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. 24
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, 2000 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 Prospectus
[LOGO] Smith Barney Mutual Funds
(R)
PROSPECTUS
Global
Government
Bond Portfolio
Class A, B, L and Y Shares
-----------------------------------------------------
February 28, 2000
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Global Government Bond Portfolio
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Contents
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Investments, risks and performance ................. 2
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 .................. 12
Buying shares ...................................... 13
Exchanging shares .................................. 14
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
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>
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Investments, risks and performance
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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.
Principal investment strategies
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
2 Global Government Bond Portfolio
<PAGE>
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
Economic and Monetary Union (EMU) and the introduction of a
single European currency (the Euro), which began on January 1, 1999,
may increase uncertainties relating to investment in European markets.
Among other things, EMU entails sharing a single currency and official
interest rate and adhering to limits on government borrowing by participating
countries. EMU is driven by the expectation of economic benefits, however,
there are significant risks associated with EMU. Monetary and economic
union on this scale has not been attempted before, and there is uncertainty
whether participating countries will remain committed to EMU in the face
of changing economic conditions.
The fund invests in certain European countries where the securities
markets are less liquid and more volatile than markets in the U.S. In
some European countries, less information is available about issuers and
markets because of less rigorous accounting and regulatory standards than
in the U.S. Currency fluctuations could erase investment gains or add to
investment losses. The risks of investing in the emerging markets of
Eastern Europe are substantially greater than investing in the more
developed markets of Western Europe.
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.
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
Smith Barney Mutual Funds 3
<PAGE>
Risk return bar chart
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. This bar chart
shows the performance of the fund's Class A shares for each of the past eight
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.
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Total Return for Class A Shares
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[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
Calendar years ended December 31
1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
0.91% 19.13% (3.99)% 15.36% 7.52% 8.15% 8.25% (3.44)%
Quarterly returns:
Highest: 5.14% in 2nd quarter 1993; Lowest: (3.61)% in 1st quarter 1992
Risk return table
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 Market 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.
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Average Annual Total Returns
Calendar Years Ended December 31, 1999
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Class 1 year 5 years 10 years Since Inception Inception Date
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A (7.65)% 6.03% n/a 6.76% 07/22/91
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B (7.87)% 6.24% n/a 6.44% 11/10/94
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L (5.52)% 6.21% n/a 6.32% 01/04/93
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Y (2.97)% 7.12% n/a 6.88% 02/19/93
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MGBM Index (5.08)% 6.69% n/a 6.45% *
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* Index comparison begins on July 31, 1991
4 Global Government Bond Portfolio
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
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Shareholder fees
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(fees paid directly from your investment) Class A Class B Class L Class Y
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Maximum sales charge (load) imposed
on purchases (as a % of offering price) 4.50%* None 1.00% None
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Maximum deferred sales charge
(load) (as a % of the lower of net
asset value at purchase or redemption) None* 4.50% 1.00% None
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Annual fund operating expenses
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(expenses deducted from fund assets) Class A Class B Class L Class Y
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Management fee 0.75% 0.75% 0.75% 0.75%
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Distribution and service (12b-1) fees 0.25% 0.75% 0.70% None
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Other expenses 0.26% 0.31% 0.27% 0.16%
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Total annual fund operating expenses 1.26% 1.81% 1.72% 0.91%
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*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses remain the same
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Number of years you own your shares
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1 year 3 years 5 years 10 years
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Class A (with or without redemption) $573 $832 $1,110 $1,904
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Class B (redemption at end of period) $634 $869 $1,080 $1,981
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Class B (no redemption) $184 $569 $ 980 $1,981
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Class L (redemption at end of period) $374 $636 $1,024 $2,110
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Class L (no redemption) $273 $636 $1,024 $2,110
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Class Y (with or without redemption) $ 93 $290 $ 504 $1,120
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Smith Barney Mutual Funds 5
<PAGE>
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More on the fund's investments
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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.
6 Global Government Bond Portfolio
<PAGE>
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Management
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Manager The fund's investment manager is SSB Citi Fund Management LLC, 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 plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Smith Barney Private Trust
Company serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement with
the transfer agent. PFPC Global Fund Services serves as the fund's sub-transfer
(the "sub-transfer agent") to render certain shareholder record keeping and
accounting services and functions.
Year 2000 issue As the year 2000 began, there were few problems caused by the
inability of certain computer systems to tell the difference between the year
2000 and the year 1900 (commonly known as the "Year 2000" issue). It is still
possible that some computer systems could malfunction in the future because of
the Year 2000 issue or as a result of actions taken to address the Year 2000
issue. Fund management does not anticipate that its services or those of the
Fund's other service providers will be adversely affected, but Fund management
will continue to monitor the situation. If malfunctions related to the Year 2000
issue do arise, the Fund and its investments could be negatively affected.
Smith Barney Mutual Funds 7
<PAGE>
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Choosing a class of shares to buy
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You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. 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.
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Initial Additional
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Classes A, B, L Class Y All Classes
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General $1,000 $15 million $50
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IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
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Qualified Retirement Plans* $25 $15 million $25
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Simple IRAs $1 n/a $1
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Monthly Systematic Investment Plans $25 n/a $25
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Quarterly Systematic Investment Plans $50 n/a $50
*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
8 Global Government Bond Portfolio
<PAGE>
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Comparing the fund's classes
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Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
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Class A Class B Class L Class Y
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<S> <C> <C> <C> <C>
Key features o Initial sales o No initial sales o Initial sales o No initial or
charge charge charge is lower deferred sales
than Class A charge
o You may qualify o Deferred sales
for reduction or charge declines o Deferred sales o Must invest at
waiver of initial over time charge for only 1 least $15 million
sales charge year
o Converts to Class o Lower annual
o Lower annual A after 8 years o Does not convert expenses than the
expenses than to Class A other classes
Class B and o Higher annual
Class L expenses than o Higher annual
Class A expenses than
Class A
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Initial Up to 4.50%; reduced None 1.00% None
sales for large purchases
charge and waived for
certain investors;
no charge for
purchases of
$500,000 or more
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Deferred 1% on purchases of Up to 4.50% charged 1% if you redeem None
sales charge $500,000 or more if when you redeem within 1 year of
you redeem within 1 shares. The charge purchase
year of purchase is reduced over time
and there is no
deferred sales
charge after 6 years
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Annual 0.25% of average 0.75% of average daily 0.70% of average daily None
distribution daily net assets net assets net assets
and service
fees
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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
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</TABLE>
*Ask your Salomon Smith Barney Financial Consultant, dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds 9
<PAGE>
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Sales charges
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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.
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Sales Charge as a % of:
Offering Net amount
Amount of purchase price (%) invested (%)
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Less than $25,000 4.50 4.71
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$25,000 but less than $50,000 4.00 4.17
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$50,000 but less than $100,000 3.50 3.63
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$100,000 but less than $250,000 2.50 2.56
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$250,000 but less than $500,000 1.50 1.52
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$500,000 or more 0.00 0.00
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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.
10 Global Government Bond Portfolio
<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 about additional 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").
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.
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6th through
Year after purchase 1st 2nd 3rd 4th 5th 8th
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Deferred sales charge 4.5% 4% 3% 2% 1% 0%
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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:
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Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
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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 you into Class A shares
own (excluding shares
issued as dividends)
Smith Barney Mutual Funds 11
<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. The initial investment requirement is
$2,000,000 for an institutional advisory client of a Citigroup investment
advisor.
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More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation 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
Each time you place a request to sell shares, the fund will first sell any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
12 Global Government Bond Portfolio
<PAGE>
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.
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Buying shares
- --------------------------------------------------------------------------------
Through a You should contact your Salomon Smith Barney Financial
Salomon Smith Consultant or dealer representative to open a brokerage
Barney Financial account and make arrangements to buy shares.
Consultant
or dealer If you do not provide the following information, your
representative 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 Qualified retirement plans and certain other investors who
fund's sub-transfer are clients of the selling group are eligible to buy
agent shares directly from the fund.
o Write the sub-transfer agent at the following address:
Smith Barney World Funds, Inc.
Global Government Bond Portfolio
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
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.
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Smith Barney Mutual Funds 13
<PAGE>
- --------------------------------------------------------------------------------
You may authorize Salomon Smith Barney, your dealer
Through a representative or the sub-transfer agent to transfer funds
systematic automatically from a regular bank account, cash held in a
investment plan 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 sub-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.
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Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney offers You should contact your Salomon Smith Barney Financial
a distinctive family Consultant or dealer representative to exchange into other
of funds tailored Smith Barney funds. Be sure to read the prospectus of the
to help meet Smith Barney fund you are exchanging into. An exchange is
the varying needs a taxable transaction.
of both large and
small investors. 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 sub-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.
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14 Global Government Bond Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge
additional at the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be
measured from the date of your original purchase. If the
fund you exchange into has a higher deferred sales charge,
you will be subject to that charge. If you exchange at any
time into a fund with a lower charge, the sales charge
will not be reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be
eligible to exchange shares through the transfer agent.
You must complete an authorization form to authorize
telephone transfers. If eligible, you may make telephone
exchanges on any day the New York Stock Exchange is open.
Call the transfer agent at 1-800-451-2010 between 9:00
a.m. and 5:00 p.m. (Eastern time).
You can 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 sub-transfer agent at the address on the following
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 sub-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 sub-transfer agent at the following
address:
Smith Barney World Funds, Inc.
Global Government Bond Portfolio
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
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
- --------------------------------------------------------------------------------
16 Global Government Bond 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).
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 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.
- --------------------------------------------------------------------------------
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
Automatic cash $10,000 ($5,000 for retirement plan accounts) and each
withdrawal plans automatic redemption must be at least $50. If your shares
are subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not exceed 1%
per month of the value of your shares subject to a
deferred sales charge.
The following conditions apply:
o Your shares must not be represented by certificates
o All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult
the SAI.
- --------------------------------------------------------------------------------
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:
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 over $10,000 of shares
o Are sending signed share certificates or stock powers to the sub-transfer
agent
o Instruct the sub-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.
18 Global Government Bond 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 signed by all registered owners is made to the sub-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.
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 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 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.
20 Global Government Bond Portfolio
<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.
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
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 or
quotations 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. 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, is included in the annual report (available upon
request).
22 Global Government Bond Portfolio
<PAGE>
- --------------------------------------------------------------------------------
For a Class A share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1999(1) 1998(1) 1997(1) 1996(1) 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 11.88 $ 12.22 $ 12.55 $ 12.30 $ 11.68
- -----------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.51 0.54 0.59 0.70 0.92(2)
Net realized and
unrealized gain (loss) (0.69) 0.39 0.38 0.42 0.48
- -----------------------------------------------------------------------------------------
Total income (loss)
from operations (0.18) 0.93 0.97 1.12 1.40
- -----------------------------------------------------------------------------------------
Less distribution from:
Net investment income(3) (0.52) (0.22) (1.22) (0.87) (0.78)
Net realized gains -- (0.60) (0.08) -- --
Capital -- (0.45) -- -- --
- -----------------------------------------------------------------------------------------
Total distributions (0.52) (1.27) (1.30) (0.87) (0.78)
- -----------------------------------------------------------------------------------------
Net asset value, end of year $ 11.18 $ 11.88 $ 12.22 $ 12.55 $ 12.30
- -----------------------------------------------------------------------------------------
Total return(4) (1.62)% 8.08% 8.21% 9.41% 12.40%
- -----------------------------------------------------------------------------------------
Net assets, end of year (000)'s $68,532 $ 88,836 $94,957 $106,536 $123,917
- -----------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(5) 1.26% 1.22% 1.26% 1.26% 1.38%
Net investment income 4.39 4.58 4.82 5.69 7.44
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 164% 287% 367% 133% 195%
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) Includes realized gains and losses from foreign currency transactions.
(3) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(4) Total return does not reflect any applicable sales loads or deferred sales
charges.
(5) 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.
Smith Barney Mutual Funds 23
<PAGE>
- --------------------------------------------------------------------------------
For a Class B share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1999(1) 1998(1) 1997(1) 1996(1) 1995(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.87 $ 12.22 $ 12.50 $ 12.26 $ 11.57
- ------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.45 0.47 0.52 0.63 0.78(3)
Net realized and
unrealized gain (loss) (0.69) 0.39 0.38 0.42 0.57
- ------------------------------------------------------------------------------------------
Total income from operations (0.24) 0.86 0.90 1.05 1.35
- ------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) (0.47) (0.19) (1.10) (0.81) (0.66)
Net realized gains -- (0.60) (0.08) -- --
Capital -- (0.42) -- -- --
- ------------------------------------------------------------------------------------------
Total distributions (0.47) (1.21) (1.18) (0.81) (0.66)
- ------------------------------------------------------------------------------------------
Net asset value, end of year $11.16 $ 11.87 $ 12.22 $ 12.50 $ 12.26
- ------------------------------------------------------------------------------------------
Total return(5) (2.11)% 7.46% 7.62% 8.83% 11.97%(6)
- ------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $9,485 $14,569 $19,690 $25,970 $35,159
- ------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 1.81% 1.77% 1.80% 1.81% 1.92%(8)
Net investment income 3.86 3.93 4.24 5.15 6.65(8)
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 164% 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.
24 Global Government Bond Portfolio
<PAGE>
- --------------------------------------------------------------------------------
For a Class L share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1999(1) 1998(1)(2) 1997(1) 1996(1) 1995(2)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $11.86 $12.19 $12.47 $12.23 $11.68
- -------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.46 0.48 0.53 0.64 0.85(3)
Net realized and unrealized
gain (loss) (0.70) 0.40 0.38 0.41 0.42
- -------------------------------------------------------------------------------------
Total income (loss)
from operations (0.24) 0.88 0.91 1.05 1.27
- -------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) (0.47) (0.19) (1.11) (0.81) (0.72)
Net realized gains -- (0.60) (0.08) -- --
Capital -- (0.42) -- -- --
- -------------------------------------------------------------------------------------
Total distributions (0.47) (1.21) (1.19) (0.81) (0.72)
- -------------------------------------------------------------------------------------
Net assets value, end of year $11.15 $11.86 $12.19 $12.47 $12.23
- -------------------------------------------------------------------------------------
Total return(5) (2.11)% 7.67% 7.73% 8.90% 11.25%
- -------------------------------------------------------------------------------------
Net assets, end of year (000)'s $1,731 $2,391 $3,257 $3,986 $4,141
- -------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(6) 1.72% 1.68% 1.69% 1.74% 1.84%
Net investment income 3.98 4.01 4.33 5.22 7.15
- -------------------------------------------------------------------------------------
Portfolio turnover rate 164% 287% 367% 133% 195%
- -------------------------------------------------------------------------------------
</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) 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) 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.
