.51 0.86
- -------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) (0.02) (0.08) (0.26) (0.29)
Net realized gains (0.03) -- -- --
Capital -- (0.10) -- --
- -------------------------------------------------------------------------------------------------
Total distributions (0.05) (0.18) (0.26) (0.29)
- -------------------------------------------------------------------------------------------------
Net asset value, end of year $ 14.93 $ 13.38 $ 13.90 $ 12.65
- -------------------------------------------------------------------------------------------------
Total return(5) 11.96% (2.45)% 12.05% 7.33%(6)
- -------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 4,004 $ 4,813 $ 5,258 $ 3,064
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 2.52% 2.48% 2.62% 2.49%(8)
Net investment income 3.03 0.53 1.14 3.11(8)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate 141% 197% 189% 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) The manager waived all or part of its fees for the period ended October
31, 1995. If such fees were not waived, the per share effect on net
investment income and the expense ratios would have been as follows:
Per Share Expense Ratios
Decreases to Net Without Fee Waivers
Investment Income 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 would have been 2.53% and 2.39% (8), respectively.
(8) Annualized.
Smith Barney Mutual Funds 25
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
For a Class L share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------------------------------
1998(1)(2) 1997(1) 1996(1) 1995 1994(3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 13.35 $ 13.87 $ 12.63 $ 12.18 $ 12.00
- --------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(4) 0.40 0.08 0.15 0.28 0.05
Net realized and unrealized
gain (loss) 1.18 (0.42) 1.35 0.46 0.13
- --------------------------------------------------------------------------------------------------------
Total income (loss)
from operations 1.58 (0.34) 1.50 0.74 0.18
- --------------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(5) (0.01) (0.08) (0.26) (0.29) --
Net realized gains (0.03) -- -- -- --
Capital -- (0.10) -- -- --
- --------------------------------------------------------------------------------------------------------
Total distributions (0.04) (0.18) (0.26) (0.29) --
- --------------------------------------------------------------------------------------------------------
Net assets value, end of year $ 14.89 $ 13.35 $ 13.87 $ 12.63 $ 12.18
- --------------------------------------------------------------------------------------------------------
Total return(6) 11.90% (2.46)% 11.99% 6.29% 1.50%(7)
- --------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 2,940 $ 3,642 $ 4,869 $ 4,317 $ 4,310
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(8) 2.58% 2.51% 2.62% 2.37% 2.03%(9)
Net investment income 2.93 0.60 1.14 2.330.79(9)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 141% 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 year ended October 31,
1995 and the period ended October 31, 1994. If such fees were not waived,
the per share effect on net investment income and the expense ratios would
have been as follows:
Per Share Expense Ratios
Decreases to Net Without Fee Waivers
Investment Income and Custody Credits
----------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
Class A $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 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.
26 International Balanced Portfolio
<PAGE>
- --------------------------------------------------------------------------------
For a Class Y share* of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
1997(1) 1996(1)(2)
- --------------------------------------------------------------------------------
Net asset value, beginning of year $ 13.93 $ 13.15
- --------------------------------------------------------------------------------
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 operations (0.17) 1.07
- --------------------------------------------------------------------------------
Less distribution 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
- --------------------------------------------------------------------------------
Ratio 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 period 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 ratio would have been 1.12%(6).
(6) Annualized.
* There were no Class Y shares outstanding for the year ended
October 31, 1998.
Smith Barney Mutual Funds 27
<PAGE>
this page is
left intentionally
blank
28 International Balanced Portfolio
<PAGE>
SALOMON SMITH BARNEY
---------------------------
A member of citigroup[LOGO]
International Balanced Portfolio
An investment portfolio of Smith Barney World Funds, Inc.
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. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. 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.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-06290)
FD00000 2/99
Smith Barney Mutual Funds 29
- --------------------------------------------------------------------------------
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(R)
PROSPECTUS
International
Equity Portfolio
Class Z Shares
--------------------------
February 28, 1999
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Fund goal and strategies 2
- --------------------------------------------------------------------------------
Risks, performance and expenses 3
- --------------------------------------------------------------------------------
More on the fund's investments 6
- --------------------------------------------------------------------------------
Management 7
- --------------------------------------------------------------------------------
Buying, selling and redeeming
Class Z shares 8
- --------------------------------------------------------------------------------
Share price 9
- --------------------------------------------------------------------------------
Dividends, distributions and taxes 10
- --------------------------------------------------------------------------------
Financial highlights 11
- --------------------------------------------------------------------------------
================================================================================
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.
================================================================================
================================================================================
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.
================================================================================
1
<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
2
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investing in foreign securities can bring added benefits, but 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:
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 began 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
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.
- --------------------------------------------------------------------------------
Total Returns for Class Z Shares
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
95 3%
96 14.06%
97 2.22%
98 12.13%
Calendar years ended December 31
The bar chart shows the performance of the fund's Class Z shares for each
of the last four calendar years.
Quarterly returns: Highest:16.59% in 1st quarter 1998;
Lowest:(17.59)% in 3rd quarter 1999
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 with that of
the EAFE Index, a broad-based unmanaged index of foreign stocks. This table
assumes the reinvestment of distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
1 year 5 years 10 years Since inception Inception Date
- --------------------------------------------------------------------------------
Class Z 12.13% n/a n/a 5.51% 11/7/94
- --------------------------------------------------------------------------------
EAFE Index 2.06% n/a n/a 9.83% *
- --------------------------------------------------------------------------------
*Index comparison begins on November 30, 1994.
4
<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 net assets)
- --------------------------------------------------------------------------------
Management fee 0.85%
Other expenses 0.07%
----
Total annual fund operating expenses 0.92%
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 (with or without redemptions) $94 $293 $509 $1,131
- --------------------------------------------------------------------------------
5
<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 credit rating of the security is downgraded or the
issuer 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.
6
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSBC Fund Management Inc., 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.
Jeffrey Russell and James Conheady, investment officers of the manager 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.
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 cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by 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, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
7
<PAGE>
- --------------------------------------------------------------------------------
Buying, selling and exchanging Class Z shares
- --------------------------------------------------------------------------------
Buying You may buy, sell or exchange Class Z shares only through a
"qualified plan." A qualified plan is a tax-exempt employee 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.
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 may place 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 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 consult your qualified plan for information about
available exchange options.
Other The fund has the right to:
information o Suspend the offering of shares
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
o Reject any purchase or exchange order
o Change, revoke or suspend the exchange privilege
8
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
Qualified plans may buy, exchange or redeem shares at their 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. The Exchange is
closed on certain holidays listed in the SAI. 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 reliable market prices are
not readily available, or when 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 using
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 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.
9
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions 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.
Taxes In general, redeeming Class Z shares, exchanging Class Z shares and
receiving distributions 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 your tax adviser about your investment in
the fund.
10
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of Class Z shares since inception. 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 LLP, independent auditors, 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(1) 1997(1) 1996(1) 1995(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 20.36 $ 18.62 $ 17.12 $ 18.38
- ----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.08 0.05 0.14 0.13(3)
Net realized and unrealized gain (loss) 0.01 1.75 1.57 (1.12)
- ----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.09 1.80 1.71 (0.99)
- ----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income(3) (0.06) (0.06) (0.21) (0.17)
Net realized gains -- -- -- (0.10)
- ----------------------------------------------------------------------------------------------------
Total Distributions (0.06) (0.06) (0.21) (0.27)
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 20.39 $ 20.36 $ 18.62 $ 17.12
- ----------------------------------------------------------------------------------------------------
Total Return 0.45% 9.69% 10.13% (5.03)%(5)
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 117,132 $ 131,709 $ 119,408 $ 94,387
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(6) 0.92% 0.94% 0.97% 1.10%(7)
Net investment income 0.36 0.22 0.55 1.06(7)
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 25% 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) 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 would have been 0.91% and 1.02%(7), respectively.
(7) Annualized.
11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
International Equity Portfolio
An investment portfolio of Smith Barney World Funds, Inc.
SALOMON SMITH BARNEY
---------------------------
A member of citigroup[LOGO]
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 and is 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. You can get copies of these materials
for a fee by writing to the Public Reference Section of the Commission,
Washington, D.C. 20549-6009. 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.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-06290)
12
- --------------------------------------------------------------------------------
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(R)
PROSPECTUS
International
Equity Portfolio
Class A, B, L and Y Shares
---------------------------
February 28, 1999
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
- --------------------------------------------------------------------------------
<PAGE>
this page is left intentionally blank
<PAGE>
International Equity Portfolio
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and strategies ......................4
Risks, performance and expenses ...............5
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(TM) 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.
Smith Barney Mutual Funds 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 (including emerging 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 International Equity Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investing in foreign securities can bring added benefits, but 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:
o Foreign securities 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 security 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 began 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
Smith Barney Mutual Funds 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.
- --------------------------------------------------------------------------------
Total Return for Class A Shares
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
31.86% -11.87% 37.8% 0.49% 52.78% 8.9% 2.4% 13.6% 1.91% 11.74%
Calendar years ended December 31
This bar chart shows the performance of the fund's Class A shares for each of
the past 10 years. Class B, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
Quarterly returns:
Highest: 19.19% in 4th quarter 1993; Lowest: (20.93)% in 3rd quarter 1990.
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 with that of the EAFE
Index, a broad-based 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
- --------------------------------------------------------------------------------
Class 1 year 5 years 10 years Since Inception Inception Date
- --------------------------------------------------------------------------------
A 6.15% 2.83% 10.94*% 8.86% 11/21/91
- --------------------------------------------------------------------------------
B 5.82% n/a n/a 4.11% 11/07/94
- --------------------------------------------------------------------------------
L 8.74% 2.85% n/a 9.76% 01/04/93
- --------------------------------------------------------------------------------
Y 12.11% n/a n/a 5.98% 06/16/94
- --------------------------------------------------------------------------------
EAFE Index 2.06% 9.50% 5.85% 11.22% **
- --------------------------------------------------------------------------------
* The Fund's performance also includes returns on the Fenimore International
Fund. Smith Barney assumed management in November 1991.
** Index comparison begins on February 28, 1986
6 International Equity Portfolio
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------------------
(paid directly from your investment) Class A Class B Class L Class Y
- --------------------------------------------------------------------------------
Maximum sales charge on purchases 5.00%* None 1.00% None
(as a % of offering 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Annual fund operating expenses
- --------------------------------------------------------------------------------
(paid by the fund as % of net assets) Class A Class B Class L Class Y
- --------------------------------------------------------------------------------
Management fee 0.85% 0.85% 0.85% 0.85%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
- --------------------------------------------------------------------------------
Other expenses 0.18% 0.24% 0.22% 0.07%
---- ---- ---- ----
- --------------------------------------------------------------------------------
Total annual fund operating expenses 1.28% 2.09% 2.07% 0.92%
- --------------------------------------------------------------------------------
* 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 (with or without redemption) $624 $886 $1167 $1968
- --------------------------------------------------------------------------------
Class B (redemption at end of period) $712 $955 $1224 $2227
- --------------------------------------------------------------------------------
Class B (no redemption) $212 $655 $1124 $2227
- --------------------------------------------------------------------------------
Class L (redemption at end of period) $408 $742 $1202 $2476
- --------------------------------------------------------------------------------
Class L (no redemption) $308 $742 $1202 $2476
- --------------------------------------------------------------------------------
Class Y (with or without redemption) $94 $293 $509 $1131
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 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 credit rating of the security is downgraded or the
issuer 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 International Equity Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSBC Fund Management Inc., 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.
Jeffrey Russell and James Conheady, investment officers of the manager 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 sells 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 cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by 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, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
Smith Barney Mutual Funds 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. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
o If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
o For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
o Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term
investors.
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.
- --------------------------------------------------------------------------------
Initial Additional
- --------------------------------------------------------------------------------
Classes A, B, L Class Y All Classes
- --------------------------------------------------------------------------------
General $1,000 $5 million $50
- --------------------------------------------------------------------------------
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $5 million $50
- --------------------------------------------------------------------------------
Qualified Retirement Plans* $25 $5 million $25
- --------------------------------------------------------------------------------
Simple IRAs $1 n/a $1
- --------------------------------------------------------------------------------
Monthly Systematic Investment Plans $25 n/a $25
- --------------------------------------------------------------------------------
Quarterly Systematic Investment Plans $50 n/a $50
- --------------------------------------------------------------------------------
* 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 International Equity Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They 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 o No initial o Initial sales o No initial
charge sales charge charge is or deferred
o You may o Deferred lower than sales charge
qualify for sales charge Class A o Must invest
reduction or declines o Deferred sales at least
waiver of over time charge for $5 million
initial sales o Converts to only 1 year o Lower annual
charge Class A after o Does not con- expenses than
o Lower annual 8 years vert to Class A the other
expenses than o Higher annual o Higher annual classes
Class B and expenses than expenses than
Class L 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 Up to 5% 1% if you None
sales charge purchases of charged when redeem within 1
$500,000 or you redeem year of purchase
more if you shares. The
redeem within 1 charge is
year of purchase reduced over
time and there
is no deferred
sales charge
after 6 years
- ---------------------------------------------------------------------------------------
Annual 0.25% of 1% of average 1% of average None
distribution average daily daily net assets daily net assets
and service net assets
fees
- ---------------------------------------------------------------------------------------
Exchange Class A shares Class B shares Class L shares Class Y shares
privilege* of most Smith of most Smith of most Smith of most Smith
Barney funds Barney funds Barney funds Barney 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.
Smith Barney Mutual Funds 11
<PAGE>
- --------------------------------------------------------------------------------
Sales charges
- --------------------------------------------------------------------------------
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 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 0.00 0.00
- --------------------------------------------------------------------------------
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 International Equity Portfolio
<PAGE>
Letter of intent -- lets you purchase Class A shares of the fund and other Smith
Barney 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 peuchases on which
you paid a sales charge 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 Statement of Additional
Information ("SAI").
Smith Barney Mutual Funds 13
<PAGE>
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 fund
- --------------------------------------------------------------------------------
Eight years after the In same proportion as On the date the shares
date of purchase the number of Class B originally acquired
shares converting is to would have converted
total Class B shares you into Class A shares
own
- --------------------------------------------------------------------------------
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% of the offering price (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.
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 also use a letter of intent to meet this
requirement by buying Class Y shares over a 6-month period. To qualify, you must
initially invest $1,000,000.
14 International Equity Portfolio
<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 or depreciation.
In addition, you do not pay a deferred sales charge on:
o Shares exchanged for shares of another Smith Barney 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 at the current net asset
value 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 On payments made through certain systematic withdrawal plans
o On 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.
Smith Barney Mutual Funds 15
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a Salomon Smith Barney Financial Consultant or dealer representative
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to open a brokerage account and make arrangements to buy shares.
If you do not provide the following information, your order will be rejected
o Class of shares being bought
o Dollar amount or number of shares being 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 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.
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.
- --------------------------------------------------------------------------------
Through a systematic investment plan
You may authorize Salomon Smith Barney, your 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.
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 International Equity Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney offers a distinctive family of funds tailored to help meet the
varying needs of both large and small investors.
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to exchange into other Smith Barney funds. Be sure to read the
prospectus of the Smith Barney fund you are exchanging into. An exchange is a
taxable transaction.
o You may exchange shares only for shares of the same class of another Smith
Barney fund. Not all Smith Barney funds offer all classes.
o Not all Smith Barney funds may be offered in your state of residence. Contact
your Salomon Smith Barney Financial Consultant, dealer representative or the
transfer agent.
o You must meet the minimum investment amount for each fund.
o If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers (documents
transferring ownership of certificates) 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 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 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). Requests received after the
close of regular trading on the Exchange are priced at the net asset value next
determined.
You can make telephone exchanges only 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.
Smith Barney Mutual Funds 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, which may take up to 15 days.
If you have a 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 The 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 account is registered
18 International Equity Portfolio
<PAGE>
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). Requests received
after the close of regular trading on the Exchange are priced at the net asset
value next determined.
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
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:
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.
Smith Barney Mutual Funds 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 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 the 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 loan institutions, but not from a notary public.
20 International Equity Portfolio
<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 because of a 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.
Smith Barney Mutual Funds 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 ExecChoiceTM 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 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 the same class.
o Class A shares may be purchased by plans investing at least $1 million.
o Class L shares may be purchased by plans investing less than $1 million.
o 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 in the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1
million is invested in Smith Barney Funds Class L and Class O shares (other
than money market funds), all Class L shares are eligible for exchange
after the plan is in the program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L and Class O shares (other than money
market funds) on December 31 in any year, all Class L shares are eligible
for exchange on or about 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 International Equity Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions 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 your tax adviser about your investment in
the fund.
Smith Barney Mutual Funds 23
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus 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. The Exchange is closed on certain holidays listed in the SAI. 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 reliable market prices are
not readily available, or when 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 using
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 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 LLP, independent
accountants, whose report, along with the fund's financial statements, are
included in the annual report (available upon request).
24 International Equity Portfolio
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
For a Class A share of capital stock
outstanding throughout each year ended October 31:
- ---------------------------------------------------------------------------------------------
1998(1) 1997(1) 1996(1) 1995 1994(2)(3) 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $20.36 $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) 0.03 1.77 1.65 (1.50) 0.09 6.53
- ---------------------------------------------------------------------------------------------
Total income (loss)
from operations 0.03 1.73 1.66 (1.42) 0.08 6.52
- ---------------------------------------------------------------------------------------------
Less distribution 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 $20.39 $20.36 $18.64 $17.15 $18.79 $18.71
- ---------------------------------------------------------------------------------------------
Total return(7) 0.15% 9.30% 9.78% (7.44)% 0.43%(6) 52.78%
- ---------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $453,029 $464,796 $513,870 $489,533 $591,598 $355,926
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(8) 1.28% 1.31% 1.35% 1.36% 1.35%(9) 1.35%
Net investment income (loss) 0.00 (0.18) 0.17 0.50 (0.05)(9) (0.10)
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 25% 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.
Smith Barney Mutual Funds 25
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
For a Class B share of capital stock
outstanding throughout each year ended October 31:
- -------------------------------------------------------------------------------------
1998(1) 1997(1) 1996(1) 1995(2)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $20.22 $18.65 $17.17 $18.38
- -------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (0.18) (0.20) (0.08) 0.06(3)
Net realized and unrealized gain (loss) 0.04 1.77 1.60 (1.17)
- -------------------------------------------------------------------------------------
Total income (loss) from operations (0.14) 1.57 1.52 (1.11)
- -------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) -- -- (0.04) --
Net realized gains -- -- -- (0.10)
- -------------------------------------------------------------------------------------
Total distributions -- -- (0.04) (0.10)
- -------------------------------------------------------------------------------------
Net asset value, end of year $20.08 $20.22 $18.65 $17.17
- -------------------------------------------------------------------------------------
Total return(5) (0.69)% 8.42% 8.89% (6.00)%(6)
- -------------------------------------------------------------------------------------
Net assets, end of year (000)'s $180,980 $231,148 $212,294 $126,171
- -------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 2.09% 2.11% 2.11% 2.13%(8)
Net investment income (loss) (0.84) (0.95) (0.58) 0.34(8)
- -------------------------------------------------------------------------------------
Portfolio turnover rate 25% 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
would have been 2.04% and 2.04%(8), respectively.
(8) Annualized.
26 International Equity Portfolio
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
For a Class L share of capital stock
outstanding throughout each year ended October 31:
- -----------------------------------------------------------------------------------------------------------------------
1998(1)(2) 1997(1) 1996(1) 1995(2) 1994(3) 1993(4)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 19.93 $ 18.38 $ 16.93 $ 18.54 $ 18.58 $ 12.35
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment loss (0.17) (0.22) (0.13) (0.06)(5) (0.14)
Net realized and unrealized
gain (loss) 0.03 1.77 1.62 (1.45) 0.07 6.25
- -----------------------------------------------------------------------------------------------------------------------
Total income (loss)
from operations (0.14) 1.55 1.49 (1.51) (0.04) 6.39
- -----------------------------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) -- -- (0.04) -- -- --
Net realized gains -- -- -- (0.10) -- (0.16)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions -- -- (0.04) (0.10) -- (0.16)
- -----------------------------------------------------------------------------------------------------------------------
Net assets value, end of year $ 19.79 $ 19.93 $ 18.38 $ 16.93 $ 18.54 $ 18.58
- -----------------------------------------------------------------------------------------------------------------------
Total return(4) (0.70)% 8.43% 8.85% (8.11)% (0.22)%(8) 51.73%(8)
- -----------------------------------------------------------------------------------------------------------------------
Net assets,
end of year (000)'s $ 152,569 $ 200,849 $ 229,514 $ 240,090 $ 287,458 $ 114,951
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(9) 2.07% 2.12% 2.15% 2.16% 2.10%(10) 2.14%(10)
Net investment income (loss) (0.81) (0.97) (0.63) (0.34) (0.77)(10) (1.08)(10)
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 25% 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 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.
Smith Barney Mutual Funds 27
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
For a Class Y share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------------------------------
1998(1) 1997(1) 1996(1) 1995(2) 1994(3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 20.38 $ 18.64 $ 17.13 $ 18.80 $ 17.64
- --------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.08 0.04 0.18 0.10(4) 0.01
Net realized and unrealized
gain (loss) 0.01 1.76 1.54 (1.50) 1.15
- --------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.09 1.80 1.72 (1.40) 1.16
- --------------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(5) (0.06) (0.06) (0.21) (0.17) --
Net realized gains -- -- -- (0.10) --
- --------------------------------------------------------------------------------------------------------
Total distributions (0.06) (0.06) (0.21) (0.27) --
- --------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 20.41 $ 20.38 $ 18.64 $ 17.13 $ 18.80
- --------------------------------------------------------------------------------------------------------
Total return 0.45% 9.68% 10.19% (7.11)% 6.58%(6)
- --------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 333,979 $ 301,852 $ 200,427 $ 97,132 $ 48,765
- --------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses(8) 0.91% 0.94% 0.96% 1.06% 1.09%(7)
Net investment income 0.37 0.23 0.56 0.91 0.29(7)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 25% 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 would have
been 0.90% and 0.98%, respectively; numbers prior to October 31, 1995 have
not been restated to reflect these credits.
28 International Equity Portfolio
<PAGE>
this page is left intentionally blank
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALOMON SMITH BARNEY
---------------------------
A member of citigroup[LOGO]
International
Equity Portfolio
An investment portfolio of
Smith Barney World Funds, Inc.
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. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. 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.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-06290)
FD00000 2/99
[GRAPHIC APPEARS HERE]
[LOGO APPEARS HERE] Smith Barney Mutual Funds
Investing for your future.
Every day./(R)/
PROSPECTUS
Pacific Portfolio
Class A, B, L and Y Shares
--------------------------
February 28, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Pacific Portfolio
Contents
<TABLE>
<S> <C>
Fund goal and strategies.................................................... 2
Risks, performance and expenses............................................. 3
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 13
Buying shares............................................................... 14
Exchanging shares........................................................... 15
Redeeming shares............................................................ 16
Other things to know
about share transactions.................................................... 18
Smith Barney 401(k) and
ExecChoice(TM) programs..................................................... 20
Dividends, distributions and taxes.......................................... 21
Share price................................................................. 22
Financial highlights........................................................ 23
</TABLE>
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.
Smith Barney Mutual Funds
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 secu-
rities, depository receipts and warrants and rights relating to equity securi-
ties.
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 mar-
kets 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 pat-
ents
.Strong financial condition
The economic and political factors the manager evaluates include:
.Inflationary trends which create a favorable environment for securities mar-
kets
.Governmental policies toward business affecting economic growth and securities
markets
.Currency movements
.Monetary and fiscal trends
Pacific Portfolio
2
<PAGE>
Risks, performance and expenses
Principal risks of investing in the fund
Investing in Asia Pacific region securities can bring added benefits but 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:
.Stock prices of securities in the Asia Pacific region decline
.Economic, political or social instabilities significantly disrupt the princi-
pal 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 is not be able to sell desired amounts of securi-
ties at reasonable prices
.The manager's judgment about the attractiveness, value or potential apprecia-
tion 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. or other 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
Smith Barney Mutual Funds
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 neces-
sarily indicate how the fund will perform in the future.
Total Return for Class A Shares
[BAR GRAPH APPEARS HERE]
Calendar years ended December 31
95 96 97 98
----- ---- ------ -----
-10.68% 3.49% -29.52% -0.27%
This bar chart shows the performance of the fund's Class A shares for each of
the past four years. Class B, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
Quarterly returns
Highest: 22.35% in 4th quarter 1998; Lowest: (26.27)% in 4th quarter 1997
Comparative performance
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
MSCI All Country Asia Pacific Index ("MSCI Index"), a broad-based 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
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
A (5.30)% n/a n/a (10.84)% 02/07/94
B (6.29)% n/a n/a (12.77)% 11/07/94
L (3.15)% n/a n/a 10.84)% 02/11/94
MSCI Index (26.79)% n/a n/a (9.59)% *
</TABLE>
* Index comparison begins on February 28, 1994.
Pacific Portfolio
4
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(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**
<CAPTION>
(paid-by the fund as a % of net assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee .85% .85% .85% .85%
Distribution and service (12b-1) fees .25% 1.00% 1.00% None
Other expenses 2.37% 2.60% 2.43% 2.37%
------ ----- ----- -----
Total annual fund operating expenses 3.47% 4.45% 4.28% 3.22%
</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%.
**For Class Y Shares, "Other Expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y Shares were outstanding for the
year ended October 31, 1998.
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
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $832 $1512 $2212 $4060
Class B (redemption at end of period) $946 $1646 $2356 $4376
Class B (no redemption) $446 $1346 $2256 $4376
Class L (redemption at end of period) $625 $1385 $2257 $4493
Class L (no redemption) $525 $1385 $2257 $4493
Class Y (with or without redemption) $325 $ 992 $1683 $3522
</TABLE>
Smith Barney Mutual Funds
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 Guin-
ea, 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 secu-
rities. However, for cash management purposes, the fund may invest in invest-
ment 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 credit rating of
the security is downgraded or the issuer defaults on its obligation to pay
principal or interest.
Currency transactions The fund may enter into transactions to buy or sell cur-
rencies 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 strate-
gies 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.
Pacific Portfolio
6
<PAGE>
Management
Manager The fund's investment manager is SSBC Fund Management Inc., an affili-
ate 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 serv-
ices--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
David S. Ishibashi, investment officer of the manager and vice president of
Salomon Smith Barney, and Scott Kalb, investment officer of the manager 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 Salo-
mon 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 distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells 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 serv-
ice 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 cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by 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 guaran-
tee that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
Smith Barney Mutual Funds
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. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon 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
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
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
Pacific Portfolio
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. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to 5.00% None 1.00% None
reduced or
waived for
large pur-
chases and
certain
investors;
no charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
- ------------------------------------------------------------------------
Exchangeable into* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds 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.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
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 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 0.00 0.00
</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. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney 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 within 90 days before you sign the letter.
Pacific Portfolio
10
<PAGE>
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 cer-
tain 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 Con-
sultant or dealer representative or consult the Statement of Additional Infor-
mation ("SAI").
Smith Barney Mutual Funds
11
<PAGE>
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 pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th and 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 fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
</TABLE>
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.
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 this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
Pacific Portfolio
12
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney 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 at the current net asset
value 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:
.On payments made through certain systematic withdrawal plans
.On 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>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your order
dealer will be rejected
representative
.Class of shares being bought
.Dollar amount or number of shares being 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 pur-
chases, complete and send an account application.
.For more information, call the transfer agent at 1-800-451-
2010.
- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith
plan 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 represen-
tative 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.
Smith Barney Mutual Funds
14
<PAGE>
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the .You may exchange shares only for shares of the same class of
varying needs another Smith Barney fund. Not all Smith Barney funds offer
of both large all classes.
and small
investors. .Not all Smith Barney funds may be offered in your state of
residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund.
.If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) 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 mea-
sured 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 telephone If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete 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). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
You can make telephone exchanges only 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.
Smith Barney Mutual Funds
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 redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
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 regis-
tered
Smith Barney Mutual Funds
16
<PAGE>
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 tel-
ephone 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). Requests received after the close
of regular trading on the Exchange are priced at the net
asset value next determined.
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.
Pacific 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 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 the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal 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 regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
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 Securi-
ties and Exchange Commission
Pacific Portfolio
18
<PAGE>
Small account balances If your account falls below $500 because of a 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 share-
holders. 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.
Smith Barney Mutual Funds
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 ExecChoiceTM 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 invest-
ments in any of the Smith Barney 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 the same class.
.Class A shares may be purchased by plans investing at least $1 million.
.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 in
the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 mil-
lion is invested in Smith Barney Funds Class L and Class O shares (other
than money market funds), all Class L shares are eligible for exchange
after the plan is in the program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L and Class O shares (other than
money market funds) on December 31 in any year, all Class L shares are
eligible for exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Pacific Portfolio
20
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, 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 addi-
tional fund shares of the same class that you hold. The fund expects distribu-
tions 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 trans-
fer 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 distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
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 dis-
tribution 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 tax-
payer 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 your tax adviser about your investment
in the fund.
Smith Barney Mutual Funds
21
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus 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 liabili-
ties. 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. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation 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 quota-
tions. The fund's currency conversions are done when the London stock exchange
closes, which is 12 noon Eastern time. When reliable market prices are not
readily available, or when 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 proce-
dures approved by the fund's board. A fund that uses fair value to price secu-
rities may value those securities higher or lower than another fund using
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 repre-
sentative before the New York Stock Exchange closes. If the 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.
Pacific Portfolio
22
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance 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 LLP, independent
accountants, whose report, along with the fund's financial statements, are
included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
1998/(1)/ 1997 1996/(1)/ 1995 1994/(2)/
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $8.46 $10.18 $10.07 $12.92 $12.50
- -------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income
(loss)/(3)/ (0.12) (0.17) (0.14) (0.01) (0.07)
Net realized and
unrealized gain (loss) (1.61) (1.55) 0.25 (2.84) 0.49
- -------------------------------------------------------------------------------
Total income (loss) from
operations (1.73) (1.72) 0.11 (2.85) 0.42
- -------------------------------------------------------------------------------
Net asset value, end of
year $6.73 $8.46 $10.18 $10.07 $12.92
- -------------------------------------------------------------------------------
Total return/(4)/ (20.45)% (16.90)% 1.09% (22.06)% 3.36%/(5)/
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $1,788 $4,750 $4,929 $4,409 $7,538
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses/(6)/ 3.47% 3.37% 2.64% 1.97% 1.51%/(7)/
Net investment income
(loss) (1.66) (2.36) (1.38) (0.71) (0.82) /(7)/
- -------------------------------------------------------------------------------
Portfolio turnover rate 135% 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 year ended October 31,
1995 and the period ended October 31, 1994. In addition, the Manager
agreed to reimburse the Pacific Portfolio for $30,862 of the fund's
expenses for the year ended October 31, 1995. If such fees were not
waived, or expenses reimbursed the per share effect on net investment
income (loss) and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Increases to Expense Ratios Without Fee
Net Investment Loss Waivers and Custody Credits
1995 1994 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $0.14 $0.03 3.18% 1.87%/(8)/
- -------------------------------------------------------------
</TABLE>
/(4)/ Total return does not reflect any applicable sales loads or deferred
sales charges.
/(5)/ Not annualized.
/(6)/ 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.
/(7)/ Annualized.
Smith Barney Mutual Funds
23
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [GRAPHIC
APPEARS
HERE]
Pacific Portfolio
An investment portfolio of Smith Barney World Funds, Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 Ref-
erence Room in Washington, D.C. You can get copies of these materials for a fee
by writing to the Public Reference Section of the Commission, Washington, D.C.