Smith Barney Mutual Funds 25
<PAGE>
- --------------------------------------------------------------------------------
For a Class Y share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1999(1) 1998(1) 1997(1) 1996(1) 1995(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.70 $ 12.03 $ 12.39 $ 12.14 $11.68
- ---------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.54 0.59 0.63 0.73 0.78(3)
Net realized and unrealized gain (loss) (0.68) 0.37 0.37 0.42 0.49
- ---------------------------------------------------------------------------------------------------
Total income (loss) from operations (0.14) 0.96 1.00 1.15 1.27
- ---------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) (0.53) (0.23) (1.28) (0.90) (0.81)
Net realized gains -- (0.60) (0.08) -- --
Capital -- (0.46) -- -- --
- ---------------------------------------------------------------------------------------------------
Total distributions (0.53) (1.29) (1.36) (0.90) (0.81)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of year $ 11.03 $ 11.70 $ 12.03 $ 12.39 $12.14
- ---------------------------------------------------------------------------------------------------
Total return (1.28)% 8.50% 8.61% 9.82% 11.27%
- ---------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $47,708 $ 37,057 $28,097 $15,105 $ 62
- ---------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses(5) 0.91% 0.83% 0.89% 0.84% 0.98%
Net investment income 4.69 5.06 5.19 6.12 6.38
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate 164% 287% 367% 133% 195%
- ---------------------------------------------------------------------------------------------------
</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) 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) 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.
26 Global Government Bond Portfolio
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALOMON SMITH BARNEY
---------------------------
A member of citigroup[LOGO]
Global Government Bond 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
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the Fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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)
FD0666 2/00
[LOGO] Smith Barney Mutual Funds
(R)
[GRAPHIC OMITTED]
PROSPECTUS
International
Equity Portfolio
Class A, B, L and Y Shares
-----------------------------------------------------
February 28, 2000
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
International Equity Portfolio
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Investments, risks and performance ............... 2
More on the fund's investments ................... 6
Management ....................................... 7
Choosing a class of shares to buy ................ 9
Comparing the fund's classes ..................... 10
Sales charges .................................... 11
More about deferred sales charges ................ 13
Buying shares .................................... 14
Exchanging shares ................................ 15
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.
Smith Barney Mutual Funds 1
<PAGE>
- --------------------------------------------------------------------------------
Investments, risks and performance
- --------------------------------------------------------------------------------
Investment objective
The fund seeks total return on its assets from growth of capital and income.
Principal investment strategies
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
2 International Equity Portfolio
<PAGE>
o Currency stability
o The range of individual investment opportunities
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
Economic and Monetary Union (EMU) and the introduction of a single
European currency (the Euro), which began on January 1, 1999, may
increase uncertainties relating to investment in European markets.
Among other things, EMU entails sharing a single currency and official
interest rate and adhering to limits on government borrowing by
participating countries. EMU is driven by the expectation of economic
benefits, however, there are significant risks associated with EMU.
Monetary and economic union on this scale has not been attempted before, and
there is uncertainty whether participating countries will remain committed
to EMU in the face of changing economic conditions.
The fund invests in certain European countries where the securities
markets are less liquid and more volatile than markets in the U.S.
In some European countries, less information is available about issuers
and markets because of less rigorous accounting and regulatory standards
than in the U.S. Currency fluctuations could erase investment gains or
add to investment losses. The risks of investing in the emerging markets
of Eastern Europe are substantially greater than investing in the
more developed markets of Western Europe.
Who may want to invest The fund may be an appropriate investment if you:
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 3
<PAGE>
Risk return bar chart
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. 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.
- --------------------------------------------------------------------------------
Total Return for Class A Shares
- --------------------------------------------------------------------------------
[The following table was depicted as a bar chart in the printed material.]
Calendar years ended December 31
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(11.87)% 37.80% 0.49% 52.78% 8.90% 2.64% 13.60% 1.91% 11.74% 60.26%
Quarterly returns:
Highest: 42.91% in 4th quarter 1999; Lowest: (20.93)% in 3rd quarter 1990.
Risk return table
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, 1999
- --------------------------------------------------------------------------------
Class 1 year 5 years 10 years Since Inception Inception Date
- --------------------------------------------------------------------------------
A 52.26% 15.11% 13.13%* 13.60% 2/18/86
- --------------------------------------------------------------------------------
B 53.95% 15.26% n/a 13.21% 11/07/94
- --------------------------------------------------------------------------------
L 56.26% 15.12% n/a 15.72% 01/04/93
- --------------------------------------------------------------------------------
Y 60.82% 16.70% n/a 14.26% 06/16/94
- --------------------------------------------------------------------------------
EAFE Index 31.00% 16.00% 9.56% 13.82% **
- --------------------------------------------------------------------------------
* The fund's performance also includes returns on the Fenimore International
Fund. Smith Barney assumed management in November 1991.
** Index comparison begins on 2/28/86.
4 International Equity Portfolio
<PAGE>
Fee table
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 (load) imposed
on purchases (as a % of offering price) 5.00%* None 1.00% None
- --------------------------------------------------------------------------------
Maximum deferred sales charge (load)
(as a % of the lower of net asset
value at purchase or redemption) None* 5.00% 1.00% None
- --------------------------------------------------------------------------------
Annual fund operating expenses
- --------------------------------------------------------------------------------
(expenses deducted from fund 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% 0.23% 0.22% 0.07%
---- ---- ---- ----
- --------------------------------------------------------------------------------
Total annual fund operating expenses 1.28% 2.08% 2.07% 0.92%
- --------------------------------------------------------------------------------
* You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
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) $711 $952 $1219 $2209
- --------------------------------------------------------------------------------
Class B (no redemption) $211 $652 $1119 $2209
- --------------------------------------------------------------------------------
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 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 International Equity Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSB Citi Fund Management LLC, 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 plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Smith Barney Private Trust
Company serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement with
the transfer agent, PFPC Global Fund Services serves as the fund's sub-transfer
agent (the "sub-transfer agent") to render certain shareholder record keeping
and accounting services and functions.
Smith Barney Mutual Funds 7
<PAGE>
Year 2000 Issue As the year 2000 began, there were few problems caused by the
inability of certain computer systems to tell the difference between the year
2000 and the year 1900 (commonly known as the "Year 2000" issue). It is still
possible that some computer systems could malfunction in the future because of
the Year 2000 issue or as a result of actions taken to address the Year 2000
issue. Fund management does not anticipate that its services or those of the
Fund's other service providers will be adversely affected, but Fund management
will continue to monitor the situation. If malfunctions related to the Year 2000
issue do arise, the Fund and its investments could be negatively affected.
8 International Equity 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 $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
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 o No initial sales o Initial sales o No initial or
charge charge charge is lower deferred sales
than Class A charge
o You may qualify o Deferred sales
for reduction or charge declines o Deferred sales o Must invest at
waiver of initial over time charge for only 1 least $5 million
sales charge year
o Converts to Class o Lower annual
o Lower annual A after 8 years o Does not convert expenses than the
expenses than to Class A other classes
Class B and o Higher annual
Class L expenses than o Higher annual
Class A expenses than
Class A
- ----------------------------------------------------------------------------------------------------
Initial Up to 5.00%; reduced None 1.00% None
sales for large purchases
charge and waived for
certain investors;
no charge for
purchases of
$500,000 or more
- ----------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 5% charged 1% if you redeem None
sales charge $500,000 or more if when you redeem within 1 year of
you redeem within 1 shares. The charge purchase
year of purchase is reduced over time
and there is no
deferred sales
charge after 6 years
- ----------------------------------------------------------------------------------------------------
Annual 0.25% of average 1% of average daily 1% of average daily None
distribution daily net assets net assets net assets
and service
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.
10 International Equity 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 determining
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.
Smith Barney Mutual Funds 11
<PAGE>
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 about additional 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").
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 through
- --------------------------------------------------------------------------------
Year after purchase 1st 2nd 3rd 4th 5th 8th
- --------------------------------------------------------------------------------
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 (excluding
shares issued as
dividends)
12 International Equity Portfolio
<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% 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.
- --------------------------------------------------------------------------------
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
Each time you place a request to sell shares, the fund will first sell any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
Smith Barney Mutual Funds 13
<PAGE>
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.
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a You should contact your Salomon Smith Barney Financial
Salomon Smith Consultant or dealer representative to open a brokerage
Barney Financial account and make arrangements to buy shares.
Consultant or
dealer If you do not provide the following information, your order
representative 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 Qualified retirement plans and certain other investors who are
fund's transfer clients of the selling group are eligible to buy shares
agent directly from the fund.
o Write the sub-transfer agent at the following address:
Smith Barney World Funds, Inc.
International Equity Portfolio
(Specify class of shares)
PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
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.
- --------------------------------------------------------------------------------
14 International Equity Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the sub-transfer agent to transfer funds
investment plan automatically from a regular bank account, cash held in a
Salomon Smith Barney brokerage account or Smith Barney money
market fund to buy shares on a regular basis.
o Amounts transferred should be at least: $25 monthly or $50
quarterly.
o If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer
representative or the sub-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.
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney You should contact your Salomon Smith Barney Financial
offers a Consultant or dealer representative to exchange into other
distinctive Smith Barney funds. Be sure to read the prospectus of the
family of funds Smith Barney fund you are exchanging into. An exchange is a
tailored to help taxable transaction.
meet the varying
needs of both o You may exchange shares only for shares of the same class
large and small of another Smith Barney fund. Not all Smith Barney funds
investors. 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 sub-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.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 15
<PAGE>
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional sales the time of the exchange.
charges
Your deferred sales charge (if any) will continue to be
measured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you will
be subject to that charge. If you exchange at any time into a
fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible to
exchange shares through the transfer agent. You must complete
an authorization form to authorize telephone transfers. If
eligible, you may make telephone exchanges on any day the New
York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
You can 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
sub-transfer agent at the address on the following page.
16 International Equity 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 sub-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 sub-transfer agent at the following address:
Smith Barney World Funds, Inc.
International Equity Portfolio
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
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
- --------------------------------------------------------------------------------
Smith Barney Mutual Fund 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).
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 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 You can arrange for the automatic redemption of a portion of
withdrawal plans 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
($5,000 for retirement plan accounts) 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 Equity 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 over $10,000 of shares
o Are sending signed share certificates or stock powers to the sub-transfer
agent
o Instruct the sub-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 signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
20 International Equity 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 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 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 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 pays 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 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.
22 International Equity 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 or
quotations 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, is
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>
1999(1) 1998(1) 1997(1) 1996(1) 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 20.39 $ 20.36 $ 18.64 $ 17.15 $ 18.79
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(loss) (0.03) -- (0.04) 0.01 0.08(2)
Net realized and
unrealized gain (loss) 6.39 0.03 1.77 1.65 (1.50)
- --------------------------------------------------------------------------------------------------------------------
Total income (loss)
from operations 6.36 0.03 1.73 1.66 (1.42)
- --------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(3) -- -- (0.01) (0.17) (0.12)
Net realized gains -- -- -- -- (0.10)
- --------------------------------------------------------------------------------------------------------------------
Total distributions -- -- (0.01) (0.17) (0.22)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 26.75 $ 20.39 $ 20.36 $ 18.64 $ 17.15
- --------------------------------------------------------------------------------------------------------------------
Total return(4) 31.19% 0.15% 9.30% 9.78% (7.44)%
- --------------------------------------------------------------------------------------------------------------------
Net assets,
end of year (000)'s $ 598,043 $ 453,029 $ 464,796 $ 513,870 $ 489,533
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(5) 1.28% 1.28% 1.31% 1.35% 1.36%
Net investment
income (loss) (0.13) 0.00 (0.18) 0.17 0.50
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 31% 25% 35% 46% 42%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) Includes realized gains and losses from foreign currency transactions.
(3) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(4) Total return does not reflect any applicable sales loads or deferred sales
charges.
(5) 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.
24 International Equity Portfolio
<PAGE>
- --------------------------------------------------------------------------------
For a Class B share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997(1) 1996(1) 1995(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 20.08 $ 20.22 $ 18.65 $ 17.17 $ 18.38
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) (0.23) (0.18) (0.20) (0.08) 0.06(3)
Net realized and unrealized
gain (loss) 6.28 0.04 1.77 1.60 (1.17)
- ----------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
operations 6.05 (0.14) 1.57 1.52 (1.11)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) -- -- -- (0.04) --
Net realized gains -- -- -- -- (0.10)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- -- (0.04) (0.10)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 26.13 $ 20.08 $ 20.22 $ 18.65 $ 17.17
- ----------------------------------------------------------------------------------------------------------------------------
Total return(5) 30.13% (0.69)% 8.42% 8.89% (6.00)%(6)
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 200,071 $ 180,980 $ 231,148 $ 212,294 $ 126,171
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(7) 2.08% 2.09% 2.11% 2.11% 2.13%(8)
Net investment income (loss) (1.01) (0.84) (0.95) (0.58) 0.34(8)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 31% 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.
Smith Barney Mutual Funds 25
<PAGE>
- --------------------------------------------------------------------------------
For a Class L share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999(1) 1998(1)(2) 1997(1) 1996(1) 1995(2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 19.79 $ 19.93 $ 18.38 $ 16.93 $ 18.54
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment loss (0.22) (0.17) (0.22) (0.13) (0.06)(3)
Net realized and
unrealized gain (loss) 6.19 0.03 1.77 1.62 (1.45)
- --------------------------------------------------------------------------------------------------------------------------
Total income (loss)
from operations 5.97 (0.14) 1.55 1.49 (1.51)
- --------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) -- -- -- (0.04) --
Net realized gains -- -- -- -- (0.10)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- -- (0.04) (0.10)
- --------------------------------------------------------------------------------------------------------------------------
Net assets value, end of year $ 25.76 $ 19.79 $ 19.93 $ 18.38 $ 16.93
- --------------------------------------------------------------------------------------------------------------------------
Total return 30.17% (0.70)% 8.43% 8.85% (8.11)%
- --------------------------------------------------------------------------------------------------------------------------
Net assets,
end of year (000)'s $ 178,259 $ 152,569 $ 200,849 $ 229,514 $ 240,090
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(6) 2.07% 2.07% 2.12% 2.15% 2.16%
Net investment loss (0.98) (0.81) (0.97) (0.63) (0.34)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 31% 25% 35% 46% 42%
- --------------------------------------------------------------------------------------------------------------------------
</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) 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) 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.