20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the Commis-
sion'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 law-
fully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
[BACKGROUND GRAPHIC]
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day./(R)/
PROSPECTUS
European Portfolio
Class A, B, L and Y Shares
________________________________________________________________________________
February 28, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
European Portfolio
Contents
<TABLE>
<S> <C>
Fund goal and strategies.................................................... 2
Risks, performance and expenses............................................. 3
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 14
Buying shares............................................................... 15
Exchanging shares........................................................... 16
Redeeming shares............................................................ 17
Other things to know about share transactions............................... 19
Smith Barney 401(k) and ExecChoice(TM) programs............................. 21
Dividends, distributions and taxes.......................................... 22
Share price................................................................. 23
Financial highlights........................................................ 24
</TABLE>
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.
Smith Barney Mutual Funds
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 oper-
ate 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 man-
ager seeks to reduce volatility compared to investments in a single country. In
allocating assets among countries, the economic and political factors the man-
ager 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
European Portfolio
2
<PAGE>
Risks, performance and expenses
Principal risks of investing in the fund
Investing in European securities can bring added benefits, but 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:
.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 apprecia-
tion of a particular stock proves to be incorrect
Economic and Monetary Union (EMU) and the introduction of a single European
currency, which began on January 1, 1999, may increase the volatility of Euro-
pean markets and present valuation problems for the fund. EMU will mean sharing
a single currency and official interest rate and adhering to limits on govern-
ment borrowing. Budgetary decisions will be subject to each country's commit-
ment to avoid "excessive deficits" and other more specific budgetary criteria.
EMU is driven by the expectation of economic benefits, however, there are sig-
nificant 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 liq-
uid 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 invest-
ing 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 mar-
kets
.Currently have exposure to U.S. stock markets and wish to broaden the diversi-
fication of your investment portfolio
.Are comfortable with the risks of the stock market and the special risks of
concentrating in European securities
Smith Barney Mutual Funds
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 neces-
sarily indicate how the fund will perform in the future.
Total Return for Class A Shares
(BAR GRAPH APPEARS HERE)
Calendar years ended December 31
95 96 97 98
---- ---- ---- -----
17.23% 29.12% 1.78% 27.58%
The bar chart shows the performance of the fund's Class A shares for each of
the past four years. Class B, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
Quarterly returns
Highest: 25.44% in 1st quarter 1998; Lowest: (20.91)% in 4th quarter 1998
Comparative performance
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
MSCI European Market Index ("MSCI Index"), a broad-based 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
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception Date
<S> <C> <C> <C> <C> <C>
A 18.09% n/a n/a 12.51% 02/07/94
B 18.40% n/a n/a 15.06% 11/07/94
L 21.29% n/a n/a 12.79% 02/14/94
MSCI Index 24.20% n/a n/a 17.68% *
</TABLE>
*Index comparison begins on February 28, 1994.
European Portfolio
4
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge on purchases 5.00%* None 1.00% None
(as a % of offering 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
Annual fund operating expenses**
<CAPTION>
(paid by the fund as a % of net assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee 0.85% 0.85% 0.85% 0.85%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses 0.46% 0.47% 0.33% 0.46%
------ ----- ----- -----
Total annual fund operating expenses 1.56% 2.32% 2.18% 1.31%
</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%.
**For Class Y shares, "Other Expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y shares were outstanding for the
year ended October 31, 1998.
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
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $651 $ 968 $1,307 $2,264
Class B (redemption at end of period) $735 $1,024 $1,340 $2,466
Class B (no redemption) $235 $ 724 $1,240 $2,466
Class L (redemption at end of period) $419 $ 775 $1,258 $2,588
Class L (no redemption) $319 $ 775 $1,258 $2,588
Class Y (with or without redemption) $133 $ 415 $ 718 $1,579
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
Debt and other securities The fund intends to be fully invested in equity secu-
rities. 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 credit rating of
the security is downgraded or the issuer 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 cur-
rencies 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 strate-
gies 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.
European Portfolio
6
<PAGE>
Management
Manager The fund's investment manager is SSBC Fund Management Inc., an affili-
ate 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 serv-
ices--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
Rein van der Does, investment officer of the manager 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 distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells 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 serv-
ice 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 cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by 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 guaran-
tee that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
Smith Barney Mutual Funds
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. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon 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
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
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
European Portfolio
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. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced or
waived for
large pur-
chases and
certain
investors;
no charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
- ------------------------------------------------------------------------
Exchangeable into* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds 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.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
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 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 0.00 0.00
</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. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney 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
European Portfolio
10
<PAGE>
include purchases on which you paid a sales charge 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 cer-
tain 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 Con-
sultant or dealer representative or consult the Statement of Additional Infor-
mation ("SAI").
Smith Barney Mutual Funds
11
<PAGE>
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 pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th and 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
distributions Barney fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
</TABLE>
European Portfolio
12
<PAGE>
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.
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 this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
Smith Barney Mutual Funds
13
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney 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 at the current net asset
value 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:
.On payments made through certain systematic withdrawal plans
.On 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
14
<PAGE>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your order
dealer will be rejected
representative
.Class of shares being bought
.Dollar amount or number of shares being 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.
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 pur-
chases, complete and send an account application.
.For more information, call the transfer agent at1-800-451-
2010.
- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith
plan 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 represen-
tative 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.
Smith Barney Mutual Funds
15
<PAGE>
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the
varying needs .You may exchange shares only for shares of the same class of
of both large another Smith Barney fund. Not all Smith Barney funds offer
and small all classes.
investors.
.Not all Smith Barney funds may be offered in your state of
residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund.
.If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) 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 mea-
sured 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 telephone
If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete 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). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
You can make telephone exchanges only 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.
European Portfolio
16
<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 redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
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 regis-
tered
Smith Barney Mutual Funds
17
<PAGE>
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 tel-
ephone 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). Requests received after the close
of regular trading on the Exchange are priced at the net
asset value next determined.
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.
European Portfolio
18
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means 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 the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal 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 regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
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 Securi-
ties and Exchange Commission
Smith Barney Mutual Funds
19
<PAGE>
Small account balances If your account falls below $500 because of a 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 share-
holders. 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
20
<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 invest-
ments in any of the Smith Barney 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 the same class.
.Class A shares may be purchased by plans investing at least $1 million.
.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 in
the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 mil-
lion is invested in Smith Barney Funds Class L and Class O shares (other
than money market funds), all Class L shares are eligible for exchange
after the plan is in the program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L and Class O shares (other than
money market funds) on December 31 in any year, all Class L shares are
eligible for exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Smith Barney Mutual Funds
21
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, 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 addi-
tional fund shares of the same class that you hold. The fund expects distribu-
tions 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 trans-
fer 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 distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<C> <S>
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 dis-
tribution 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 tax-
payer 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 your tax adviser about your investment
in the fund.
European Portfolio
22
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus 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 liabili-
ties. 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. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation 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 quota-
tions. The fund's currency conversions are done when the London stock exchange
closes, which is 12 noon Eastern time. When reliable market prices are not
readily available, or when 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 proce-
dures approved by the fund's board. A fund that uses fair value to price secu-
rities may value those securities higher or lower than another fund using
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 repre-
sentative before the New York Stock Exchange closes. If the 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.
Smith Barney Mutual Funds
23
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance 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 LLP, independent
accountants, whose report, along with the fund's financial statements, are
included in the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
1998(/1/) 1997(/1/) 1996 1995 1994(/2/)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $18.23 $17.25 $14.67 $12.88 $12.50
- ------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income
(loss)(/3/) 0.06 (0.08) (0.08) 0.07 (0.11)
Net realized and
unrealized gain 1.54 2.22 2.79 1.72 0.49
- ------------------------------------------------------------------------------
Total income from
operations 1.60 2.14 2.71 1.79 0.38
- ------------------------------------------------------------------------------
Less distributions from:
Net investment
income(/4/) -- -- (0.09) -- --
Net realized gains (0.39) (1.16) (0.04) -- --
- ------------------------------------------------------------------------------
Total distributions (0.39) (1.16) (0.13) -- --
- ------------------------------------------------------------------------------
Net asset value, end of
year $19.44 $18.23 $17.25 $14.67 $12.88
- ------------------------------------------------------------------------------
Total return(/5/) 9.10% 12.88% 18.65% 13.90% 3.04%(/6/)
- ------------------------------------------------------------------------------
Net assets, end of year
(000)'s $27,563 $14,118 $10,528 $11,870 $5,189
- ------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/7/) 1.56% 1.80% 1.85% 2.06% 1.34%(/8/)
Net investment income
(loss) 0.30 (0.42) (0.49) 0.51 (1.12)(/8/)
- ------------------------------------------------------------------------------
Portfolio turnover rate 27% 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 year 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 the expense ratios would have
been as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios Without Fee
Net Investment Income Waivers and Custody credits
1995 1994 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $0.01 $0.10 2.09% 2.37%(/8/)
- -------------------------------------------------------------------
</TABLE>
(/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 would have
been 1.82% and 2.02%, respectively; numbers prior to October 31, 1995 have
not been restated to reflect these credits.
(/8/)Annualized.
European Portfolio
24
<PAGE>
For a Class B Share of capital stock
outstanding throughout each year ended October 31:
<TABLE>
<CAPTION>
1998(/1/) 1997(/1/) 1996 1995(/2/)
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of year $17.92 $17.09 $14.56 $12.62
- ----------------------------------------------------------------------
Income (loss) from
operations:
Net investment income
(loss)(/3/) (0.11) (0.20) (0.20) 0.02
Net realized and
unrealized gain 1.53 2.19 2.77 1.92
- ----------------------------------------------------------------------
Total income from
operations 1.42 1.99 2.57 1.94
- ----------------------------------------------------------------------
Less distributions from:
Net realized gains (0.39) (1.16) (0.04) --
- ----------------------------------------------------------------------
Total distributions (0.39) (1.16) (0.04) --
- ----------------------------------------------------------------------
Net asset value, end of
year $18.95 $17.92 $17.09 $14.56
- ----------------------------------------------------------------------
Total return(/4/) 8.24% 12.08% 17.72% 15.37%(/5/)
- ----------------------------------------------------------------------
Net assets, end of year
(000)'s $40,090 $29,221 $26,384 $24,825
- ----------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/6/) 2.32% 2.52% 2.59% 3.31%(/7/)
Net investment income
(loss) (0.56) (1.13) (1.22) 0.26(/7/)
- ----------------------------------------------------------------------
Portfolio turnover rate 27% 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. If such fees were not waived, the per share effect on net
investment income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios Without Fee
Net Investment Income Waivers and Custody credits
1995 1994 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B $0.00(/8/) -- 3.35%(/7/) --
- -------------------------------------------------------------
</TABLE>
(/4/)Total return does not reflect any applicable sales loads or deferred sales
charges.
(/5/)Not annualized.
(/6/)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 would have been 2.56% and 3.26%(/8/), respectively.
(/7/)Annualized.
(/8/)Amount represents less than $0.01 per share.
Smith Barney Mutual Funds
25
<PAGE>
For a Class L Share of capital stock
outstanding throughout each year ended October 31:
<TABLE>
<CAPTION>
1998(/1/)(/2/) 1997(/1/) 1996 1995(/2/) 1994(/3/)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $17.86 $17.04 $14.51 $12.83 $12.48
- -----------------------------------------------------------------------------------------
Income from operations:
Net investment loss(/4/) (0.07) (0.21) (0.14) (0.08) (0.16)
Net realized and
unrealized gain 1.51 2.19 2.71 1.76 0.51
- -----------------------------------------------------------------------------------------
Total income from
operations 1.44 1.98 2.57 1.68 0.35
- -----------------------------------------------------------------------------------------
Less distributions from:
Net realized gains(/5/) (0.39) (1.16) (0.04) -- --
- -----------------------------------------------------------------------------------------
Total distributions (0.39) (1.16) (0.04) -- --
- -----------------------------------------------------------------------------------------
Net assets value, end of
year $18.91 $17.86 $17.04 $14.51 $12.83
- -----------------------------------------------------------------------------------------
Total return(/6/) 8.38% 12.06% 17.78% 13.09% 2.80%(/7/)
- -----------------------------------------------------------------------------------------
Net assets, end of year
(000)'s $10,762 $3,110 $2,011 $1,311 $1,607
- -----------------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/8/) 2.18% 2.54% 2.52% 2.51% 2.02%(/9/)
Net investment income
(loss) (0.37) (1.18) (1.17) (0.64) (1.60)(/9/)
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 27% 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 year 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 loss and the expense ratios would have been as
follows:
<TABLE>
<CAPTION>
Per Share Increases to Expense Ratios Without Fee
Net Investment Loss Waivers and Custody credits
<S> <C> <C> <C> <C>
1995 1994 1995 1994
- -------------------------------------------------------------
Class L $0.01 $0.10 2.54% 3.07%(/9/)
- -------------------------------------------------------------
</TABLE>
(/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 2.50% and 2.48%, respectively; numbers prior to October 31, 1995 have
not been restated to reflect these credits.
(/9/)Annualized.
European Portfolio
26
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
European
Portfolio
An investment portfolio of Smith Barney World Funds, Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 refer-
ence 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 Ref-
erence Room in Washington, D.C. You can get copies of these materials for a fee
by writing to the Public Reference Section of the Commission, Washington, D.C.
20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the Commis-
sion'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 law-
fully sell its shares.
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 a diversified portfolio of
equity securities of established foreign
issuers.
The Pacific Portfolio seeks long-term
capital appreciation by investing
primarily in a diversified portfolio of
equity securities of companies in the Asia
Pacific Region.
The European Portfolio seeks long-term
capital appreciation by investing
primarily in equity securities of issuers
based in countries of Europe.
The International Balanced Portfolio seeks
a competitive total return on its assets
from growth of capital and income by
investing primarily in securities of
established non-U. S. issuers.
The Emerging Markets Portfolio seeks long-
term capital appreciation on its assets by
investing primarily in securities of
emerging country issuers.
In all cases, there can be no assurance that a fund
will achieve its investment objective.
Each fund offers three classes of shares which may be
purchased at the next-determined net asset value per
share plus a sales charge which, at the election of
the investor, may be imposed (i) at the time of
purchase (Class A and Class L shares) and/or (ii) on a
deferred basis (Class B and Class L shares). A fourth
class of shares (the Class Y shares) are sold at net
asset value and is available only to investors
investing a minimum of $5,000,000 with respect to the
International Equity Portfolio and $15,000,000 with
respect to each of the other funds. A fifth class of
shares of the International Equity Portfolio (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
P
a
g
e
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; 77.
ABRAHAM E. COHEN, Director
Consultant to MeesPierson, Inc., a Dutch investment
bank; Consultant to and Board Member, Chugai
Pharmaceutical Co. Ltd.; Director of Agouron
Pharmaceuticals, Inc., Akzo Nobel NV, Vasomedical,
Inc., Teva Pharmaceutical Ind., Ltd., Neurobiological
Technologies Inc., Vion Pharmaceuticals, Inc.,
BlueStone Capital Partners, LP. and The Population
Council, an international public interest
organization. Director of two investment companies
associated with Salomon Smith Barney; 62.
ROBERT A. FRANKEL, Director
Managing Partner of Robert A. Frankel Managing
Consultants, 102 Grand Street, Croton-on-Hudson, NY.
Director of nine investment companies associated with
Salomon Smith Barney. Former Vice President of The
Readers Digest Association, Inc.; 71.
RAINER GREEVEN, Director
Partner of the law firm of Greeven & Ercklentz; 630
Fifth Avenue, New York, NY. Director of two
investment companies associated with Salomon Smith
Barney; 63.
SUSAN M. HEILBRON, Director
Attorney; Lacey & Heilbron, 3 East 54th Street, New
York, NY. Director of two investment companies
associated with Salomon Smith Barney; 54.
*HEATH B. McLENDON, Chairman of the Board, President
and Chief Executive Officer
Managing Director of Salomon Smith Barney Inc.
("Salomon Smith Barney"); President of SSBC Fund
Management Inc. ("SSBC" or the "Manager") and
Travelers Investment Adviser, Inc. ("TIA"); Chairman
or Co-Chairman of the Board of 59 investment companies
associated with Salomon Smith Barney and former
Chairman of the Board of Smith Barney Strategy
Advisers Inc; 65
*MAURITS E. EDERSHEIM, Chairman of the Company and
Advisory Director
Deputy Chairman of Smith Barney International
Incorporated; Director and President of Amstel Hudson
Management Corp. (offshore investment management);
Director Esfinco NV (U.S. subsidiary of Spanish
Construction Company); 80
*LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Salomon Smith Barney, Senior Vice
President and Treasurer (Chief Financial Officer) of
the Smith Barney Mutual funds; Director and Senior
Vice President of SSBC and TIA: 41
*JAMES B. CONHEADY, Vice President and Investment
Officer
Managing Director of Salomon Smith Barney; 63.
*JEFFREY RUSSELL, Vice President and Investment
Officer
Managing Director of Salomon Smith Barney; 41.
*REIN VAN DER DOES, Vice President and Investment
Officer
Managing Director of Salomon Smith Barney; 59.
*SCOTT KALB, Vice President and Investment Officer
Managing Director of Salomon Smith Barney; 42
*SIMON R. HILDRETH, Vice President and Investment
Officer
Senior Vice President of Salomon Smith Barney,
Managing Director of Smith Barney Global Capital
Management, Inc. Formerly Director of Mercury Asset
Management Ltd; 44.
*DENIS P. MANGAN, Vice President and Investment
Officer
Vice President of Smith Barney Global Capital
Management, Inc. Formerly Vice President of J.P.
Morgan and Citibank; 45.
*DAVID S. ISHIBASHI, Vice President and Investment
Officer
Vice President of Salomon Smith Barney; Formerly Head
of Japanese equities desk at SG Warburg; 43.
*IRVING DAVID, Controller
Director of Salomon Smith Barney. Formerly Assistant
Treasurer of First Investment Management Company; 38.
*CHRISTINA T. SYDOR, Secretary
Secretary ; Managing Director of Salomon Smith Barney.
General Counsel and Secretary of SSBC and TIA; 48.
* Designates an "interested person" as defined in the
Investment Company Act of 1940, as amended (the "1940
Act") whose business address is 388 Greenwich Street,
New York, New York 10013. Such person is not
separately compensated for services as a Company
officer or director.
On February 10, 1999 the directors and officers owned,
in the aggregate, less than 1% of the outstanding
shares of each of the funds.
The following table shows the compensation paid by the
Company to each director during the Company's last
fiscal year. None of the officers of the Company
received any compensation from the Company for such
period. The Company does not pay retirement benefits
to its directors and officers. Officers and
interested directors of the Company are compensated by
Salomon Smith Barney.
COMPENSATION TABLE
Name of Person
Aggregate Compensation from the Company
Compensation from Company and Complex Paid to
Directors
Number of Funds for Which Director Serves Within Fund
Complex
Victor Atkins
$10,411.00
$29,500.00
2
A. E. Cohen1
4,676.00
20,100.00
2
Robert A. Frankel
10,450.56
72,250.00
9
Ranier Greeven
9,908.00
27,800.00
2
Susan M. Heilbron
9,908.00
27,800.00
2
Heath B. McLendon
0
0
59
Bruce D. Sargent2
0
0
3
James M. Shuart3
7,664.00
20,800.00
2
1 Effective March 30, 1998, Mr. Cohen became a member
of the Company's Board of Directors.
2 Effective October 8, 1998, Mr. Sargent resigned from
the Company's Board of Directors.
3 Effective July 28, 1998, Mr. Shuart resigned from
the Company's Board of Directors.
INVESTMENT POLICIES tc "INVESTMENT POLICIES"
Each fund's investment objectives may be changed only
by the ''vote of a majority of the outstanding voting
securities'' as defined in the Investment Company Act
of 1940 (the ''1940 Act''). However, each fund's
investment policies are 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
other debt securities (consisting of securities issued
in the Eurocurrency markets or obligations of the
United States or foreign governments and their
political sub-divisions) or established non-United
States issuers.
In seeking to achieve its objective, the fund
presently expects to invest its assets primarily in
common stocks of established non-United States
companies which in the opinion of the Manager have
potential for growth of capital.
Except as otherwise provided, the fund will invest at
least 80% of its assets in companies organized or
governments located in any area of the world other
than the United States, such as the Far East (e.g.,
Japan, Hong Kong, Singapore, Malaysia), Western Europe
(e.g., United Kingdom, Germany, the Netherlands,
France, Italy, Switzerland), Eastern Europe (e.g., the
Czech Republic, Hungary, Poland, and the countries of
the former Soviet Union), Central and South America
(e.g., Mexico, Chile, and Venezuela), Australia,
Canada and such other areas and countries as the
Manager may determine from time to time. Allocation
of the fund's investments will depend upon the
relative attractiveness of the international markets
and particular issuers. Concentration of the fund's
assets in one or a few countries or currencies will
subject the fund to greater risks than if the fund's
assets were not geographically concentrated.
It is expected that fund securities will ordinarily be
traded on a stock exchange or other market in the
country in which the issuer is principally based, but
may also be traded on markets in other countries
including, in many cases, the United States securities
exchanges and over-the-counter markets.
To the extent that the fund's assets are not otherwise
invested as described above, the assets may be held in
cash, in any currency, or invested in U.S. as well as
foreign high quality money market instruments and
equivalents.
Pacific Portfolio
The Pacific Portfolio invests primarily in equity
securities, including American Depository Receipts
("ADRs"), of companies in the Asia Pacific Region.
The Asia Pacific Region currently includes Australia,
Hong Kong, India, Indonesia, Japan, Malaysia, New
Zealand, Pakistan, Papua New Guinea, the People's
Republic of China, the Philippines, Singapore, South
Korea, Sri Lanka, Taiwan and Thailand. The Manager
may change this list at its discretion. The Manager
considers a company to be in the Asia Pacific Region
if its securities trade on exchanges in the Asia
Pacific Region, it generates at least half of its
revenue from the Asia Pacific Region or it is
organized under the laws of an Asia Pacific Region
country.
The fund will normally invest at least 80% of its
total assets in equity securities of companies in the
Asia Pacific Region, consisting of the securities
listed above. For the purposes of the foregoing
limitation equity securities include exchange traded
and over-the-counter common stocks, preferred shares,
debt securities convertible into equity securities,
depository receipts and warrants and rights relating
to equity securities. The fund may also invest up to
20% of its total assets in debt securities and other
types of investments. The fund will generally invest
its assets broadly among countries and will normally
have represented in the portfolio business activities
in not less than three different countries. However,
the fund has no predetermined policy on the allocation
of funds for investment among such countries or
securities and allocation of the fund's investments
will depend upon the relative attractiveness of the
Asia Pacific markets and particular issuers.
Concentration of the fund's assets in one or a few of
the countries in the Asia Pacific Region and Asia
Pacific currencies will subject the fund to greater
risks than if the fund's assets were not
geographically concentrated.
It is expected that portfolio securities will
ordinarily be traded on a stock exchange or other
market in the country in which the issuer is
principally based, but may also be traded on markets
in other countries including, in many cases, the
United States securities exchanges and over-the-
counter markets. The fund may invest in companies,
large or small, whose earnings are believed to be in a
relatively strong growth trend, or in companies in
which significant further growth is not anticipated
but whose market value per share is thought to be
undervalued. It may also invest in small and
relatively less well-known companies. Debt securities
in which the fund may invest will generally be rated
at the time of purchase at least Baa by Moody's or BBB
by S&P. Debt securities rated Baa or BBB may have
speculative characteristics and changes in economic
conditions or other circumstances are more likely to
lead to a weakened capacity of their issuers to pay
interest and repay principal than is the case with
higher rated securities.
To the extent that the fund's assets are not otherwise
invested as described above, the assets may be held in
cash, in any currency, or invested in U.S. as well as
foreign high quality money market instruments and
equivalents.
European Portfolio
The European Portfolio seeks to achieve its objective
by investing primarily in equity securities (common
and preferred stock) of issuers in the countries of
Europe (the "Primary Investment Area"), which includes
Western Europe (e.g., France, Germany, Italy, the
Netherlands, Switzerland, United Kingdom) and Eastern
Europe (e.g., the Czech Republic, Hungary, Poland and
the countries of the former Soviet Union). It is a
fundamental policy of the fund to invest, under normal
circumstances, at least 65% of its total assets in a
diversified portfolio of equity securities of issuers
domiciled in the Primary Investment Area of the fund.
The fund will generally invest its assets broadly
among countries and will normally have represented in
the portfolio business activities in not less than
three countries in the Primary Investment Area.
Allocation of the fund's investments will depend upon
the relative attractiveness of the markets and
particular issuers. Concentration of the fund's assets
in one or a few countries will subject the fund to
greater risks than if the fund's assets were not
geographically concentrated.
In addition, the fund may invest up to 35% of its
total assets in other kinds of securities, e.g.,
convertible bonds, warrants, Samurai and Yankee Bonds,
Eurobonds, sponsored and unsponsored ADRs and European
Depository Receipts ("EDRs"), securities issued by
companies domiciled outside the Primary Investment
Area of the fund, including, but not limited to, U.S.
and foreign government securities, and U.S. and non-
U.S. money market securities. Money market securities
will generally be held by the fund for temporary
defensive purposes. With respect to certain countries,
investments by the fund presently may only be made by
acquiring shares of other investment companies with
local governmental authority to invest in those
countries. It is not expected that the income yield of
the fund will be significant.
The fund may also hold cash in U.S. dollars to meet
redemption requests and other expenses and cash in
other currencies to meet settlement requirements for
foreign securities. The fund may engage in currency
exchange transactions with up to 100% of its assets in
order to protect against uncertainty in the level of
future exchange rates between a particular foreign
currency and the U.S. dollar or between foreign
currencies in which the fund's securities are or may
be denominated. The fund may conduct its currency
exchange transactions either on a "spot" (i.e., cash)
basis at the rate prevailing in the currency exchange
market or through entering into forward contracts to
purchase or sell currencies. The fund's transactions
in forward foreign currency exchange contracts will be
limited to hedging involving either specific
transactions or aggregate fund positions.
The fund may invest up to 5% of its assets in yen-
denominated bonds sold in Japan by non-Japanese
issuers. Such bonds are commonly called "Samurai
Bonds" and correspond to "Yankee Bonds" or dollar-
denominated bonds sold in the United States by non-
U.S. issuers. As compared with domestic issues, e.g.,
those of the government of Japan and its agencies,
Samurai bond issues normally carry a higher interest
rate but are less actively traded and therefore may be
volatile. Moreover, as with other securities
denominated in foreign currencies, their value is
affected by fluctuations in currency exchange rates.
It is the policy of the fund to invest in Samurai bond
issues only after taking into account considerations
of quality and liquidity, as well as yield. These
bonds would be issued by governments of the
Organization for Economic Cooperation and Development
or would have AAA ratings.
As a fundamental policy, the fund may borrow money
from a bank only as a temporary measure for emergency
or extraordinary purposes in an amount not exceeding
10% of the value of its total assets, and may invest
no more than 15% of its total assets in securities
that are illiquid (i.e., trading in the security is
suspended or, in the case of unlisted securities,
market makers do not exist or will not entertain bids
or offers). When the fund has borrowed in excess of 5%
of the value of its total assets, the fund will not
make further investments. The fund will not invest
more than 25% of the value of its total assets in the
securities of issuers engaged in any one industry
(other than the U.S. Government, its agencies and
instrumentalities). The fund will invest no more than
10% of the value of its net assets in warrants valued
at the lower of cost or market. The fund does not
currently intend to engage in transactions in options
or futures contracts but may do so in the future if
determined to be in the fund's best interests by the
fund's Board of Directors.
International Balanced Portfolio
Under normal market conditions, the International
Balanced Portfolio will invest its assets in an
international portfolio of equity securities
(consisting of exchange traded and over-the-counter
common stocks, preferred shares, debt securities
convertible into equity securities, depository
receipts and warrants and rights relating to equity
securities) and debt securities (consisting of
corporate debt securities, sovereign debt instruments
issued by governments or governmental entities,
including supranational organizations such as the
World Bank, and U.S. and foreign money market
instruments). The fund attempts to achieve a balance
between equity and debt securities. However, the
proportion of equity and debt held by the fund at any
one time will depend on the Manager's views on current
market and economic conditions.
Investments may be made for capital appreciation and
for income or any combination of both for the purpose
of achieving a higher overall return than might
otherwise be obtained solely from investing for growth
of capital or for income. Under normal conditions, no
more than 70%, nor less than 30%, of the fund's assets
will be invested in either equity or debt securities;
however, there is no limitation on the percent or
amount of the fund's assets which may be invested for
growth or income and, therefore, from time to time the
investment emphasis may be placed solely or primarily
on growth of capital or solely or primarily on income.
The fund is organized as a non-diversified series, but
will generally invest its assets broadly among
countries and will normally have at least 65% of its
assets invested in business activities in not less
than three different countries outside of the United
States. The fund may invest in companies organized or
governments located in any area of the world: the Far
East (e.g., Hong Kong, Japan, Malaysia, Singapore),
Western Europe (e.g., France, Germany, Italy, the
Netherlands, Switzerland, United Kingdom), Eastern
Europe (e.g., the Czech Republic, Hungary, Poland, and
the countries of the former Soviet Union), Central and
South America (e.g., Chile, Mexico and Venezuela), the
Middle East, Africa, Asia, Australia, New Zealand and
Canada. Allocation of the fund's investments will
depend upon the relative attractiveness of the
international markets and particular issuers.
Concentration of the fund's assets in one or a few
countries or currencies will subject the fund to
greater risks than if the fund's assets were not
geographically concentrated. Up to 25% of the total
assets of the fund may be invested in securities of
emerging market countries.
It is expected that equity securities purchased by the
fund will ordinarily be traded on a stock exchange or
other market in the country in which the issuer is
principally based, but may also be traded on markets
in other countries including, in many cases, the
United States securities exchanges and over-the-
counter markets. The fund will invest in a broad
range of industries and sectors and will mainly invest
in securities issued by companies with market
capitalization of at least $50,000,000.
Particular debt securities will be selected based upon
credit risk analysis of potential issuers, the
characteristics of the security and interest rate
sensitivity of the various debt issues available with
respect to a particular issuer, analysis of the
anticipated volatility and liquidity of the particular
debt instruments, maturity, and the tax implications
to the fund. The debt securities in which the fund
expects to invest will generally range in maturity
from two to ten years. Debt securities of developed
foreign countries may be rated as investment grade at
the time of purchase. Investment grade securities are
those rated in the top four ratings categories by a
nationally recognized statistical rating organization
or that are unrated but judged by the Manager to be of
comparable quality. If the rating drops below
investment grade subsequent to purchase, the Manager
will not necessarily sell the security, but will
consider such an event in determining whether the fund
should continue to hold the security. Securities
rated in the lowest category of investment grade may
have speculative characteristics and changes in
economic conditions or other circumstances are more
likely to lead to a weakened capacity to make
principal and interest payments than is the case for
higher grade securities. Debt securities of emerging
market countries may be rated below investment grade
(commonly known as "junk bonds") and could include
securities that are in default as to payments of
principal or interest.
The relative performance of foreign currencies is an
important factor in the fund's performance. The
Manager may manage the fund's exposure to various
currencies to take advantage of different yield, risk
and return characteristics that different currencies
can provide for U.S. investors. To manage exposure to
currency fluctuations, the fund may enter into
currency forward contracts (agreements to exchange one
currency for another at a future date) or currency
swap agreements, buy and sell options and futures
contracts relating to foreign currencies, and purchase
securities indexed to foreign currencies. The fund
will use currency forward contracts in the normal
course of business to lock in an exchange rate in
connection with purchases and sales of securities
denominated in foreign currencies. The fund will use
options and futures contracts relating to foreign
currencies to allow the Manager to hedge fund
securities, to shift investment exposure from one
currency to another, or to attempt to profit from
anticipated declines in the value of a foreign
currency relative to the U.S. dollar. There is no
overall limitation on the amount of the fund's assets
that may be committed to currency management
strategies.
Emerging Markets Portfolio
The Emerging Markets Portfolio will seek to achieve
its objective by investing substantially all its
assets in equity securities of issuers in emerging
market countries (consisting of dividend and non-
dividend paying common stocks, preferred stocks,
convertible securities and rights and warrants to such
securities). The fund may also invest in debt
securities having a high potential for capital
appreciation, especially in countries where direct
equity investment is not permitted. Under normal
conditions, at least 70% of the fund's assets will be
invested in equity securities.
For purposes of its investment objective, the fund
considers as "emerging" all countries other than
Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Holland, Ireland, Italy, Japan,
Luxembourg, Norway, Sweden, Switzerland, Spain, the
United Kingdom and the United States. The fund will
generally invest its assets broadly among countries
and will normally have at least 65% of its assets
invested in issuers in not less than three different
countries. Allocation of the fund's investments will
depend upon the relative attractiveness of the
emerging markets and particular issuers. Concentration
of the fund's assets in one or a few countries or
currencies will subject the fund to greater risks than
if the fund's assets were not geographically
concentrated.
Under normal circumstances, the fund may invest up to
30% of its assets in debt securities. These may
include debt securities of issuers in countries having
smaller capital markets. Capital appreciation in debt
securities may arise as a result of a favorable change
in relative foreign exchange rates, in relative
interest rate levels, or in the creditworthiness of
issuers. In accordance with its investment objective,
the fund will not seek to benefit from anticipated
short-term fluctuations in currency exchange rates.
The fund may, from time to time, invest in debt
securities with relatively high yields (as compared to
other debt securities meeting the fund's investment
criteria), notwithstanding that the fund may not
anticipate that such securities will experience
substantial capital appreciation. Such income can be
used, however, to offset the operating expenses of the
fund.
The fund may invest in debt securities issued or
guaranteed by foreign governments (including foreign
states, provinces and municipalities) or their
agencies and instrumentalities ("governmental
entities"), issued or guaranteed by international
organizations designated or supported by multiple
foreign governmental entities (which are not
obligations of foreign governments) to promote
economic reconstruction or development ("supranational
entities"), or issued by foreign corporations or
financial institutions. Supranational entities
include international organizations designated or
supported by governmental entities to promote economic
reconstruction or development and international
banking institutions and related government agencies.
Examples include the International Bank for
Reconstruction and Development (the "World Bank"), the
European Steel and Coal Community, the Asian
Development Bank and the Inter-American Development
Bank. The governmental members, or "stockholders,"
usually make initial capital contributions to the
supranational entity and in many cases are committed
to make additional capital contributions if the
supranational entity is unable to repay its
borrowings.
Up to 10% of the fund's assets may be invested in debt
securities of emerging markets that are unrated or
rated below investment grade. Securities rated below
investment grade (and comparable unrated securities)
are the equivalent of high yield, high risk bonds,
commonly known as "junk bonds". Such securities are
regarded as predominantly speculative with respect to
the issuer's capacity to pay interest and repay
principal in accordance with the terms of the
obligations and involve major risk exposure to adverse
business, financial, economic, or political
conditions.
The fund may invest in the securities of foreign
issuers in the form of ADRs, EDRs, GDRs or other
securities convertible into securities of foreign
issuers. The fund may invest in unsponsored ADRs. The
issuers of unsponsored ADRs are not obligated to
disclose material information in the United States,
and therefore, there may not be a correlation between
such information and the market value of such ADRs.
The fund may invest in U.S. over-the-counter
securities of issuers whose business interests are in
emerging countries.
INVESTMENT PRACTICES
Each of the following investment practices is subject
to the limitations set forth under "Investment
Restrictions."
EQUITY SECURITIES
Common Stocks (all funds except the Global Government
Bond Portfolio). Each fund except the Global
Government Bond Portfolio may purchase common stocks.
Common stocks are shares of a corporation or other
entity that entitle the holder to a pro rata share of
the profits of the corporation, if any, without
preference over any other shareholder or class of
shareholders, including holders of the entity's
preferred stock and other senior equity. Common stock
usually carries with it the right to vote and
frequently an exclusive right to do so.
Preferred Stocks and Convertible Securities (all
funds). Each fund may invest in convertible debt and
preferred stocks. Convertible debt securities and
preferred stock entitle the holder to acquire the
issuer's stock by exchange or purchase for a
predetermined rate. Convertible securities are
subject both to the credit and interest rate risks
associated with fixed income securities and to the
stock market risk associated with equity securities.
Warrants (all funds except the Global Government Bond
Portfolio). Each fund except the Global Government
Bond Portfolio may purchase warrants. Warrants
acquired by a fund entitle it to buy common stock from
the issuer at a specified price and time. Warrants
are subject to the same market risks as stocks, but
may be more volatile in price. A fund's investment in
warrants will not entitle it to receive dividends or
exercise voting rights and will become worthless if
the warrants cannot be profitably exercised before the
expiration dates.
REITs (all funds). Each fund may invest in shares of
real estate investment trusts (REITs), which are
pooled investment vehicles that invest in real estate
or real estate loans or interests. Investing in REITs
involves risks similar to those associated with
investing in equity securities of small capitalization
companies. REITs are dependent upon management
skills, are not diversified, and are subject to risks
of project financing, default by borrowers, self-
liquidation, and the possibility of failing to qualify
for the exemption from taxation on distributed amounts
under the Internal Revenue Code of 1986, as amended
(the "Code").
Illiquid and Restricted Securities (all funds). Each
fund may invest up to 15% of its assets in securities
(excluding those subject to Rule 144A under the
Securities Act of 1933 (the ''1933 Act'')), with
contractual or other restrictions on resale and other
instruments that are not readily marketable.
ADRs, EDRs and GDRs (all funds except the Global
Government Bond Portfolio). Each fund except the
Global Government Bond Portfolio fund may also
purchase ADRs, EDRs and GDRs or other securities
representing underlying shares of foreign companies.
ADRs are publicly traded on exchanges or over-the-
counter in the United States and are issued through
"sponsored" or "unsponsored" arrangements. In a
sponsored ADR arrangement, the foreign issuer assumes
the obligation to pay some or all of the depository's
transaction fees, whereas under an unsponsored
arrangement, the foreign issuer assumes no obligation
and the depository's transaction fees are paid by the
ADR holders. In addition, less information is
available in the United States about an unsponsored
ADR than about a sponsored ADR, and the financial
information about a company may not be as reliable for
an unsponsored ADR as it is for a sponsored ADR. A
fund may invest in ADRs through both sponsored and
unsponsored arrangements.
FIXED INCOME SECURITIES
To the extent that each fund may invest in fixed
income securities, it may invest in the securities
described below, unless otherwise noted.
Corporate Debt Obligations. Each fund may invest in
corporate debt obligations and zero coupon securities
issued by financial institutions and corporations.
Corporate debt obligations are subject to the risk of
an issuer's inability to meet principal and interest
payments on the obligations and may also be subject to
price volatility due to such factors as market
interest rates, market perception of the
creditworthiness of the issuer and general market
liquidity. Zero coupon securities are securities sold
at a discount to par value and on which interest
payments are not made during the life of the security.
U.S. Government Securities. The U.S. Government
securities in which the funds may invest include:
bills, certificates of indebtedness, and notes and
bonds issued by the U.S. Treasury or by agencies or
instrumentalities of the U.S. Government. Some U.S.
Government securities, such as U.S. Treasury bills and
bonds, are supported by the full faith and credit of
the U.S. Treasury; others are supported by the right
of the issuer to borrow from the U.S. Treasury;
others, such as those of the Federal National Mortgage
Association, are supported by the discretionary
authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of
the Student Loan Marketing Association and the Federal
Home Loan Mortgage Corporation ("FHLMC"), are
supported only by the credit of the instrumentality.
Mortgage participation certificates issued by the
FHLMC generally represent ownership interests in a
pool of fixed-rate conventional mortgages. Timely
payment of principal and interest on these
certificates is guaranteed solely by the issuer of the
certificates. Other investments will include
Government National Mortgage Association Certificates
("GNMA Certificates"), which are mortgage-backed
securities representing part ownership of a pool of
mortgage loans on which timely payment of interest and
principal is guaranteed by the full faith and credit
of the U.S. Government. While the U.S. Government
guarantees the payment of principal and interest on
GNMA Certificates, the market value of the securities
is not guaranteed and will fluctuate.
Sovereign Debt Obligations. A fund may purchase
sovereign debt instruments issued or guaranteed by
foreign governments or their agencies, including debt
of developing countries. Sovereign debt may be in the
form of conventional securities or other types of debt
instruments such as loans or loan participations.
Sovereign debt of developing countries may involve a
high degree of risk, and may be in default or present
the risk of default. Governmental entities
responsible for repayment of the debt may be unable or
unwilling to repay principal and interest when due,
and may require renegotiation or rescheduling of debt
payments. In addition, prospects for repayment of
principal and interest may depend on political as well
as economic factors. Although some sovereign debt,
such as Brady Bonds, is collateralized by U.S.
Government securities, repayment of principal and
interest is not guaranteed by the U.S. Government.
Loans and Other Direct Debt Instruments. A fund may
purchase interests in amounts owed by a corporate,
governmental, or other borrower to another party.
These interests may represent amounts owed to lenders
or lending syndicates (loans and loan participations),
to suppliers of goods or services (trade claims or
other receivables), or to other parties. Direct debt
instruments involve the risk of loss in case of
default or insolvency of the borrower and may offer
less legal protection to the fund in the event of
fraud or misrepresentation. In addition, loan
participations involve a risk of insolvency of the
lending bank or other financial intermediary. Direct
debt instruments may also include standby financing
commitments that obligate the fund to supply
additional cash to the borrower on demand.
Floating And Variable Rate Income Securities. Income
securities may provide for floating or variable rate
interest or dividend payments. The floating or
variable rate may be determined by reference to a
known lending rate, such as a bank's prime rate, a
certificate of deposit rate or the London InterBank
Offered Rate (LIBOR). Alternatively, the rate may be
determined through an auction or remarketing process.
The rate also may be indexed to changes in the values
of interest rate or securities indexes, currency
exchange rates or other commodities. The amount by
which the rate paid on an income security may increase
or decrease may be subject to periodic or lifetime
caps. Floating and variable rate income securities
include securities whose rates vary inversely with
changes in market rates of interest. Such securities
may also pay a rate of interest determined by applying
a multiple to the variable rate. The extent of
increases and decreases in the value of securities
whose rates vary inversely with changes in market
rates of interest generally will be larger than
comparable changes in the value of an equal principal
amount of a fixed rate security having similar credit
quality, redemption provisions and maturity.
Zero Coupon, Discount and Payment-in-kind Securities.
A fund may invest in "zero coupon" and other deep
discount securities of governmental or private
issuers. Zero coupon securities generally pay no cash
interest (or dividends in the case of preferred stock)
to their holders prior to maturity. Payment-in-kind
securities allow the lender, at its option, to make
current interest payments on such securities either in
cash or in additional securities. Accordingly, such
securities usually are issued and traded at a deep
discount from their face or par value and generally
are subject to greater fluctuations of market value in
response to changing interest rates than securities of
comparable maturities and credit quality that pay cash
interest (or dividends in the case of preferred stock)
on a current basis.
Premium Securities. A fund may invest in income
securities bearing coupon rates higher than prevailing
market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts
payable on maturity. A fund will not amortize the
premium paid for such securities in calculating its
net investment income. As a result, in such cases the
purchase of such securities provides a fund a higher
level of investment income distributable to
shareholders on a current basis than if the fund
purchased securities bearing current market rates of
interest. If securities purchased by a fund at a
premium are called or sold prior to maturity, the fund
will recognize a capital loss to the extent the call
or sale price is less than the purchase price.
Additionally, a fund will recognize a capital loss if
it holds such securities to maturity.
Yankee Bonds. A fund may invest in U.S.
dollar-denominated bonds sold in the United States by
non-U.S. issuers ("Yankee bonds"). As compared with
bonds issued in the United States, such bond issues
normally carry a higher interest rate but are less
actively traded.
Loan Participations and Assignments. A fund may
invest a portion of its assets in loan participations
("Participations"). By purchasing a Participation, a
fund acquires some or all of the interest of a bank or
other lending institution in a loan to a corporate or
government borrower. The Participations typically
will result in the fund having a contractual
relationship only with the lender and not with the
borrower. The fund will have the right to receive
payments of principal, interest and any fees to which
it is entitled only from the lender selling the
Participation and only upon receipt by the lender of
the payments from the borrower. In connection with
purchasing Participations, the fund generally will
have no right to enforce compliance by the borrower
with the terms of the loan agreement relating to the
loan, nor any rights of set-off against the borrower,
and the fund may not directly benefit from any
collateral supporting the loan in which it has
purchased the Participation. As a result, the fund
will assume the credit risk of both the borrower and
the lender that is selling the Participation. In the
event of the insolvency of the lender selling a
Participation, the fund may be treated as a general
creditor of the lender and may not benefit from any
set-off between the lender and the borrower. A fund
will acquire Participations only if the lender
interpositioned between the fund and the borrower is
determined by management to be creditworthy.
A fund also may invest in assignments of portions of
loans from third parties ("Assignments"). When it
purchases Assignments from lenders, the fund will
acquire direct rights against the borrower on the
loan. However, since Assignments are arranged through
private negotiations between potential assignees and
assignors, the rights and obligations acquired by the
fund as the purchaser of an Assignment may differ
from, and be more limited than, those held by the
assigning lender. A fund may have difficulty
disposing of Assignments and Participations. The
liquidity of such securities is limited, and the fund
anticipates that such securities could be sold only to
a limited number of institutional investors. The lack
of a liquid secondary market could have an adverse
impact on the value of such securities and on the
fund's ability to dispose of particular Assignments or
Participations when necessary to meet the fund's
liquidity needs or in response to a specific economic
event, such as a deterioration in the creditworthiness
of the borrower. The lack of a liquid secondary
market for Assignments and Participations also may
make it more difficult for the fund to assign a value
to those securities or purposes of valuing the fund's
portfolio and calculating its net asset value.
Structured Notes. Emerging Markets Portfolio may
purchase structured notes, which are over-the-counter
debt instruments where the interest rate and/or
principal are indexed to an unrelated indicator (e.g.,
short-term rates in Japan, the price of oil).
Sometimes the two are inversely related (i.e., as the
index goes up, the coupon rate goes down; inverse
floaters are an example of this) and sometimes they
may fluctuate to a greater degree than the underlying
index (e.g., the coupon may change twice as much as
the change in the index rate). Structured notes are
often issued by high-grade corporate issuers. There is
often an underlying swap involved; the issuer will
receive payments that match its obligations under the
structured note (usually from an investment bank) and,
in turn, makes more "traditional" payments to the
investment bank (e.g., fixed rate or ordinary floating
rate payments). It is important to note, however, that
in such cases the fund would not be involved in the
swap; the issuer of the note would remain obligated
even if its counterparty defaulted.
Short-Term Investments. In certain circumstances the
funds may invest without limitation in all types of
short-term money market instruments, including U.S.
Government securities; certificates of deposit, time
deposits and bankers' acceptances issued by domestic
banks (including their branches located outside the
United States and subsidiaries located in Canada),
domestic branches of foreign banks, savings and loan
associations and similar institutions; high grade
commercial paper; and repurchase agreements. To the
extent a fund is investing in short-term investments
as a temporary defensive posture, the applicable
fund's investment objective may not be achieved.
Commercial Paper. Commercial paper consists of short-
term (usually from 1 to 270 days) unsecured promissory
notes issued by corporations in order to finance their
current operations. A variable amount master demand
note (which is a type of commercial paper) represents
a direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional
lender, such as one of the funds, pursuant to which
the lender may determine to invest varying amounts.
Transfer of such notes is usually restricted by the
issuer, and there is no secondary trading market for
such notes. Each fund, therefore, may not invest in a
master demand note, if as a result more than 15% of
the value of the fund's total assets would be invested
in such notes and other illiquid securities.
Commercial Bank Obligations. For the purposes of each
fund's investment policies with respect to bank
obligations, obligations of foreign branches of U.S.
banks and of foreign banks may be general obligations
of the parent bank in addition to the issuing bank, or
may be limited by the terms of a specific obligation
and by government regulation. As with investment in
foreign securities in general, investments in the
obligations of foreign branches of U.S. banks and of
foreign banks may subject a fund to investment risks
that are different in some respects from those of
investments in obligations of domestic issuers.
Although a fund will typically acquire obligations
issued and supported by the credit of U.S. or foreign
banks having total assets at the time of purchase in
excess of U.S. $1 billion (or the equivalent thereof),
this U.S. $1 billion figure is not a fundamental
investment policy or restriction of the fund. For
calculation purposes with respect to the U.S. $1
billion figure, the assets of a bank will be deemed to
include the assets of its U.S. and foreign branches.
DERIVATIVE CONTRACTS
Options, Futures and Currencies (All funds). Each
fund may use forward currency contracts and certain
options and futures strategies to attempt to hedge its
portfolio, i.e., reduce the overall level of
investment risk normally associated with the fund.
These hedging techniques are described in detail
below. Neither International Balanced Portfolio nor
Emerging Markets Portfolio will hedge more than 25% of
its total assets by selling futures, buying puts, and
writing calls under normal conditions. In addition,
neither of these funds will buy futures or write puts
whose underlying value exceeds 25% of its total
assets, or will buy calls with a value exceeding 5% of
its total assets.
Writing Covered Call Options (All funds). Each fund
may write (sell) covered call options for hedging
purposes. Covered call options will generally be
written on securities and currencies which, in the
opinion of the Manager, are not expected to make any
major price moves in the near future but which, over
the long term, are deemed to be attractive investments
for the fund.
A call option gives the holder (buyer) the right to
purchase a security or currency at a specified price
(the exercise price) at any time until a certain date
(the expiration date). So long as the obligation of
the writer of a call option continues, he may be
assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring him to
deliver the underlying security or currency against
payment of the exercise price. This obligation
terminates upon the expiration of the call option, or
such earlier time at which the writer effects a
closing purchase transaction by purchasing an option
identical to that previously sold. The Manager and
the Company believe that writing of covered call
options is less risky than writing uncovered or
"naked" options, which the funds will not do.
Portfolio securities or currencies on which call
options may be written will be purchased solely on the
basis of investment considerations consistent with
each fund's investment objective. When writing a
covered call option, the fund, in return for the
premium, gives up the opportunity for profit from a
price increase in the underlying security or currency
above the exercise price and retains the risk of loss
should the price of the security or currency decline.
Unlike one who owns securities or currencies not
subject to an option, the fund has no control over
when it may be required to sell the underlying
securities or currencies, since the option may be
exercised at any time prior to the option's
expiration. If a call option which the fund has
written expires, the fund will realize a gain in the
amount of the premium; however, such gain may be
offset by a decline in the market value of the
underlying security or currency during the option
period. If the call option is exercised, the fund
will realize a gain or loss from the sale of the
underlying security or currency. The security or
currency covering the call option will be maintained
in a segregated account of the fund's custodian.
The premium the fund receives for writing a call
option is deemed to constitute the market value of an
option. The premium the fund will receive from
writing a call option will reflect, among other
things, the current market price of the underlying
security or currency, the relationship of the exercise
price to such market price, the implied price
volatility of the underlying security or currency, and
the length of the option period. In determining
whether a particular call option should be written on
a particular security or currency, the Manager will
consider the reasonableness of the anticipated premium
and the likelihood that a liquid secondary market will
exist for those options. The premium received by the
fund for writing covered call options will be recorded
as a liability in the fund's statement of assets and
liabilities. This liability will be adjusted daily to
the option's current market value, which will be
calculated as described in "DETERMINATION OF NET ASSET
VALUE." The liability will be extinguished upon
expiration of the option or delivery of the underlying
security or currency upon the exercise of the option.
The liability with respect to a listed option will
also be extinguished upon the purchase of an identical
option in a closing transaction.
Closing transactions will be effected in order to
realize a profit or to limit losses on an outstanding
call option, to prevent an underlying security or
currency from being called, or to permit the sale of
the underlying security or currency. Furthermore,
effecting a closing transaction will permit the fund
to write another call option on the underlying
security or currency with either a different exercise
price, expiration date or both. If the fund desires
to sell a particular security or currency from its
portfolio on which it has written a call option or
purchases a put option, it will seek to effect a
closing transaction prior to, or concurrently with,
the sale of the security or currency. There is no
assurance that the fund will be able to effect such
closing transactions at a favorable price. If the
fund cannot enter into such a transaction, it may be
required to hold a security or currency that it might
otherwise have sold, in which case it would continue
to be at market risk with respect to the security or
currency.
Each fund will pay transaction costs in connection
with the writing of options and in entering into
closing purchase contracts. Transaction costs
relating to options activity are normally higher than
those applicable to purchases and sales of portfolio
securities.
Call options written by each fund, other than the
International Balanced Portfolio, will normally have
expiration dates of less than nine months from the
date written. Call options written by the
International Balanced Portfolio will normally have
expiration dates of less than twelve months from the
date written. The exercise price of the options may
be below, equal to or above the current market values
of the underlying securities or currencies at the time
the options are written. From time to time, the fund
may purchase an underlying security or currency for
delivery in accordance with the exercise of an option,
rather than delivering such security or currency from
its portfolio. In such cases, additional costs will
be incurred.
Each fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is
less or more, respectively, than the premium received
from the writing of the option. Because increases in
the market price of a call option will generally
reflect increases in the market price of the
underlying security or currency, any loss resulting
from the repurchase of a call option is likely to be
offset in whole or in part by appreciation of the
underlying security or currency owned by the fund.
See "ADDITIONAL TAX INFORMATION" for a discussion of
federal income tax treatment of covered call options.
Purchasing Put Options (All funds). Each fund may
purchase put options. As the holder of a put option,
the fund has the right to sell the underlying security
or currency at the exercise price at any time during
the option period. The fund may enter into closing
sale transactions with respect to such options,
exercise them or permit them to expire.
Each fund may purchase a put option on an underlying
security or currency (a "protective put") owned by the
fund as a hedging technique in order to protect
against an anticipated decline in the value of the
security or currency. Such hedge protection is
provided only during the life of the put option when
the fund, as the holder of the put option, is able to
sell the underlying security or currency at the put
exercise price regardless of any decline in the
underlying security's market price or currency's
exchange value. For example, a put option may be
purchased in order to protect unrealized appreciation
of a security or currency when the Manager deems it
desirable to continue to hold the security or currency
because of tax considerations. The premium paid for
the put option and any transaction costs may reduce
any capital gain or, in the case of currency, ordinary
income otherwise available for distribution when the
security or currency is eventually sold.
Each fund may also purchase put options at a time when
the fund does not own the underlying security or
currency. By purchasing put options on a security or
currency it does not own, the fund seeks to benefit
from a decline in the market price of the underlying
security or currency. If the put option is not sold
when it has remaining value, and if the market price
of the underlying security or currency remains equal
to or greater than the exercise price during the life
of the put option, the fund will lose its entire
investment in the put option. In order for the
purchase of a put option to be profitable, the market
price of the underlying security or currency must
decline sufficiently below the exercise price to cover
the premium and transaction costs, unless the put
option is sold in a closing sale transaction.
The premium paid by a fund when purchasing a put
option will be recorded as an asset in the fund's
statement of assets and liabilities. This asset will
be adjusted daily to the option's current market
value, as calculated by the fund. The asset will be
extinguished upon expiration of the option or the
delivery of the underlying security or currency upon
the exercise of the option. The asset with respect to
a listed option will also be extinguished upon the
writing of an identical option in a closing
transaction.
Purchasing Call Options (All funds). Each fund may
purchase call options. As the holder of a call
option, a fund has the right to purchase the
underlying security or currency at the exercise price
at any time during the option period. The fund may
enter into closing sale transactions with respect to
such options, exercise them or permit them to expire.
Call options may be purchased by the fund for the
purpose of acquiring the underlying security or
currency for its portfolio. Utilized in this fashion,
the purchase of call options enables the fund to
acquire the security or currency at the exercise price
of the call option plus the premium paid. At times
the net cost of acquiring the security or currency in
this manner may be less than the cost of acquiring the
security or currency directly. This technique may
also be useful to the fund in purchasing a large block
of securities that would be more difficult to acquire
by direct market purchases. So long as it holds such
a call option rather than the underlying security or
currency itself, the fund is partially protected from
any unexpected decline in the market price of the
underlying security or currency and in such event
could allow the call option to expire, incurring a
loss only to the extent of the premium paid for the
option.
Each fund may also purchase call options on underlying
securities or currencies it owns in order to protect
unrealized gains on call options previously written by
it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to
realize such gains through a closing purchase
transaction. Call options may also be purchased at
times to avoid realizing losses that would result in a
reduction of the fund's current return.
Interest Rate and Currency Futures Contracts (All
funds). Each fund may enter into interest rate or
currency futures contracts ("Futures" or "Futures
Contracts") as a hedge against changes in prevailing
levels of interest rates or currency exchange rates in
order to establish more definitely the effective
return on securities or currencies held or committed
to be acquired by the fund. A fund's hedging may
include holding Futures as an offset against
anticipated changes in interest or currency exchange
rates. A fund may also enter into Futures Contracts
based on financial indices including any index of U.S.
Government securities, foreign government securities
or corporate debt securities.
A Futures Contract provides for the future sale by one
party and purchase by another party of a specified
amount of a specific financial instrument or currency
for a specified price at a designated date, time and
place. The purchaser of a Futures Contract on an
index agrees to take or make delivery of an amount of
cash equal to the difference between a specified
dollar multiple of the value of the index on the
expiration date of the contract ("current contract
value") and the price at which the contract was
originally struck. No physical delivery of the debt
securities underlying the index is made. Brokerage
fees are incurred when a Futures Contract is bought or
sold, and margin deposits must be maintained at all
times that the Futures Contract is outstanding.
Although techniques other than sales and purchases of
Futures Contracts could be used to reduce the fund's
exposure to interest rate and currency exchange rate
fluctuations, the fund may be able to hedge its
exposure more effectively and at a lower cost through
using Futures Contracts.
Although Futures Contracts typically require future
delivery of and payment for financial instruments or
currencies, Futures Contracts are usually closed out
before the delivery date. Closing out an open Futures
Contract sale or purchase is effected by entering into
an offsetting Futures Contract purchase or sale,
respectively, for the same aggregate amount of the
identical financial instrument or currency and the
same delivery date. If the offsetting purchase price
is less than the original sale price, the fund
realizes a gain; if it is more, the fund realizes a
loss. Conversely, if the offsetting sale price is
more than the original purchase price, the fund
realizes a gain; if it is less, the fund realizes a
loss. The transaction costs must also be included in
these calculations. There can be no assurance,
however, that the fund will be able to enter into an
offsetting transaction with respect to a particular
Futures Contract at a particular time. If the fund is
not able to enter into an offsetting transaction, the
fund will continue to be required to maintain the
margin deposits of the underlying financial instrument
or currency on the relevant delivery date. The
Company intends to enter into Futures transactions
only on exchanges or boards of trade where there
appears to be a liquid secondary market. However,
there can be no assurance that such a market will
exist for a particular contract at a particular time.
As an example of an offsetting transaction, the
contractual obligations arising from the sale of one
Futures Contract of September Treasury Bills on an
exchange may be fulfilled at any time before delivery
under the Futures Contract is required (i.e., on a
specific date in September, the "delivery month") by
the purchase of another Futures Contract of September
Treasury Bills on the same exchange. In such instance
the difference between the price at which the Futures
Contract was sold and the price paid for the
offsetting purchase, after allowance for transaction
costs, represents the profit or loss to the fund.
Persons who trade in Futures Contracts may be broadly
classified as "hedgers" and "speculators." Hedgers,
whose business activity involves investment or other
commitment in securities or other obligations, use the
Futures markets to offset unfavorable changes in value
that may occur because of fluctuations in the value of
the securities and obligations held or committed to be
acquired by them or fluctuations in the value of the
currency in which the securities or obligations are
denominated. Debtors and other obligors may also
hedge the interest cost of their obligations. The
speculator, like the hedger, generally expects neither
to deliver nor to receive the financial instrument
underlying the Futures Contract, but, unlike the
hedger, hopes to profit from fluctuations in
prevailing interest rates or currency exchange rates.
Each fund's Futures transactions will be entered into
for traditional hedging purposes; that is, Futures
Contracts will be sold to protect against a decline in
the price of securities or currencies that the fund
owns, or Futures Contracts will be purchased to
protect a fund against an increase in the price of
securities or currencies it has committed to purchase
or expects to purchase. The International Equity
Portfolio, the Pacific Portfolio, the International
Balanced Portfolio and the Emerging Market Portfolio
may each also enter into Futures transactions for non-
hedging purposes, subject to applicable law.
"Margin" with respect to Futures Contracts is the
amount of funds that must be deposited by the fund
with a broker in order to initiate Futures trading and
to maintain the fund's open positions in Futures
Contracts. A margin deposit made when the Futures
Contract is entered into ("initial margin") is
intended to assure the fund's performance of the
Futures Contract. The margin required for a
particular Futures Contract is set by the exchange on
which the Futures Contract is traded, and may be
significantly modified from time to time by the
exchange during the term of the Futures Contract.
Futures Contracts are customarily purchased and sold
on margins, which may be 5% or less of the value of
the Futures Contract being traded.
If the price of an open Futures Contract changes (by
increase in the case of a sale or by decrease in the
case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on
deposit does not satisfy margin requirements, the
broker will require an increase in the margin deposit
("variation margin"). If, however, the value of a
position increases because of favorable price changes
in the Futures Contract so that the margin deposit
exceeds the required margin, it is anticipated that
the broker will pay the excess to the fund. In
computing daily net asset values, the fund will mark
to market the current value of its open Futures
Contracts. Each fund expects to earn interest income
on its margin deposits.
See "ADDITIONAL TAX INFORMATION" for a discussion of
federal tax treatment of Futures Contracts.
Options on Futures Contracts (All funds). Options on
Futures Contracts are similar to options on securities
or currencies except that options on Futures Contracts
give the purchaser the right, in return for the
premium paid, to assume a position in a Futures
Contract (a long position if the option is a call and
a short position if the option is a put), rather than
to purchase or sell the Futures Contract, at a
specified exercise price at any time during the period
of the option. Upon exercise of the option, the
delivery of the Futures position by the writer of the
option to the holder of the option will be accompanied
by delivery of the accumulated balance in the writer's
Futures margin account which represents the amount by
which the market price of the Futures Contract, at
exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the
option on the Futures Contract. If an option is
exercised on the last trading day prior to the
expiration date of the option, the settlement will be
made entirely in cash equal to the difference between
the exercise price of the option and the closing level
of the securities or currencies upon which the Futures
Contracts are based on the expiration date.
Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of
the premium paid.
As an alternative to purchasing call and put options
on Futures, each fund may purchase call and put
options on the underlying securities or currencies
themselves (see "Purchasing Put Options" and
"Purchasing Call Options" above). Such options would
be used in a manner identical to the use of options on
Futures Contracts.
To reduce or eliminate the leverage then employed by
the fund or to reduce or eliminate the hedge position
then currently held by the fund, the fund may seek to
close out an option position by selling an option
covering the same securities or currency and having
the same exercise price and expiration date. The
ability to establish and close out positions on
options on Futures Contracts is subject to the
existence of a liquid market. It is not certain that
this market will exist at any specific time.