26 International Equity Portfolio
<PAGE>
- --------------------------------------------------------------------------------
For a Class Y share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997(1) 1996(1) 1995(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 20.41 20.38 $ 18.64 $ 17.13 $ 18.80
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.03 0.08 0.04 0.18 0.10(3)
Net realized and unrealized
gain (loss) 6.44 0.01 1.76 1.54 (1.50)
- ------------------------------------------------------------------------------------------------------------------------
Total income (loss)
from operations 6.47 0.09 1.80 1.72 (1.40)
- ------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income(4) -- (0.06) (0.06) (0.21) (0.17)
Net realized gains -- -- -- -- (0.10)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.06) (0.06) (0.21) (0.27)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 26.88 $ 20.41 $ 20.38 $ 18.64 $ 17.13
- ------------------------------------------------------------------------------------------------------------------------
Total return 31.70% 0.45% 9.68% 10.19% (7.11)%
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 354,242 $ 333,979 $ 301,852 $ 200,427 $ 97,132
- ------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses(5) 0.92% 0.91% 0.94% 0.96% 1.06%
Net investment income 0.14 0.37 0.23 0.56 0.91
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 31% 25% 35% 46% 42%
- ------------------------------------------------------------------------------------------------------------------------
</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) 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) 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.
Smith Barney Mutual Funds 27
<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
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the Fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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)
FD0667 2/00
[LOGO] Smith Barney Mutual Funds
(R)
[GRAPHIC OMITTED]
PROSPECTUS
International
Equity Portfolio
Class Z Shares
-----------------------------------------------------
February 28, 2000
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 Equity Portfolio
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Investments, risks and performance ............... 2
More on the fund's investments ................... 6
Management ....................................... 7
Buying, selling and exchanging 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.
Smith Barney Mutual Funds 1
<PAGE>
- --------------------------------------------------------------------------------
Investments, risks and performance
- --------------------------------------------------------------------------------
Investment objective
The fund seeks total return on its assets from growth of capital and income.
Principal investment strategies
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 re duce 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 International Equity Portfolio
<PAGE>
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
Economic and Monetary Union (EMU) and the introduction of a single European
currency (the Euro), which began on January 1, 1999, may increase
uncertainties relating to investment in European markets. Among other
things, EMU entails sharing a single currency and official interest
rate and adhering to limits on government borrowing by participating
countries. EMU is driven by the expectation of economic benefits,
however, there are significant risks associated with EMU. Monetary and
economic union on this scale has not been attempted before, and there
is uncertainty whether participating countries will remain committed
to EMU in the face of changing economic conditions.
The fund invests in certain European countries where the
securities markets are less liquid and more volatile than markets in
the U.S. In some European countries, less information is available
about issuers and markets because of less rigorous accounting and
regulatory standards than in the U.S. Currency fluctuations could
erase investment gains or add to investment losses. The risks of
investing in the emerging markets of Eastern Europe are substantially
greater than investing in the more developed markets of Western Europe.
Who may want to invest The fund may be an appropriate investment if you:
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 3
<PAGE>
Risk return bar chart
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. This bar chart
shows the performance of the fund's Class Z shares for each of the last five
calendar years.
- --------------------------------------------------------------------------------
Total Return for Class Z Shares
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
Calendar years ended December 31
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
3.00% 14.06% 2.22% 12.13% 60.83%
Quarterly returns:
Highest: 43.03% in 4th quarter 1999; Lowest: (17.53)% in 3rd quarter 1998.
Risk return table
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, 1999
- --------------------------------------------------------------------------------
1 year 5 years 10 years Since Inception Inception Date
- --------------------------------------------------------------------------------
Class Z 60.83% 16.71% n/a 14.50% 11/07/94
- --------------------------------------------------------------------------------
EAFE Index 31.00% 16.00% n/a 15.90% *
- --------------------------------------------------------------------------------
* Index comparison begins on November 30, 1994.
4 International Equity Portfolio
<PAGE>
Fees table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Annual fund operating expenses
- --------------------------------------------------------------------------------
(expenses deducted from fund 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 redemption) $94 $293 $509 $1131
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 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 International Equity Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSB Citi Fund Management LLC, 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.
Transfer agent and shareholder servicing agent Smith Barney Private Trust
Company serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement with
the transfer agent. PFPC Global Fund Services serves as the fund's sub-transfer
(the "sub-transfer agent") to render certain shareholder record keeping and
accounting services and functions.
Year 2000 issue As the year 2000 began, there were few problems caused by the
inability of certain computer systems to tell the difference between the year
2000 and the year 1900 (commonly known as the "Year 2000" issue). It is still
possible that some computer systems could malfunction in the future because of
the Year 2000 issue or as a result of actions taken to address the Year 2000
issue. Fund management does not anticipate that its services or those of the
Fund's other service providers will be adversely affected, but Fund management
will continue to monitor the situation. If malfunctions related to the Year 2000
issue do arise, the Fund and its investments could be negatively affected.
Smith Barney Mutual Funds 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. How ever, 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 information The fund has the right to:
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 International Equity Portfolio
<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 Ex change 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 or
quotations 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 deter mined 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 Ex change 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.
Smith Barney Mutual Funds 9
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends The fund generally pays 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 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 International Equity Portfolio
<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>
1999(1) 1998(1) 1997(1) 1996(1) 1995(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 20.39 $ 20.36 $ 18.62 $ 17.12 $ 18.38
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.04 0.08 0.05 0.14 0.13(3)
Net realized and unrealized
gain (loss) 6.42 0.01 1.75 1.57 (1.12)
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 6.46 0.09 1.80 1.71 (0.99)
- ---------------------------------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) -- (0.06) (0.06) (0.21) (0.17)
Net realized gains -- -- -- -- (0.10)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.06) (0.06) (0.21) (0.27)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 26.85 $ 20.39 $ 20.36 $ 18.62 $ 17.12
- ---------------------------------------------------------------------------------------------------------------------------
Total return 31.68% 0.45% 9.69% 10.13% (5.03)%(5)
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 137,212 $ 117,132 $ 131,709 $ 119,408 $ 94,387
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(6) 0.92% 0.92% 0.94% 0.97% 1.10%(7)
Net investment income 0.16 0.36 0.22 0.55 1.06(7)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 31% 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.
Smith Barney Mutual Funds 11
<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 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
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the Fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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)
FD0660 2/00
<PAGE>
[SB] Smith Barney
[MF] Mutual Funds
P R O S P E C T U S
Pacific
Portfolio
Class A, B, L and Y Shares
- ----------------------------------------------------
February 28, 2000
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>
Investments, risks and performance.......................................... 2
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........................................... 12
Buying shares............................................................... 13
Exchanging shares........................................................... 14
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>
Investments, risks and performance
Investment objective
The fund seeks long-term capital appreciation.
Principal investment strategies
Key investments The fund invests primarily in equity securities of companies in
the Asia Pacific region. Equity securities include exchange traded and over-
the-counter common stocks, preferred shares, debt securities convertible into
equity securities, depository receipts and warrants and rights relating to
equity securities.
Selection process The manager emphasizes individual security selection while
allocating the fund's investments among companies in the Asia Pacific region.
Companies in which the fund invests may have large, mid or small size market
capitalizations and may operate in any market sector. Depending on the manag-
er's assessment of long-term growth potential, the fund's emphasis among Asia
Pacific region markets and issuers may vary.
In selecting individual companies for investment, the manager looks for:
.Above average earnings growth
.High relative return on invested capital
.Experienced and effective management
.Competitive advantages, such as high market share or special licenses and 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>
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>
Risk return bar chart
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. This bar chart shows
the performance of the fund's Class A shares for each of the past five years.
Class B, L and Y shares would have different performance because of their dif-
ferent expenses. The performance information in the chart does not reflect
sales charges, which would reduce your return.
Total Return for Class A Shares
(BAR GRAPH APPEARS HERE)
95 96 97 98 99
-- -- -- -- --
(10.66)% 3.49% (29.52)% (0.27)% 97.49%
Calendar years ended December 31
Quarterly returns
Highest: 41.06% in 4th quarter 1999; Lowest: (26.27)% in 4th quarter 1997
Risk return table
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, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
A 87.72% 4.04% n/a 2.02% 02/07/94
B 90.74% 4.06% n/a 2.25% 11/07/94
L 92.94% 4.04% n/a 1.91% 02/11/94
Y** n/a n/a n/a n/a 11/07/94
MSCI Index 59.66% 1.99% n/a 1.75% *
</TABLE>
*Index comparison begins on February 28, 1994.
**There were no Class Y shares outstanding for the calendar year ended December
31, 1999.
Pacific Portfolio
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases
(as a % of offering price) 5.00%* None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase
or redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund 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 2.29% 2.46% 2.19% 2.29%
------- ------- ------- -------
Total annual fund operating expenses 3.39% 4.31% 4.04% 3.14%
Management fee waiver and expense
reimbursement*** (1.67)% (1.67)% (1.66)% (1.67)%
Net annual operating expenses 1.72% 2.64% 2.38% 1.47%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
**"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, 1999.
***Management has agreed to waive all of its Management fee and reimburse a
portion of the expenses for all classes. Management may discontinue or modify
this Management fee waiver and expense reimbursement policy without the
approval of the fund's trustees.
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) $825 $1,490 $2,176 $3,992
Class B (redemption at end of period) $932 $1,606 $2,292 $4,288
Class B (no redemption) $432 $1,306 $2,192 $4,288
Class L (redemption at end of period) $601 $1,317 $2,148 $4,297
Class L (no redemption) $502 $1,317 $2,148 $4,297
Class Y (with or without redemption) $317 $ 969 $1,645 $3,448
</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 SSB Citi Fund Management LLC, 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 subsidi-
aries 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.
David S. Ishibashi, investment officer of the manager and vice president of
Salomon Smith Barney, has been responsible for day-to-day management of the
fund since October 1996. Maurits E. Edersheim, head of Salomon Smith Barney's
international equity team, has general responsibility for Salomon Smith
Barney's international equity investment operations.
Management fee For its services, the manager received a fee during the fund's
last fiscal year equal to 0.00% of the fund's average daily net assets. During
the last fiscal year, the Manager waived its management fee of 0.85% of the
fund's averabe 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 plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Smith Barney Private Trust Com-
pany serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Year 2000 Issue As the year 2000 began, there were few problems caused by the
inability of certain computer systems to tell the difference between the year
2000 and the year 1900 (commonly known as the "Year 2000" issue). It is still
possible that some computer systems could malfunction in the future because of
the Year 2000 issue or as a result of actions taken to address the Year 2000
issue. Fund management does not anticipate that its services or those of the
fund's other services providers will be adversely affected, but fund management
will continue to monitor the situation. If malfunctions related to the Year
2000 issue do arise, the fund and its investments could be negatively affected.
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 for
large pur-
chases and
waived for
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 about additional 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").
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 through 8th
<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
(excluding shares
issued as a
dividend)
</TABLE>
Smith Barney Mutual Funds
11
<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.
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
Each time you place a request to sell shares, the fund will first sell any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
Pacific Portfolio
12
<PAGE>
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.
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 sub- are clients of the selling group are eligible to buy shares
transfer directly from the fund.
agent
.Write the sub-transfer agent at the following address:
Smith Barney World Funds, Inc.
Pacific Portfolio
(Specify class of shares)
c/o PFPC Global Fund Service
P.O. Box 9699
Providence, Rhode Island 02940-9699
.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.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds
13
<PAGE>
- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the sub-transfer agent to transfer funds automati-
investment cally from a regular bank account, cash held in a Salomon
plan Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly.
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the sub-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.
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 .Not all Smith Barney funds may be offered in your state of
investors. 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 sub-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.
- --------------------------------------------------------------------------------
Pacific Portfolio
14
<PAGE>
- --------------------------------------------------------------------------------
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).
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 sub-trans-
fer agent at the address on the following 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 sub-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 sub-transfer agent at the following address:
Smith Barney World Funds, Inc.
Pacific Portfolio
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
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
- --------------------------------------------------------------------------------
Pacific 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).
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 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 docu-
ments.
- --------------------------------------------------------------------------------
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 ($5,000 for retirement plan accounts) 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 over $10,000 of shares
.Are sending signed share certificates or stock powers to the sub-transfer
agent
.Instruct the sub-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 signed by all registered owners is made to the sub-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 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 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 pays dividends and makes capital gain distribu-
tions, 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 or quota-
tions are not readily available, or when the value of a security has been mate-
rially affected by events occurring after a foreign exchange closes, the fund
may price those securities at fair value. Fair value is determined in accor-
dance 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 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, is
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>
1999(/1/) 1998(/1/) 1997 1996(/1/) 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $6.73 $8.46 $10.18 $10.07 $12.92
- ------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment loss(/2/) (0.05) (0.12) (0.17) (0.14) (0.01)
Net realized and
unrealized gain (loss) 5.12 (1.61) (1.55) 0.25 (2.84)
- ------------------------------------------------------------------------------
Total income (loss) from
operations 5.07 (1.73) (1.72) 0.11 (2.85)
- ------------------------------------------------------------------------------
Net asset value, end of
year $11.80 $6.73 $8.46 $10.18 $10.07
- ------------------------------------------------------------------------------
Total return(/3/) 75.33 % (20.45)% (16.90)% 1.09 % (22.06)%
- ------------------------------------------------------------------------------
Net assets, end of year
(000)'s $4,905 $1,788 $4,750 $4,929 $4,409
- ------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/2/)(/4/) 1.72 % 3.47 % 3.37 % 2.64 % 1.97 %
Net investment loss (0.64) (1.66) (2.36) (1.38) (0.71)
- ------------------------------------------------------------------------------
Portfolio turnover rate 128 % 135 % 154 % 86 % 31 %
- ------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts calculated using the monthly average shares method.
(/2/) The manager waived all or part of its fees for the years ended October 31,
1999 and 1995. 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
1999 1995 1999 1995
- -----------------------------------------------------------
<S> <C> <C>
Class A $0.13 $0.14 3.39% 3.18%
- -----------------------------------------------------------
</TABLE>
(/3/) Total return does not reflect any applicable sales loads or deferred
sales charges.
(/4/) 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.