In order to assure that the funds will not be deemed
to be "commodity pools" for purposes of the Commodity
Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that each fund
enter into transactions in Futures Contracts and
options on Futures Contracts only (i) for bona fide
hedging purposes (as defined in CFTC regulations), or
(ii) for non-hedging purposes, provided that the
aggregate initial margin and premiums on such non-
hedging positions does not exceed 5% of the
liquidation value of the fund's assets. The Global
Government Bond Portfolio and the European Portfolio
will enter into transactions in Futures Contracts and
options on Futures Contracts only for hedging
purposes.
Forward Currency Contracts, Options on Currency and
Currency Swaps (All funds). A forward currency
contract is an obligation to purchase or sell a
currency against another currency at a future date and
price as agreed upon by the parties. A fund may
either accept or make delivery of the currency at the
maturity of the forward contract or, prior to
maturity, enter into a closing transaction involving
the purchase or sale of an offsetting contract. Each
fund engages in forward currency transactions in
anticipation of, or to protect itself against,
fluctuations in exchange rates. A fund might sell a
particular foreign currency forward, for example, when
it holds bonds denominated in that currency but
anticipates, and seeks to be protected against,
decline in the currency against the U.S. dollar.
Similarly, a fund might sell the U.S. dollar forward
when it holds bonds denominated in U.S. dollars but
anticipates, and seeks to be protected against, a
decline in the U.S. dollar relative to other
currencies. Further, a fund might purchase a currency
forward to "lock in" the price of securities
denominated in that currency which it anticipates
purchasing.
The matching of the increase in value of a forward
contract and the decline in the U.S. dollar equivalent
value of the foreign currency denominated asset that
is the subject of the hedge generally will not be
precise. In addition, a fund may not always be able
to enter into foreign currency forward contracts at
attractive prices and this will limit the fund's
ability to use such contract to hedge or cross-hedge
its assets. Also, with regard to a fund's use of
cross-hedges, there can be no assurance that
historical correlations between the movement of
certain foreign currencies relative to the U.S. dollar
will continue. Thus, at any time poor correlation may
exist between movements in the exchange rates of the
foreign currencies underlying the fund's cross-hedges
and the movements in the exchange rates of the foreign
currencies in which the fund's assets that are the
subject of such cross-hedges are denominated.
Forward contracts are traded in an interbank market
conducted directly between currency traders (usually
large commercial banks) and their customers. A
forward contract generally has no deposit requirement
and is consummated without payment of any commission.
Each fund, however, may enter into forward contracts
with deposit requirements or commissions.
A put option gives a fund, as purchaser, the right
(but not the obligation) to sell a specified amount of
currency at the exercise price until the expiration of
the option. A call option gives a fund, as purchaser,
the right (but not the obligation) to purchase a
specified amount of currency at the exercise price
until its expiration. A fund might purchase a
currency put option, for example, to protect itself
during the contract period against a decline in the
value of a currency in which it holds or anticipates
holding securities. If the currency's value should
decline, the loss in currency value should be offset,
in whole or in part, by an increase in the value of
the put. If the value of the currency instead should
rise, any gain to the fund would be reduced by the
premium it had paid for the put option. A currency
call option might be purchased, for example, in
anticipation of, or to protect against, a rise in the
value of a currency in which the fund anticipates
purchasing securities.
Each fund's ability to establish and close out
positions in foreign currency options is subject to
the existence of a liquid market. There can be no
assurance that a liquid market will exist for a
particular option at any specific time. In addition,
options on foreign currencies are affected by all of
those factors that influence foreign exchange rates
and investments generally.
A position in an exchange-listed option may be closed
out only on an exchange that provides a secondary
market for identical options. Exchange markets for
options on foreign currencies exist but are relatively
new, and the ability to establish and close out
positions on the exchanges is subject to maintenance
of a liquid secondary market. Closing transactions
may be effected with respect to options traded in the
over-the-counter ("OTC") markets (currently the
primary markets for options on foreign currencies)
only by negotiating directly with the other party to
the option contract or in a secondary market for the
option if such market exists. Although each fund
intends to purchase only those options for which there
appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist
for any particular option at any specific time. In
such event, it may not be possible to effect closing
transactions with respect to certain options, with the
result that the fund would have to exercise those
options which it has purchased in order to realize any
profit. The staff of the Securities and Exchange
Commission ("SEC") has taken the position that, in
general, purchased OTC options and the underlying
securities used to cover written OTC options are
illiquid securities. However, a fund may treat as
liquid the underlying securities used to cover written
OTC options, provided it has arrangements with certain
qualified dealers who agree that the fund may
repurchase any option it writes for a maximum price to
be calculated by a predetermined formula. In these
cases, the OTC option itself would only be considered
illiquid to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of
the option.
A fund may also enter into currency swaps. A currency
swap is an arrangement whereby each party exchanges
one currency for another on a particular date and
agrees to reverse the exchange on a later date at a
specific exchange rate. Forward foreign currency
contracts and currency swaps are established in the
interbank market conducted directly between currency
traders (usually large commercial banks or other
financial institutions) on behalf of their customers.
Interest Rate Swaps, Caps and Floors (All funds).
Among the hedging transactions into which the funds
may enter are interest rate swaps and the purchase or
sale of interest rate caps and floors. Each fund
expects to enter into these transactions primarily to
preserve a return or spread on a particular investment
or portion of its portfolio or to protect against any
increase in the price of securities the fund
anticipates purchasing at a later date. Each fund
intends to use these transactions as a hedge and not
as a speculative investment. Each fund will not sell
interest rate caps or floors that it does not own.
Interest rate swaps involve the exchange by a fund
with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments. The purchase
of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a
notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest
rate, to receive payments of interest on a notional
principal amount from the party selling such interest
rate floor.
A fund may enter into interest rate swaps, caps and
floors on either an asset-based or liability-based
basis, depending on whether it is hedging its assets
or its liabilities, and will usually enter into
interest rate swaps on a net basis, i.e., the two
payment streams are netted, with the fund receiving or
paying, as the case may be, only the net amount of the
two payments. Inasmuch as these hedging transactions
are entered into for good faith hedging purposes, the
Manager and the funds believe such obligations do not
constitute senior securities and, accordingly will not
treat them as being subject to their borrowing
restrictions. The net amount of the excess, if any,
of a fund's obligations over its entitlements with
respect to each interest rate swap will be accrued on
a daily basis and an amount of cash or liquid
securities having an aggregate net asset value at
least equal to the accrued excess will be maintained
in a segregated account by a custodian that satisfies
the requirements of the 1940 Act. The funds will not
enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is
rated in the highest rating category of at least one
nationally recognized rating organization at the time
of entering into such transaction. If there is a
default by the other party to such a transaction, a
fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap
market has grown substantially in recent years with a
large number of banks and investment banking firms
acting both as principals and as agents utilizing swap
documentation. As a result, the swap market has
become relatively liquid. Caps and floors are more
recent innovations for which standardized
documentation has not yet been developed and,
accordingly, they are less liquid than swaps.
New options and Futures Contracts and various
combinations thereof continue to be developed and the
funds may invest in any such options and contracts as
may be developed to the extent consistent with their
investment objectives and regulatory requirements
applicable to investment companies.
OTHER PRACTICES
Repurchase Agreements (All funds). Each fund may
enter into repurchase agreements. International
Equity Portfolio, Pacific Portfolio, International
Balanced Portfolio and Emerging Markets Portfolio each
may invest in repurchase agreements up to 25% of its
total assets. A repurchase agreement is a contract
under which a fund acquires a security for a
relatively short period (usually not more than one
week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a
fixed time and price (representing the fund's cost
plus interest). It is each fund's present intention
to enter into repurchase agreements only upon receipt
of fully adequate collateral and only with commercial
banks (whether U.S. or foreign) and registered broker-
dealers. Repurchase agreements may also be viewed as
loans made by a fund which are collateralized
primarily by the securities subject to repurchase. A
fund bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its
obligations and the fund is delayed in or prevented
from exercising its rights to dispose of the
collateral securities. Pursuant to policies
established by the Board of Directors, the Manager
monitors the creditworthiness of all issuers with
which each fund enters into repurchase agreements.
Reverse Repurchase Agreements (All funds). Each fund
does not currently intend to commit more than 5% of
its net assets to reverse repurchase agreements. Each
fund may enter into reverse repurchase agreements with
broker/dealers and other financial institutions. Such
agreements involve the sale of fund securities with an
agreement to repurchase the securities at an agreed-
upon price, date and interest payment, are considered
to be borrowings by a fund and are subject to the
borrowing limitations set forth under "Investment
Restrictions." Since the proceeds of reverse
repurchase agreements are invested, this would
introduce the speculative factor known as "leverage."
The securities purchased with the funds obtained from
the agreement and securities collateralizing the
agreement will have maturity dates no later than the
repayment date. Generally the effect of such a
transaction is that the Company can recover all or
most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase
agreement, while in many cases it will be able to keep
some of the interest income associated with those
securities. Such transactions are only advantageous
if the fund has an opportunity to earn a greater rate
of interest on the cash derived from the transaction
than the interest cost of obtaining that cash.
Opportunities to realize earnings from the use of the
proceeds equal to or greater than the interest
required to be paid may not always be available, and
the Company intends to use the reverse repurchase
technique only when the Manager believes it will be
advantageous to the fund. The use of reverse
repurchase agreements may exaggerate any interim
increase or decrease in the value of the participating
fund's assets. The Company's custodian bank will
maintain a separate account for the fund with
securities having a value equal to or greater than
such commitments.
Borrowing (All funds). Each fund may borrow up to 33%
(except that Emerging Markets Portfolio may borrow
only up to 25% and European Portfolio may borrow only
up to 10%) of the value of its total assets from banks
for temporary or emergency purposes, such as to meet
the fund's redemptions.
Leverage (International Balanced, International Equity
and Pacific). International Equity Portfolio,
International Balanced Portfolio and Pacific Portfolio
each may borrow from banks, on a secured or unsecured
basis, up to 33% of the value of its total assets and
use the proceeds to make additional investments.
Income and appreciation from such investments will
improve a fund's performance if they exceed the
associated borrowing costs, but will impair a fund's
performance if they are less than the borrowing costs.
This speculative factor is known as "leverage."
Leverage creates an opportunity for increased returns
to shareholders of a fund but, at the same time,
creates special risk considerations. For example,
leverage may exaggerate changes in the net asset value
of the fund's shares and in the fund's yield.
Although the principal or stated value of such
borrowings will be fixed, the fund assets may change
in value during the time the borrowing is outstanding.
Leverage will create interest expenses for the fund
which can exceed the income from the assets retained.
To the extent the income or other gain derived from
securities purchased with borrowed funds exceeds the
interest the fund will have to pay in respect thereof,
the fund's net income or other gain will be greater
than if leverage had not been used. Conversely, if
the income or other gain from the incremental assets
is not sufficient to cover the cost of leverage, the
net income or other gain of the fund will be less than
if leverage had not been used. If the amount of
income from the incremental securities is insufficient
to cover the cost of borrowing, securities might have
to be liquidated to obtain required funds. Depending
on market or other conditions, such liquidations could
be disadvantageous to the fund.
Securities Lending (All funds). Global Government
Bond Portfolio, European Portfolio, International
Balanced Portfolio and Emerging Markets Portfolio each
may lend securities in amounts up to one-third of
total assets. International Equity Portfolio and
Pacific Portfolio each may lend securities in amounts
up to 15% of total assets. Each fund may seek to
increase its net investment income by lending its
securities provided such loans are callable at any
time and are continuously secured by cash or U.S.
Government Obligations equal to no less than the
market value, determined daily, of the securities
loaned. Each fund will receive amounts equal to
dividends or interest on the securities loaned. It
will also earn income for having made the loan because
cash collateral pursuant to these loans will be
invested in short-term money market instruments. In
connection with lending of securities the Company may
pay reasonable finders, administrative and custodial
fees. Management will limit such lending to not more
than one-third of the value of the total assets of
each fund. Where voting or consent rights with
respect to loaned securities pass to the borrower,
management will follow the policy of calling the loan,
in whole or in part as may be appropriate, to permit
the exercise of such voting or consent rights if the
issues involved have a material effect on the fund's
investment in the securities loaned. Apart from
lending its securities and acquiring debt securities
of a type customarily purchased by financial
institutions, no fund will make loans to other
persons.
When-Issued and Delayed Delivery Securities (All
funds). The funds each may purchase or sell
securities on a when-issued or delayed delivery basis.
When-issued or delayed delivery transactions arise
when securities are purchased or sold by a fund with
payment and delivery taking place in the future in
order to secure what is considered to be an
advantageous price and yield to the fund at the time
of entering into the transaction. The Chase Manhattan
Bank, the Company's custodian (the "Custodian") will
maintain, in a segregated account of the applicable
fund, cash, debt securities of any grade or equity
securities, having a value equal to or greater than
the fund's purchase commitments, provided such
securities have been determined by the Manager to be
liquid and unencumbered, and are 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) Each fund may sell
securities "short against the box." While a short sale
is the sale of a security the fund does not own, it is
"against the box" if at all times when the short
position is open, the fund owns an equal amount of the
securities or securities convertible into, or
exchangeable without further consideration for,
securities of the same issue as the securities sold
short. The ability to use short sales to defer
recognition of gains was substantially limited by
certain "constructive sale" tax provisions enacted in
1997.
* * * * * * * *
The Articles of Incorporation of the Company permit
the Board of Directors to establish additional funds
of the Company from time to time. The investment
objectives, policies and restrictions applicable to
additional funds would be established by the Board of
Directors at the time such funds were established and
may differ from those set forth in the Prospectus and
this Statement of Additional Information.
RISK FACTORS tc "RISK FACTORS"
General. Investors should realize that risk of loss
is inherent in the ownership of any securities and
that each fund's net asset value will fluctuate,
reflecting fluctuations in the market value of its
portfolio positions.
Non-diversification and Geographic Concentration.
Funds that are "non-diversified" are permitted to
invest a greater proportion of their assets in the
securities of a smaller number of issuers, and thus
may be subject to greater credit and liquidity risks
with respect to their individual portfolios than a
fund that is more broadly diversified. In addition,
concentration of a fund's assets in one or a few
countries or currencies will subject the fund to
greater risks than if the fund's assets were not
geographically concentrated.
Fixed Income Securities. Investments in fixed income
securities may subject the funds to risks, including
the following:
Interest Rate Risk. When interest rates decline, the
market value of fixed income securities tends to
increase. Conversely, when interest rates increase,
the market value of fixed income securities tends to
decline. The volatility of a security's market value
will differ depending upon the security's duration,
the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income
securities are subject to the risk that the issuer of
the security could default on its obligations, causing
a fund to sustain losses on such investments. A
default could impact both interest and principal
payments.
Call Risk and Extension Risk. Fixed income securities
may be subject to both call risk and extension risk.
Call risk exists when the issuer may exercise its
right to pay principal on an obligation earlier than
scheduled, which would cause cash flows to be returned
earlier than expected. This typically results when
interest rates have declined and a fund will suffer
from having to reinvest in lower yielding securities.
Extension risk exists when the issuer may exercise its
right to pay principal on an obligation later than
scheduled, which would cause cash flows to be returned
later than expected. This typically results when
interest rates have increased, and a fund will suffer
from the inability to invest in higher yield
securities.
Below Investment Grade Fixed Income Securities.
Securities which are rated BBB by S&P or Baa by
Moody's are generally regarded as having adequate
capacity to pay interest and repay principal, but may
have some speculative characteristics. Securities
rated below Baa by Moody's or BBB by S&P may have
speculative characteristics, including the possibility
of default or bankruptcy of the issuers of such
securities, market price volatility based upon
interest rate sensitivity, questionable
creditworthiness and relative liquidity of the
secondary trading market. Because high yield bonds
have been found to be more sensitive to adverse
economic changes or individual corporate developments
and less sensitive to interest rate changes than
higher-rated investments, an economic downturn could
disrupt the market for high yield bonds and adversely
affect the value of outstanding bonds and the ability
of issuers to repay principal and interest. In
addition, in a declining interest rate market, issuers
of high yield bonds may exercise redemption or call
provisions, which may force a fund, to the extent it
owns such securities, to replace those securities with
lower yielding securities. This could result in a
decreased return.
Foreign Securities. Investments in securities of
foreign issuers involve certain risks not ordinarily
associated with investments in securities of domestic
issuers. Such risks include fluctuations in foreign
exchange rates, future political and economic
developments, and the possible imposition of exchange
controls or other foreign governmental laws or
restrictions. Since each fund will invest heavily in
securities denominated or quoted in currencies other
than the U.S. dollar, changes in foreign currency
exchange rates will, to the extent the fund does not
adequately hedge against such fluctuations, affect the
value of securities in its portfolio and the
unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. In addition,
with respect to certain countries, there is the
possibility of expropriation of assets, confiscatory
taxation, political or social instability or
diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about
a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting,
auditing, and financial reporting standards and
requirements comparable to or as uniform as those of
U.S. companies. Foreign securities markets, while
growing in volume, have, for the most part,
substantially less volume than U.S. markets, and
securities of many foreign companies are less liquid
and their price more volatile than securities of
comparable U.S. companies. Transaction costs on
foreign securities markets are generally higher than
in the U.S. There is generally less government
supervision and regulation of exchanges, brokers and
issuers than there is in the U.S. A fund might have
greater difficulty taking appropriate legal action in
foreign courts. Dividend and interest income from
foreign securities will generally be subject to
withholding taxes by the country in which the issuer
is located and may not be recoverable by the fund or
the investors. Capital gains are also subject to
taxation in some foreign countries.
Currency Risks. The U.S. dollar value of securities
denominated in a foreign currency will vary with
changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the
currency in which a fund's investments are denominated
relative to the U.S. dollar will affect the fund's net
asset value. Exchange rates are generally affected by
the forces of supply and demand in the international
currency markets, the relative merits of investing in
different countries and the intervention or failure to
intervene of U.S. or foreign governments and central
banks. However, currency exchange rates may fluctuate
based on factors intrinsic to a country's economy.
Some emerging market countries also may have managed
currencies, which are not free floating against the
U.S. dollar. In addition, emerging markets are
subject to the risk of restrictions upon the free
conversion of their currencies into other currencies.
Any devaluations relative to the U.S. dollar in the
currencies in which a fund's securities are quoted
would reduce the fund's net asset value per share.
Special Risks of countries in the Asia Pacific Region.
Certain of the risks associated with international
investments are heightened for investments in these
countries. For example, some of the currencies of
these countries have experienced devaluations relative
to the U.S. dollar, and adjustments have been made
periodically in certain of such currencies. Certain
countries, such as Indonesia, face serious exchange
constraints. Jurisdictional disputes also exist, for
example, between South Korea and North Korea. In
addition, Hong Kong reverted to Chinese administration
on July 1, 1997. The long-term effects of this
reversion are not known at this time.
Securities of Developing/Emerging Markets Countries.
A developing or emerging markets country generally is
considered to be a country that is in the initial
stages of its industrialization cycle. Investing in
the equity markets of developing countries involves
exposure to economic structures that are generally
less diverse and mature, and to political systems that
can be expected to have less stability, than those of
developed countries. Historical experience indicates
that the markets of developing countries have been
more volatile than the markets of the more mature
economies of developed countries; however, such
markets often have provided higher rates of return to
investors.
One or more of the risks discussed above could affect
adversely the economy of a developing market or a
fund's investments in such a market. In Eastern
Europe, for example, upon the accession to power of
Communist regimes in the past, the governments of a
number of Eastern European countries expropriated a
large amount of property. The claims of many property
owners against those of governments may remain
unsettled. There can be no assurance that any
investments that a fund might make in such emerging
markets would not be expropriated, nationalized or
otherwise confiscated at some time in the future. In
such an event, the fund could lose its entire
investment in the market involved. Moreover, changes
in the leadership or policies of such markets could
halt the expansion or reverse the liberalization of
foreign investment policies now occurring in certain
of these markets and adversely affect existing
investment opportunities.
Many of a fund's investments in the securities of
emerging markets may be unrated or rated below
investment grade. Securities rated below investment
grade (and comparable unrated securities) are the
equivalent of high yield, high risk bonds, commonly
known as "junk bonds." Such securities are regarded as
predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in
accordance with the terms of the obligations and
involve major risk exposure to adverse business,
financial, economic, or political conditions.
Restrictions on Foreign Investment. Some countries
prohibit or impose substantial restrictions on
investments in their capital markets, particularly
their equity markets, by foreign entities such as a
fund. As illustrations, certain countries require
governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign
persons in a particular company, or limit the
investment by foreign persons to only a specific class
of securities of a company which may have less
advantageous terms than securities of the company
available for purchase by nationals or limit the
repatriation of funds for a period of time.
A number of countries, such as South Korea, Taiwan and
Thailand, have authorized the formation of closed-end
investment companies to facilitate indirect foreign
investment in their capital markets. In accordance
with the 1940 Act, each fund may invest up to 10% of
its total assets in securities of closed-end
investment companies. This restriction on investments
in securities of closed-end investment companies may
limit opportunities for a fund to invest indirectly in
certain smaller capital markets. Shares of certain
closed-end investment companies may at times be
acquired only at market prices representing premiums
to their net asset values. If a fund acquires shares
in closed-end investment companies, shareholders would
bear both their proportionate share of expenses in the
fund (including management and advisory fees) and,
indirectly, the expenses of such closed-end investment
companies.
In some countries, banks or other financial
institutions may constitute a substantial number of
the leading companies or the companies with the most
actively traded securities. Also, the 1940 Act
restricts a fund's investments in any equity security
of an issuer which, in its most recent fiscal year,
derived more than 15% of its revenues from "securities
related activities," as defined by the rules
thereunder. These provisions may also restrict the
fund's investments in certain foreign banks and other
financial institutions.
Smaller capital markets, while often growing in
trading volume, have substantially less volume than
U.S. markets, and securities in many smaller capital
markets are less liquid and their prices may be more
volatile than securities of comparable U.S. companies.
Brokerage commissions, custodial services, and other
costs relating to investment in smaller capital
markets are generally more expensive than in the
United States. Such markets have different clearance
and settlement procedures, and in certain markets
there have been times when settlements have been
unable to keep pace with the volume of securities
transactions, making it difficult to conduct such
transactions. Further, satisfactory custodial
services for investment securities may not be
available in some countries having smaller capital
markets, which may result in the fund incurring
additional costs and delays in transporting and
custodying such securities outside such countries.
Delays in settlement could result in temporary periods
when assets of a fund are uninvested and no return is
earned thereon. The inability of a fund to make
intended security purchases due to settlement problems
could cause the fund to miss attractive investment
opportunities. Inability to dispose of a portfolio
security due to settlement problems could result
either in losses to a fund due to subsequent declines
in value of the portfolio security or, if the fund has
entered into a contract to sell the security, could
result in possible liability to the purchaser.
Generally, there is less government supervision and
regulation of exchanges, brokers and issuers in
countries having smaller capital markets than there is
in the United States.
Derivative Instruments. In accordance with its
investment policies, each fund may invest in certain
derivative instruments which are securities or
contracts that provide for payments based on or
"derived" from the performance of an underlying asset,
index or other economic benchmark. Essentially, a
derivative instrument is a financial arrangement or a
contract between two parties (and not a true security
like a stock or a bond). Transactions in derivative
instruments can be, but are not necessarily, riskier
than investments in conventional stocks, bonds and
money market instruments. A derivative instrument is
more accurately viewed as a way of reallocating risk
among different parties or substituting one type of
risk for another. Every investment by a fund,
including an investment in conventional securities,
reflects an implicit prediction about future changes
in the value of that investment. Every fund
investment also involves a risk that the portfolio
manager's expectations will be wrong. Transactions in
derivative instruments often enable a fund to take
investment positions that more precisely reflect the
portfolio manager's expectations concerning the future
performance of the various investments available to
the fund. Derivative instruments can be a legitimate
and often cost-effective method of accomplishing the
same investment goals as could be achieved through
other investment in conventional securities.
Derivative contracts include options, futures
contracts, forward contracts, forward commitment and
when-issued securities transactions, forward foreign
currency exchange contracts and interest rate,
mortgage and currency swaps. The following are the
principal risks associated with derivative
instruments.
Market risk: The instrument will decline in value or
that an alternative investment would have appreciated
more, but this is no different from the risk of
investing in conventional securities.
Leverage and associated price volatility: Leverage
causes increased volatility in the price and magnifies
the impact of adverse market changes, but this risk
may be consistent with the investment objective of
even a conservative fund in order to achieve an
average portfolio volatility that is within the
expected range for that type of fund.
Credit risk: The issuer of the instrument may default
on its obligation to pay interest and principal.
Liquidity and valuation risk: Many derivative
instruments are traded in institutional markets rather
than on an exchange. Nevertheless, many derivative
instruments are actively traded and can be priced with
as much accuracy as conventional securities.
Derivative instruments that are custom designed to
meet the specialized investment needs of a relatively
narrow group of institutional investors such as the
funds are not readily marketable and are subject to a
fund's restrictions on illiquid investments.
Correlation risk: There may be imperfect correlation
between the price of the derivative and the underlying
asset. For example, there may be price disparities
between the trading markets for the derivative
contract and the underlying asset.
Each derivative instrument purchased for a fund's
portfolio is reviewed and analyzed by the fund's
portfolio manager to assess the risk and reward of
each such instrument in relation the fund's portfolio
investment strategy. The decision to invest in
derivative instruments or conventional securities is
made by measuring the respective instrument's ability
to provide value to the fund and its shareholders.
Special Risks of Using Futures Contracts. The prices
of Futures Contracts are volatile and are influenced
by, among other things, actual and anticipated changes
in interest rates, which in turn are affected by
fiscal and monetary policies and national and
international political and economic events.
At best, the correlation between changes in prices of
Futures Contracts and of the securities or currencies
being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances
such as: variations in speculative market demand for
Futures and for debt securities or currencies,
including technical influences in Futures trading; and
differences between the financial instruments being
hedged and the instruments underlying the standard
Futures Contracts available for trading, with respect
to interest rate levels, maturities, and
creditworthiness of issuers. A decision of whether,
when, and how to hedge involves skill and judgment,
and even a well-conceived hedge may be unsuccessful to
some degree because of unexpected market behavior or
interest rate trends.
Because of the low margin deposits required, Futures
trading involves an extremely high degree of leverage.
As a result, a relatively small price movement in a
Futures Contract may result in immediate and
substantial loss, as well as gain, to the investor.
For example, if at the time of purchase, 10% of the
value of the Futures Contract is deposited as margin,
a subsequent 10% decrease in the value of the Futures
Contract would result in a total loss of the margin
deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the
original margin deposit, if the Futures Contract were
closed out. Thus, a purchase or sale of a Futures
Contract may result in losses in excess of the amount
invested in the Futures Contract. A fund, however,
would presumably have sustained comparable losses if,
instead of the Futures Contract, it had invested in
the underlying financial instrument and sold it after
the decline. Where a fund enters into Futures
transactions for non-hedging purposes, it will be
subject to greater risks and could sustain losses
which are not offset by gains on other fund assets.
Furthermore, in the case of a Futures Contract
purchase, in order to be certain that each fund has
sufficient assets to satisfy its obligations under a
Futures Contract, the fund segregates and commits to
back the Futures Contract an amount of cash and liquid
securities equal in value to the current value of the
underlying instrument less the margin deposit.
Most U.S. Futures exchanges limit the amount of
fluctuation permitted in Futures Contract prices
during a single trading day. The daily limit
establishes the maximum amount that the price of a
Futures Contract may vary either up or down from the
previous day's settlement price at the end of a
trading session. Once the daily limit has been
reached in a particular type of Futures Contract, no
trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement
during a particular trading day and therefore does not
limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures
Contract prices have occasionally moved to the daily
limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation
of Futures positions and subjecting some Futures
traders to substantial losses.
Economic and Monetary Union (EMU). EMU began on
January 1, 1999, when 11 European countries adopted a
single currency - the euro. For participating
countries, EMU means sharing a single currency and
single official interest rate and adhering to agreed
upon limits on government borrowing. Budgetary
decisions will remain in the hands of each
participating country, but will be subject to each
country's commitment to avoid "excessive deficits" and
other more specific budgetary criteria. A European
Central Bank will be responsible for setting the
official interest rate to maintain price stability
within the euro zone. EMU is driven by the
expectation of a number of economic benefits,
including lower transaction costs, reduced exchange
risk, greater competition, and a broadening and
deepening of European financial markets. However,
there are a number of significant risks associated
with EMU. Monetary and economic union on this scale
has never been attempted before. There is a
significant degree of uncertainty as to whether
participating countries will remain committed to EMU
in the face of changing economic conditions. This
uncertainty may increase the volatility of European
markets and may adversely affect the prices of
securities of European issuers in the funds'
portfolios.
Year 2000. 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 tc "INVESTMENT RESTRICTIONS"
The Company has adopted the following restrictions and
fundamental policies that cannot be changed without
approval by a "vote of a majority of the outstanding
voting securities" of each fund affected by the change
as defined in the 1940 Act and Rule 18f-2 thereunder
(see "Voting").
Without the approval of a majority of its outstanding
voting securities, the Global Government Bond
Portfolio may not:
1. Change its subclassification as an open-
end fund.;
2. Change its subclassification as a non-
diversified company;
3. Invest more than 25% of its total assets
in securities, the issuers of which
conduct their principal business
activities in the same industry. For
purposes of this limitation, securities of
the U.S. government (including its
agencies and instrumentalities) and
securities of state or municipal
governments and their political
subdivisions are not considered to be
issued by members of any industry.
4. Purchase or sell real estate, real estate
mortgages, commodities or commodity
contracts, but this restriction shall not
prevent the fund from (a) investing in
securities of issuers engaged in the 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.
5. Borrow money, except that (a) the fund may
borrow from banks for temporary or
emergency (not leveraging) purposes,
including the meeting of redemption
requests which might otherwise require the
untimely disposition of securities, and
(b) the fund may, to the extent consistent
with its investment policies, enter into
reverse repurchase agreements, forward
roll transactions and similar investment
strategies and techniques. To the extent
that it engages in transactions described
in (a) and (b), the fund will be limited
so that no more than 33 1/3% of the value
of its total assets (including the amount
borrowed), valued at the lesser of cost or
market, less liabilities (not including
the amount borrowed) valued at the time
the borrowing is made, is derived from
such transactions.
6. Issue senior securities.
7. Make loans. This restriction does not
apply to: (a) the purchase of debt
obligations in which the fund may invest
consistent with its investment objectives
and policies; (b) repurchase agreements;
and (c) loans of its portfolio securities,
to the fullest extent permitted under the
1940 Act.
8. Engage in the business of underwriting
securities issued by other persons,
except to the extent that the fund may
technically be deemed to be an underwriter
under the Securities Act of 1933, as
amended, in disposing of portfolio
securities.
9. Enter into a Futures Contract or a
commodity option other than for bona fide
hedging purposes and, if, as a result
thereof, more than 5% of the fund's total
assets (taken at market value at the time
of entering into the contract or commodity
option) would be committed to initial
margin on futures contracts and premiums
on commodity options all within the
meaning of Regulation 4.5 of the CFTC.
In addition, the following policies have also been
adopted by the Global Government Bond Portfolio but
are not fundamental and accordingly may be changed by
approval of the Board of Directors. The fund may not:
1. Purchase any securities on margin (except
for such short-term credits as are
necessary for the clearance of purchases
and sales of portfolio securities) or sell
any securities short (except "against the
box"). For purposes of this restriction,
the deposit or payment by the fund of
underlying securities and other assets in
escrow and collateral agreements with
respect to initial or maintenance margin
in connection with futures contracts and
related options and options on securities,
indexes or similar items is not considered
to be the purchase of a security on
margin.
2. Have more than 15% of its total assets at
any time invested in or subject to puts,
calls or combinations thereof.
3. Invest in companies for the purpose of
exercising control or management.
4. Purchase or otherwise acquire any security
if, as a result, more than 15% of its net
assets would be invested in securities
that are illiquid.
5. Invest in securities of another investment
company except as permitted by Section
12(d)(1)(a) of the 1940 Act, or as part of
a merger, consolidation, or acquisition.
6. Invest in securities of an issuer if the
investment would cause the fund to own
more than 10% of any class of securities
of any one issuer.
7. Purchase oil, gas or other mineral leases,
rights or royalty contracts or exploration
or development programs, except that the
fund may invest in, or sponsor such
programs.
8. Invest more than 5% of its total assets in
securities of companies having, together
with their predecessors, a record of less
than three years of continuous operation.
Without the approval of a majority of its outstanding
voting securities, the International Equity Portfolio,
the Pacific Portfolio, the European Portfolio, the
International Balanced Portfolio and the Emerging
Markets Portfolio each may not:
1. With respect to each of the European
Portfolio, the International Equity
Portfolio and the Pacific Portfolio,
invest in a manner that would cause it to
fail to be a "diversified company" under
the 1940 Act and the rules, regulations
and orders thereunder.
2. With respect to each of the Emerging
Markets Portfolio and the International
Balanced Portfolio, deviate from its
subclassification as a non-diversified
company.
3. Invest more than 25% of its total assets
in securities, the issuers of which
conduct their principal business
activities in the same industry. For
purposes of this limitation, securities of
the U.S. government (including its
agencies and instrumentalities) and
securities of state or municipal
governments and their political
subdivisions are not considered to be
issued by members of any industry.
4. Purchase or sell real estate, real estate
mortgages, commodities or commodity
contracts, but this restriction shall not
prevent the fund from (a) investing in
securities of issuers engaged in the real
estate business or the business of
investing in real estate (including
interests in limited partnerships owning
or otherwise engaging in the real estate
business or the business of investing in
real estate) and securities which are
secured by real estate or interests
therein; (b) holding or selling real
estate received in connection with
securities it holds or held; (c) trading
in futures contracts and options on
futures contracts (including options on
currencies to the extent consistent with
the funds' investment objective and
policies); or (d) investing in real estate
investment trust securities.
5. With respect to each of the Emerging
Markets Portfolio and the European
Portfolio, borrow money, except that (a)
the fund may borrow from banks for
temporary or emergency (not leveraging)
purposes, including the meeting of
redemption requests which might otherwise
require the untimely disposition of
securities, and (b) the fund may, to the
extent consistent with its investment
policies, enter into reverse repurchase
agreements, forward roll transactions and
similar investment strategies and
techniques. To the extent that it engages
in transactions described in (a) and (b),
the fund will be limited so that no more
than 33 1/3% of the value of its total
assets (including the amount borrowed),
valued at the lesser of cost or market,
less liabilities (not including the amount
borrowed) valued at the time the borrowing
is made, is derived from such
transactions.
6. With respect to each of the International
Balanced Portfolio, the International
Equity Portfolio and the Pacific
Portfolio, borrow money, except that (a)
the Portfolio may borrow from banks under
certain circumstances where the fund's
Manager reasonably believes that (i) the
cost of borrowing and related expenses
will be exceeded by the fund's return from
investments of the proceeds of the
borrowing in portfolio securities, or (ii)
the meeting of redemption requests might
otherwise require the untimely disposition
of securities, in an amount not exceeding
33 1/3% of the value of the fund's total
assets (including the amount borrowed),
valued at the lesser of cost or market,
less liabilities (not including the amount
borrowed) valued at the time the borrowing
is made and (b) the fund may, to the
extent consistent with its investment
policies, enter into reverse repurchase
agreements, forward roll transactions and
similar investment strategies and
techniques.
7. Make loans. This restriction does not
apply to: (a) the purchase of debt
obligations in which the fund may invest
consistent with its investment objectives
and policies; (b) repurchase agreements;
and (c) loans of its portfolio securities,
to the fullest extent permitted under the
1940 Act.
8. Engage in the business of underwriting
securities issued by other persons, except
to the extent that the fund may
technically be deemed to be an underwriter
under the Securities Act of 1933, as
amended, in disposing of portfolio
securities.
9. Issue "senior securities" as defined in
the 1940 Act and the rules, regulations
and orders thereunder, except as permitted
under the 1940 Act and the rules,
regulations and orders thereunder.
In addition, the following policies have also been
adopted by the European Portfolio, the Emerging
Markets Portfolio, the International Balanced
Portfolio, the International Equity Portfolio and the
Pacific Portfolio, but are not fundamental and
accordingly may be changed by approval of the Board of
Directors. The funds may not:
1. Purchase any securities on margin (except
for such short-term credits as are
necessary for the clearance of purchases
and sales of portfolio securities) or sell
any securities short (except "against the
box"). For purposes of this restriction,
the deposit or payment by the fund of
underlying securities and other assets in
escrow and collateral agreements with
respect to initial or maintenance margin
in connection with futures contracts and
related options and options on securities,
indexes or similar items is not considered
to be the purchase of a security on
margin.
2. Purchase interests in oil, gas and/or
mineral exploration or development
programs (including mineral leases),
except for purchases of currencies and
futures and options and other related
contracts as described in the Prospectus
from time to time and except for the
purchase of marketable securities issued
by companies that have such interests.
3. Purchase securities of any other
registered investment company, except in
connection with a merger, consolidation,
reorganization or acquisition of assets;
provided, however, that each of the funds
may also purchase shares of other
investment companies pursuant to Section
12(d)(1)(A) of the 1940 Act.
4. Make investments in securities for the
purpose of exercising control over or
managing the issuer.
5. Purchase securities of any issuer
(including any predecessor) which has been
in operation for less than three years if
immediately after such purchase more than
5% of the value of the total assets of the
fund would be invested in such securities.
6. Purchase or otherwise acquire any security
if, as a result, more than 15% of its net
assets would be invested in securities
that are illiquid.
ADDITIONAL TAX INFORMATION tc "ADDITIONAL TAX
INFORMATION"
The following is a summary of the material federal tax
considerations affecting a fund of the Company. In
addition to the considerations described below there
may be other federal, state, local or foreign tax
applications to consider. Because taxes are a complex
matter, prospective shareholders are urged to consult
their tax advisors for more detailed information with
respect to the tax consequences of any investment.
General
Each fund intends to qualify, as it has in prior
years, under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), for tax treatment as
a separate regulated investment company so long as
such qualification is in the best interest of its
shareholders. In each taxable year that each fund
qualifies, each fund will pay no federal income tax on
its net investment income and net short-term and long-
term capital gains that are distributed to
shareholders in compliance with the Code's timing and
other requirements.
To so qualify, a fund must, among other things, (i)
derive at least 90% of its gross income in each
taxable year from dividends, interest, proceeds from
loans of stock and securities, gains from the sale or
other disposition of stock, securities or foreign
currency, or certain other income (including but not
limited to gains from options, Futures and forward
contracts) derived from its business of investing in
stock, securities or currency; and (ii) diversify its
holdings so that, at the end of each quarter of its
taxable year, the following two conditions are met:
(a) at least 50% of the market value of the fund's
total assets is represented by cash, U.S. Government
securities, securities of other regulated investment
companies and other securities, with such other
securities limited, in respect of any one issuer, to
an amount not greater than 5% of the fund's assets and
not more than 10% of the outstanding voting securities
of such issuer; and (b) not more than 25% of the value
of the fund's assets is invested in securities of any
one issuer (other than U.S. Government securities or
securities of other regulated investment companies) or
two or more issuers controlled by the fund and engaged
in the same, similar or related trades or businesses.
The diversification requirements described above may
limit the fund's ability to engage in hedging
transactions by writing or buying options or by
entering into Futures or forward contracts.
Foreign currency gains that are not directly related
to a fund's principal business of investing in stock
or securities, or options or forward contracts
thereon, might be excluded by regulations from income
that counts toward the 90% gross income requirement
described above.
As a regulated investment company, each fund will not
be subject to U.S. federal income tax on net
investment income and net short-term and long-term
capital gains distributed to shareholders if, as is
intended, the fund distributes at least 90% of its net
ordinary income and any excess of its net short-term
capital gain over its net long-term capital loss to
the fund's shareholders for each taxable year of the
fund.
Each fund, however, will generally be subject to a
nondeductible federal excise tax of 4% to the extent
that it does not meet certain minimum distribution
requirements as of the end of each calendar year.
Each fund intends to make timely distributions of its
income (including any net capital gains) in compliance
with these requirements. As a result, it is
anticipated that each fund will not be subject to the
excise tax.
For federal income tax purposes, dividends declared by
each fund in October, November or December as of a
record date in such month and which are actually paid
in January of the following year will be treated as if
they were paid on December 31. These dividends will
be taxable to shareholders in the year declared, and
not in the year in which shareholders actually receive
the dividend.
Gains or losses that a fund recognizes upon the sale
or other disposition of stock or securities will be
treated as long-term capital gains or losses if the
securities have been held by it for more than one
year, except in certain cases where the fund sells the
stock or security short or acquires a put or writes a
call thereon or it is otherwise subject to the
straddle rules described below. Other gains or losses
on the sale of stock or securities will be short-term
capital gains or losses. Gains and losses on the
sale, lapse or other termination of options on stock
or securities will generally be treated as gains and
losses from the sale of stock or securities but may in
some cases be subject to the mark-to-market rules
described below. If an option written for a fund
lapses or is terminated through a closing transaction
the fund may realize a short-term capital gain or
loss, depending on whether the premium income is
greater or less than the amount paid in the closing
transaction and subject to possible recharacterization
for certain listed nonequity options under the "60/40
rule" described below. If a fund sells stock or
securities pursuant to the exercise of a call option
written by it, the fund will add the premium received
to the sale price of the stock or securities delivered
in determining the amount of gain or loss on the sale.
Under the Code, gains or losses attributable to
foreign currency forward contracts or certain foreign
currency options or futures contracts, or to
fluctuations in exchange rates between the time a fund
accrues income or receivables or expenses or other
liabilities denominated in a foreign currency and the
time the fund actually collects such income or pays
such liabilities, are treated as ordinary income or
ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by the fund
denominated in foreign currency, to the extent
attributable to fluctuations in exchange rates between
the acquisition and disposition dates, are also
treated as ordinary income or loss.
Forward currency contracts, options and Futures
contracts entered into by a fund may create
"straddles" for federal income tax purposes and this
may affect the character and timing of gains or losses
realized by the fund on such contracts or options or
on the underlying securities and therefore affect the
fund's distributions.
Certain options, Futures and foreign currency
contracts held by a fund at the end of each fiscal
year will be required to be "marked to market" for
federal income tax purposes; that is, treated as
having been sold at market value. Generally, sixty
percent of any capital gain or loss recognized on
these deemed sales and on actual dispositions will be
treated as long-term capital gain or loss, and 40%
will be treated as short-term capital gain or loss
(the "60/40 rule"), regardless of how long the fund
has held such options or contracts. Certain of these
gains or losses that relate to some currency-related
futures, options, or forwards will be recharacterized
as ordinary income or loss. Constructive sale rules
may also require the recognition of gains (but not
losses) if a fund engages in short sales or certain
other transactions.
If a fund purchases shares in certain foreign
investment entities, referred to as "passive foreign
investment companies," the fund itself may be subject
to U.S. federal income tax and an additional charge in
the nature of interest on a portion of any "excess
distribution" from such company or gain from the
disposition of such shares, even if the distribution
or gain is distributed by the fund to its shareholders
in a manner that satisfies the requirements described
above. If the fund were able and elected to treat a
passive foreign investment company as a "qualified
electing fund," in lieu of the treatment described
above, the fund would be required each year to include
in income, and distribute to shareholders in
accordance with the distribution requirements
described above, the fund's pro rata share of the
ordinary earnings and net capital gains of the
company, whether or not actually received by the fund.
The funds generally should be able to make an
alternative election to mark these investments to
market annually, resulting in the recognition of
ordinary income (rather than capital gain) or ordinary
loss, subject to limitations on the ability to use any
such loss.
A fund may be required to treat amounts as taxable
income or gain, subject to the distribution
requirements referred to above, even though no
corresponding amounts of cash are received
concurrently, as a result of (1) mark to market,
constructive sale or other rules applicable to passive
foreign investment companies or partnerships in which
the fund invests or to certain options, futures,
forward contracts, or "appreciated financial
positions" or (2) the inability to obtain cash
distributions or other amounts due to currency
controls or restrictions on repatriation imposed by a
foreign country with respect to the fund's investments
in issuers in such country or (3) tax rules applicable
to debt obligations acquired with "original issue
discount," including zero-coupon or deferred payment
bonds and pay-in-kind debt obligations, or to market
discount if an election is made with respect to such
market discount. The fund may therefore be required
to obtain cash to be used to satisfy these
distribution requirements by selling portfolio
securities at times that it might not otherwise be
desirable to do so or borrowing the necessary cash,
thereby incurring interest expenses.
Income (including, in some cases, capital gains)
received by a fund from sources within foreign
countries may be subject to withholding and other
taxes imposed by such countries. Tax conventions
between certain countries and the United States may
reduce or eliminate such taxes. It is impossible to
determine the rate of foreign tax in advance since the
amount of the fund's assets to be invested in various
countries is not known. Such foreign taxes would
reduce the income of the fund distributed to
shareholders.
If, at the end of a fund's taxable year, more than 50%
of the value of that fund's total assets consist of
stock or securities of foreign corporations, the fund
may make an election pursuant to which qualified
foreign income taxes paid by it will be treated as
paid directly by its shareholders. A fund will make
this election only if it deems the election to be in
the best interests of shareholders, and will notify
shareholders in writing each year if it makes the
election and the amount of foreign taxes to be treated
as paid by the shareholders. If a fund makes such an
election, the amount of such qualified foreign taxes
would be included in the income of shareholders, and a
shareholder other than a foreign corporation or non-
resident alien individual could claim either a credit,
provided that certain holding period requirements are
satisfied, or, provided the shareholder itemizes
deductions, a deduction for U.S. federal income tax
purposes for such foreign taxes. Tax-exempt
shareholders generally will not be able to use any
credit or deduction. Shareholders who choose to
utilize a credit (rather than a deduction) for foreign
taxes will be subject to the limitation that the
credit may not exceed the shareholders' U.S. tax
(determined without regard to the availability of the
credit) attributable to their total foreign source
taxable income. For this purpose, the portion of
dividends and distributions paid by the fund from its
foreign source ordinary income will be treated as
foreign source income. The fund's gains and losses
from the sale of securities and from certain foreign
currency gains and losses will generally be treated as
derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign
source ''passive income,'' such as the portion of
dividends received from the fund that qualifies as
foreign source income. In addition, the foreign tax
credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations and
individuals. Because of these limitations,
shareholders may be unable to claim a credit for the
full amount of their proportionate share of the
qualified foreign income taxes paid by a fund.
Prior to investing in shares of the fund, investors
should consult with their tax advisors concerning the
federal, state and local tax consequences of such an
investment.
Distributions
If the net asset value of shares of a fund is reduced
below a shareholder's cost as a result of distribution
by the fund, such distribution will be taxable even
though it represents a return of invested capital.
Dividends from net investment income and distributions
of realized short-term capital gains, whether paid in
cash or automatically invested in additional shares of
the fund, are taxable to shareholders as ordinary
income. The funds' dividends will not qualify for the
dividends received deduction for corporations.
Dividends and distributions by the funds may also be
subject to state and local taxes. Distributions out of
net long-term capital gains (i.e., net long-term
capital gain in excess of net short-term capital loss)
are taxable to shareholders as long-term capital
gains. Information as to the tax status of dividends
paid or deemed paid in each calendar year will be
mailed to shareholders as early in the succeeding year
as practical but not later than January 31.
The Company is required to withhold and remit to the
U.S. Treasury 31% of dividends, distributions and
redemption proceeds to shareholders who fail to
provide a correct taxpayer identification number (the
Social Security number in the case of an individual)
or to make the required certifications, or who have
been notified by the Internal Revenue Service that
they are subject to backup withholding and who are not
otherwise exempt. The 31% withholding tax is not an
additional tax, but is creditable against a
shareholder's federal income tax liability.
Distributions to nonresident aliens and foreign
entities may also be subject to other withholding
taxes.
Redemption of Shares
Any gain or loss realized on the redemption or
exchange of fund shares by a shareholder who is not a
dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for
more than one year, and otherwise as short-term
capital gain or loss, provided in each case that the
transaction is properly treated as a sale rather than
a dividend for tax purposes.
However, any loss realized by such a shareholder upon
the redemption or exchange of fund shares held six
months or less will be treated as long-term capital
loss to the extent of any long-term capital gain
distributions received by the shareholder with respect
to such shares. Additionally, any loss realized on a
redemption or exchange of fund shares will be
disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days
before and ending 30 days after such disposition, such
as pursuant to reinvestment of dividends in fund
shares.
In determining gain or loss, a shareholder who redeems
or exchanges shares in a fund within 90 days of the
acquisition of such shares will not be entitled to
include in tax basis the sales charges incurred in
acquiring such shares to the extent of any subsequent
reduction in sales charges due to any reinvestment
right for investing in the same fund or a different
fund, such as pursuant to the rights discussed in
''Exchange Privilege.''
IRA AND OTHER PROTOTYPE RETIREMENT PLANS tc "IRA AND
OTHER PROTOTYPE RETIREMENT PLANS"
Copies of the following plans with custody or trust
agreements have been approved by the Internal Revenue
Service and are available from the Company or Salomon
Smith Barney; investors should consult with their own
tax or retirement planning advisors prior to the
establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension -
IRA
The Small Business Job Protection Act of 1996 changed
the eligibility requirements for participants in
Individual Retirement Accounts ("IRAs"). Under these
new provisions, if you or your spouse have earned
income, each of you may establish an IRA and make
maximum annual contributions equal to the lesser of
earned income or $2,000. As a result of this
legislation, married couples where one spouse is non-
working may now contribute a total of $4,000 annually
to their IRAs.
The Taxpayer Relief Act of 1997 has changed the
requirements for determining whether or not you are
eligible to make a deductible IRA contribution. Under
the new rules effective beginning January 1, 1998, if
you are considered an active participant in an
employer-sponsored retirement plan, you may still be
eligible for a full or partial deduction depending
upon your combined adjusted gross income ("AGI"). For
married couples filing jointly for 1998, a full
deduction is permitted if your combined AGI is $50,000
or less ($30,000 for unmarried individuals); a partial
deduction will be allowed when AGI is between $50,000-
$60,000 ($30,000-$40,000 for an unmarried individual);
and no deduction when AGI is above $60,000 ($40,000
for an unmarried individual). However, if you are
married and your spouse is covered by a employer-
sponsored retirement plan, but you are not, you will
be eligible for a full deduction if your combined AGI
is $150,000 or less. A partial deduction is permitted
if your combined AGI is between $150,000-$160,000 and
no deduction is permitted after $160,000.
The rules applicable to so-called "Roth IRAs" differ
from those described above.
A Rollover IRA is available to defer taxes on lump sum
payments and other qualifying rollover amounts (no
maximum) received from another retirement plan.
An employer who has established a Simplified Employee
Pension - IRA ("SEP-IRA") on behalf of eligible
employees may make a maximum annual contribution to
each participant's account of 15% (up to $24,000) of
each participant's compensation. Compensation is
capped at $160,000 for 1998.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and
non-corporate entities may purchase shares of the
Company through the Salomon Smith Barney Prototype
Paired Defined Contribution Plan (the "Prototype").
The Prototype permits adoption of profit-sharing
provisions, money purchase pension provisions, or
both, to provide benefits for eligible employees and
their beneficiaries. The Prototype provides for a
maximum annual tax deductible contribution on behalf
of each Participant of up to 25% of compensation, but
not to exceed $30,000 (provided that a money purchase
pension plan or both a profit-sharing plan and a money
purchase pension plan are adopted thereunder).
PERFORMANCE INFORMATION tc "PERFORMANCE INFORMATION"
From time to time the Company may advertise a fund's
total return, average annual total return and yield in
advertisements. The Company may also quote the funds'
total that eliminates the sales charge or the initial
investment. In addition, in other types of sales
literature the Company may include a fund's current
dividend return. These figures are based on
historical earnings and are not intended to indicate
future performance. The total return shows what an
investment in the fund would have earned over a
specified period of time (one, five or ten years or
since inception) assuming the payment of the maximum
sales load when the investment was first made and that
all distributions and dividends by the fund were
invested on the reinvestment dates during the period,
less all recurring fees. The average annual total
return is derived from this total return, which
provides the ending redeemable value. The following
chart reflects the financial performance of the funds
through the period ended October 31, 1998 for the one,
and five year periods and since inception:
Total Returns
5 Year
Since Inception
Since
Name of Fund
Class
1 Year
Average
Annual
5 Year
Cumulative
Average Annual
Inception
Cumulative
International Equity1
Inception: 11-22-91
A
(4.85)%
3.06%
16.26%
10.00%
159.26%
Inception: 11-7-94
B
(5.66)%
N/A
N/A
2.00%
8.20%
Inception: 1-4-93
L
(2.67)%
3.10%
16.47%
8.58%
61.49%
Inception: 6-16-94
Y
0.45%
N/A
N/A
4.29%
20.18%
Inception: 11-7-94
Z
0.45%
N/A
N/A
3.63%
15.25%
Global Government Bond
Inception: 7-22-91
A
3.19%
6.14%
34.69%
8.15%
76.90%
Inception: 11-18-94
B
3.09%
N/A
N/A
8.67%
38.93%
Inception: 1-4-93
L
5.66%
6.30
35.74%
8.05%
56.98%
Inception: 2-19-93
Y
8.50%
7.17%
41.36%
8.60%
59.99%
International Balanced
Inception: 8-25-94
A
7.24%
N/A
N/A
6.37%
29.51%
Inception: 11-7-94
B
6.96%
N/A
N/A
6.67%
29.33%
Inception: 8-25-94
L
9.82%
N/A
N/A
6.58%
30.55%
Pacific
Inception: 2-7-94
A
(16.08)%
N/A
N/A
(13.21)%
(48.86)%
Inception: 11-7-94
B
(16.43)%
N/A
N/A
(15.77)%
(49.53)%
Inception: 2-11-94
L
(22.62)%
N/A
N/A
(13.18)%
(48.69)%
European
Inception: 2-7-94
A
3.64%
N/A
N/A
10.86%
62.90%
Inception: 11-7-94
B
3.24%
N/A
N/A
13.01%
62.77%
Inception: 2-14-94
L
6.30%
N/A
N/A
11.15%
64.59%
Emerging Markets
Inception: 5-12-95
A
(46.38)%
N/A
N/A
(15.51)%
(44.34)%
Inception: 5-12-95
B
(46.70)%
N/A
N/A
(15.39)%
(44.06)%
Inception: 5-12-95
L
(45.12)%
N/A
N/A
(15.17)%
(43.56)%
1 The International Equity Portfolio's performance
record includes the performance of the Fenimore
International Fund through November 22, 1991. The
shareholders of the Fenimore International Fund
approved a reorganization with the fund at their
October 31, 1991 shareholder's meeting. As a result,
all shares of the Fenimore International Fund were
exchanged at the close of business on November 22,
1991 for shares of the fund. Prior to November 22,
1991 the fund had not made an offering of its shares.
*These numbers represent the financial performance for
the ten-year period ended October 31, 1998.
Note that, (i) prior to June 12, 1998, Class L shares
were called Class C shares; (ii) prior to November 7,
1994, Class C shares were called Class B shares; and
(iii) prior to November 7, 1994, Class Y shares of
Global Government Bond Portfolio were called Class C
shares. Note further, that effective October 3, 1994,
with respect to the International Equity,
International Balanced, European and Pacific
Portfolios, Class C shares of each such fund were
reclassified as additional Class A shares.
The Global Government Bond Portfolio's yield is
computed by dividing the net investment income per
share earned during a specified thirty day period by
the maximum offering price per share on the last day
of such period and analyzing the result. For purposes
of the yield calculation, interest income is
determined based on a yield to maturity percentage for
each long-term debt obligation in the portfolio;
income on short-term obligations is based on current
payment rate. For the 30-day period ended October 31, 1998,
the portfolio's Class A share, Class B share, Class L
share and Class Y share yields are 4.36%, 5.15%, 4.70%
and 4.80%, respectively.
The Company calculates current dividend return for
each fund by dividing the dividends from investment
income declared during the most recent twelve months
by the net asset value or the maximum public offering
price (including sales charge) on the last day of the
period for which current dividend return is presented.
From time to time, the Company may include the fund's
current dividend return in information furnished to
present or prospective shareholders and in
advertisements.
Each fund's current dividend return may vary from time
to time depending on market conditions, the
composition of its investment portfolio and operating
expenses. These factors and possible differences in
the methods used in calculating current dividend
return should be considered when comparing the fund's
current dividend return to yields published for other
investment companies and other investment vehicles.
Current dividend return should also be considered
relative to changes in the value of the fund's shares
and to the risks associated with the fund's investment
objective and policies. For example, in comparing
current dividend returns with those offered by
Certificates of Deposit ("CDs"), it should be noted
that CDs are insured (up to $100,000) and offer a
fixed rate of return.
Standard total return information may also be
accompanied with nonstandard total return information
for differing periods computed in the same manner but
without annualizing the total return or taking sales
charges into account.
Performance information may be useful in evaluating a
fund and for providing a basis for comparison with
other financial alternatives. Since the performance
of the fund changes in response to fluctuations in
market conditions, interest rates and fund expenses,
no performance quotation should be considered a
representation as to the fund's performance for any
future period.
A fund may from time to time compare its investment
results with the following:
(1) Various Salomon Smith Barney World Bond
Indices and J.P. Morgan Global Bond Indices,
which measure the total return performance of
high-quality securities in major sectors of the
worldwide bond markets.
(2) The Lehman Brothers Government/Corporate
Bond Index, which is a comprehensive measure of
all public obligations of the U.S. Treasury
(excluding flower bonds and foreign targeted
issues), all publicly issued debt of agencies of
the U.S. Government (excluding mortgage-backed
securities), and all public, fixed-rate, non-
convertible investment grade domestic corporate
debt rated at least Baa by Moody's Investors
Service ("Moody's") or BBB by Standard and
Poor's Ratings Group ("S&P"), or, in the case of
nonrated bonds, BBB by Fitch Investors Service
(excluding Collateralized Mortgage Obligations),
or other similar indices.
(3) Average of Savings Accounts, which is a
measure of all kinds of savings deposits,
including longer-term certificates (based on
figures supplied by the U.S. League of Savings
Institutions). Savings accounts offer a
guaranteed rate of return on principal, but no
opportunity for capital growth. During a
portion of the period, the maximum rates paid on
some savings deposits were fixed by law.
(4) The Consumer Price Index, which is a
measure of the average change in prices over
time in a fixed market basket of goods and
services (e.g., food, clothing, shelter, fuels,
transportation fares, charges for doctors' and
dentists' services, prescription medicines, and
other goods and services that people buy for
day-to-day living).
(5) Data and mutual fund rankings published or
prepared by Lipper Analytical Services, Inc.,
which ranks mutual funds by overall performance,
investment objectives and assets.
(6) Ibbottson Associates International Bond
Index, which provides a detailed breakdown of
local market and currency returns since 1960.
(7) Standard & Poor's 500 Index ("S&P 500")
which is a widely recognized index composed of
the capitalization-weighted average of the price
of 500 of the largest publicly traded stocks in
the U.S.
(8) Smith Barney Broad Investment Grade Bond
Index which is a widely used index composed of
U.S. domestic government, corporate and
mortgage-back fixed income securities.
(9) Dow Jones Industrial Average which is a
price-weighted average of 30 actively traded
stocks of highly reputable companies prepared by
Dow Jones & Co.
(10) Financial News Composite Index.
(11) Morgan Stanley Capital International World
Indices, including, among others, the Morgan
Stanley Capital International Europe, Australia,
Far East Index ("EAFE Index"). The EAFE Index
is an unmanaged index of more than 800 companies
of Europe, Australia and the Far East.
(12) Data and comparative performance rankings
published or prepared by CDA Investment
Technologies, Inc.
(13) Data and comparative performance rankings
published or prepared by Wiesenberger Investment
Company Service.
Indices prepared by the research departments of such
financial organizations as Salomon Smith Barney, Inc.,
Merrill Lynch, Bear Stearns & Co., Inc., Morgan
Stanley, and Ibbottson Associates may be used, as well
as information provided by the Federal Reserve Board.
In addition, performance rankings and ratings reported
periodically in national financial publications,
including but not limited to Money Magazine, Forbes,
Business Week, The Wall Street Journal and Barron's
may also be used. Each fund may also include
comparative performance information in advertising or
marketing its shares. Such performance information may
include data from Lipper Analytical Services, Inc.,
Morningstar, Inc. and other financial publications.
DETERMINATION OF NET ASSET VALUE tc "DETERMINATION OF
NET ASSET VALUE"
The net asset value per share of each fund normally is
determined as of the close of regular trading on the
NYSE on each day that the NYSE is open, by dividing
the value of the fund's net assets attributable to
each Class by the total number of shares of the Class
outstanding. If the NYSE closes early, the fund
accelerates the calculation of its net asset value to
the actual closing time. The NYSE is closed for the
following holidays: New Year's Day, Martin Luther King
Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Securities for which market quotations are readily
available are valued at current market value or, in
their absence, at fair value. Securities traded on an
exchange are valued at last sales prices on the
principal exchange on which each such security is
traded, or if there were no sales on that exchange on
the valuation date, the last quoted sale, up to the
time of valuation, on the other exchanges. If instead
there were no sales on the valuation date with respect
to these securities, such securities are valued at the
mean of the latest published closing bid and asked
prices. Over-the-counter securities are valued at
last sales price or, if there were no sales that day,
at the mean between the bid and asked prices. Options,
futures contracts and options thereon that are traded
on exchanges are also valued at last sales prices as
of the close of the principal exchange on which each
is listed or if there were no such sales on the
valuation date, the last quoted sale, up to the time
of valuation, on the other exchanges. In the absence
of any sales on the valuation date, valuation shall be
the mean of the latest closing bid and asked prices.
Securities with a remaining maturity of 60 days or
less are valued at amortized cost where the Board of
Directors has determined that amortized cost is fair
value. Premiums received on the sale of call options
will be included in the fund's net assets, and current
market value of such options sold by the fund will be
subtracted from the fund's net assets. Any other
investments of the fund, including restricted
securities and listed securities for which there is a
thin market or that trade infrequently (i.e.,
securities for which prices are not readily
available), are valued at a fair value determined by
the Board of Directors in good faith. This value
generally is determined as the amount that the fund
could reasonably expect to receive from an orderly
disposition of these assets over a reasonable period
of time but in no event more than seven days. The
value of any security or commodity denominated in a
currency other than U.S. dollars will be converted
into U.S. dollars at the prevailing market rate as
determined by the Manager.