Smith Barney Mutual Funds
23
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996(/1/) 1995(/2/)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $6.51 $8.25 $10.01 $9.99 $12.64
- ----------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment loss(/3/) (0.14) (0.22) (0.27) (0.23) (0.01)
Net realized and
unrealized gain (loss) 4.94 (1.52) (1.49) 0.25 (2.64)
- ----------------------------------------------------------------------------------
Total income (loss) from
operations 4.80 (1.74) (1.76) 0.02 (2.65)
- ----------------------------------------------------------------------------------
Net asset value, end of
year $11.31 $6.51 $8.25 $10.01 $9.99
- ----------------------------------------------------------------------------------
Total return 73.73% (21.09)% (17.58)% 0.20% (20.97)%(/6/)
- ----------------------------------------------------------------------------------
Net assets, end of year
(000)'s $3,633 $2,159 $3,558 $4,009 $1,031
- ----------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/3/) 2.64% 4.45% 4.24% 3.65% 3.39%(/5/)
Net investment loss(/3/) (1.62) (3.14) (3.07) (2.26) (1.47) (/5/)
- ----------------------------------------------------------------------------------
Portfolio turnover rate 128% 135% 154% 86% 31%
- ----------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been 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. In addition, the Manager agreed to reimburse the Pacific Port-
folio for $30,862 of the Portfolio's expenses for the period ended Octo-
ber 31, 1995. If such fees and expenses were not waived or reimbursed,
the per share effect on net investment loss and the expense ratio would
have been as follows:
<TABLE>
<CAPTION>
Per Share Increase to Expense Ratio Without Fee
Net Investment Loss Waivers and Custody Credits
1999 1995 1999 1995
- ----------------------------------------------------------
<S> <C> <C>
Class B $0.13 $0.16 4.13% 4.90%+(/5/)
- ----------------------------------------------------------
</TABLE>
In addition, during the year ended October 31, 1996 and the period ended
October 31, 1995, the Portfolio had earned credits from the custodian
which reduced service fees incurred. If the credits are taken into con-
sideration, the expense ratios would have been 3.47% and 3.06%
(annualized), respectively.
(/4/) Total return is not annualized, as it may not be representative of the
total return for the year.
(/5/) Annualized.
(/6/) Total return does not reflect any applicable sales loads or deferred
sales charges.
Pacific Portfolio
24
<PAGE>
For a Class L share of capital stock
outstanding throughout each year ended October 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/)(/2/) 1997(/1/) 1996(/1/)(/2/) 1995(/1/)(/3/)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $6.48 $8.21 $9.98 $9.95 $12.86
- ----------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment loss(/4/) (0.12) (0.20) (0.27) (0.24) (0.02)
Net realized and
unrealized
gain (loss) 4.91 (1.53) (1.50) 0.27 (2.89)
- ----------------------------------------------------------------------------------------------
Total income (loss) from
operations 4.79 (1.73) (1.77) 0.03 (2.91)
- ----------------------------------------------------------------------------------------------
Net asset value, end of
year $11.27 $6.48 $8.21 $9.98 $9.95
- ----------------------------------------------------------------------------------------------
Total return(/5/) 73.92 % (21.07)% (17.74)% 0.30 % (22.63)%
- ----------------------------------------------------------------------------------------------
Net assets, end of year
(000)'s $4,375 $982 $1,493 $1,612 $1,952
- ----------------------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/4/) 2.38 % 4.28 % 4.44 % 3.46 % 2.69 %
Net investment loss (1.44) (2.90) (3.21) (2.22) (1.45)
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate 128 % 135 % 154 % 86 % 31 %
- ----------------------------------------------------------------------------------------------
</TABLE>
(/1/) On June 12, 1998, Class C shares were renamed Class L shares.
(/2/) Per share amounts have been calculated using the monthly average shares
method.
(/3/) On November 7, 1994, the former Class B shares were renamed Class C
shares.
(/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 Portfolio for $30,862 of the Portfolio's expense
for the year ended October 31, 1995. If such fees and expenses were not
waived or reimbursed, the per share effect on net investment loss and the
expense ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Increases to Expense Ratios Without Fee
Net Investment Loss Waivers and Custody Credits
1999 1995 1999 1995
- -----------------------------------------------------------
<S> <C> <C>
Class L $0.13 $0.13 4.04% 3.88%
- -----------------------------------------------------------
</TABLE>
In addition, during the years ended October 31, 1996 and
October 31, 1995, the Portfolio had earned credits from the custodian
which reduced
service fees incurred. If the credits are taken into consideration, the
expense ratios for Class L would have been 3.29% and 2.42%, respectively.
(/5/) Total return does not reflect any applicable sales loads or deferred
sales charges.
Smith Barney Mutual Funds
25
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
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
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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)
FD0479 2/00
<PAGE>
[SB] Smith Barney
[MF] Mutual Funds
P R O S P E C T U S
European
Portfolio
Class A, B, L and Y Shares
- ----------------------------------------------------
February 28, 2000
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>
Investments, risks and performance.......................................... 2
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........................................... 12
Buying shares............................................................... 13
Exchanging shares........................................................... 14
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>
Investments, risks and performance
Investment objective
The fund seeks long-term capital appreciation by investing in equity securities
of European issuers.
Principal investment strategies
Key investments The fund invests primarily in equity securities of companies
based in Western Europe and may also invest in the emerging markets of Eastern
Europe. Equity securities include common and preferred stocks, debt securities
convertible into equity securities, depositary receipts and warrants and rights
relating to equity securities.
Selection process The manager emphasizes individual security selection while
allocating the fund's investments among European countries. Companies in which
the fund invests may have large, mid-sized or small market capitalizations and
may operate in any market sector. Depending on the manager's assessment of
long-term growth potential, the fund's emphasis among European markets and
issuers may vary.
In selecting individual companies for investment, the manager looks for the
following:
.Above average earnings growth
.High relative return on invested capital
.Experienced and effective management
.Effective research, product development and marketing
.Competitive advantages
.Strong financial condition
.Favorable trends experienced by certain U.S. companies that are likely to
spread to comparable European companies
.Increasing market share
By spreading the fund's investments across several European markets, the man-
ager seeks to reduce volatility compared to investments in a single country.
In allocating assets among countries, the economic and political factors the
manager evaluates include:
.Interest rates and low or decelerating inflation
.Stable governments with policies toward business that encourage economic
growth and foster development of securities markets
.Currency stability
European Portfolio
2
<PAGE>
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 (the Euro), which began on January 1, 1999, may increase
uncertainties relating to investment in European markets. Among other
things, EMU entails sharing a single currency and official interest rate
and adhering to limits on government borrowing by participating countries.
EMU is driven by the expectation of economic benefits, however, there are
significant risks associated with EMU. Monetary and economic union on this
scale has not been attempted before, and there is uncertainty whether
participating countries will remain committed to EMU in the face of changing
economic conditions.
The fund invests in certain European countries where the securities markets are
less liquid and more volatile than markets in the U.S. In some European
countries, less information is available about issuers and markets because
of less rigorous accounting and regulatory standards than in the U.S.
Currency fluctuations could erase investment gains or add to investment
losses. The risks of investing in the emerging markets of Eastern Europe
are substantially greater than investing in the more developed markets of
Western Europe.
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking to participate in the long-term growth potential of European 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>
Risk return bar chart
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. The bar chart shows
the performance of the fund's Class A shares for each of the past five years.
Class B, L and Y shares would have different performance because of their dif-
ferent expenses. The performance information in the chart does not reflect
sales charges, which would reduce your return.
Total Return for Class A Shares
(BAR GRAPH APPEARS HERE)
95 96 97 98 99
-- -- -- -- --
17.23% 29.12% 1.78% 24.31% 33.38%
Calendar years ended December 31
Quarterly returns
Highest: 28.23% in 4th quarter 1999; Lowest: (20.91)% in 3rd quarter 1998
Risk return table
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, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception Date
<S> <C> <C> <C> <C> <C>
A 26.72% 19.41% n/a 15.80% 02/07/94
B 27.26% 19.62% n/a 18.35% 11/07/94
L 29.98% 19.53% n/a 15.89% 02/14/94
Y** n/a n/a n/a n/a 11/07/94
MSCI Index 15.89% 22.12% n/a 18.84% *
</TABLE>
*Index comparison begins on February 28, 1994.
**There were no Class Y shares outstanding for the calendar year ended
December 31, 1999.
European Portfolio
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 5.00%* None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase
or redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund 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 0.41% 0.43% 0.39% 0.41%**
------ ----- ----- -----
Total annual fund operating expenses 1.51% 2.28% 2.24% 1.26%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
**"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, 1999.
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) $646 $ 953 $1,283 $2,211
Class B (redemption at end of period) $731 $1,012 $1,320 $2,426
Class B (no redemption) without CDSC $231 $ 712 $1,220 $2,426
Class L (redemption at end of period) $425 $ 793 $1,288 $2,649
Class L (no redemption) without CDSC $325 $ 793 $1,288 $2,649
Class Y (with or without redemption) $128 $ 400 $ 692 $1,523
</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 SSB Citi Fund Management LLC, 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 subsidi-
aries 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.
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 plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Smith Barney Private Trust Com-
pany serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Year 2000 Issue As the year 2000 began, there were few problems caused by the
inability of certain computer systems to tell the difference between the year
2000 and the year 1900 (commonly known as the "Year 2000" issue). It is possi-
ble that some computer systems could malfunction in the future because of the
Year 2000 issue or as a result of actions taken to address the Year 2000 issue.
Fund management does not anticipate that its services or those of the fund's
other service providers will be adversely affected, but fund management will
continue to monitor the situation. If malfunctions related to the Year 2000
issue do arise, the fund and its investments could be negatively affected.
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 for
large pur-
chases and
waived for
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 about additional 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").
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 through 8th
<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
(excluding shares
issued as a
dividend)
</TABLE>
Smith Barney Mutual Funds
11
<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.
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
Each time you place a request to sell shares, the fund will first sell any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
European Portfolio
12
<PAGE>
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.
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.
- --------------------------------------------------------------------------------
Qualified retirement plans and certain other investors who
Through the are clients of the selling group are eligible to buy shares
fund's sub- directly from the fund.
transfer
agent
.Write the sub-transfer agent at the following address:
Smith Barney World Funds, Inc.
European Portfolio
(Specify class of shares)
c/o PFPC Global Fund Service
P.O. Box 9699
Providence, Rhode Island 02940-9699
.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.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds
13
<PAGE>
- --------------------------------------------------------------------------------
Through a
systematic You may authorize Salomon Smith Barney, your dealer represen-
investment tative or the sub-transfer agent to transfer funds automati-
plan cally from a regular bank account, cash held in a Salomon
Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly.
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the sub-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.
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 .Not all Smith Barney funds may be offered in your state of
investors. 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 sub-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.
- --------------------------------------------------------------------------------
European Portfolio
14
<PAGE>
- --------------------------------------------------------------------------------
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).
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 sub-trans-
fer agent at the address on the following 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 sub-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 sub-transfer agent at the following address:
Smith Barney World Funds, Inc.
European Portfolio
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
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
- --------------------------------------------------------------------------------
European 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).
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 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 docu-
ments.
- --------------------------------------------------------------------------------
Automatic
cash You can arrange for the automatic redemption of a portion of
withdrawal your shares on a monthly or quarterly basis. To qualify you
plans must own shares of the fund with a value of at least $10,000
($5,000 for retirement plan accounts) 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 over $10,000 of shares
.Are sending signed share certificates or stock powers to the sub-transfer
agent
.Instruct the sub-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
European 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 signed by all registered owners is made to the sub-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 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 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 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.
European Portfolio
20
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally pays dividends and makes capital gain distribu-
tions, 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.
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 or quota-
tions are not readily available, or when the value of a security has been mate-
rially affected by events occurring after a foreign exchange closes, the fund
may price those securities at fair value. Fair value is determined in accor-
dance 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 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.
European 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, is
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>
1999(/1/) 1998(/1/) 1997(/1/) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $19.44 $18.23 $17.25 $14.67 $12.88
- -------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income
(loss)(/2/) (0.00)(/3/) 0.06 (0.08) (0.08) 0.07
Net realized and
unrealized gain 3.47 1.54 2.22 2.79 1.72
- -------------------------------------------------------------------------------
Total income from
operations 3.47 1.60 2.14 2.71 1.79
- -------------------------------------------------------------------------------
Less distributions from:
Net investment
income(/4/) -- -- -- (0.09) --
Net realized gains (0.33) (0.39) (1.16) (0.04) --
- -------------------------------------------------------------------------------
Total distributions (0.33) (0.39) (1.16) (0.13) --
- -------------------------------------------------------------------------------
Net asset value, end of
year $22.58 $19.44 $18.23 $17.25 $14.67
- -------------------------------------------------------------------------------
Total return(/5/) 18.02% 9.10% 12.88% 18.65% 13.90%
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $31,946 $27,563 $14,118 $10,528 $11,870
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/2/)(/6/) 1.51% 1.56% 1.80% 1.85% 2.06%
Net investment income
(loss) (0.00)(/7/) 0.30 (0.42) (0.49) 0.51
- -------------------------------------------------------------------------------
Portfolio turnover rate 17% 27% 28% 39% 34%
- -------------------------------------------------------------------------------
</TABLE>
(/1/)Per share amounts calculated using the monthly average shares method.
(/2/)The manager waived all or part of its fees for the year ended October 31,
1995. If such fees were not waived, and custody credits not earned,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 1995
- -----------------------------------------------------------
<S> <C> <C>
Class A $0.01 2.09%
- -----------------------------------------------------------
</TABLE>
(/3/)Amount represents less than $0.01 per share.
(/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/)During the years ended October 31, 1996 and 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.
(/7/)Amount represents less than 0.01%.
Smith Barney Mutual Funds
23
<PAGE>
For a Class B Share of capital stock
outstanding throughout each year ended October 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997(/1/) 1996 1995(/2/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $18.95 $17.92 $17.09 $14.56 $12.62
- --------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income
(loss)(/3/) (0.16) (0.11) (0.20) (0.20) 0.02
Net realized and
unrealized gain 3.37 1.53 2.19 2.77 1.92
- --------------------------------------------------------------------------------
Total income from
operations 3.21 1.42 1.99 2.57 1.94
- --------------------------------------------------------------------------------
Less distributions from:
Net realized gains (0.33) (0.39) (1.16) (0.04) --
- --------------------------------------------------------------------------------
Total distributions (0.33) (0.39) (1.16) (0.04) --
- --------------------------------------------------------------------------------
Net asset value, end of
year $21.83 $18.95 $17.92 $17.09 $14.56
- --------------------------------------------------------------------------------
Total return(/4/) 17.10% 8.24% 12.08% 17.72% 15.37%(/5/)
- --------------------------------------------------------------------------------
Net assets, end of year
(000)'s $37,575 $40,090 $29,221 $26,384 $24,825
- --------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/6/) 2.28% 2.32% 2.52% 2.59% 3.31%(/7/)
Net investment income
(loss) (0.81) (0.56) (1.13) (1.22) 0.26(/7/)
- --------------------------------------------------------------------------------
Portfolio turnover rate 17% 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 1995
- -----------------------------------------------------------
<S> <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 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.