Foreign securities trading may not take place on all
days on which the NYSE is open. Further, trading takes
place in various foreign markets on days on which the
NYSE is not open. Accordingly, the determination of
the net asset value of the fund may not take place
contemporaneously with the determination of the prices
of investments held by such fund. Events affecting the
values of investments that occur between the time
their prices are determined and 4:00 P.M. on each day
that the NYSE is open will not be reflected in the
fund's net asset value unless the Manager, under the
supervision of the Company's Board of Directors,
determines that the particular event would materially
affect net asset value. As a result, a fund's net
asset value may be significantly affected by such
trading on days when a shareholder has no access to
that fund.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for
purchase. See the Prospectus for a discussion of
factors to consider in selecting which Class of shares
to purchase.
Class A Shares. Class A shares are sold to investors
at the public offering price, which is the net asset
value plus an initial sales charge as follows:
Global Gov't
Bond Portfolio
Offering Price
Amount of Investment
Sales Charge as % of Offering Price
Sales Charge as % of Amount Invested
Sales Charge as a %
Of Offering Price
Sales Charge as a %
of Amount Invested
Less than $25,000
4.50%
4.71%
5.00%
5.26%
$ 25,000 - 49,999
4.00
4.17
4.00
4.17
50,000 - 99,999
3.50
3.63
3.50
3.63
100,000 - 249,999
2.50
2.56
3.00
3.09
250,000 - 499,999
1.50
1.52
2.00
2.04
500,000 and over
- -0-
- -0-
*
*
* Purchases of Class A shares of $500,000 or more
will be made at net asset value without any
initial sales charge, but will be subject to a
deferred sales charge of 1.00% on redemptions
made within 12 months of purchase. The deferred
sales charge on Class A shares is payable to
Salomon Smith Barney, which compensates Salomon
Smith Barney Financial Consultants and other
dealers whose clients make purchases of $500,000
or more. The deferred sales charge is waived in
the same circumstances in which the deferred
sales charge applicable to Class B and Class L
shares is waived. See "Deferred Sales Charge
Alternatives" and "Waivers of Deferred Sales
Charge."
Members of the selling group may receive up to 90% of
the sales charge and may be deemed to be underwriters
of the fund as defined in the 1933 Act. The reduced
sales charges shown above apply to the aggregate of
purchases of Class A shares of the fund made at one
time by "any person," which includes an individual and
his or her immediate family, or a trustee or other
fiduciary of a single trust estate or single fiduciary
account.
Class B Shares. Class B shares are sold without an
initial sales charge but are subject to a deferred
sales charge payable upon certain redemptions. See
"Deferred Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an
initial sales charge of 1.00% (which is equal to 1.01%
of the amount invested) and are subject to a deferred
sales charge payable upon certain redemptions. See
"Deferred Sales Charge Provisions" below. Until June
22, 2001 purchases of Class L shares by investors who
were holders of Class C shares of the fund on June 12,
1998 will not be subject to the 1% initial sales
charge.
Class Y Shares. Class Y shares are sold without an
initial sales charge or deferred sales charge and are
available only to investors investing a minimum of
$15,000,000 (except for purchases of Class Y shares
(i) of the International Equity Portfolio, for which
the minimum initial investment is $5,000,000 and (ii)
by
Smith Barney Concert Allocation Series Inc., for which
there is no minimum purchase amount).
General
Investors may purchase shares from a Salomon Smith
Barney Financial Consultant or a broker that clears
through Salomon Smith Barney ("Dealer
Representative"). In addition, certain investors,
including qualified retirement plans purchasing
through certain Dealer Representatives, may purchase
shares directly from the fund. When purchasing shares
of the fund, investors must specify whether the
purchase is for Class A, Class B, Class L or Class Y
shares. Salomon Smith Barney and Dealer
Representatives may charge their customers an annual
account maintenance fee in connection with a brokerage
account through which an investor purchases or holds
shares. Accounts held directly at First Data Investor
Services Group, Inc. ("First Data" or "transfer
agent") are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may
open an account in the fund by making an initial
investment of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan, in
the fund. Investors in Class Y shares may open an
account by making an initial investment of
$15,000,000. Subsequent investments of at least $50
may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or
Section 401(c) of the Code, the minimum initial
investment required for Class A, Class B and Class L
shares and the subsequent investment requirement for
all Classes in the fund is $25. For shareholders
purchasing shares of the fund through the Systematic
Investment Plan on a monthly basis, the minimum
initial investment requirement for Class A, Class B
and Class L shares and subsequent investment
requirement for all Classes is $25. For shareholders
purchasing shares of the fund through the Systematic
Investment Plan on a quarterly basis, the minimum
initial investment required for Class A, Class B and
Class L shares and the subsequent investment
requirement for all Classes is $50. There are no
minimum investment requirements for Class A shares for
employees of Citigroup Inc. ("Citigroup") and its
subsidiaries, including Salomon Smith Barney,
unitholders who invest distributions from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith
Barney, and Directors/Trustees of any of the Smith
Barney Mutual Funds, and their spouses and children.
The fund reserves the right to waive or change
minimums, to decline any order to purchase its shares
and to suspend the offering of shares from time to
time. Shares purchased will be held in the
shareholder's account by First Data. Share
certificates are issued only upon a shareholder's
written request to First Data.
Purchase orders received by the fund or a Salomon
Smith Barney Financial Consultant prior to the close
of regular trading on the New York Stock Exchange
("NYSE"), on any day the fund calculates its net asset
value, are priced according to the net asset value
determined on that day (the ''trade date''). Orders
received by a Dealer Representative prior to the close
of regular trading on the NYSE on any day the fund
calculates its net asset value, are priced according
to the net asset value determined on that day,
provided the order is received by the fund or the
fund's agent prior to its close of business. For
shares purchased through Salomon Smith Barney or a
Dealer Representative purchasing through Salomon Smith
Barney, payment for shares of the fund is due on the
third business day after the trade date. In all other
cases, payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make
additions to their accounts at any time by purchasing
shares through a service known as the Systematic
Investment Plan. Under the Systematic Investment
Plan, Salomon Smith Barney or First Data is authorized
through preauthorized transfers of at least $25 on a
monthly basis or at least $50 on a quarterly basis to
charge the shareholder's account held with a bank or
other financial institution on a monthly or quarterly
basis as indicated by the shareholder, to provide for
systematic additions to the shareholder's 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 First Data. The
Systematic Investment Plan also authorizes Salomon
Smith Barney to apply cash held in the shareholder's
Salomon Smith Barney brokerage account or redeem the
shareholder's shares of a Smith Barney money market
fund to make additions to the account. Additional
information is available from the fund or a Salomon
Smith Barney Financial Consultant or a Dealer
Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A
shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to
(i) Board Members and employees of Citigroup and its
subsidiaries and any Citigroup affiliated funds
including the Smith Barney Mutual Funds (including
retired Board Members and employees); the immediate
families of such persons (including the surviving
spouse of a deceased Board Member or employee); and to
a pension, profit-sharing or other benefit plan for
such persons and (ii) employees of members of the
National Association of Securities Dealers, Inc.,
provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment
purposes and that the securities will not be resold
except through redemption or repurchase; (b) offers of
Class A shares to any other investment company to
effect the combination of such company with the fund
by merger, acquisition of assets or otherwise;
(c) purchases of Class A shares by any client of a
newly employed Salomon Smith Barney Financial
Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment
with Salomon Smith Barney), on the condition the
purchase of Class A shares is made with the proceeds
of the redemption of shares of a mutual fund which (i)
was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the Financial
Consultant and (iii) was subject to a sales charge;
(d) purchases by shareholders who have redeemed Class
A shares in the fund (or Class A shares of another
Smith Barney Mutual Fund that is offered with a sales
charge) and who wish to reinvest their redemption
proceeds in the fund, provided the reinvestment is
made within 60 calendar days of the redemption; (e)
purchases by accounts managed by registered investment
advisory subsidiaries of Citigroup; (f) direct
rollovers by plan participants of distributions from a
401(k) plan offered to employees of Citigroup or its
subsidiaries or a 401(k) plan enrolled in the Smith
Barney 401(k) Program (Note: subsequent investments
will be subject to the applicable sales charge); (g)
purchases by a separate account used to fund certain
unregistered variable annuity contracts; (h)
investments of distributions from a UIT sponsored by
Salomon Smith Barney; (i) purchases by investors
participating in a Salomon Smith Barney fee-based
arrangement; and (j) purchases by Section 403(b) or
Section 401(a) or (k) accounts associated with
Copeland Retirement Programs. In order to obtain such
discounts, the purchaser must provide sufficient
information at the time of purchase to permit
verification that the purchase would qualify for the
elimination of the sales charge.
Right of Accumulation. Class A shares of the fund may
be purchased by ''any person'' (as defined above) at a
reduced sales charge or at net asset value determined
by aggregating the dollar amount of the new purchase
and the total net asset value of all Class A shares of
the fund and of most other Smith Barney Mutual Funds
that are offered with a sales charge then held by such
person and applying the sales charge applicable to
such aggregate. In order to obtain such discount, the
purchaser must provide sufficient information at the
time of purchase to permit verification that the
purchase qualifies for the reduced sales charge. The
right of accumulation is subject to modification or
discontinuance at any time with respect to all shares
purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent
for an amount of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales
charge by aggregating investments over a 13 month
period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter
of Intent, the ''Amount of Investment'' as referred to
in the preceding sales charge table includes (i) all
Class A shares of the fund and other Smith Barney
Mutual Funds offered with a sales charge acquired
during the term of the letter plus (ii) the value of
all Class A shares previously purchased and still
owned. Each investment made during the period
receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay
the difference between the sales charges applicable to
the purchases made and the charges previously paid, or
an appropriate number of escrowed shares will be
redeemed. The term of the Letter will commence upon
the date the Letter is signed, or at the options of
the investor, up to 90 days before such date. Please
contact a Salomon Smith Barney Financial Consultant or
First Data to obtain a Letter of Intent application.
Letter of Intent - Class Y Shares. A Letter of Intent
may also be used as a way for investors to meet the
minimum investment requirement for Class Y shares
(except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no
minimum purchase amount). For International Equity
Portfolio, investors must make an initial minimum
purchase of $1,000,000 in Class Y shares of the fund
and agree to purchase a total of $5,000,000 of Class Y
of the fund within 6 months of the date of the Letter.
For all of the other funds, investors must make an
initial minimum purchase of $5,000,000 in Class Y
shares of the fund and agree to purchase a total of
$15,000,000 of Class Y shares of the fund within 13
months from the date of the Letter. If a total
investment of $15,000,000 is not made within the 13-
month period, or $5 million is not made within 6
months for the International Equity Portfolio, all
Class Y shares purchased to date will be transferred
to Class A shares, where they will be subject to all
fees (including a service fee of 0.25%) and expenses
applicable to the fund's Class A shares, which may
include a deferred sales charge of 1.00%. Please
contact a Salomon Smith Barney Financial Consultant or
First Data for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B
shares; (b) Class L shares; and (c) Class A shares
that were purchased without an initial sales charge
but are subject to a deferred sales charge. A
deferred sales charge may be imposed on certain
redemptions of these shares.
Any applicable deferred sales charge will be assessed
on an amount equal to the lesser of the original cost
of the shares being redeemed or their net asset value
at the time of redemption. Deferred Sales Charge
Shares that are redeemed will not be subject to a
deferred sales charge to the extent that the value of
such shares represents: (a) capital appreciation of
fund assets; (b) reinvestment of dividends or capital
gain distributions; (c) with respect to Class B
shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class L shares
and Class A shares that are Deferred Sales Charge
Shares, shares redeemed more than 12 months after
their purchase.
Class L shares and Class A shares that are Deferred
Sales Charge Shares are subject to a 1.00% deferred
sales charge if redeemed within 12 months of purchase.
In circumstances in which the deferred sales charge is
imposed on Class B shares, the amount of the charge
will depend on the number of years since the
shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of
determining the number of years since a purchase
payment, all purchase payments made during a month
will be aggregated and deemed to have been made on the
last day of the preceding Salomon Smith Barney
statement month. The following table sets forth the
rates of the charge for redemptions of Class B shares
by shareholders, except in the case of Class B shares
held under the Smith Barney 401(k) Program, as
described below. See ''Purchase of Shares-Smith
Barney 401(k) and ExecChoiceTM Programs.''
Deferred Sales Charge
Year Payment Was Made Since Purchase
Global Government Bond Portfolio
All other Funds
First
4.50%
5.00%
Second
4.00
4.00
Third
3.00
3.00
Fourth
2.00
2.00
Fifth
1.00
1.00
Sixth and thereafter
0.00
0.00
Class B shares will convert automatically to Class A
shares eight years after the date on which they were
purchased and thereafter will no longer be subject to
any distribution fees. There will also be converted at
that time such proportion of Class B Dividend Shares
(Class B shares that were acquired through the
reinvestment of dividends and distributions) owned by
the shareholder as the total number of his or her
Class B shares converting at the time bears to the
total number of outstanding Class B shares (other than
Class B Dividend Shares) owned by the shareholder.
The length of time that Deferred Sales Charge Shares
acquired through an exchange have been held will be
calculated from the date that the shares exchanged
were initially acquired in one of the other Smith
Barney Mutual Funds, and fund shares being redeemed
will be considered to represent, as applicable,
capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For
Federal income tax purposes, the amount of the
deferred sales charge will reduce the gain or increase
the loss, as the case may be, on the amount realized
on redemption. The amount of any deferred sales charge
will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased
100 Class B shares of the fund at $10 per share for a
cost of $1,000. Subsequently, the investor acquired 5
additional shares of the fund through dividend
reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of his
or her investment. Assuming at the time of the
redemption the net asset value had appreciated to $12
per share, the value of the investor's shares would be
$1,260 (105 shares at $12 per share). The deferred
sales charge would not be applied to the amount which
represents appreciation ($200) and the value of the
reinvested dividend shares ($60). Therefore, $240 of
the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for
Class B shares) for a total deferred sales charge of
$9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a)
exchanges (see ''Exchange Privilege''); (b) automatic
cash withdrawals in amounts equal to or less than
1.00% per month of the value of the shareholder's
shares at the time the withdrawal plan commences (see
''Automatic Cash Withdrawal Plan'') (provided,
however, that automatic cash withdrawals in amounts
equal to or less than 2.00% per month of the value of
the shareholder's shares will be permitted for
withdrawal plans that were established prior to
November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the
shareholder; (d) redemptions of shares made in
connection with qualified distributions from
retirement plans or IRAs upon the attainment of age
591/2; (e) involuntary redemptions; and (f) redemptions
of shares to effect a combination of the fund with any
investment company by merger, acquisition of assets or
otherwise. In addition, a shareholder who has redeemed
shares from other Smith Barney Mutual Funds may, under
certain circumstances, reinvest all or part of the
redemption proceeds within 60 days and receive pro
rata credit for any deferred sales charge imposed on
the prior redemption.
Deferred sales charge waivers will be granted subject
to confirmation (by Salomon Smith Barney in the case
of shareholders who are also Salomon Smith Barney
clients or by First Data in the case of all other
shareholders) of the shareholder's status or holdings,
as the case may be.
Smith Barney 401(k) and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith
Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program. To the extent applicable, the same terms and
conditions, which are outlined below, are offered to
all plans participating (''Participating Plans'') in
these programs.
The fund offers to Participating Plans Class A and
Class L shares as investment alternatives under the
Smith Barney 401(k) and ExecChoiceTM Programs. Class A
and Class L shares acquired through the Participating
Plans are subject to the same service and/or
distribution fees as the Class A and Class L shares
acquired by other investors; however, they are not
subject to any initial sales charge or deferred sales
charge. Once a Participating Plan has made an initial
investment in the fund, all of its subsequent
investments in the fund must be in the same Class of
shares, except as otherwise described below.
Class A Shares. Class A shares of the fund are
offered without any sales charge or deferred sales
charge to any Participating Plan that purchases
$1,000,000 or more of Class A shares of one or more
funds of the Smith Barney Mutual Funds.
Class L Shares. Class L shares of the fund are
offered without any sales charge or deferred sales
charge to any Participating Plan that purchases less
than $1,000,000 of Class L shares of one or more funds
of the Smith Barney Mutual Funds.
401(k) and ExecChoiceTM Plans Opened On or After June
21, 1996. If, at the end of the fifth year after the
date the Participating Plan enrolled in the Smith
Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program, a Participating Plan's total Class L and
Class O holdings in all non-money market Smith Barney
Mutual Funds equal at least $1,000,000, the
Participating Plan will be offered the opportunity to
exchange all of its Class L shares for Class A shares
of the fund. For Participating Plans that were
originally established through a Salomon Smith Barney
retail brokerage account, the five-year period will be
calculated from the date the retail brokerage account
was opened. Such Participating Plans will be notified
of the pending exchange in writing within 30 days
after the fifth anniversary of the enrollment date
and, unless the exchange offer has been rejected in
writing, the exchange will occur on or about the 90th
day after the fifth anniversary date. If the
Participating Plan does not qualify for the five-year
exchange to Class A shares, a review of the
Participating Plan's holdings will be performed each
quarter until either the Participating Plan qualifies
or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any
year after the date a Participating Plan enrolled in
the Smith Barney 401(k) Program, if a Participating
Plan's total Class L holdings in all non-money market
Smith Barney Mutual Funds equal at least $500,000 as
of the calendar year-end, the Participating Plan will
be offered the opportunity to exchange all of its
Class L and Class O shares for Class A shares of the
fund. Such Plans will be notified in writing within 30
days after the last business day of the calendar year
and, unless the exchange offer has been rejected in
writing, the exchange will occur on or about the last
business day of the following March.
Any Participating Plan in the Smith Barney 401(k) or
the Smith Barney ExecChoiceTM Programs, whether opened
before or after June 21, 1996, that has not previously
qualified for an exchange into Class A shares will be
offered the opportunity to exchange all of its Class L
shares for Class A shares of the fund, regardless of
asset size, at the end of the eighth year after the
date the Participating Plan enrolled in the Smith
Barney 401(k) Program. Such Plans will be notified of
the pending exchange in writing approximately 60 days
before the eighth anniversary of the enrollment date
and, unless the exchange has been rejected in writing,
the exchange will occur on or about the eighth
anniversary date. Once an exchange has occurred, a
Participating Plan will not be eligible to acquire
additional Class L shares of the fund, but instead may
acquire Class A shares of the fund. Any Class L shares
not converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the
fund through the Smith Barney 401(k) Program or the
Smith Barney ExecChoiceTM Program must purchase such
shares directly from the transfer agent. For further
information regarding these Programs, investors should
contact a Salomon Smith Barney Financial Consultant.
EXCHANGE PRIVILEGE
Shares of each Class of the fund may be exchanged for
shares of the same Class of certain Smith Barney
Mutual Funds, to the extent shares are offered for
sale in the shareholder's state of residence.
Exchanges of Class A, Class B and Class L shares are
subject to minimum investment requirements and all
shares are subject to the other requirements of the
fund into which exchanges are made.
Class B Exchanges. If a Class B shareholder wishes to
exchange all or a portion of his or her shares in any
of the funds imposing a higher deferred sales charge
than that imposed by the fund, the exchanged Class B
shares will be subject to the higher applicable
deferred sales charge. Upon an exchange, the new Class
B shares will be deemed to have been purchased on the
same date as the Class B shares of the fund that have
been exchanged.
Class L Exchanges. Upon an exchange, the new Class L
shares will be deemed to have been purchased on the
same date as the Class L shares of the fund that have
been exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the fund who wish to exchange all or a
portion of their shares for shares of the respective
Class in any of the funds identified above may do so
without imposition of any charge.
Additional Information Regarding the Exchange
Privilege. Although the exchange privilege is an
important benefit, excessive exchange transactions can
be detrimental to the fund's performance and its
shareholders. The manager may determine that a pattern
of frequent exchanges is excessive and contrary to the
best interests of the fund's other shareholders. In
this event, the fund may, at its discretion, decide to
limit additional purchases and/or exchanges by the
shareholder. Upon such a determination, the fund will
provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her
shares in the fund or (b) remain invested in the fund
or exchange into any of the funds of the Smith Barney
Mutual Funds ordinarily available, which position the
shareholder would be expected to maintain for a
significant period of time. All relevant factors will
be considered in determining what constitutes an
abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by
telephone. See ''Redemption of Shares-Telephone
Redemptions and Exchange Program.'' Exchanges will be
processed at the net asset value next determined.
Redemption procedures discussed below are also
applicable for exchanging shares, and exchanges will
be made upon receipt of all supporting documents in
proper form. If the account registration of the
shares of the fund being acquired is identical to the
registration of the shares of the fund exchanged, no
signature guarantee is required. An exchange involves
a taxable redemption of shares, subject to the tax
treatment described in "Additional Tax Information"
above, followed by a purchase of shares of a different
fund. Before exchanging shares, investors should read
the current prospectus describing the shares to be
acquired. The fund reserves the right to modify or
discontinue exchange privileges upon 60 days' prior
notice to shareholders.
REDEMPTION OF SHARES
The fund is required to redeem the shares of the fund
tendered to it, as described below, at a redemption
price equal to their net asset value per share next
determined after receipt of a written request in
proper form at no charge other than any applicable
deferred sales charge. Redemption requests received
after the close of regular trading on the NYSE are
priced at the net asset value next determined.
If a shareholder holds shares in more than one Class,
any request for redemption must specify the Class
being redeemed. In the event of a failure to specify
which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will
be delayed until the transfer agent receives further
instructions from Salomon Smith Barney, or if the
shareholder's account is not with Salomon Smith
Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third
business day following receipt of proper tender,
except on any days on which the NYSE is closed or as
permitted under the 1940 Act in extraordinary
circumstances. Generally, if the redemption proceeds
are remitted to a Salomon Smith Barney brokerage
account, these funds will not be invested for the
shareholder's benefit without specific instruction and
Salomon Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for
shares purchased by check, other than a certified or
official bank check, will be remitted upon clearance
of the check, which may take up to ten days or more.
Shares held by Salomon Smith Barney as custodian must
be redeemed by submitting a written request to a
Salomon Smith Barney Financial Consultant. Shares
other than those held by Salomon Smith Barney as
custodian may be redeemed through an investor's
Financial Consultant, Dealer Representative or by
submitting a written request for redemption to:
Smith Barney World Funds, Inc./[name of fund]
Class A, B, L or Y (please specify)
c/o 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
$10,000 must be guaranteed by an eligible guarantor
institution, such as a domestic bank, savings and loan
institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of
$10,000 or less do not require a signature guarantee
unless more than one such redemption request is made
in any 10-day period. Redemption proceeds will be
mailed to an investor's address of record. The
transfer agent may require additional supporting
documents for redemptions made by corporations,
executors, administrators, trustees or guardians. A
redemption request will not be deemed properly
received until the transfer agent receives all
required documents in proper form.
Automatic Cash Withdrawal Plan. The fund offers
shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at
least $10,000 may elect to receive cash payments of at
least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal
plans only where the shareholder is eligible to
receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be
carried over on exchanges between Classes of a fund.
Any applicable deferred sales charge will not be
waived on amounts withdrawn by a shareholder that
exceed 1.00% per month of the value of the
shareholder's shares subject to the deferred sales
charge at the time the withdrawal plan commences.
(With respect to withdrawal plans in effect prior to
November 7, 1994, any applicable deferred sales charge
will be waived on amounts withdrawn that do not exceed
2.00% per month of the value of the shareholder's
shares subject to the deferred sales charge.) For
further information regarding the automatic cash
withdrawal plan, shareholders should contact a Salomon
Smith Barney Financial Consultant or your Dealer
Representative or the transfer agent.
Telephone Redemption and Exchange Program.
Shareholders who do not have a brokerage account may
be eligible to redeem and exchange shares by
telephone. To determine if a shareholder is entitled
to participate in this program, he or she should
contact the transfer agent at 1-800-451-2010. Once
eligibility is confirmed, the shareholder must
complete and return a Telephone/Wire Authorization
Form, along with a signature guarantee, that will be
provided by the transfer agent upon request.
(Alternatively, an investor may authorize telephone
redemptions on the new account application with the
applicant's signature guarantee when making his/her
initial investment in a fund.)
Redemptions. Redemption requests of up to $10,000 of
any class or classes of shares of a fund may be made
by eligible shareholders by calling the transfer agent
at 1-800-451-2010. Such requests may be made between
9:00 a.m. and 4:00 p.m. (Eastern time) on any day the
NYSE is open. Redemptions of shares (i) by retirement
plans or (ii) for which certificates have been issued
are not permitted under this program.
A shareholder will have the option of having the
redemption proceeds mailed to his/her address of
record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be
mailed or wired, as the case may be, on the business
day following the redemption request. In order to use
the wire procedures, the bank receiving the proceeds
must be a member of the Federal Reserve System or have
a correspondent relationship with a member bank. The
fund reserves the right to charge shareholders a
nominal fee for each wire redemption. Such charges,
if any, will be assessed against the shareholder's
account from which shares were redeemed. In order to
change the bank account designated to receive
redemption proceeds, a shareholder must complete a new
Telephone/Wire Authorization Form and, for the
protection of the shareholder's assets, will be
required to provide a signature guarantee and certain
other documentation.
Exchanges. Eligible shareholders may make exchanges
by telephone if the account registration of the shares
of the fund being acquired is identical to the
registration of the shares of the fund exchanged.
Such exchange requests may be made by calling the
transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time) on any day on which the NYSE
is open.
Additional Information Regarding Telephone Redemption
and Exchange Program. Neither the fund nor its
agents will be liable for following instructions
communicated by telephone that are reasonably believed
to be genuine. The fund and its agents will employ
procedures designed to verify the identity of the
caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required
and phone calls may be recorded). The fund reserves
the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose
a charge for this service at any time following at
least seven (7) days' prior notice to shareholders.
DIVIDENDS AND DISTRIBUTIONS
Each fund except the Global Government Bond Portfolio
and the International Balanced Portfolio declares and
pays income dividends at least annually on its shares.
The Global Government Bond Portfolio declares and pays
income dividends monthly and the International
Balanced Portfolio declares and pays income dividends
quarterly. Each fund makes annual distributions of
capital gains, if any, on its shares. If a
shareholder does not otherwise instruct, dividends and
capital gain distributions will be reinvested
automatically in additional shares of the same Class
at net asset value, subject to no initial or deferred
sales charges.
Income dividends and capital gain distributions that
are invested are credited to shareholders' accounts in
additional shares at the net asset value as of the
close of business on the payment date. A shareholder
may change the option at any time by notifying his or
her Salomon Smith Barney Financial Consultant.
Accounts held directly by the 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 fund may be lower than the per share dividends on
Class A and Class Y shares principally as a result of
the distribution fee applicable with respect to Class
B and Class L shares. The per share dividends on Class
A shares of a fund may be lower than the per share
dividends on Class Y shares principally as a result of
the service fee applicable to Class A shares.
Distributions of capital gains, if any, will be in the
same amount for Class A, Class B, Class L and Class Y
shares.
INVESTMENT MANAGEMENT AND OTHER SERVICES tc
"INVESTMENT MANAGEMENT AND OTHER SERVICES"
Manager
SSBC Fund Management Inc. (formerly, Mutual Management
Corp.) (the ''Manager'') serves as each fund's
investment manager. The Manager is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
(''Holdings''). Holdings is a wholly owned subsidiary
of Citigroup Inc. The Manager was incorporated on
March 12, 1968 under the laws of Delaware. As of
January 31, 1999 the Manager had aggregate assets
under management of in excess of $115 billion. The
Manager, Salomon Smith Barney and Holdings are each
located at 388 Greenwich Street, New York, New York
10013. The term ''Smith Barney'' in the title of the
Company and the funds has been adopted by permission
of Salomon Smith Barney and is subject to the right of
Salomon Smith Barney to elect that the Company stop
using the term in any form or combination of its name.
The Manager manages the day-to-day operations of each
fund pursuant to a management agreement entered into
by the Company on behalf of the fund under which the
Manager is responsible for furnishing or causing to be
furnished to the fund advice and assistance with
respect to the acquisition, holding or disposal of
securities and recommendations with respect to other
aspects and affairs of the fund and furnishes the fund
with bookkeeping, accounting and administrative
services, office space and equipment, and the services
of the officers and employees of the Company. By
written agreement the Research and other departments
and staff of Salomon Smith Barney furnish the Manager
with information, advice and assistance and are
available for consultation on the fund, thus Salomon
Smith Barney may also be considered an investment
adviser to the Company. Salomon Smith Barney's
services are paid for by the Manager on the basis of
direct and indirect costs to Salomon Smith Barney of
performing such services; there is no charge to the
Company for such services. For the services provided
by the Manager, the management agreement provides that
each fund will pay the Manager an annual fee
calculated as a percentage of the fund's average daily
net assets, paid monthly.
The Management Agreement for the Global Government
Bond fund provides for an annual fee calculated at the
rate of 0.75% of the fund's average daily net assets,
paid monthly; each of the Management Agreements for
the International Equity Portfolio, the Pacific
Portfolio, the European Portfolio and the
International Balanced Portfolio provides for an
annual fee calculated at the rate of 0.85% of the
fund's average daily net assets, paid monthly; and the
Management Agreement for the Emerging Markets
Portfolio provides for an annual fee calculated at the
rate of 1.00% of the fund's average daily net assets,
paid monthly.
For the fiscal years 1996, 1997 and 1998 the
management fees for each fund were as follows:
Fund
1996
1997
1998
International Equity
$10,047,384
$11,766,569
$11,110,120
Global Government Bond
1,150,340
1,123,627
1,055,789
European
314,805
390,268
530,065
Pacific
82,839
79,628
50,789
International Balanced
274,278
471,084
403,368
Emerging Markets
227,869
380,979
242,829
Each Management Agreement provides that all other
expenses not specifically assumed by the Manager under
the Management Agreement on behalf of the fund are
borne by the Company. Expenses payable by the Company
include, but are not limited to, all charges of
custodians (including sums as custodian and sums for
keeping books and for rendering other services to the
Company) and shareholder servicing agents, expenses of
preparing, printing and distributing all prospectuses,
proxy material, reports and notices to shareholders,
all expenses of shareholders' and directors' meetings,
filing fees and expenses relating to the registration
and qualification of the Company's shares and the
Company under Federal or state securities laws and
maintaining such registrations and qualifications
(including the printing of the Company's registration
statements), fees of auditors and legal counsel, costs
of performing portfolio valuations, out-of-pocket
expenses of directors and fees of directors who are
not "interested persons" as defined in the Act,
interest, taxes and governmental fees, fees and
commissions of every kind, expenses of issue,
repurchase or redemption of shares, insurance expense,
association membership dues, all other costs
incidental to the Company's existence and
extraordinary expenses such as litigation and
indemnification expenses. Direct expenses are
charged to each fund; general corporate expenses are
allocated on the basis of the relative net assets.
The Manager also acts as investment adviser to
numerous other open-end investment companies. Salomon
Smith Barney also advises profit-sharing and pension
accounts. Salomon Smith Barney and its affiliates
may in the future act as investment advisers for other
accounts.
Distributor. CFBDS, Inc., located at 20 Milk Street,
Boston, Massachusetts 02109-5408, serves as the
Company's distributor pursuant to a written agreement
dated October 8, 1998 (the "Distribution Agreement")
which was approved by the Company's Board of
Directors, including a majority of the Independent
Directors on July 13, 1998. Prior to the merger of
Travelers Group Inc. and Citicorp Inc. on October 8,
1998, Salomon Smith Barney served as the fund's
distributor. Salomon Smith Barney continues to sell
the funds shares as part of the selling group.