European Portfolio
24
<PAGE>
For a Class L Share of capital stock
outstanding throughout each year ended October 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/)(/2/) 1997(/1/) 1996 1995(/2/)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $18.91 $17.86 $17.04 $14.51 $12.83
- -------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment loss(/3/) (0.15) (0.07) (0.21) (0.14) (0.08)
Net realized and
unrealized gain 3.36 1.51 2.19 2.71 1.76
- -------------------------------------------------------------------------------------
Total income from
operations 3.21 1.44 1.98 2.57 1.68
- -------------------------------------------------------------------------------------
Less distributions from:
Net realized gains(/4/) (0.33) (0.39) (1.16) (0.04) --
- -------------------------------------------------------------------------------------
Total distributions (0.33) (0.39) (1.16) (0.04) --
- -------------------------------------------------------------------------------------
Net assets value, end of
year $21.79 $18.91 $17.86 $17.04 $14.51
- -------------------------------------------------------------------------------------
Total return(/5/) 17.14% 8.38% 12.06% 17.78% 13.09%
- -------------------------------------------------------------------------------------
Net assets, end of year
(000)'s $11,597 $10,762 $3,110 $2,011 $1,311
- -------------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/3/)(/6/) 2.24% 2.18% 2.54% 2.52% 2.51%
Net investment loss (0.74) (0.37) (1.18) (1.17) (0.64)
- -------------------------------------------------------------------------------------
Portfolio turnover rate 17% 27% 28% 39% 34%
- -------------------------------------------------------------------------------------
</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/)The manager waived all or part of its fees for the year ended October 31,
1995 and 1994. If such fees were not waived, and custody credits not earned
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
1995 1995
- -----------------------------------------------------------
<S> <C> <C>
Class L $0.01 2.54%
- -----------------------------------------------------------
</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/)During the years ended October 31, 1996 and 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.
Smith Barney Mutual Funds
25
<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
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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)
FD0478 2/00
[LOGO] Smith Barney Mutual Funds
(R)
PROSPECTUS
International
Balanced
Portfolio
Class A, B, L and Y Shares
-----------------------------------------------------
February 28, 2000
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
- --------------------------------------------------------------------------------
Investments, risks and performance ............... 2
More on the fund's investments ................... 6
Management ....................................... 8
Choosing a class of shares to buy ................ 9
Comparing the fund's classes ..................... 10
Sales charges .................................... 11
More about deferred sales charges ................ 13
Buying shares .................................... 14
Exchanging shares ................................ 15
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.
Smith Barney Mutual Funds 1
<PAGE>
- --------------------------------------------------------------------------------
Investments, risks and performance
- --------------------------------------------------------------------------------
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.
Principal investment strategies
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:
2 International Balanced Portfolio
<PAGE>
o Low or decelerating inflation
o Stable governments with policies that encourage economic growth and foster
investment
o Currency movements
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
Economic and Monetary Union (EMU) and the introduction of a single European
currency (the Euro), which began on January 1, 1999, may increase
uncertainties relating to investment in European markets. Among other
things, EMU entails sharing a single currency and official interest rate
and adhering to limits on government borrowing by participating countries.
EMU is driven by the expectation of economic benefits, however, there are
significant risks associated with EMU. Monetary and economic union on this
scale hsa not been attempted before, and there is uncertainty whether
participating countries will remain committed to EMU in the face of changing
economic conditions.
The fund invests in certain European countries where the securities markets
are less liquid and more volatile than markets in the U.S. In some European
countries, less information is available about issuers and markets because
of less rigorous accounting and regulatory standards than in the U.S.
Currency fluctuations could erase investment gains or add to investment
losses. The risks of investing in the emerging markets of Eastern Europe
are substantially greater than investing in the more developed markets of
Western Europe.
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
Smith Barney Mutual Funds 3
<PAGE>
Risk return bar chart
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. This bar chart
shows the performance of the fund's Class A shares for each of the past five
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.
- --------------------------------------------------------------------------------
Total Return for Class A Shares
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
Calendar years ended December 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
14.63% 12.07% (6.47)% 20.34% 21.97%
Quarterly returns:
Highest: 19.21% in 4th quarter 1999; Lowest: (9.91)% in 4th quarter 1997.
Risk return table
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 Market 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, 1999
- --------------------------------------------------------------------------------
Class 1 year 5 years 10 years Since Inception Inception Date
- --------------------------------------------------------------------------------
A 15.90% 10.88% n/a 9.44% 08/25/94
- --------------------------------------------------------------------------------
B 16.05% 11.02% n/a 9.93% 11/07/94
- --------------------------------------------------------------------------------
L 18.66% 10.86% n/a 9.38% 08/25/94
- --------------------------------------------------------------------------------
Y** n/a n/a n/a 10.22% 11/07/94
- --------------------------------------------------------------------------------
EAFE Index 31.00% 16.00% n/a 14.00% *
- --------------------------------------------------------------------------------
MGBM
- --------------------------------------------------------------------------------
Index 5.08% 6.69% n/a 6.45%
- --------------------------------------------------------------------------------
* Index comparison begins on August 31, 1994
** There were no Class Y shares outstanding for the calendar year ended December
31, 1999.
4 International Balanced Portfolio
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------------------
(fees paid directly from your investment) Class A Class B Class L Class Y
- --------------------------------------------------------------------------------
Maximum sales charge (load)
imposed on purchases
(as a % of offering price) 5.00%* None 1.00% None
- --------------------------------------------------------------------------------
Maximum deferred sales charge (load)
redemptions (as a % of the lower of net
asset value at purchase or redemption) None* 5.00% 1.00% None
- --------------------------------------------------------------------------------
Annual fund operating expenses
- --------------------------------------------------------------------------------
(expenses deducted from fund 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 1.11% 1.18% 1.35% 1.11%
----- ----- ----- -----
- --------------------------------------------------------------------------------
Total annual fund operating expenses 2.21% 3.03% 3.20% 1.96%
* You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
** "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,
1999.
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) $713 $1,157 $1,625 $2,917
- --------------------------------------------------------------------------------
Class B (redemption at end of period) $806 $1,236 $1,691 $3,161
- --------------------------------------------------------------------------------
Class B (no redemption) $306 $ 936 $1,591 $3,161
- --------------------------------------------------------------------------------
Class L (redemption at end of period) $520 $1,076 $1,757 $3,568
- --------------------------------------------------------------------------------
Class L (no redemption) $420 $1,076 $1,757 $3,568
- --------------------------------------------------------------------------------
Class Y (with or without redemption) $199 $ 615 $1,057 $2,285
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 5
<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 rating
organization or, if unrated, 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 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.
6 International Balanced Portfolio
<PAGE>
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.
Impact of high portfolio turnover The fund may engage in active and frequent
trading to achieve its principal investment strategies. This may lead to the
realization and distribution to shareholders of higher capital gains, which
would increase their tax liability. Frequent trading also increases transaction
costs, which could detract from the fund's performance.
Defensive investing The fund may depart from its principal investment strategies
in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Smith Barney Mutual Funds 7
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSB Citi Fund Management LLC, 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 plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Smith Barney Private Trust
Company serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement with
the transfer agent, PFPC Global Fund Services serves as the fund's sub-transfer
agent (the "sub-transfer agent") to render certain shareholder record keeping
and accounting services and functions.
Year 2000 issue As the year 2000 began, there were few problems caused by the
inability of certain computer systems to tell the difference between the year
2000 and the year 1900 (commonly known as the "Year 2000" issue). It is still
possible that some computer systems could malfunction in the future because of
the Year 2000 issue or as a result of actions taken to address the Year 2000
issue. Fund management does not anticipate that its services or those of the
Fund's other service providers will be adversely affected, but Fund management
will continue to monitor the situation. If malfunctions related to the Year 2000
issue do arise, the Fund and its investments could be negatively affected.
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 o No initial sales o Initial sales o No initial or
charge charge charge is lower deferred sales
than Class A charge
o You may qualify o Deferred sales
for reduction or charge declines o Deferred sales o Must invest at
waiver of initial over time charge for only 1 least $15 million
sales charge year
o Converts to Class o Lower annual
o Lower annual A after 8 years o Does not convert expenses than the
expenses than to Class A other classes
Class B and o Higher annual
Class L expenses than o Higher annual
Class A expenses than
Class A
- ----------------------------------------------------------------------------------------------------
Initial Up to 5.00%; reduced None 1.00% None
sales for large purchases
charge and waived for
certain investors;
no charge for
purchases of
$500,000 or more
- ----------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 5.00% charged 1% if you redeem None
sales charge $500,000 or more if when you redeem within 1 year of
you redeem within 1 shares. The charge purchase
year of purchase is reduced over time
and there is no
deferred sales
charge after 6 years
- ----------------------------------------------------------------------------------------------------
Annual 0.25% of average 1% of average daily 1% of average daily None
distribution daily net assets net assets net assets
and service
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, 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 about additional 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").
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 through 8th
- --------------------------------------------------------------------------------
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 (excluding
shares issued as dividends)
12 International Balanced Portfolio
<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.
- --------------------------------------------------------------------------------
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
Each time you place a request to sell shares, the fund will first sell any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
Smith Barney Mutual Funds 13
<PAGE>
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.
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a You should contact your Salomon Smith Barney Financial
Salomon Smith Consultant or dealer representative to open a brokerage
Barney Financial account and make arrangements to buy shares.
Consultant or
dealer 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 Qualified retirement plans and certain other investors who
fund's transfer are clients of the selling group are eligible to buy
agent shares directly from the fund.
o Write the sub-transfer agent at the following address:
Smith Barney World Funds, Inc.
International Balanced Portfolio
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
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.
- --------------------------------------------------------------------------------
14 International Balanced Portfolio
<PAGE>
- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the sub-transfer agent to transfer funds
investment plan automatically from a regular bank account, cash held in a
Salomon Smith Barney brokerage account or Smith Barney
money market fund to buy shares on a regular basis.
o Amounts transferred should be at least: $25 monthly or
$50 quarterly.
o If you do not have sufficient funds in your account on
a transfer date, Salomon Smith Barney, your dealer
representative or the sub-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.
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney You should contact your Salomon Smith Barney Financial
offers a Consultant or dealer representative to exchange into other
distinctive Smith Barney funds. Be sure to read the prospectus of the
family of funds Smith Barney fund you are exchanging into. An exchange is
tailored to a taxable transaction.
help meet the
varying needs o You may exchange shares only for shares of the same
of both large class of another Smith Barney fund. Not all Smith
and small Barney funds offer all classes.
investors.
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 sub-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.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 15
<PAGE>
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge
additional at the time of the exchange. Your deferred sales charge
sales charges (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).
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 sub-transfer agent at the address on the following
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 sub-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 sub-transfer agent at the following
address:
Smith Barney World Funds, Inc.
International Balanced Portfolio
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
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 an amount up to $10,000 through the transfer
agent. You must complete an authorization form to
authorize telephone redemptions. If eligible, you may
request redemptions by telephone on any day the New York
Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern
time).
Your redemption proceeds can be sent by check to your
address of record or by wire transfer to a bank account
designated on your authorization form. You 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 You can arrange for the automatic redemption of a portion
withdrawal plans 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 ($5,000 for retirement plan accounts) 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 over $10,000 of shares
o Are sending signed share certificates or stock powers to the sub-transfer
agent
o Instruct the sub-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 signed by all registered owners is made to the sub-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.
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 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 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 pays dividends and 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 or
quotations 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, is 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>
1999(1) 1998(1) 1997(1) 1996(1) 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $14.89 13.32 $ 13.90 $ 12.64 $ 12.20
- ------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(2) 0.21 0.51 0.18 0.26 0.35
Net realized and
unrealized gain (loss) 1.00 1.19 (0.41) 1.35 0.48
- ------------------------------------------------------------------------------------------
Total income (loss)
from operations 1.21 1.70 (0.23) 1.61 0.83
- ------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(3) (0.13) (0.10) (0.15) (0.35) (0.39)
Net realized gains (1.86) (0.03) -- -- --
Capital -- -- (0.20) -- --
- ------------------------------------------------------------------------------------------
Total distributions (1.99) (0.13) (0.35) (0.35) (0.39)
- ------------------------------------------------------------------------------------------
Net asset value, end of year $14.11 $ 14.89 $ 13.32 $ 13.90 $ 12.64
- ------------------------------------------------------------------------------------------
Total return(4) 9.16% 12.87% (1.71)% 12.89% 7.05%
- ------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $8,070 $ 9,639 $11,072 $16,116 $17,667
- ------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(2)(5) 2.21% 1.79% 1.71% 1.81% 1.62%
Net investment income 1.56 3.80 1.32 1.94 2.89
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 109% 141% 197% 189% 42%
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) The manager waived all or part of its fees for the year ended October 31,
1995. If such fees were not waived, and custody credits not earned, 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 A $0.04 1.96%
(3) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(4) Total return does not reflect any applicable sales loads or deferred sales
charges.
(5) 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.
24 International Balanced Portfolio
<PAGE>
- --------------------------------------------------------------------------------
For a Class B share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997(1) 1996(1) 1995(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $14.93 $13.38 $13.90 $12.65 $12.08
- ------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(3) 0.10 0.41 0.07 0.15 0.36
Net realized and unrealized gain (loss) 1.02 1.19 (0.41) 1.36 0.50
- ------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.12 1.60 (0.34) 1.51 0.86
- ------------------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) (0.04) (0.02) (0.08) (0.26) (0.29)
Net realized gains (1.86) (0.03) -- -- --
Capital -- -- (0.10) -- --
- ------------------------------------------------------------------------------------------------
Total distributions (1.90) (0.05) (0.18) (0.26) (0.29)
- ------------------------------------------------------------------------------------------------
Net asset value, end of year $14.15 $14.93 $13.38 $13.90 $12.65
- ------------------------------------------------------------------------------------------------
Total return(5) 8.42% 11.96% (2.45)% 12.05% 7.33%(6)
- ------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $3,105 $4,004 $4,813 $5,258 $3,064
- ------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(3)(7) 3.03% 2.52% 2.48% 2.62% 2.49%(8)
Net investment income 0.77 3.03 0.53 1.14 3.11(8)
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate 109% 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, and custody credits not earned,
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>
- --------------------------------------------------------------------------------
For a Class L share of capital stock
outstanding throughout each year ended October 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999(1) 1998(1)(2) 1997(1) 1996(1) 1995(2)(3)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $14.89 $13.35 $13.87 $12.63 $12.18
- --------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(3) 0.08 0.40 0.08 0.15 0.28
Net realized and unrealized
gain (loss) 0.99 1.18 (0.42) 1.35 0.46
- --------------------------------------------------------------------------------------
Total income (loss)
from operations 1.07 1.58 (0.34) 1.50 0.74
- --------------------------------------------------------------------------------------
Less distribution from:
Net investment income(4) (0.04) (0.01) (0.08) (0.26) (0.29)
Net realized gains (1.86) (0.03) -- -- --
Capital -- -- (0.10) -- --
- --------------------------------------------------------------------------------------
Total distributions (1.90) (0.04) (0.18) (0.26) (0.29)
- --------------------------------------------------------------------------------------
Net assets value, end of year $14.06 $14.89 $13.35 $13.87 $12.63
- --------------------------------------------------------------------------------------
Total return(5) 8.07% 11.90% (2.46)% 11.99% 6.29%
- --------------------------------------------------------------------------------------
Net assets, end of year (000)'s $2,549 $2,940 $3,642 $4,869 $4,317
- --------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(3)(6) 3.20% 2.58% 2.51% 2.62% 2.37%
Net investment income 0.62 2.93 0.60 1.14 2.33
Portfolio turnover rate 109% 141% 197% 189% 42%
- --------------------------------------------------------------------------------------
</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) The manager waived all or part of its fees for the year ended October 31,
1995. If such fees were not waived, the per share effect on net investment
income and the expense ratios would have been as follows:
Per Share Expense Ratios
Decreases to Net Without Fee Waivers
Investment Income and Custody Credits
----------------- -------------------
1995 1995
---- ----
Class A $0.04 2.71%
(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) 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.
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 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 years ended October 31,
1998 and 1999.
Smith Barney Mutual Funds 27
<PAGE>
(This page intentionally left blank.)
28 Global Government Bond 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
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the Fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected]. or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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)
FD0575 2/00
<PAGE>
[SB] Smith Barney
[MF] Mutual Funds
P R O S P E C T U S
Emerging
Markets
Portfolio
Class A, B, L and Y Shares
- ----------------------------------------------------
February 28, 2000
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>
Investments, risks and performance.......................................... 2
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........................................... 12
Buying shares............................................................... 13
Exchanging shares........................................................... 14
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>
Investments, risks and performance
Investment objective
The fund seeks long-term capital appreciation through a portfolio invested pri-
marily in emerging market issuers.
Principal investment strategies
Key investments The fund invests primarily in equity securities of issuers in
emerging market countries, which are all countries other than Australia, Aus-
tria, Belgium, Canada, Denmark, Finland, France, Germany, Holland, Ireland,
Italy, Japan, Luxembourg, Norway, Sweden, Switzerland, Spain, the United King-
dom 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 apprecia-
tion potential. The manager initially assesses the relative attractiveness of
different emerging markets. After a country assessment is made, specific
investment decisions are made. Depending on the manager's outlook for long-term
growth potential, the fund's emphasis among emerging markets and issuers may
vary.
By spreading the fund's investments across many emerging markets, the manager
seeks to reduce volatility compared to investment in a single region.
In allocating assets among countries and regions, the economic and political
factors the manager evaluates include:
.Interest rate and inflation outlook
.Governmental policies toward economic growth and development of securities
markets
.Currency outlook
.Comparative valuations of equity markets
In selecting individual companies for investment, the manager looks for the
following:
.Strong earnings outlook
.High relative return on invested capital
.Experienced and effective management
.Competitive advantages
.Strong financial condition
Emerging Markets Portfolio
2
<PAGE>
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.
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:
.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>
Risk return bar chart
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. This bar chart shows
the performance of the fund's Class A shares for each of the past four years.
Class B, C, 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.
Total Return for Class A Shares
[CHART]
96 97 98 99
------ ------ ------- ------
20.13% (9.22)% (37.33)% 62.65%
Calendar years ended December 31
Quarterly returns
Highest: 42.94% in 4th quarter 1999; Lowest: (30.20)% in 3rd quarter 1998
Risk return table
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, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
A 54.58% n/a n/a (0.83)% 05/12/95
B 56.43% n/a n/a (0.72)% 05/12/95
L 58.89% n/a n/a (0.72)% 05/12/95
Y 63.43% n/a n/a 0.59 % 03/10/98
MSCI Free Index 66.41% 2.00% n/a (0.39)% *
</TABLE>
*Index comparison begins on 5/31/95.
Emerging Markets Portfolio
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases
(as a % of offering price) 5.00%* None 1.00% None
Maximum deferred sales charge (load) (as a % of
the lower of net asset value at purchase or redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund 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 1.62% 1.63% 1.62% 1.32%
------ ----- ----- -----
Total annual fund operating expenses 2.87% 3.63% 3.62% 2.32%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
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) $776 $1,344 $1,938 $3,535
Class B (redemption at end of period) $865 $1,412 $1,978 $3,727
Class B (no redemption) $365 $1,112 $1,878 $3,727
Class L (redemption at end of period) $561 $1,198 $1,955 $3,941
Class L (no redemption) $461 $1,198 $1,955 $3,941
Class Y (with or without redemption) $235 $ 724 $1,240 $2,656
</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.
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.
Emerging Markets Portfolio
6
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC., 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 subsidi-
aries 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.
A group of Salomon Smith Barney's international equity analysts and portfolio
managers led by Jeffrey Russell and James Conheady 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 Salo-
mon Smith Barney's international equity investment operations.
Management fee For its services, the manager received a fee during the fund's
last fiscal year equal to 1.00% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to 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 plan The fund has adopted Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Smith Barney Private Trust Com-
pany serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Year 2000 issue As the year 2000 began, there were few problems caused by the
inability of certain computer systems to tell the difference between the year
2000 and the year 1900 (commonly known as the "Year 2000" issue). It is still
possible that some computer systems could malfunction in the future because of
the Year 2000 issue or as a result of actions taken to address the Year 2000
issue. Fund management does not anticipate that its services or those of the
fund's other service providers will be adversely affected, but fund management
will continue to monitor the situation. If malfunctions related to the Year
2000 issue do arise, the fund and its investments could be negatively affected.
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 for
large pur-
chases and
waived for
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 about additional 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").
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 through 8th
<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
(excluding shares
issued as a
dividend)
</TABLE>
Smith Barney Mutual Funds
11
<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.
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
Each time you place a request to sell shares, the fund will first sell any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
Emerging Markets Portfolio
12
<PAGE>
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.
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
sub-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 sub-transfer agent at the following address:
Smith Barney World Funds, Inc.
Emerging Markets Portfolio
(Specify class of shares)
c/o PFPC Global Fund Service
P.O. Box 9699
Providence, Rhode Island 02940-9699
.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.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds
13
<PAGE>
- --------------------------------------------------------------------------------
Through a
systematic You may authorize Salomon Smith Barney, your dealer represen-
investment tative or the sub-transfer agent to transfer funds automati-
plan cally from a regular bank account, cash held in a Salomon
Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly.
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the sub-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.
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 .Not all Smith Barney funds may be offered in your state of
investors. 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 sub-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.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
14
<PAGE>
- --------------------------------------------------------------------------------
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).
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 sub-trans-
fer agent at the address on the following 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 sub-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 sub-transfer agent at the following address:
Smith Barney World Funds, Inc.
Emerging Markets Portfolio
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
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).
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 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 docu-
ments.
- --------------------------------------------------------------------------------
Automatic
cash You can arrange for the automatic redemption of a portion of
withdrawal your shares on a monthly or quarterly basis. To qualify you
plans must own shares of the fund with a value of at least $10,000
($5,000 for retirement plan accounts) 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 over $10,000 of shares
.Are sending signed share certificates or stock powers to the sub-transfer
agent
.Instruct the sub-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 signed by all registered owners is made to the sub-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 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 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 pays dividends and makes capital gain distribu-
tions, 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 or quota-
tions are not readily available, or when the value of a security has been mate-
rially affected by events occurring after a foreign exchange closes, the fund
may price those securities at fair value. Fair value is determined in accor-
dance 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 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.
Emerging Markets 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, is
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>
1999(/1/) 1998(/1/) 1997(/1/) 1996 1995(/2/)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $7.03 $12.45 $12.08 $11.06 $12.00
- ----------------------------------------------------------------------------------
Loss from operations:
Net investment loss(/3/) (0.10) (0.06) (0.05) (0.02) (0.05)(/4/)
Net realized and
unrealized gain (loss) 2.10 (5.36) 0.42 1.04 (0.89)
- ----------------------------------------------------------------------------------
Total income (loss) from
operations 2.00 (5.42) 0.37 1.02 (0.94)
- ----------------------------------------------------------------------------------
Net asset value, end of
year $9.03 $7.03 $12.45 $12.08 $11.06
- ----------------------------------------------------------------------------------
Total return(/5/) $28.45 (43.53)% 3.06% 9.22% (7.83)%(/6/)
- ----------------------------------------------------------------------------------
Net assets, end of year
(000)'s $4,969 $5,723 $14,046 $10,691 $7,069
- ----------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/7/)(/3/) 2.87% 2.46% 2.11% 2.25% 1.45 (/8/)
Net investment loss (1.25) (0.63) (0.34) (0.19) (0.63)(/8/)
- ----------------------------------------------------------------------------------
Portfolio turnover rate 153% 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 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 2.16% and 1.20%,(/8/) 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>
1999(/1/) 1998(/1/) 1997(/1/) 1996(/1/) 1995(/2/)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $6.85 $12.21 $11.95 $11.02 $12.00
- -----------------------------------------------------------------------------------
Loss from operations:
Net investment loss(/3/) (0.17) (0.14) (0.14) (0.10) (0.09)(/4/)
Net realized and
unrealized gain (loss) 2.04 (5.22) 0.40 1.03 (0.89)
- -----------------------------------------------------------------------------------
Total income (loss) from
operations 1.87 (5.36) 0.26 0.93 (0.98)
- -----------------------------------------------------------------------------------
Net asset value, end of
year $8.72 $6.85 $12.21 $11.95 $11.02
- -----------------------------------------------------------------------------------
Total return(/5/) 27.30% (43.90)% 2.18% 8.44% (8.17)%(/6/)
- -----------------------------------------------------------------------------------
Net assets, end of year
(000)'s $5,591 $5,994 $18,107 $13,062 $7,630
- -----------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/7/)(/3/) 3.63% 3.24% 2.88% 3.06% 2.00%(/8/)
Net investment loss (2.11) (1.42) (1.00) (0.94) (1.17)(/8/)
- -----------------------------------------------------------------------------------
Portfolio turnover rate 153% 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%(/8/), 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>
1999(/1/) 1998(/1/)(/2/) 1997(/1/) 1996 1995(/3/)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $6.84 $12.22 $11.95 $11.02 $12.00
- -------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment loss(/4/) (0.16) (0.15) (0.15) (0.10) (0.08)(/5/)
Net realized and
unrealized gain (loss) 2.03 (5.23) 0.42 1.03 (0.90)
- -------------------------------------------------------------------------------------
Total income (loss) from
operations 1.87 (5.38) 0.27 0.93 (0.98)
- -------------------------------------------------------------------------------------
Net assets value, end of
year $8.71 $6.84 $12.22 $11.95 $11.02
- -------------------------------------------------------------------------------------
Total return(/6/) 27.34% (44.03)% 2.26% 8.44% (8.17)%(/7/)
- -------------------------------------------------------------------------------------
Net assets, end of year
(000)'s $1,762 $1,543 $4,332 $2,448 $1,604
- -------------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/8/) 3.62% 3.31% 2.86% 3.02% 1.95%(/9/)
Net investment loss (2.10) (1.47) (1.03) (0.92) (1.08)(/9/)
- -------------------------------------------------------------------------------------
Portfolio turnover rate 153% 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>
For a Class Y share of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/)(/2/)
- ----------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year $7.07 $12.16
- ----------------------------------------------------------------
Income (loss) from operations:
Net investment loss (0.07) (0.01)
Net realized and
unrealized gain (loss) 2.12 (5.08)
- ----------------------------------------------------------------
Total income (loss) from operations 2.05 (5.09)
- ----------------------------------------------------------------
Net asset value, end of year $9.12 $7.07
- ----------------------------------------------------------------
Total return 29.00 (41.86)%(/3/)
- ----------------------------------------------------------------
Net assets, end of year (000)'s $1,414 $709
- ----------------------------------------------------------------
Ratio to average net assets(/4/):
Expenses 2.32% 1.89%
Net investment loss (0.80) (0.16)
- ----------------------------------------------------------------
Portfolio turnover rate 153% 97%
- ----------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from March 10, 1998 (inception date) to October 31, 1998.
(/3/) Total return is not annualized, as it may not be representative of the
total return for the year.
(/4/) Annualized.
Emerging Markets Portfolio
26
<PAGE>
(This page is intentionally left blank.)
<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
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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)
FD0875 2/00
PART B Statement of Additional Information
February 28, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY WORLD FUNDS, INC.
388 Greenwich Street
New York, New York 10013
Smith Barney World Funds, Inc. (the "Company") offers a
choice of six open-end management investment companies
(each a "fund"):
The Global Government Bond Portfolio seeks
as high a level of current income and
capital appreciation as is consistent with
its policy of investing primarily in high
quality bonds of the United States and
foreign governments.
The International Equity Portfolio seeks
total return on its assets from growth of
capital and income. The fund seeks to
achieve this objective by investing
primarily in a diversified portfolio of
equity securities of established foreign
issuers.
The Pacific Portfolio seeks long-term
capital appreciation by investing primarily
in a diversified portfolio of equity
securities of companies in the Asia Pacific
Region.
The European Portfolio seeks long-term
capital appreciation by investing primarily
in equity securities of issuers based in
countries of Europe.
The International Balanced Portfolio seeks
a competitive total return on its assets
from growth of capital and income by
investing primarily in securities of
established non-U. S. issuers.
The Emerging Markets Portfolio seeks long-
term capital appreciation on its assets by
investing primarily in securities of
emerging country issuers.
In all cases, there can be no assurance that a fund
will achieve its investment objective.
Each fund offers three classes of shares which may be
purchased at the next-determined net asset value per
share plus a sales charge which, at the election of the
investor, may be imposed (i) at the time of purchase
(Class A and Class L shares) and/or (ii) on a deferred
basis (Class B and Class L shares). A fourth class of
shares (the Class Y shares) is sold at net asset value
and is available only to investors investing a minimum
of $5,000,000 with respect to the International Equity
Portfolio and $15,000,000 with respect to each of the
other funds. A fifth class of shares of each fund,
except the Emerging Markets Portfolio (the Class Z
shares) is 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.
Effective as of the close of business on January 28,
2000, the International Balanced Portfolio was closed
to new investments. Shareholders of record on February
8, 2000 will vote to reorganize the fund at a meeting
to be held on April 7, 2000. The proposed
reorganization is subject to the fulfillment of certain
conditions, including approval by the shareholders of
the fund.