For the 1996, 1997 and 1998 fiscal years, the
following initial sales charges were paid to Salomon
Smith Barney for sales of the funds' shares:
Class A
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$20,000
$11,000
$17,000
International Equity
1,248,000
633,000
517,000
International Balanced
38,000
12,000
4,000
Emerging Markets
100,000
94,000
$15,000
European
19,000
56,000
242,000
Pacific
13,000
9,000
33,000
Class L
(On June 12, 1998, Class C shares were renamed Class L
Shares)
Name of Fund
Fiscal Year
Ended 10/31/98
Global Government Bond
$0
International Equity
26,000
International Balanced
0
Emerging Markets
0
European
$62,000
Pacific
0
For the 1996, 1997 and 1998 fiscal years, the
following deferred sales charges were paid to Salomon
Smith Barney on redemptions of the funds' shares:
Class A
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$0
$0
$0
International Equity
18,000
$2,000
5,000
International Balanced
0
0
0
Emerging Markets
1,000
0
0
European
0
0
7,000
Pacific
0
0
1,000
Class B
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$86,000
$41,000
$16,000
International Equity
390,000
608,000
568,000
International Balanced
21,000
17,000
14,000
Emerging Markets
31,000
61,000
72,000
European
33,000
36,000
259,000
Pacific
6,000
12,000
25,000
Class L
(On June 12, 1998, Class C shares were renamed Class L
Shares)
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$0
$0
$0
International Equity
22,000
15,000
11,000
International Balanced
0
0
0
Emerging Markets
22,758
0
1,000
European
0
1,000
8,000
Pacific
0
1,000
0
Distribution Arrangements. To compensate Salomon
Smith Barney for the service it provides and for the
expenses it bears, each fund has adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under
the 1940 Act. Under the Plan, each fund pays Salomon
Smith Barney a service, accrued daily and paid
monthly, calculated at the annual rate of 0.25% of the
value of the fund's average daily net assets
attributable to the Class A, Class B and Class L
shares. The service fee is primarily used to pay
Salomon Smith Barney Financial Consultants for
servicing shareholder accounts. In addition, each
fund pays Salomon Smith Barney a distribution fee with
respect to Class B and Class L to cover expenses
primarily intended to result in the sale of those
shares. These expenses include: advertising
expenses; the cost of printing and mailing
prospectuses to potential investors; payments to and
expenses of Salomon Smith Barney Financial Consultants
and other persons who provide support services in
connection with the distribution of shares; interest
and/or carrying charges; and indirect and overhead
costs of Salomon Smith Barney associated with the sale
of fund shares, including lease, utility,
communications and sales promotion expenses. For the
Global Government Bond Portfolio the Class B and Class
L distribution fee is calculated at the annual rate of
0.50% and 0.45% of the value of the fund's average
daily net assets attributable to the shares of the
respective Class. For each of the other funds, the
Class B and Class L distribution fee is calculated at
the annual rate of 0.75% of the value of such fund's
average net assets attributable to the shares of the
respective Class.
Payments under each Plan are not tied exclusively to
the distribution and shareholder services expenses
actually incurred by Salomon Smith Barney and the
payments may exceed distribution expenses actually
incurred. The Company's Board of Directors will
evaluate the appropriateness of each Plan and its
payment terms on a continuing basis and in so doing
will consider all relevant factors, including expenses
borne by Salomon Smith Barney, amounts received under
the Plan and proceeds of the deferred sales charges.
For the 1996, 1997 and 1998 fiscal years, the
following distribution and service fees were accrued
and/or paid to Salomon Smith Barney:
Class A
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$285,589
$249,862
222,926
International Equity
1,284,971
1,282,917
1,108,230
International Balanced
41,971
34,906
24,416
Emerging Markets
23,462
37,470
23,548
European
25,498
32,501
53,687
Pacific
12,618
9,943
5,418
Class B
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$226,135
$169,569
$127,964
International Equity
1,811,343
2,375,547
2,106,818
International Balanced
44,612
56,286
41,008
Emerging Markets
111,672
189,861
117,539
European
252,229
302,094
350,335
Pacific
28,150
37,798
28,064
Class L
(On June 12, 1998, Class C shares were renamed Class L
Shares)
Name of Fund
Fiscal Year
Ended 10/31/96
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Global Government Bond
$27,795
$25,078
$20,234
International Equity
2,370,218
2,261,441
1,771,900
International Balanced
46,666
42,281
31,758
Emerging Markets
22,758
41,594
29,080
European
16,760
27,521
58,524
Pacific
19,009
16,217
10,015
For the fiscal year ended October 31, 1998, Salomon
Smith Barney incurred the following distribution
expenses for the funds:
FUND NAME
Advertising
Printing and Mailing of Prospectuses
Support Services
Salomon Smith Barney Financial Consultants
Interest Expense
TOTAL
Emerging Markets
$18,193
$1,605
$132,640
$223,208
$8,186
$383,832
European
13,117
2,223
128,835
158,867
5,585
308,637
Global Government
18,183
1,686
268,442
24,418
1,768
314,477
International Balanced
4,524
637
48,859
34,929
3,818
92,767
International Equity
209,103
30,743
1,219,038
2,154,441
166,907
3,780,232
Pacific
2,320
360
32,874
19,884
1,611
57,049
Salomon Smith Barney will pay for the printing, at
printer's overrun cost, of prospectuses and periodic
reports after they have been prepared, set in type and
mailed to shareholders, and will also pay the cost of
distributing such copies used in connection with the
offering to prospective investors and will also pay
for supplementary sales literature and other
promotional costs. Such expenses incurred by Salomon
Smith Barney are distribution expenses within the
meaning of the Plans and may be paid from amounts
received by Salomon Smith Barney from the Company
under the Plans.
Brokerage and Portfolio Transactions
The Manager is responsible for allocating the
Company's brokerage. Orders may be directed to any
broker including, to the extent and in the manner
permitted by applicable law, Salomon Smith Barney. No
fund will deal with Salomon Smith Barney in any
transaction in which Salomon Smith Barney acts as
principal.
The Company attempts to obtain the most favorable
execution of each portfolio transaction in the
International Equity Portfolio, the Pacific Portfolio,
the European Portfolio, the International Balanced
Portfolio and the Emerging Markets Portfolio, that is,
the best combination of net price and prompt reliable
execution. In the opinion of the Manager, however, it
is not possible to determine in advance that any
particular broker will actually be able to effect the
most favorable execution because, in the context of a
constantly changing market, order execution involves
judgments as to price, commission rates, volume, the
direction of the market and the likelihood of future
change. In making its decision as to which broker or
brokers are most likely to provide the most favorable
execution, the management of the Company takes into
account the relevant circumstances. These include, in
varying degrees, the size of the order, the importance
of prompt execution, the breadth and trends of the
market in the particular security, anticipated
commission rates, the broker's familiarity with such
security including its contacts with possible buyers
and sellers and its level of activity in the security,
the possibility of a block transaction and the general
record of the broker for prompt, competent and
reliable service in all aspects of order processing,
execution and settlement.
Commissions are negotiated and take into account the
difficulty involved in execution of a transaction, the
time it took to conclude, the extent of the broker's
commitment of its own capital, if any, and the price
received. Anticipated commission rates are an
important consideration in all trades and are weighed
along with the other relevant factors affecting order
execution set forth above. In allocating brokerage
among those brokers who are believed to be capable of
providing equally favorable execution, the Company
takes into consideration the fact that a particular
broker may, in addition to execution capability,
provide other services to the Company such as research
and statistical information. These various services
may, however, be useful to the Manager or Salomon
Smith Barney in connection with its services rendered
to other advisory clients and not all such services
may be used in connection with the Company. For the
fiscal year ended October 31, 1998, the funds did not
direct brokerage transactions to brokers because of
research services provided.
The Board of Directors of the Company has adopted
certain policies and procedures incorporating the
standard of Rule 17e-1 issued by the SEC under the
1940 Act which requires that the commissions paid to
Salomon Smith Barney must be "reasonable and fair
compared to the commission fee or other remuneration
received or to be received by other brokers in
connection with comparable transactions involving
similar securities during a comparable period of
time." The Rule and the policy and procedures also
contain review requirements and require the Manager to
furnish reports to the Board of Directors and to
maintain records in connection with such reviews. In
all trades directed to Salomon Smith Barney, the
Company has been assured that its orders will be
accorded priority over those received from Salomon
Smith Barney for its own accounts or for any of its
directors, officers or employees. The Company will not
deal with Salomon Smith Barney in any transaction in
which Salomon Smith Barney acts as principal.
In placing orders for the Global Government Bond
Portfolio's transactions, the Manager seeks to obtain
the best net results. The Manager has no agreement or
commitment to place orders with any broker-dealer.
Debt securities are generally traded on a "net" basis
with a dealer acting as principal for its own account
without stated commission, although the price of the
security usually includes a profit to the dealer.
United States and foreign government securities and
money market instruments are generally traded in the
OTC markets. In underwritten offerings, securities
are usually purchased at a fixed price which includes
an amount of compensation to the underwriter. On
occasion, securities may be purchased directly from an
issuer, in which case no commissions or discounts are
paid. Dealers may receive commissions on Futures,
currency and options transactions purchased on behalf
of the fund. Commissions or discounts in foreign
securities exchanges or OTC markets typically are
fixed and generally are higher than those in U.S.
securities exchanges or OTC markets.
The Company effects transactions with a view towards
attaining each fund's investment objective, and
although it is not limited by a predetermined rate of
portfolio turnover, it is expected that the annual
turnover rate for each of the International Equity
Portfolio, the Global Government Bond Portfolio, the
European Portfolio, the Pacific Portfolio and the
equity portion of each of the International Balanced
Portfolio and the Emerging Markets Portfolio will not
exceed 100% in normal circumstances and that the
annual turnover rate for the debt portion of each of
the International Balanced Portfolio and the Emerging
Markets Portfolio will not exceed 200% in normal
circumstances. A high portfolio turnover results in
correspondingly greater transaction costs in the form
of brokerage commissions or dealer spreads that a fund
will bear directly, and may result in the realization
of net capital gains, distributions of which are
taxable to shareholders.
Shown below are the total brokerage fees paid by the
Company on behalf of the International Equity
Portfolio, European Portfolio, Pacific Portfolio,
International Balanced Portfolio and the Emerging
Markets Portfolio during 1996, 1997 and 1998. Also
shown is the portion paid to Salomon Smith Barney and
the portion paid to other brokers for the execution of
orders allocated in consideration of research and
statistical services or solely for their ability to
execute the order. During fiscal year 1998, the total
amount of commissionable transactions was $
1,137,153,020 of which $ 85,140,292 (7.00%) was
directed to Salomon Smith Barney and executed by
unaffiliated brokers and $1,052,012,727 (93.00%) of
which was directed to other brokers.
Commissions
Total
To Salomon Smith Barney
To Others
1996
$3,971,236
$31,857*
0.80%
$3,939,379
99.20%
1997
3,310,496
52,098*
1.57
3,258,398
98.43
1998
2,626,706
189,693
7.22%
2,437,013
92.78
* Directed to Salomon Smith Barney and executed by
unaffiliated brokers.
CUSTODIAN tc "CUSTODIAN"
Portfolio securities and cash owned by the Company are
held in the custody of The Chase Manhattan Bank, Chase
Metrotech Center, Brooklyn, New York 11245.
INDEPENDENT AUDITORS tc "INDEPENDENT AUDITORS"
KPMG LLP, 345 Park Avenue, New York, New York 10154,
has been selected as the Company's independent
auditors to examine and report on the financial
statements and financial highlights of the Company for
its fiscal year ending October 31, 1999.
VOTING tc "VOTING"
As permitted by Maryland law, there will normally be
no meetings of shareholders for the purpose of
electing directors unless and until such time as less
than a majority of the directors holding office have
been elected by shareholders. At that time, the
directors then in office will call a shareholders'
meeting for the election of directors. The directors
must call a meeting of shareholders for the purpose of
voting upon the question of removal of any director
when requested in writing to do so by the record
holders of not less than 10% of the outstanding shares
of the Company. At such a meeting, a director may be
removed after the holders of record of 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 February 10, 1999.
INTERNATIONAL BALANCED PORTFOLIO CLASS L
PERCENTAGE OF SHARES
1
Hr Ernest H Lorch
200 East End Avenue
New York, NY 10128-7831
7.7415
PACIFIC PORTFOLIO CLASS A
PERCENTAGE OF SHARES
1
Michael F. Konak
Holanda 337, D-805
Santiago Chile
7.1202
2
Chabel NV
Chalet "El Buen Reitiro"
Barrio Parque Del Golf
Avenida Del Oceano Y Calle
Los Claveles
Punta Del Este Uruguay
5.0633
PACIFIC PORTFOLIO CLASS L
PERCENTAGE OF SHARES
1
Holly F. Greene and George C. Greene JTWROS
P.O. Box 30712
Charleston, SC 29417-0712
5.6117
GLOBAL GOVERNMENT BOND PORT CLASS A
PERCENTAGE OF SHARES
1
Srs. Of Providence Community
Support Trust - Intl Inv.
Generalate - Finance Office
Owens Hall
St. Mary of the W, IN 47876-1096
8.1643
2
Smith Barney Inc.
333 W 34th Street
New York, NY 10001
6.0727
GLOBAL GOVERNMENT BOND PORTFOLIO CLASS L
PERCENTAGE OF SHARES
1
Alberto N. Roca
Smith Barney Inc. Rollover Cust.
13702 Teal Shore Ct.
Houston, TX 77077-3421
5.9361
2
Kenneth A. Dishell
Special Acct #1
26721 Carol
Franklin. MI 48025-1722
5.5255
GLOBAL GOVERNMENT BOND PORTFOLIO CLASS Y
PERCENTAGE OF SHARES
1
Smith Barney
Concert Allocation Series Inc.
Balanced Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
63.2708
2
Smith Barney
Concert Allocation Series Inc.
Conservative Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
16.5426
3
Smith Barney
Concert Allocation Series Inc.
Select Balanced Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
15.6240
INTERNATIONAL EQUITY PORTFOLIO CLASS Y
PERCENTAGE OF SHARES
1
Smith Barney
Concert Allocation Series Inc.
Growth Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
30.4791
2
Smith Barney
Concert Allocation Series Inc.
High Growth Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
23.6626
3
Smith Barney
Concert Allocation Series Inc.
Balanced Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
9.5538
4
California State Automobile
Assoc. Inter-IMS Bureau
Attn: Carol Gibbons
100 Van Ness Ave
San Francisco CA 94102-5292
5.9903
INTERNATIONAL EQUITY PORTFOLIO CLASS Z
PERCENTAGE OF SHARES
1
State Street Bank & Trust Cust.
The Travelers Group 401(k)
Savings Plan
Attn: Rick Vest
225 Franklin Street
Boston MA 02101
99.9925
EMERGING MARKETS PORTFOLIO CLASS Y
PERCENTAGE OF SHARES
1
Smith Barney
Concert Allocation 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 Portfolio) represent interests
in the assets of the fund and have identical voting,
dividend, liquidation and other rights on the same
terms and conditions except that expenses related to
the distribution of each Class of shares are borne
solely by each Class and each Class of shares has
exclusive voting rights with respect to provisions of
the fund's Rule 12b-1 distribution plan which pertain
to a particular Class.
Shareholder Meetings. As described under ''Voting,''
the Company ordinarily will not hold meetings of
shareholders annually; however, shareholders have the
right to call a meeting upon a vote of 10% of the
Company's outstanding shares for the purpose of voting
to remove directors, and the Company will assist
shareholders in calling such a meeting as required by
the 1940 Act. Shares do not have cumulative voting
rights or preemptive rights and are fully paid,
transferable and nonassessable when issued for payment
as described in this Prospectus.
Minimum Account Size. The Company reserves the right
to involuntarily liquidate any shareholder's account
in the fund if the aggregate net asset value of the
shares held in the fund account is less than $500. (If
a shareholder has more than one account in this fund,
each account must satisfy the minimum account size.)
The Company, however, will not redeem shares based
solely on market reductions in net asset value. Before
the Company exercises such right, shareholders will
receive written notice and will be permitted 60 days
to bring accounts up to the minimum to avoid
involuntary liquidation.
Transfer Agent. The funds' transfer agent is First
Data Investors' Services Group, Inc. located at
Exchange Place, Boston, Massachusetts 02109.
Annual and Semi-Annual Reports. Management's
discussion and analysis, and additional performance
information regarding the funds during the fiscal year
ended October 31, 1998 is included in the annual
report dated October 31, 1998. A copy of the annual
report may be obtained upon request and without charge
from a Salomon Smith Barney Financial Consultant or by
writing or calling the Company at the address or phone
number listed on page one of this statement of
additional information.
The Company sends its shareholders a semi-annual
report and an audited annual report, which include
listings of the investment securities held by the
Company at the end of the period covered. In an
effort to reduce the Company's printing and mailing
costs, the Company plans to consolidate the mailing of
its semi-annual and annual reports by household. This
consolidation means that a household having multiple
accounts with the identical address of record will
receive a single copy of each report. Shareholders
who do not want this consolidation to apply to their
account should contact their Salomon Smith Barney
Financial Consultant or the transfer agent.
FINANCIAL STATEMENTS tc "FINANCIAL STATEMENTS"
The following financial information is hereby
incorporated by reference to the indicated pages of
the Company's 1998 Annual Report to Shareholders(
filed on December 30, 1998; Accession number
000009155-98-000736), copies of which are furnished
with this Statement of Additional Information.
Page(s) in Annual Report (Global Government Bond,
International Balanced and International Equity
Portfolios)
Page(s) in Annual Report (Emerging Markets, European
and Pacific Portfolios)
Average Annual Total Return
5,11 and16
5, 10 and 17
Line Graph Showing Growth of $10,000 Investment
6,17 and 13
6,11 and18
Statements of Assets and Liabilities
25 and 26
26
Statements of Operations
27
27
Statement of Changes in Net Assets
28 and 29
28 and 29
Notes to Financial Statements
30-38
30-38
Financial Highlights
39-50
39-48
Independent Auditor's Report
51
49
APPENDIX - RATINGS OF DEBT OBLIGATIONS tc "APPENDIX -
RATINGS OF DEBT OBLIGATIONS"
BOND (AND NOTE) RATINGS
Moody's Investors Service, Inc. ("Moody's")
Aaa - Bonds that are rated "Aaa" are judged to
be of the best quality. They carry the smallest
degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and
principal is secure. While the various protective
elements are likely to change, such changes as can be
visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated "Aa" are judged to be
of high quality by all standards. Together with the
"Aaa" group they comprise what are generally known as
high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as
large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or
there may be other elements present that make the long
term risks appear somewhat larger than in "Aaa"
securities.
A - Bonds that are rated "A" possess many
favorable investment attributes and are to be
considered as upper medium grade obligations. Factors
giving security to principal and interest are
considered adequate but elements may be present that
suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds that are rated "Baa" are considered
as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest
payments and principal security appear adequate for
the present but certain protective elements may be
lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding
investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have
speculative elements; their future cannot be
considered as well assured. Often the protection of
interest and principal payments may be very moderate
and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack
characteristics of desirable investments. Assurance
of interest and principal payments or of maintenance
of other terms of the contract over any long period of
time may be small.
Caa - Bonds that are rated Caa are of poor
standing. These issues may be in default or present
elements of danger may exist with respect to principal
or interest.
Ca - Bonds that are rated Ca represent
obligations which are speculative in a high degree.
Such issues are often in default or have other marked
short-comings.
C - Bonds that are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies the numerical modifiers 1, 2 and
3 in each generic rating classification from Aa
through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
Standard & Poor's Ratings Group ("Standard & Poors")
AAA - Debt rated "AAA" has the highest rating
assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity
to pay interest and repay principal and differs from
the highest rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay
interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB - Debt rated "BBB" is regarded as having an
adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
BB, B and CCC - Bonds rated BB and B are
regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay
principal in accordance with the terms of the
obligation. BB represents a lower degree if
speculation than B and CCC the highest degree of
speculation. While such bonds will likely have some
quality and protective characteristics, these are
outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - The rating C is reserved for income bonds on
which no interest is being paid.
D - Bonds rated D are in default, and payment of
interest and/or repayment of principal is in arrears.
S&P's letter ratings may be modified by the
addition of a plus or a minus sign, which is used to
show relative standing within the major rating
categories, except in the AAA category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting
institutions) have a superior capacity for repayment
of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the
following characteristics: leading market positions in
well-established industries; high rates of return on
funds employed; conservative capitalization structures
with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of
fixed financial charges and high internal cash
generation; well-established access to a range of
financial markets and assured sources of alternate
liquidity.
Issuers rated "Prime-2" (or related supporting
institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while
still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Standard & Poor's Ratings Group
A-1 - This designation indicates that the degree
of safety regarding timely payment is either
overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics will be
denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with
this designation is strong. However, the relative
degree of safety is not as high as for issues
designated A-1.
H:\op\.WPF_DOCS\SBWF_7.wpf
105
3
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)
a.14 Articles of Amendment for the Fund dated June 4, 1998
are filed herewith
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 Selling Group Agreement filed herewith
e.3 Form of Distribution Agreement (17)
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 is filed herewith.
k. Not applicable
l. Form of Subscription Agreement (4)
m.1 Form of Amended Plan of Distribution Pursuant
to Rule 12b-1 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 is filed herewith
o. Rule 18f-3 Plan filed herewith
Footnotes:
(1) Incorporated by reference to to the Fund's Registration
Statement on Form N-1A filed on March 26, 1991.
(2) Incorporated by reference to Post-Effective Amendment
No. 2 to the Fund's Registration Statement on Form N-1A filed
on September 24, 1991.
(3) Incorporated by reference to Post-Effective Amendment
No. 6 to the Fund's Registration Statement on Form N-1A filed
on December 21, 1992.
(4) Incorporated by reference to Pre-Effective Amendment
No. 1 to the Fund's Registration Statement on Form N-1A filed
on May 27, 1991.
(5) Intentionally left blank.
(6) Incorporated by reference to Pre-Effective Amendment
No. 2 to the Fund's Registration Statement on Form N-1A filed
on June 14, 1991.
(7) Intentionally left blank.
(8) Incorporated by reference to Post-Effective Amendment
No. 3 to the Fund's Registration Statement on Form N-1A filed
on January 17, 1992.
(9) Incorporated by reference to Post-Effective Amendment
No. 8 to the Fund's Registration Statement on Form N-1A filed
on November 5, 1993.
(10) Incorporated by reference to Post-Effective Amendment
No. 9 to the Fund's Registration Statement on Form N-1A filed
on January 4, 1994.
(11) Incorporated by reference to Post-Effective Amendment
No. 12 to the Fund's Registration Statement on Form N-1A filed
on July 27, 1994.
(12) Incorporated by reference to Post-Effective Amendment
No. 14 to the Fund's Registration Statement on Form N-1A filed
on October 31, 1994.
(13) Incorporated by reference to Post-Effective Amendment
No. 15 to the Fund's Registration Statement on Form N-1A filed
on February 28, 1995.
(14) Incorporated by reference to Post-Effective Amendment
No. 17 to the Fund's Registration Statement on Form N-1A filed
on February 28, 1996.
(15) Incorporated by reference to Post-Effective Amendment
No. 18 to the Fund's Registration Statement on Form N-1A filed
on December 27, 1996.
(16) Incorporated by reference to Post-Effective Amendment
No. 19 to the Fund's Registration Statement on Form N-1A filed
on February 21, 1997.
(17) Incorporated by reference to Post-Effective Amendment
No. 22 to the Fund's Registration Statement on Form N-1A filed
on December 29, 1998.
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 SSBC Fund Management Inc.
(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 SSBC Fund Management
Inc. 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.
CFBDS 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.
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.
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 (the "Securities
Act") and the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this Post-
Effective Amendment to its Registration Statement under rule 485(b) under
the Securities Act and has duly caused this Post-Effective Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
and where applicable, the true and lawful attorney-in-fact, thereto duly
authorized, in the City of New York and State of New York on the 25th day
of February 1999.
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 2/25/99
/s/Victor Atkins* Director
2/25/99
(Victor Atkins)
/s/Abraham E. Cohen* Director 2/25/99
Abraham E. Cohen
/s/Robert Frankel* Director 2/25/99
(Robert Frankel)
/s/Rainer Greeven* Director 2/25/99
(Rainer Greeven)
/s/Susan M. Heilbron* Director 2/25/99
(Susan M. Heibron)
/s/ Lewis E. Daidone (Treasurer 2/25/99
(Lewis E. Daidone) Principal Financial
Officer) and Principal
Accounting Officer
*By:/s/ Christina T. Sydor 2/25/99
(Christina T. Sydor)
Pursuant to Power of Attorney
EXHIBIT INDEX
a. Articles of Amendment
e. Selling Group Agreement
j. Auditor's Consent
m. Forms of Amended Plan of Distribution Pursuant to Rule 12b-1
n. Financial Data Schedule
o. Rule 18f-3 Plan
Cover
SMITH BARNEY WORLD FUNDS, INC. PRIVATE
ARTICLES OF AMENDMENT
Smith Barney World Funds, Inc., a Maryland
corporation, having its principal office in Baltimore
City, Maryland (the "Corporation"), hereby certifies to
the State Department of Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby
amended to provide as follows:
The name and designation of the Class C shares of
each of the Emerging Markets Portfolio, the European
Portfolio, the Global Government Bond Portfolio, the
International Balanced Portfolio, the International
Equity Portfolio and the Pacific Portfolio series of
capital stock of the Corporation is hereby changed
to Class L Shares of such series or portfolio.
SECOND: The amendment does not change the
outstanding capital stock of the Corporation or the
aggregate par value thereof.
THIRD: The foregoing amendment to the charter
of the Corporation has been approved by the Board of
Directors and is limited to a change expressly
permitted by Section 2-605 of the Maryland General
Corporation Law.
FOURTH: The Corporation is registered as an
open-end investment company under the Investment
Company Act of 1940.
FIFTH: The Shares aforesaid have been duly
classified by the Board of Directors pursuant to
authority and power contained in the Charter of the
Corporation.
SIXTH: The amendment to the charter of the
Corporation effected hereby shall become effective at
9:00 a.m. on June 12, 1998.
IN WITNESS WHEREOF, Smith Barney World Funds,
Inc. has caused these presents to be signed in its name
and on its behalf by its President and witnessed by its
Secretary on June 4, 1998.
WITNESS: SMITH BARNEY WORLD
FUNDS, INC.
/s/Christina T. Sydor
/s/Heath B. McLendon
Christina T. Sydor, Secretary Heath B.
McLendon, President
THE UNDERSIGNED, President of Smith Barney World
Funds, Inc., who executed on behalf of the Corporation
Articles of Amendment of which this Certificate is made
a part, hereby acknowledges in the name and on behalf
of said Corporation the foregoing Articles of Amendment
to be the corporate act of said Corporation and hereby
certifies that the matters and facts set forth herein
with respect to the authorization and approval thereof
are true in all material respects under the penalties
of perjury.
/s/Heath B.
McLendon
Heath B.
McLendon, President
U:\funds\sbwf\misc\artic698.doc
SMITH BARNEY MUTUAL FUNDS
BROKER DEALER CONTRACT
CFBDS, Inc.
21 Milk Street
Boston, Massachusetts 02109
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We, CFBDS, Inc. ("CFBDS"), have agreements
with certain investment companies for which Mutual
Management Corp. serves as investment adviser and/or
administrator (each a "Fund") pursuant to which we act
as nonexclusive principal underwriter and distributor
for the sale of shares of capital stock ("shares") of
the various series of such Funds, and as such have the
right to distribute shares for resale. Each Fund is
an open-end investment company registered under the
Investment Company Act of 1940, as amended (the "1940
Act") and the shares being offered to the public are
registered under the Securities Act of 1933, as
amended (the "1933 Act"). Each series of each Fund
covered by a Distribution Agreement from time to time
is referred to in this agreement as a "Series" and
collectively as the "Series." The term "Prospectus",
as used herein, refers to the prospectus and related
statement of additional information (the "Statement of
Additional Information") incorporated therein by
reference (as amended or supplemented) on file with
the Securities and Exchange Commission at the time in
question. As a broker in the capacity of principal
underwriter and distributor for the Trust, we offer to
sell to you, as a broker or dealer, shares of each
Fund upon the following terms and conditions:
1. PRIVATE In all sales to the public
you shall act as broker for your customers or as
dealer for your own account, and in no transaction
shall you have any authority to act as agent for the
Trust, for us or for any other dealer. tc " In all
sales to the public you shall act as dealer for your
own account, and in no transaction shall you have any
authority to act as agent for the Fund, for us or for
any other dealer."
2. PRIVATE Orders received from you
will be accepted through us only at the public
offering price per share (i.e. the net asset value per
share plus the applicable front-end sales charge, if
any) applicable to each order, and all orders for
redemption of any shares shall be executed at the net
asset value per share less any contingent deferred
sales charge, if any, in each case as set forth in the
Prospectus. You will be entitled to receive and
retain any contingent deferred sales charge amounts in
partial consideration of your payment to financial
consultants of commission amounts at the time of sale
and we will obligate any other brokers with whom we
enter into similar agreements to pay such amounts
directly to you. The procedure relating to the
handling of orders shall be subject to paragraph 4
hereof and instructions which we or the Fund shall
forward from time to time to you. All orders are
subject to acceptance or rejection by the applicable
Fund or us in the sole discretion of either. The
minimum initial purchase and the minimum subsequent
purchase of any shares shall be as set forth in the
Prospectus pertaining to the relevant Series. tc "
Orders received from you will be accepted through us
only at the public offering price per share (i.e. the
net asset value per share plus the applicable sales
charge, if any) applicable to each order, and all
orders for redemption of any Fund shares shall be
executed at the net asset value per share less any
contingent deferred sales charge, if any, in each case
as set forth in the Prospectus. The procedure
relating to the handling of orders shall be subject to
paragraph 4 hereof and instructions which we or the
Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by
Salomon or the Fund in the sole discretion of either.
The minimum initial purchase and the minimum
subsequent purchase shall be as set forth in the
Prospectus of the Fund."
3. PRIVATE You shall not place orders
for any shares unless you have already received
purchase orders for those shares at the applicable
public offering price and subject to the terms hereof.
You agree that you will not offer or sell any shares
except under circumstances that will result in
compliance with the applicable Federal and state
securities laws, the applicable rules and regulations
thereunder and the rules and regulations of applicable
regulatory agencies or authorities and that in
connection with sales and offers to sell shares you
will furnish to each person to whom any such sale or
offer is made, a copy of the Prospectus and, upon
request, the Statement of Additional Information, and
will not furnish to any person any information
relating to shares which is inconsistent in any
respect with the information contained in the
Prospectus or Statement of Additional Information (as
then amended or supplemented). You shall not furnish
or cause to be furnished to any person or display or
publish any information or materials relating to the
shares (including, without limitation, promotional
materials and sales literature, advertisements, press
releases, announcements, statements, posters, signs or
other similar material), except such information and
materials as may be furnished to you by or on behalf
of us or the Funds, and such other information and
materials as may be approved in writing by or on
behalf of us or the Funds. tc " You shall not place
orders for any shares unless you have already received
purchase orders for those shares at the applicable
public offering price and subject to the terms hereof
and of the Distribution Contract. You agree that you
will not"
4. PRIVATE As a broker dealer, you are
hereby authorized (i) to place orders directly with
the applicable Fund or Series for shares subject to
the applicable terms and conditions governing the
placement of orders by us set forth in the Prospectus
and (ii) to tender shares directly to each Fund or its
agent for redemption subject to the applicable terms
and conditions governing the redemption of shares
applicable to us set forth in the Prospectus. tc " As
a dealer, you are hereby authorized (i) to place
orders directly with the Fund for shares to be resold
by us to you subject to the applicable terms and
conditions governing the placement of orders by us set
forth in the Prospectus and the Distribution Contract
and (ii) to tender shares directly to the Fund or its
agent for redemption subject to the applicable terms
and conditions governing the redemption of shares
applicable to us set forth in the Prospectus and the
Distribution Agreement."