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,
2000 for the International Equity Portfolio, the Global
Government Bond Portfolio, the Pacific Portfolio, the
European Portfolio and the Emerging Markets Portfolio,
which may be obtained from the Company or your Salomon
Smith Barney Financial Consultant.
TABLE OF CONTENTS
P
a
g
e
Directors, Advisory Director and Officers
3
Investment Policies
5
Investment Practices
10
Risk Factors
20
Investment Restrictions
24
Additional Tax Information
27
IRA and Other Prototype Retirement Plans
` 30
Performance Information
31
Determination of Net Asset Value
34
Purchase of Shares
35
Dividends and Distributions
42
Investment Management and Other Services
42
Custodian
48
Independent Auditors
48
Voting
48
Other Information about the Company
50
Financial Statements
51
Appendix - Ratings of Debt Obligations
A-1
DIRECTORS, ADVISORY DIRECTOR AND OFFICERS
Overall responsibility for management and supervision
of each fund rests with the Company's Board of
Directors. The directors approve all significant
agreements between the Company and the companies that
furnish services to the Company and the funds,
including agreements with the Company's distributor,
investment adviser, custodian and transfer agent. The
day-to-day operations of each fund are delegated to
that fund's manager. The directors and officers of
the Company are listed below.
VICTOR K. ATKINS, Director
Retired; 2111 Forge Road, Santa Barbara, California
93108. Former President of Lips Propellers, Inc., a
ship propeller repair company. Director of two
investment companies associated with Citigroup, Inc.
("Citigroup"); 78.
ABRAHAM E. COHEN, Director
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 Citigroup; 63.
ROBERT A. FRANKEL, Director
Managing Partner of Robert A. Frankel Managing
Consultants, 102 Grand Street, Croton-on-Hudson, NY.
Former Vice President of The Readers Digest
Association, Inc.; Director of nine investment
companies associated with Citigroup, 72.
*MICHAEL GELLERT, Director
Partner of Windcrest Partners, 122 E. 42nd Street, New
York, NewYork 10168. Director of Devon Energy Corp.,
Humana, Inc., Premier Parks, Inc.; Seacor Smit Inc.;
Cimilar A/S; Dalet Technologies and numerous private
companies. Director of two investment companies
asociated with Citigroup; 68.
RAINER GREEVEN, Director
Partner of the law firm of Greeven & Ercklentz; 630
Fifth Avenue, New York, NY. Director of two investment
companies associated with Citgroup; 64.
SUSAN M. HEILBRON, Director
Attorney; Lacey & Heilbron, 3 East 54th Street, New
York, NY. Director of two investment companies
associated with Citigroup; 55.
**HEATH B. McLENDON, Chairman of the Board, President
and Chief Executive Officer
Managing Director of Salomon Smith Barney Inc.
("Salomon Smith Barney"); President of SSB Citi Fund
Management LLC. ("SSB Citi" or the "Manager") and
Travelers Investment Adviser, Inc. ("TIA"); Chairman or
Co-Chairman of the Board of 71 investment companies
associated with Citigroup and former Chairman of the
Board of Smith Barney Strategy Advisers Inc; 66.
**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); 81.
**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 SSB Citi and TIA: 42
**JAMES B. CONHEADY, Vice President and Investment
Officer
Managing Director of Salomon Smith Barney; 64.
**JEFFREY RUSSELL, Vice President and Investment
Officer
Managing Director of Salomon Smith Barney; 42.
**REIN VAN DER DOES, Vice President and Investment
Officer
Managing Director of Salomon Smith Barney; 60.
**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; 45.
**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; 46.
**DAVID S. ISHIBASHI, Vice President and Investment
Officer
Vice President of Salomon Smith Barney; Formerly Head
of Japanese equities desk at SG Warburg; 44.
**IRVING DAVID, Controller
Director of Salomon Smith Barney. Formerly Assistant
Treasurer of First Investment Management Company; 39.
**CHRISTINA T. SYDOR, Secretary
Secretary; Managing Director of Salomon Smith Barney.
General Counsel and Secretary of SSB Citi and TIA; 49.
* Director as of December , 1998
** 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 7, 2000 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. All Directors are reimbursed for travel
and out-of pocket expenses. During the calendar year
ended December 31,1999, such expenses totaled $2,599.
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
$8,148.00
$27,600.00
2
A. E. Cohen
7,648.00
27,800.00
2
Robert A.
Frankel
8,748.00
79,450.00
9
Michael
Gellert1
5,838.00
22,700.00
2
Rainer
Greeven
7,548.00
25,800.00
2
Susan
Heilbron
8,748.00
29,600.000
2
Heath
McLendon
0
0
71
1 Effective December 9, 1998, Mr Gellert became a
member of the Company's Board of Directors
INVESTMENT POLICIES
Each fund's investment objectives may be changed only
by the ''vote of a majority of the outstanding voting
securities'' as defined in the Investment Company Act
of 1940 (the ''1940 Act''). However, each fund's
investment policies are nonfundamental, and thus may be
changed by the Board of Directors, provided such change
is not prohibited by the fund's fundamental investment
restrictions (described under INVESTMENT RESTRICTIONS)
or applicable law, and any such change will first be
disclosed in the then current prospectus. Refer to the
"INVESTMENT PRACTICES" and "RISK FACTORS" for further
information on the funds' investments.
Under unusual economic or market conditions as
determined by the Manager, for defensive purposes each
fund may depart from its principal investment
strategies and temporarily invest all or a major
portion of its assets in all types of money market and
short-term debt securities (including U.S. money market
securities). To the extent a fund's assets are
invested for temporary defensive purposes, they will
not be invested in a manner designed to achieve that
fund's investment objective.
Global Government Bond Portfolio
Under normal market conditions, the Global Government
Bond Portfolio invests at least 65% of its total assets
in bonds issued or guaranteed by the United States or
foreign governments (including foreign states,
provinces, cantons and municipalities) or their
agencies, authorities, or instrumentalities denominated
in various currencies, including U.S. dollars, or in
multinational currency units, such as the Euro.
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.
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, New Zealand, 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, European 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,a 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
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 with 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. EMU may create new
economic opportunities for investors, such as lower
interest rates, easier cross-border mergers,
acquisitions and similar restructurings, more efficient
distribution and product packaging and greater
competition. Budgetary decisions remain in the hands
of each participating country, but are subject to each
country's commitment to avoid "excessive deficits" and
other more specific budgetary criteria. A European
Central Bank is responsible for setting the official
interest rate within the Euro zone. EMU and the
introduction of the Euro, however, present unique risks
and uncertainties for investors in EMU-participating
countries, including: (i) monetary and economic union
on this scale has never before been attempted; (ii)
there is uncertainty whether participating countries
will remain committed to EMU in the face of changing
economic conditions; (iii) instability within EMU may
increase the volatility of European markets and may
adversely affect the prices of securities of European
issuers in the funds' portfolios; (iv) there is
uncertainty concerning the fluctuation of the Euro
relative to non-Euro currencies during the transition
period from January 1, 1999 to December 31, 2000, and
beyond; and (v) there is no assurance that interest
rate, tax and labor regimes of EMU-participating
countries will converge over time. These and other
factors may cause market disruption and could adversely
affect European securities and currencies held by the
funds.
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) 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) 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".
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
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.
If a fund purchases shares in certain foreign
investment entities, referred to as "passive foreign
investment companies," the fund itself may be subject
to U.S. federal income tax and an additional charge in
the nature of interest on a portion of any "excess
distribution" from such company or gain from the
disposition of such shares, even if the distribution or
gain is distributed by the fund to its shareholders in
a manner that satisfies the requirements described
above. If the fund were able and elected to treat a
passive foreign investment company as a "qualified
electing fund," in lieu of the treatment described
above, the fund would be required each year to include
in income, and distribute to shareholders in accordance
with the distribution requirements described above, the
fund's pro rata share of the ordinary earnings and net
capital gains of the company, whether or not actually
received by the fund. The funds generally should be
able to make an alternative election to mark these
investments to market annually, resulting in the
recognition of ordinary income (rather than capital
gain) or ordinary loss, subject to limitations on the
ability to use any such loss.
A fund may be required to treat amounts as taxable
income or gain, subject to the distribution
requirements referred to above, even though no
corresponding amounts of cash are received
concurrently, as a result of (1) mark to market,
constructive sale or other rules applicable to passive
foreign investment companies or partnerships in which
the fund invests or to certain options, futures,
forward contracts, or "appreciated financial positions"
or (2) the inability to obtain cash distributions or
other amounts due to currency controls or restrictions
on repatriation imposed by a foreign country with
respect to the fund's investments in issuers in such
country or (3) tax rules applicable to debt obligations
acquired with "original issue discount," including
zero-coupon or deferred payment bonds and pay-in-kind
debt obligations, or to market discount if an election
is made with respect to such market discount. The fund
may therefore be required to obtain cash to be used to
satisfy these distribution requirements by selling
portfolio securities at times that it might not
otherwise be desirable to do so or borrowing the
necessary cash, thereby incurring interest expenses.
Income (including, in some cases, capital gains)
received by a fund from sources within foreign
countries may be subject to withholding and other taxes
imposed by such countries. Tax conventions between
certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the
rate of foreign tax in advance since the amount of the
fund's assets to be invested in various countries is
not known. Such foreign taxes would reduce the income
of the fund distributed to shareholders.
If, at the end of a fund's taxable year, more than 50%
of the value of that fund's total assets consist of
stock or securities of foreign corporations, the fund
may make an election pursuant to which qualified
foreign income taxes paid by it will be treated as paid
directly by its shareholders. A fund will make this
election only if it deems the election to be in the
best interests of shareholders, and will notify
shareholders in writing each year if it makes the
election and the amount of foreign taxes to be treated
as paid by the shareholders. If a fund makes such an
election, the amount of such qualified foreign taxes
would be included in the income of shareholders, and a
shareholder other than a foreign corporation or non-
resident alien individual could claim either a credit,
provided that certain holding period requirements are
satisfied, or, provided the shareholder itemizes
deductions, a deduction for U.S. federal income tax
purposes for such foreign taxes. Tax-exempt
shareholders generally will not be able to use any
credit or deduction. Shareholders who choose to utilize
a credit (rather than a deduction) for foreign taxes
will be subject to the limitation that the credit may
not exceed the shareholders' U.S. tax (determined
without regard to the availability of the credit)
attributable to their total foreign source taxable
income. For this purpose, the portion of dividends and
distributions paid by the fund from its foreign source
ordinary income will be treated as foreign source
income. The fund's gains and losses from the sale of
securities and from certain foreign currency gains and
losses will generally be treated as derived from U.S.
sources.
The limitation on the foreign tax credit is applied
separately to foreign source ''passive income,'' such
as the portion of dividends received from the fund that
qualifies as foreign source income. In addition, the
foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations and
individuals. Because of these limitations, shareholders
may be unable to claim a credit for the full amount of
their proportionate share of the qualified foreign
income taxes paid by a fund.
Prior to investing in shares of the fund, investors
should consult with their tax advisors concerning the
federal, state and local tax consequences of such an
investment.
Distributions
If the net asset value of shares of a fund is reduced
below a shareholder's cost as a result of distribution
by the fund, such distribution will be taxable even
though it represents a return of invested capital.
Dividends from net investment income and distributions
of realized short-term capital gains, whether paid in
cash or automatically invested in additional shares of
the fund, are taxable to shareholders as ordinary
income. The funds' dividends will not qualify for the
dividends received deduction for corporations.
Dividends and distributions by the funds may also be
subject to state and local taxes. Distributions out of
net long-term capital gains (i.e., net long-term
capital gain in excess of net short-term capital loss)
are taxable to shareholders as long-term capital gains.
Information as to the tax status of dividends paid or
deemed paid in each calendar year will be mailed to
shareholders as early in the succeeding year as
practical but not later than January 31.
The Company is required to withhold and remit to the
U.S. Treasury 31% of dividends, distributions and
redemption proceeds to shareholders who fail to provide
a correct taxpayer identification number (the Social
Security number in the case of an individual) or to
make the required certifications, or who have been
notified by the Internal Revenue Service that they are
subject to backup withholding and who are not otherwise
exempt. The 31% withholding tax is not an additional
tax, but is creditable against a shareholder's federal
income tax liability. Distributions to nonresident
aliens and foreign entities may also be subject to
other withholding taxes.
Redemption of Shares
Any gain or loss realized on the redemption or exchange
of fund shares by a shareholder who is not a dealer in
securities will be treated as long-term capital gain or
loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss,
provided in each case that the transaction is properly
treated as a sale rather than a dividend for tax
purposes.
However, any loss realized by such a shareholder upon
the redemption or exchange of fund shares held six
months or less will be treated as long-term capital
loss to the extent of any long-term capital gain
distributions received by the shareholder with respect
to such shares. Additionally, any loss realized on a
redemption or exchange of fund shares will be
disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days
before and ending 30 days after such disposition, such
as pursuant to reinvestment of dividends in fund
shares.
In determining gain or loss, a shareholder who redeems
or exchanges shares in a fund within 90 days of the
acquisition of such shares will not be entitled to
include in tax basis the sales charges incurred in
acquiring such shares to the extent of any subsequent
reduction in sales charges due to any reinvestment
right for investing in the same fund or a different
fund, such as pursuant to the rights discussed in
''Exchange Privilege.''
IRA AND OTHER PROTOTYPE RETIREMENT PLANS
Copies of the following plans with custody or trust
agreements have been approved by the Internal Revenue
Service and are available from the Company or Salomon
Smith Barney; investors should consult with their own
tax or retirement planning advisors prior to the
establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension - IRA
The Small Business Job Protection Act of 1996 changed
the eligibility requirements for participants in
Individual Retirement Accounts ("IRAs"). Under these
new provisions, if you or your spouse have earned
income, each of you may establish an IRA and make
maximum annual contributions equal to the lesser of
earned income or $2,000. As a result of this
legislation, married couples where one spouse is non-
working may now contribute a total of $4,000 annually
to their IRAs.
The Taxpayer Relief Act of 1997 has changed the
requirements for determining whether or not you are
eligible to make a deductible IRA contribution. Under
the new rules effective beginning January 1, 1998, if
you are considered an active participant in an
employer-sponsored retirement plan, you may still be
eligible for a full or partial deduction depending upon
your combined adjusted gross income ("AGI"). For
married couples filing jointly for 1998, a full
deduction is permitted if your combined AGI is $50,000
or less ($30,000 for unmarried individuals); a partial
deduction will be allowed when AGI is between $50,000-
$60,000 ($30,000-$40,000 for an unmarried individual);
and no deduction when AGI is above $60,000 ($40,000 for
an unmarried individual). However, if you are married
and your spouse is covered by an 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 $25,500) of
each participant's compensation. Compensation is
capped at $170,000 for 1999.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and
non-corporate entities may purchase shares of the
Company through the Salomon Smith Barney Prototype
Paired Defined Contribution Plan (the "Prototype").