5. PRIVATE You shall not withhold
placing orders received from your customers so as to
profit yourself as a result of such withholding, e.g.,
by a change in the "net asset value" from that used in
determining the offering price to your customers. tc "
You shall not withhold placing orders received from
your customers so as to profit yourself as a result of
such withholding, e.g., by a change in the \"net asset
value\" from that used in determining the offering
price to your customers."
6. PRIVATE In determining the amount
of any sales concession payable to you hereunder, we
reserve the right to exclude any sales which we
reasonably determine are not made in accordance with
the terms of the Prospectus and the provisions of this
Agreement. Unless at the time of transmitting an
order we advise you or the transfer agent to the
contrary, the shares ordered will be deemed to be the
total holdings of the specified investor. tc " In
determining the amount of any sales concession payable
to you hereunder, we reserve the right to exclude any
sales which we reasonably determine are not made in
accordance with the terms of the Prospectus and the
provisions of this Agreement. Unless at the time of
transmitting an order we advise you or the transfer
agent to the contrary, the shares ordered will be
deemed to be the total holdings of the specified
investor."
7. PRIVATE (a) You agree that payment
for orders from you for the purchase of shares will be
made in accordance with the terms of the Prospectus.
On or before the business day following the settlement
date of each purchase order for shares, you shall
transfer same day funds to an account designated by us
with the transfer agent in an amount equal to the
public offering price on the date of purchase of the
shares being purchased less your sales concession, if
any, with respect to such purchase order determined in
accordance with the Prospectus. If payment for any
purchase order is not received in accordance with the
terms of the Prospectus, we reserve the right, without
notice, to cancel the sale and to hold you responsible
for any loss sustained as a result thereof. tc " (a)
You agree that payment for orders from you for the
purchase of shares will be made in accordance with the
terms of the Prospectus. On or before the business
day following the settlement date of each purchase
order for shares, you shall transfer same day funds to
an account designated by us with the transfer agent an
amount equal to the public offering price on the date
of purchase of the shares being purchased less your
sales concession, if any, with respect to such
purchase order determined in accordance with the
Prospectus. If payment for any purchase order is not
received in accordance with the terms of the
Prospectus, we reserve the right, without notice, to
cancel the sale and to hold you responsible for any
loss sustained as a result thereof."
(b) PRIVATE If any shares sold under the
terms of this Agreement are sold with a sales charge
and are redeemed or are tendered for redemption within
seven (7) business days after confirmation of your
purchase order for such shares: (i) you shall
forthwith refund to us the full sales concession
received by you on the sale; and (ii) we shall
forthwith pay to the applicable Series our portion of
the sales charge on the sale which has been retained
by us, if any, and shall also pay to the applicable
Series the amount refunded by you. tc " If any shares
sold under the terms of this Agreement are sold with a
sales charge and are redeemed or are tendered for
redemption within seven (7) business days after
confirmation of your purchase order for such shares\:
(i) you shall forthwith refund to us the full sales
concession received by you on the sale; and (ii) we
shall forthwith pay to the applicable Series our
portion of the sales charge on the sale which has been
retained by us, if any, and shall also pay to the
Series the amount refunded by you."
(c) PRIVATE We will not be obligated to
pay or cause to be paid to you any ongoing trail
commission or shareholder service fees with respect to
shares of the Series purchased through you and held by
or for your customers, which you shall collect
directly from the Funds. tc " We will pay you an
ongoing trail commission with respect to holdings by
you of shares of the Funds at such rates and in such
manner as may be described in the Prospectus."
(d) PRIVATE Certificates evidencing
shares shall be available only upon request. Upon
payment for shares in accordance with paragraph 7(a)
above, the transfer agent will issue and transmit to
you or your customer a confirmation statement
evidencing the purchase of such shares. Any
transaction in uncertificated shares, including
purchases, transfers, redemptions and repurchases,
shall be effected and evidenced by book-entry on the
records of the transfer agent. tc " Certificates
evidencing shares shall be available only upon
request. Upon payment for shares in accordance with
paragraph 7(a) above, the transfer agent will issue
and transmit to you a confirmation statement
evidencing the purchase of such shares. Any
transaction in uncertificated shares, including
purchases, transfers, redemptions and repurchases,
shall be effected and evidenced by book-entry on the
records of the transfer agent."
8. PRIVATE No person is authorized to
make any representations concerning shares except
those contained in the current Prospectus and
Statement of Additional Information and in printed
information subsequently issued by us or the Funds as
information supplemental to the Prospectus and the
Statement of Additional Information. In purchasing or
offering shares pursuant to this Agreement you shall
rely solely on the representations contained in the
Prospectus, the Statement of Additional Information
and the supplemental information above mentioned. tc "
No person is authorized to make any representations
concerning shares except those contained in the
current Prospectus and Statement of Additional
Information and in printed information subsequently
issued by us or the Fund as information supplemental
to the Prospectus and the Statement of Additional
Information. In purchasing sor offering shares
pursuant to this Agreement you shall rely solely on
the representations contained in the Prospectus, the
Statement of Additional Information and the
supplemental information above mentioned."
9. PRIVATE You agree to deliver to
each purchaser making a purchase of shares from or
through you a copy of the Prospectus at or prior to
the time of offering or sale, and, upon request, the
Statement of Additional Information. You may instruct
the transfer agent to register shares purchased in
your name and account as nominee for your customers.
You agree thereafter to deliver to any purchaser whose
shares you or your nominee are holding as record
holder copies of the annual and interim reports and
proxy solicitation materials and any other information
and materials relating to the Trust and prepared by or
on behalf of us, the Funds or the investment adviser,
custodian, transfer agent or dividend disbursing agent
for distribution to beneficial holders of shares. The
Funds shall be responsible for the costs associated
with forwarding such reports, materials and other
information and shall reimburse you in full for such
costs. You further agree to make reasonable efforts
to endeavor to obtain proxies from such purchasers
whose shares you or your nominee are holding as record
holder. You further agree to obtain from each
customer to whom you sell shares any taxpayer
identification number certification required under
Section 3406 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated
thereunder, and to provide us or our designee with
timely written notice of any failure to obtain such
taxpayer identification number certification in order
to enable the implementation of any required backup
withholding in accordance with Section 3406 of the
Code and the regulations thereunder. Additional
copies of the Prospectus, Statement of Additional
Information, annual or interim reports, proxy
solicitation materials and any such other information
and materials relating to the Trust will be supplied
to you in reasonable quantities upon request. tc "
You agree to deliver to each purchaser making a
purchase of shares from you a copy of the Prospectus
at or prior to the time of offering or sale, and, upon
request, the Statement of Additional Information. You
may instruct the transfer agent to register shares
purchased in your name and account as nominee for your
customers. You agree thereafter to deliver to any
purchaser whose shares you are holding as record
holder copies of the annual and interim reports and
proxy solicitation materials and any other information
and materials relating to the Fund and prepared by or
on behalf of us, the Fund or its investment adviser,
custodian, transfer agent or dividend disbursing agent
for distribution to such customer. The Fund shall be
responsible for the costs associated with forwarding
such reports, materials and other information and
shall reimburse you in full for such costs. You
further agree to make reasonable efforts to endeavor
to obtain proxies from such purchasers whose shares
you are holding as record holder. You further agree
to obtain from each customer to whom you sell shares
any taxpayer identification number certification
required under Section 3406 of the Internal Revenue
Code of 1986, as amended (the \"Code\"), and the
regulations promulgated thereunder, and to provide us
or our designee with timely written notice of any
failure to obtain such taxpayer identification number
certification in order to enable the implementation of
any required backup withholding in accordance with
Section 3406 of the Code and the regulations
thereunder. Additional copies of the Prospectus,
Statement of Additional Information, annual or interim
reports, proxy solicitation materials and any such
other information and materials relating to the Fund
will be supplied to you in reasonable quantities upon
request."
10. PRIVATE (a) In accordance with the
terms of the Prospectus, a reduced sales charge may be
available to customers, depending on the amount of the
investment or proposed investment. In each case where
a reduced sales charge is applicable, you agree to
furnish to the transfer agent sufficient information
to permit confirmation of qualification for a reduced
sales charge, and acceptance of the purchase order is
subject to such confirmation. Reduced sales charges
may be modified or terminated at any time in the sole
discretion of each Fund. tc " (a) In accordance
with the terms of the Prospectus, a reduced sales
charge may be available to customers, depending on the
amount of the investment. In each case where a
reduced sales charge is applicable, you agree to
furnish to the transfer agent sufficient information
to permit confirmation of qualification for a reduced
sales charge, and acceptance of the purchase order is
subject to such confirmation. Reduced sales charges
may be modified or terminated at any time in the sole
discretion of the Fund."
(b) PRIVATE You acknowledge that
certain classes of investors may be entitled to
purchase shares at net asset value without a sales
charge as provided in the Prospectus and Statement of
Additional Information. tc " You acknowledge that
certain classes of investors may be entitled to
purchase shares at net asset value without a sales
charge as provided in the Prospectus and Statement of
Additional Information."
(c) PRIVATE You agree to advise us
promptly as to the amount of any and all sales by you
qualifying for a reduced sales charge or no sales
charge. tc " You agree to advise us promptly as to
the amount of any and all sales by you qualifying for
a reduced sales charge or no sales charge."
(d) PRIVATE Exchanges (i.e., the
investment of the proceeds from the liquidation of
shares of one Series in the shares of another Series,
each of which is managed by the same or an affiliated
investment adviser) shall, where available, be made in
accordance with the terms of each Prospectus. tc "
Exchanges (i.e., the investment of the proceeds from
the liquidation of shares of one fund in the shares of
another fund, each of which is managed by the Fund's
investment adviser) shall, where available, be made in
accordance with the terms of each Prospectus."
11. PRIVATE We and each Fund reserve
the right in our discretion, without notice, to
suspend sales or withdraw the offering of any shares
entirely. Each party hereto has the right to cancel
the portions of this Agreement to which it is party
upon notice to the other parties; provided, however,
that no cancellation shall affect any party's
obligations hereunder with respect to any transactions
or activities occurring prior to the effective time of
cancellation. We reserve the right to amend this
Agreement in any respect effective on notice to
you. tc " We reserve the right in our discretion,
without notice, to suspend sales or withdraw the
offering of shares entirely. Each party hereto has
the right to cancel this agreement upon notice to the
other part parties; provided; however, that no
cancellation shall affect any party's obligations
hereunder with respect to any transactions or
activities occurring prior to the effective time of
cancellation. We reserve the right to amend this
Agreement in any respect effective on notice to you."
12. PRIVATE We shall have full authority
to take such action as we may deem advisable in respect
of all matters pertaining to the continuous offering of
shares. We shall be under no liability to you except for
lack of good faith and for obligations expressly assumed
by us herein. Nothing contained in this paragraph 12 is
intended to operate as, and the provisions of this
paragraph 12 shall not in any way whatsoever constitute a
waiver by you of compliance with, any provisions of the
1933 Act or of the rules and regulations of the
Securities and Exchange Commission issued thereunder.
tc " We shall have full authority to take such action
as we may deem advisable in respect of all matters
pertaining to the continuous offering of shares. We
shall be under no liability to you except for lack of
good faith and for obligations expressly assumed by us
herein. Nothing contained in this paragraph 12 is
intended to operate as, and the provisions of this
paragraph 12 shall not in any way whatsoever constitute a
waiver by you of compliance with, any provisions of the
1933 Act or of the rules and regulations of the
Securities and Exchange Commission issued thereunder."
13. PRIVATE You agree that: (a) you
shall not effect any transactions (including, without
limitation, any purchases and tc " You agree that\:
(a) you shall not effect any transactions (including,
without limitation, any purchases and" redemptions)
in any shares registered in the name of, or
beneficially owned by, any customer unless such
customer has granted you full right, power and
authority to effect such transactions on his behalf,
(b) we shall have full authority to act upon your
express instructions to sell, repurchase or exchange
shares through us on behalf of your customers under
the terms and conditions provided in the Prospectus
and (c) we, the Funds, the investment adviser, the
administrator, the transfer agent and our and their
respective officers, directors or trustees, agents,
employees and affiliates shall not be liable for, and
shall be fully indemnified and held harmless by you
from and against, any and all claims, demands,
liabilities and expenses (including, without
limitation, reasonable attorneys' fees) which may be
incurred by us or any of the foregoing persons
entitled to indemnification from you hereunder arising
out of or in connection with (i) the execution of any
transactions in shares registered in the name of, or
beneficially owned by, any customer in reliance upon
any oral or written instructions believed to be
genuine and to have been given by or on behalf of you,
(ii) any statements or representations that you or
your employees or representatives make concerning the
Funds that are inconsistent with the applicable Fund's
Prospectus, (iii) any written materials used by you or
your employees or representatives in connection with
making offers or sales of shares that were not
furnished by us, the Funds or the investment adviser
or an affiliate thereof and (iv) any sale of shares of
a Fund where the Fund or its shares were not properly
registered or qualified for sale in any state, any
U.S. territory or the District of Columbia, when we
have indicated to you that the Fund or its shares were
not properly registered or qualified. The
indemnification agreement contained in this Paragraph
13 shall survive the termination of this Agreement.
14. PRIVATE You represent that: (a) you
are a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"),
or, if a foreign dealer who is not eligible for
membership in the NASD, that (i) you will not make any
sales of shares in, or to nationals of, the United
States of America, its territories or its possessions,
and (ii) in making any sales of shares you will comply
with the NASD's Conduct Rules and (b) you are a member
in good standing of the Securities Investor Protection
Corporation ("SIPC"). You agree that you will provide
us with timely written notice of any change in your
NASD or SIPC status. tc " You represent that you are
a member in good standing of the National Association
of Securities Dealers, Inc. (the \"NASD\"), or, if a
foreign dealer who is not eligible for membership in
the NASD, that (a) you will not make any sales of
shares in, or to nationals of, the United States of
America, its territories or its possessions, and (b)
in making any sales of shares you will comply with the
NASD's Rules of Fair Practice."
15. PRIVATE We shall inform you as to
the states or other jurisdictions in which the Fund has
advised us that shares have been qualified for sale
under, or are exempt from the requirements of, the
respective securities laws of such states, but we
assume no responsibility or obligation as to your
qualification to sell shares in any jurisdiction.
16. 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.
17. PRIVATE All communications to us
should be sent, postage prepaid, to 21 Milk Street,
Boston, Massachusetts 02109 Attention: Philip
Coolidge. Any notice to you shall be duly given if
mailed, telegraphed or telecopied to you at the
address specified by you below. Communications
regarding placement of orders for shares should be
sent, postage prepaid, to First Data Investor Services
Group, Inc., P.O. Box 5128, Westborough, Massachusetts
01581-5128. tc " All communications to us should be
sent, postage prepaid, to 7 World Trade Center, New
York, New York 10048. Attention\: Robert J. Leonard.
Any notice to you shall be duly given if mailed,
telegraphed or telecopied to you at the address
specified by you below. Communications regarding
placement of orders for shares should be sent, postage
prepaid, to The Shareholder Services Group, Inc., P.O.
Box 9109, Boston, Massachusetts 02205-9109."
18. PRIVATE This Agreement shall be
binding upon both parties hereto when signed by us and
accepted by you in the space provided below tc " This
Agreement shall be binding upon both parties hereto
when signed by us and accepted by you in the space
provided below until July 14, 1995 or such earlier
date upon negotiation of section 3 and 12 of this
agreement. " .
19. PRIVATE 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. tc " 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."
CFBDS, INC.
By:/s/
(Authorized
Signature)
Accepted:
Firm Name:
Address:
Accepted By (signature):
Name (print):
Title: Date:
u:\legal\general\forms\agreemts\dist12b-1\dealerag1.doc
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney World Funds, Inc.:
We consent to the use of our reports dated December
18, 1998, with respect to the Portfolios listed
below of Smith Barney World Funds Inc., incorporated
herein by reference and to the references to our
Firm under the headings "Financial Highlights" in
the Prospectus and "Independent Auditors" in the
Statement of Additional Information.
Portfolios
Pacific Portfolio
Emerging Markets Portfolio
European Portfolio
Global Government Bond Portfolio
International Equity Portfolio
International Balanced Portfolio
KPMG
LLP
New York, New York
February 23, 1999
AMENDED PLAN OF DISTRIBUTION PURSUANT TO RULE
12b-1
OF
SMITH BARNEY WORLD FUNDS, INC
[NAME OF EQUITY PORTFOLIO]
This Amended Plan of Distribution (the "Plan")
is adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") by Smith
Barney World Funds, Inc. (the "Fund") on behalf of the
[Name of Equity Portfolio] (the "Portfolio"), subject
to the following terms and conditions:
1. With respect to Class A, Class B and Class C
shares, the Portfolio shall pay to Smith Barney Inc.
("Smith Barney") a service fee at the annual rate of
0.25% of the average net assets of each such class.
With respect to Class B and Class C shares, the
Portfolio shall pay to Smith Barney an asset-based
sales charge at the annual rate of 0.75% of the
average net assets of each such class. Amounts
payable by each class shall be calculated and accrued
daily and paid monthly or at such other intervals as
the Board of Directors shall determine.
2. The amount payable by a particular class as
set forth in paragraph 1 of the Plan may be spent by
Smith Barney on the following types of activities or
expenses: (1) compensation to Financial Consultants
whose clients are shareholders of the class; (2) the
pro rata share of other employment costs of such
Financial Consultants based on their gross production
credits (e.g. FICA, employee benefits, etc.); (3)
employment expenses of home office personnel primarily
responsible for distribution of the class shares and
for providing service to the class' shareholders; (4)
the pro rata share of branch office fixed expenses
(including branch overhead allocations); (5) media
advertising or promotion; (6) printing costs of
marketing materials, including prospectuses, sales
literature, communications to shareholders and
advertisements (including the creative costs
associated therewith); (7) payments to other
Broker/Dealers and (8) interest and/or carrying
charges. In addition, for purposes of paragraph 1
hereof, asset-based sales charges and shareholder
servicing expenses and the activities of Smith Barney
carried out in respect thereof shall be interpreted in
a manner consistent with Section 26(d) of the Rules of
Fair Practice of the National Association of
Securities Dealers.
3. The Plan shall become effective upon its
execution by an authorized officer of the Fund
following its approval by votes of a majority of both
(a) the Board of Directors of the Fund and (b) those
directors of the Fund who are not "interested persons"
of the Fund (as defined in the Act) and have no direct
or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Independent
Directors"), cast in person at a meeting (or meetings)
called for the purpose of voting on the Plan or any
related agreements (the "Effective Date").
4. The Plan and any related agreements shall
remain in effect for one year from its Effective Date
and may be continued thereafter if it is approved each
year by the votes set forth in the preceding
paragraph.
5. Smith Barney shall provide to the Board of
Directors of the Fund and the Board of Directors shall
review, at least quarterly, a written report of the
amounts so expended for each class and the purposes
for which such expenditures were made.
6. The Plan may be terminated with respect to a
class at any time by vote of a majority of the
Independent Directors or by a vote of a majority of
the outstanding voting securities of the class.
7. The Plan may not be amended to increase
materially the amount payable by a class in accordance
with paragraph 1 hereof unless such amendment is
approved by a "vote of a majority of the outstanding
voting securities" of the class, which is defined as
the vote of the lesser of (1) 67% or more of the
shares present at the meeting, if the holders of more
than 50% of the outstanding shares of the class are
present or represented by proxy; (2) more than 50% of
the outstanding shares of the class. No material
amendment to the Plan shall be made unless approved in
the manner provided for initial approval in paragraph
3 hereof.
8. While the Plan is in effect, the selection
and nomination of directors who are not interested
persons (as defined in the Act) of the Fund shall be
committed to the discretion of the directors who are
not interested persons.
9. The Fund shall preserve copies of the Plan
and any related agreements and all reports made
pursuant to paragraph 5 hereof, for a period of not
less than six years from the date of the Plan, or such
agreement or such report, as the case may be, the
first two years in an easily accessible place.
IN WITNESS THEREOF, the Fund has executed this
Amended Plan of Distribution on the day and year set
forth below in New York, New York.
DATED: May 1, 1998
SMITH BARNEY WORLD
FUNDS, INC.
By:/s/Heath B. McLendon
Heath B.
McLendon
Chairman
- -2-
AMENDED PLAN OF DISTRIBUTION PURSUANT TO RULE
12b-1
OF
SMITH BARNEY WORLD FUNDS, INC.
[NAME OF FIXED INCOME PORTFOLIO]
This Amended Plan of Distribution (the "Plan")
is adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") by Smith
Barney World Funds, Inc. (the "Fund") on behalf of the
[Name of Fixed Income Portfolio] (the "Portfolio"),
subject to the following terms and conditions:
1. With respect to Class A, Class B and Class C
shares, the Portfolio shall pay to Smith Barney Inc.
("Smith Barney") a service fee at the annual rate of
0.25% of the average net assets of each such class.
With respect to Class B shares, the Portfolio shall
pay to Smith Barney an asset-based sales charge at the
annual rate of 0.50% of the average net assets of such
class. With respect to Class C shares, the Portfolio
shall pay to Smith Barney an asset-based sales charge
at the annual rate of 0.45% of the average net assets
of such class. Amounts payable by each class shall be
calculated and accrued daily and paid monthly or at
such other intervals as the Board of Directors shall
determine.
2. The amount payable by a particular class a
set forth in paragraph 1 of the Plan may be spent by
Smith Barney on the following types of activities or
expenses: (1) compensation to Financial Consultants
whose clients are shareholders of the class; (2) the
pro rata share of other employment costs of such
Financial Consultants based on their gross production
credits (e.g. FICA, employee benefits, etc.); (3)
employment expenses of home office personnel primarily
responsible for distribution of the class shares and
for providing service to the class' shareholders; (4)
the pro rata share of branch office fixed expenses
(including branch overhead allocations); (5) media
advertising or promotion; (6) printing costs of
marketing materials, including prospectuses, sales
literature, communications to shareholders and
advertisements (including the creative costs
associated therewith); (7) payments to other
Broker/Dealers and (8) interest and/or carrying
charges. In addition, for purposes of paragraph 1
hereof, asset-based sales charges and shareholder
servicing expenses and the activities of Smith Barney
carried out in respect thereof shall be interpreted in
a manner consistent with Section 26(d) of the Rules of
Fair Practice of the National Association of
Securities Dealers.
3. The Plan shall become effective upon its
execution by an authorized officer of the Fund
following its approval by votes of a majority of both
(a) the Board of Directors of the Fund and (b) those
directors of the Fund who are not "interested persons"
of the Fund (as defined in the Act) and have no direct
or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Independent
Directors"), cast in person at a meeting (or meetings)
called for the purpose of voting on the Plan or any
related agreements (the "Effective Date").
4. The Plan and any related agreements shall
remain in effect for one year from its Effective Date
and may be continued thereafter if it is approved each
year by the votes set forth in the preceding
paragraph.
5. Smith Barney shall provide to the Board of
Directors of the Fund and the Board of Directors shall
review, at least quarterly, a written report of the
amounts so expended for each class and the purposes
for which such expenditures were made.
6. The Plan may be terminated with respect to a
class at any time by vote of a majority of the
Independent Directors or by a vote of a majority of
the outstanding voting securities of the class.
7. The Plan may not be amended to increase
materially the amount payable by a class in accordance
with paragraph 1 hereof unless such amendment is
approved by a "vote of a majority of the outstanding
voting securities" of the class, which is defined as
the vote of the lesser of (1) 67% or more of the
shares present at the meeting, if the holders of more
than 50% of the outstanding shares of the class are
present or represented by proxy; (2) more than 50% of
the outstanding shares of the class. No material
amendment to the Plan shall be made unless approved in
the manner provided for initial approval in paragraph
3 hereof.
8. While the Plan is in effect, the selection
and nomination of directors who are not interested
persons (as defined in the Act) of the Fund shall be
committed to the discretion of the directors who are
not interested persons.
9. The Fund shall preserve copies of the Plan
and any related agreements and all reports made
pursuant to paragraph 5 hereof, for a period of not
less than six years from the date of the Plan, or such
agreement or such report, as the case may be, the
first two years in an easily accessible place.
IN WITNESS THEREOF, the Fund has executed this
Amended Plan of Distribution on the day and year set
forth below in New York, New York.
DATED: May 1, 1998
SMITH BARNEY WORLD
FUNDS, INC.
By:/s/Heath B. McLendon
Heath B.
McLendon
Chairman
- -2-
U:\funds\sbwf\agreemts\12b-1.doc
Rule 18f-3 (d) Multiple Class Plan for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d) of
the Investment Company Act of 1940, as amended (the "1940 Act").
The purpose of the Plan is to restate the existing arrangements
previously approved by the Boards of Directors and Trustees of
certain of the open-end investment companies set forth on Schedule
A (the "Funds" and each a "Fund") under the Funds' existing order of
exemption (Investment Company Act Release Nos. 20042 (January 28,
1994) (notice) and 20090 (February 23, 1994)). Shares of the
Funds are distributed pursuant to a system (the "Multiple Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load structure. In
addition, pursuant to Rule 12b-1 under the 1940 Act (the "Rule"),
the Funds have each adopted a plan (the "Services and Distribution
Plan") under which shares of the Classes are subject to the
services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and under
the Services and Distribution Plan are subject to a service fee of
up to 0.25% of average daily net assets. In addition, the Funds
are permitted to assess a contingent deferred sales charge
("CDSC") on certain redemptions of Class A shares sold pursuant to
a complete waiver of front-end sales loads applicable to large
purchases, if the shares are redeemed within one year of the date
of purchase. This waiver applies to sales of Class A shares where
the amount of purchase is equal to or exceeds $500,000 although
this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load, but are
subject to a five-year declining CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual rate
of up to 0.25% of average daily net assets and a distribution fee
at an annual rate of up to 0.75% of average daily net assets.
3. Class D Shares
Class D shares are offered without a front-end sales load, CDSC,
service fee or distribution fee.
4. Class L Shares
Class L shares are offered with a front-end load, are subject to a
one-year CDSC and under the Services and Distribution Plan are
subject to a service fee at an annual rate of up to 0.25% of
average daily net assets and a distribution fee at an annual rate
of up to 0.75% of average daily net assets. Unlike Class B
shares, Class L shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
5. Class I Shares
Class I shares are offered without a front-end sales load, but are
subject under the Services and Distribution Plan to a service fee
at an annual rate of up to 0.25% of average daily net assets.
6. Class O Shares
Class O shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and Distribution
Plan are subject to a service fee at an annual rate of up to 0.25%
of average daily net assets and a distribution fee at an annual
rate of up to 0.50% of average daily net assets. Unlike Class B
shares, Class O shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
Effective June 28, 1999, Class O shares will be offered with a
front-end load and will continue to be subject to a one year CDSC,
a service fee at an annual rate of up to 0.25% of average daily
net assets and a distribution fee at an annual rate of up to 0.50%
of average daily net assets.
7. Class Y Shares
Class Y shares are offered without imposition of either a sales
charge or a service or distribution fee for investments where the
amount of purchase is equal to or exceeds a specific amount as
specified in each Fund's prospectus.
8. Class Z Shares
Class Z shares are offered without imposition of either a sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Salomon Smith Barney Inc.
("Salomon Smith Barney") and its affiliates, (ii) by certain unit
investment trusts sponsored by Salomon Smith Barney and its affiliates,
and (iii) although not currently authorized by the governing boards of the
Funds, when and if authorized, (x) by employees of Salomon Smith Barney and
its affiliates and (y) by directors, general partners or trustees of any
investment company listed on Schedule A and, for each of (x) and (y), their
spouses and minor children.
9. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a Fund
are allocated among the various Classes of shares based on the net
assets of the Fund attributable to each Class, except that each
Class's net asset value and expenses reflect the expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with obtaining
shareholder approval of the Services and Distribution Plan (or an
amendment thereto) and any expenses specific to that Class. Such
expenses are limited to the following:
(i) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of
shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services
as required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely to
one Class of shares; and
(vii) fees of members of the governing boards of the funds
incurred as a result of issues relating to one Class of shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert to
Class A shares after a certain holding period, expected to be, in
most cases, approximately eight years but may be shorter. Upon
the expiration of the holding period, Class B shares (except those
purchases through the reinvestment of dividends and other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will, as a
result, thereafter be subject to the lower fee under the Services
and Distribution Plan. For purposes of calculating the holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple Class
System are deemed to have been issued on (i) the date on which the
issuance of the Class B shares occurred or (ii) for Class B shares
obtained through an exchange, or a series of exchanges, the date
on which the issuance of the original Class B shares occurred.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares are also Class B
shares. However, for purposes of conversion to Class A, all Class
B shares in a shareholder's Fund account that were purchased
through the reinvestment of dividends and other distributions paid
in respect of Class B shares (and that have not converted to Class
A shares as provided in the following sentence) are considered to
be held in a separate sub-account. Each time any Class B shares
in the shareholder's Fund account (other than those in the sub-
account referred to in the preceding
sentence) convert to Class A, a pro rata portion of the Class B
shares then in the sub-account also converts to Class A. The
portion is determined by the ratio that the shareholder's Class B
shares converting to Class A bears to the shareholder's total
Class B shares not acquired through dividends and distributions.
The conversion of Class B shares to Class A shares is subject to
the continuing availability of a ruling of the Internal Revenue
Service that payment of different dividends on Class A and Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event under the
Code. The conversion of Class B shares to Class A shares may be
suspended if this opinion is no longer available, In the event
that conversion of Class B shares does not occur, Class B shares
would continue to be subject to the distribution fee and any
incrementally higher transfer agency costs attending the Class B
shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net asset
value for shares of the same Class in certain other of the Smith
Barney Mutual Funds as set forth in the prospectus for such Fund.
Funds only permit exchanges into shares of money market funds
having a plan under the Rule if, as permitted by paragraph (b) (5)
of Rule 11a-3 under the 1940 Act, either (i) the time period
during which the shares of the money market funds are held is
included in the calculations of the CDSC or (ii) the time period
is not included but the amount of the CDSC is reduced by the
amount of any payments made under a plan adopted pursuant to the
Rule by the money market funds with respects to those shares.
Currently, the Funds include the time period during which shares
of the money market fund are held in the CDSC period. The
exchange privileges applicable to all Classes of shares must
comply with Rule 11a-3 under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of October 31, 1998)
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
Smith Barney Concert Allocation Series Inc.
Conservative Portfolio
Balanced Portfolio
Global Portfolio
Growth Portfolio
Income Portfolio
High Growth Portfolio
Smith Barney Equity Funds -
Concert Social Awareness Fund
Smith Barney Large Cap Blend Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Large Cap Value Fund
Short-Term High Grade Bond Fund
U.S. Government Securities Fund
Smith Barney Income Funds -
Smith Barney Balanced Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney High Income Fund
Smith Barney Municipal High Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Total Return Bond Fund
Smith Barney Investment Trust -
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney S&P 500 Index Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Investment Funds Inc. -
Concert Peachtree Growth Fund
Smith Barney Contrarian Fund
Smith Barney Government Securities Fund
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Special Equities Fund
Smith Barney Institutional Cash Management Fund, Inc.
Cash Portfolio
Government Portfolio
Municipal Portfolio
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Money Market Portfolio
Florida Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New York Portfolio
New York Money Market
Pennsylvania Portfolio
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
Emerging Markets Portfolio
U:\legal\funds\slip\1998\secdocs\pea5218f
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY WORLD FUNDS, INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY WORLD FUNDS, INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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