The Prototype permits adoption of profit-sharing
provisions, money purchase pension provisions, or both,
to provide benefits for eligible employees and their
beneficiaries. The Prototype provides for a maximum
annual tax deductible contribution on behalf of each
Participant of up to 25% of compensation, but not to
exceed $30,000 (provided that a money purchase pension
plan or both a profit-sharing plan and a money purchase
pension plan are adopted thereunder).
PERFORMANCE INFORMATION
From time to time the Company may advertise a fund's
total return, average annual total return and yield in
advertisements. The Company may also quote the funds'
total that eliminates the sales charge or the initial
investment. In addition, in other types of sales
literature the Company may include a fund's current
dividend return. These figures are based on historical
earnings and are not intended to indicate future
performance. The total returns below show what an
investment in the fund would have earned over a
specified period of time (one, five or ten years or
since inception) assuming the payment of the maximum
sales load when the investment was first made and that
all distributions and dividends by the fund were
invested on the reinvestment dates during the period,
less all recurring fees. The average annual total
return is derived from this total return, which
provides the ending redeemable value. The following
chart reflects the financial performance of the funds
through the period ended October 31, 1999 for the one,
and five year periods and since inception:
Total Returns
5 Year
Since
Incepti
on
Since
Name of Fund
Clas
s
1 Year
Average
Annual
5 Year
Cumulativ
e
Average
Annual
Inception
Cumulative
International
Equity1
Inception: 11-22-91
A
24.65%
6.75%
38.63%
11.48%*
343.49%*
Inception: 11-7-94
B
25.13%
N/A
N/A
7.35%
42.41%
Inception: 1-4-93
L
27.86%
6.77%
38.77%
11.5%
110.2%
Inception: 6-16-94
Y
31.7%
8.23%
48.51%
8.91%
58.28%
Inception: 11-7-94
Z
31.68%
N/A
N/A
8.73%
51.76%
Global Government
Bond
Inception: 7-22-91
A
(6.05)%
6.21%
35.15%
6.92%
74.04%
Inception: 11-18-94
B
(6.34)%
N/A
N/A
6.56%
36.99%
Inception: 1-4-93
L
(4.02)%
6.37
36.16%
6.5%
53.66%
Inception: 2-19-93
Y
(1.28)%
7.29%
42.16%
7.06%
57.95%
International
Balanced**
Inception: 8-25-94
A
3.73%
6.82%
39.06
6.9%
41.37%
Inception: 11-7-94
B
3.68%
N/A
N/A
7.20%
41.39%
Inception: 8-25-94
L
6.06%
6.81%
39.03
6.86%
41.09%
Pacific**
Inception: 2-7-94
A
66.67%
(2.8)%
(8.67)%
(1.89)%
(5.60)%
Inception: 11-7-94
B
68.73%
N/A
N/A
(2.4)%
(11.42)%
Inception: 2-11-94
L
71.06%
(2.8)%
(13.24)%
(1.97)%
(10.77)%
European**
Inception: 2-7-94
A
12.14%
13.29%
86.59%
12.08%
92.26%
Inception: 11-7-94
B
12.10%
N/A
N/A
13.98%
91.95%
Inception: 2-14-94
L
14.97%
13.41%
87.60%
12.18%
92.80%
Emerging Markets
Inception: 5-12-95
A
22.03%
N/A
N/A
(7.22)%
(28.50)%
Inception: 5-12-95
B
22.3%
N/A
N/A
(7.09)%
(28.06)%
Inception 5-12-95
L
25.05%
N/A/
N/A
(7.11)%
(28.14)%
Inception: 5-12-95
Y
29.00%
N/A
N/A
(16.05)
%
(25.00)%
1 The International Equity Portfolio's performance
record includes the performance of the Fenimore
International Fund through November 22, 1991. The
shareholders of the Fenimore International Fund
approved a reorganization with the fund at their
October 31, 1991 shareholder's meeting. As a result,
all shares of the Fenimore International Fund were
exchanged at the close of business on November 22, 1991
for shares of the fund. Prior to November 22, 1991 the
fund had not made an offering of its shares.
*These numbers represent the financial performance for
the ten-year period ended October 31, 1999.
**No Y shares outstanding.
The total returns below show what an investment in the
fund would have earned over a specified period of time
(one, five or ten years or since inception) without
assuming the payment of the maximum sales load when the
investment was first made and that all distributions
and dividends by the fund were invested on the
reinvestment dates during the period, less all
recurring fees. The following chart reflects the
financial performance of the funds through the period
ended October 31, 1999 for the one, and five year
periods and since inception:
Total Returns
5 Year
Since
Incepti
on
Since
Name of Fund
Clas
s
1 Year
Average
Annual
5 Year
Cumulativ
e
Average
Annual
Inception
Cumulative
International
Equity1
Inception: 11-22-91
A
31.19%
7.85%
45.93%
11.89%*
205.67%*
Inception: 11-7-94
B
30.13%
N/A
N/A
7.50%
43.41%
Inception: 1-4-93
L
30.17%
6.99%
40.19%
11.66%
112.25%
Inception: 6-16-94
Y
31.70%
8.23
48.51%
8.91%
58.28%
Inception: 11-7-94
Z
31.68%
N/A
N/A
8.73%
51.76%
Global Government
Bond
Inception: 7-22-91
A
(1.62)%
7.19%
41.51%
7.52%
82.31%
Inception: 11-18-94
B
(2.11)%
N/A
N/A
6.71%
37.95%
Inception: 1-4-93
L
(2.11)%
6.58%
37.56%
6.65%
55.22%
Inception: 2-19-93
Y
(1.28)%
7.29%
42.16%
7.60%
57.95%
International
Balanced**
Inception: 8-25-94
A
9.16%
7.92%
46.36%
7.96%
48.80%
Inception: 11-7-94
B
8.42%
N/A
N/A
7.35%
42.39%
Inception: 8-25-94
L
8.07%
7.02%
40.40%
7.07%%
42.51%
Pacific**
Inception: 2-7-94
A
75.33%
(1.80)%
(8.67)5
(1.00)%
(5.60)%
Inception: 11-7-94
B
73.73%
N/A
N/A
(2.21)%
(10.52)%
Inception: 2-11-94
L
73.92%
(2.61)%
(12.36)%
(1.79)%
(9.84)%
European**
Inception: 2-7-94
A
18.02%
14.46%
96.44%
13.09%
102.41%
Inception: 11-7-94
B
17.10%
N/A
N/A
14.10%
92.95%
Inception: 2-14-94
L
17.14%
13.64%
89.50%
12.38%
94.81%
Emerging Markets
Inception: 5-12-95
A
28.45%
N/A
N/A
(6.15)%
(24.75)%
Inception: 5-12-95
B
27.30%
N/A
N/A
(6.88)%
(27.33)%
Inception: 5-12-95
L
27.34%
N/A
N/A
(6.91)%
(27.42)%
Inception 11-16-94
Y
29.00%
N/A
N/A
(16.05)
%
(25.00)%
1 The International Equity Portfolio's performance
record includes the performance of the Fenimore
International Fund through November 22, 1991. The
shareholders of the Fenimore International Fund
approved a reorganization with the fund at their
October 31, 1991 shareholder's meeting. As a result,
all shares of the Fenimore International Fund were
exchanged at the close of business on November 22, 1991
for shares of the fund. Prior to November 22, 1991 the
fund had not made an offering of its shares.
*These numbers represent the financial performance for
the ten-year period ended October 31, 1999.
**There are no Y shares outstanding.
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, 1999, the
portfolio's Class A share, Class B share, Class L share
and Class Y share yields were 4.95%, 4.63%, 4.67% and
5.57%, 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) Salomon Smith Barney Broad Investment Grade
Bond Index which is a widely used index composed
of U.S. domestic government, corporate and
mortgage-back fixed income securities.
(9) Dow Jones Industrial Average which is a
price-weighted average of 30 actively traded
stocks of highly reputable companies prepared by
Dow Jones & Co.
(10) Financial News Composite Index.
(11) Morgan Stanley Capital International World
Indices, including, among others, the Morgan
Stanley Capital International Europe, Australia,
Far East Index ("EAFE Index"). The EAFE Index is
an unmanaged index of more than 800 companies of
Europe, Australia and the Far East.
(12) Data and comparative performance rankings
published or prepared by CDA Investment
Technologies, Inc.
(13) Data and comparative performance rankings
published or prepared by Wiesenberger Investment
Company Service.
Indices prepared by the research departments of such
financial organizations as Salomon Smith Barney, Inc.,
Merrill Lynch, Bear Stearns & Co., Inc., Morgan
Stanley, and Ibbottson Associates may be used, as well
as information provided by the Federal Reserve Board.
In addition, performance rankings and ratings reported
periodically in national financial publications,
including but not limited to Money Magazine, Forbes,
Business Week, The Wall Street Journal and Barron's may
also be used. Each fund may also include comparative
performance information in advertising or marketing its
shares. Such performance information may include data
from Lipper Analytical Services, Inc., Morningstar,
Inc. and other financial publications.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each fund normally is
determined as of the close of regular trading on the
NYSE on each day that the NYSE is open, by dividing the
value of the fund's net assets attributable to each
Class by the total number of shares of the Class
outstanding. If the NYSE closes early, the fund
accelerates the calculation of its net asset value to
the actual closing time. The NYSE is closed for the
following holidays: New Year's Day, Martin Luther King
Jr. 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.
Securities for which market quotations are readily
available are valued on the basis of the prices
reflected on the tape received from an approved pricing
service after the close of regular trading on the NYSE
on each day the NYSE is open.
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:
Offering
Global Gov't
Price
Bond
Portfolio
Offering Price
All Other Funds
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 or other
Smith Barney mutual funds on June 12, 1998 will not be
subject to the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an
initial sales charge or deferred sales charge and are
available only to investors investing a minimum of
$15,000,000 (except for purchases of Class Y shares (i)
of the International Equity Portfolio, for which the
minimum initial investment is $5,000,000 and (ii) by
Smith Barney Concert Allocation Series Inc., for which
there is no minimum purchase amount).
General
Investors may purchase shares from a Salomon Smith
Barney Financial Consultant or a broker that clears
through Salomon Smith Barney ("Dealer Representative").
In addition, certain investors, including qualified
retirement plans purchasing through certain Dealer
Representatives, may purchase shares directly from the
fund. When purchasing shares of the fund, investors
must specify whether the purchase is for Class A, Class
B, Class L or Class Y shares. Salomon Smith Barney and
Dealer Representatives may charge their customers an
annual account maintenance fee in connection with a
brokerage account through which an investor purchases
or holds shares. Accounts held directly at PFPC Global
Fund Services. ("sub-transfer agent") are not subject
to a maintenance fee.
Investors in Class A, Class B and Class L shares may
open an account in the fund by making an initial
investment of at least $1,000 for each account, or $250
for an IRA or a Self-Employed Retirement Plan, in the
fund. Investors in Class Y shares may open an account
by making an initial investment of $15,000,000.
Subsequent investments of at least $50 may be made for
all Classes. For participants in retirement plans
qualified under Section 403(b)(7) or Section 401(c) of
the Code, the minimum initial investment required for
Class A, Class B and Class L shares and the subsequent
investment requirement for all Classes in the fund is
$25. For shareholders purchasing shares of the fund
through the Systematic Investment Plan on a monthly
basis, the minimum initial investment requirement for
Class A, Class B and Class L shares and subsequent
investment requirement for all Classes is $25. For
shareholders purchasing shares of the fund through the
Systematic Investment Plan on a quarterly basis, the
minimum initial investment required for Class A, Class
B and Class L shares and the subsequent investment
requirement for all Classes is $50. There are no
minimum investment requirements for Class A shares for
employees of Citigroup Inc. ("Citigroup") and its
subsidiaries, including Salomon Smith Barney,
unitholders who invest distributions from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith
Barney, and Directors/Trustees of any of the Smith
Barney Mutual Funds, and their spouses and children.
The fund reserves the right to waive or change
minimums, to decline any order to purchase its shares
and to suspend the offering of shares from time to
time. Shares purchased will be held in the
shareholder's account by the sub-transfer agent. Share
certificates are issued only upon a shareholder's
written request to the sub-transfer agent.
Purchase orders received by the fund or a Salomon Smith
Barney Financial Consultant prior to the close of
regular trading on the New York Stock Exchange
("NYSE"), on any day the fund calculates its net asset
value, are priced according to the net asset value
determined on that day (the ''trade date''). Orders
received by a Dealer Representative prior to the close
of regular trading on the NYSE on any day the fund
calculates its net asset value, are priced according to
the net asset value determined on that day, provided
the order is received by the fund or the fund's agent
prior to its close of business. For shares purchased
through Salomon Smith Barney or a Dealer Representative
purchasing through Salomon Smith Barney, payment for
shares of the fund is due on the third business day
after the trade date. In all other cases, payment must
be made with the purchase order.
Systematic Investment Plan. Shareholders may make
additions to their accounts at any time by purchasing
shares through a service known as the Systematic
Investment Plan. Under the Systematic Investment Plan,
Salomon Smith Barney or the sub-transfer agent is
authorized through preauthorized transfers of at least
$25 on a monthly basis or at least $50 on a quarterly
basis to charge the shareholder's account held with a
bank or other financial institution on a monthly or
quarterly basis as indicated by the shareholder, to
provide for systematic additions to the shareholder's
fund account. A shareholder who has insufficient funds
to complete the transfer will be charged a fee of up to
$25 by Salomon Smith Barney or sub-transfer agent. The
Systematic Investment Plan also authorizes Salomon
Smith Barney to apply cash held in the shareholder's
Salomon Smith Barney brokerage account or redeem the
shareholder's shares of a Smith Barney money market
fund to make additions to the account. Additional
information is available from the fund or a Salomon
Smith Barney Financial Consultant or a Dealer
Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A
shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i)
Board Members and employees of Citigroup and its
subsidiaries and any Citigroup affiliated funds
including the Smith Barney Mutual Funds (including
retired Board Members and employees); the immediate
families of such persons (including the surviving
spouse of a deceased Board Member or employee); and to
a pension, profit-sharing or other benefit plan for
such persons and (ii) employees of members of the
National Association of Securities Dealers, Inc.,
provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment
purposes and that the securities will not be resold
except through redemption or repurchase; (b) offers of
Class A shares to any other investment company to
effect the combination of such company with the fund by
merger, acquisition of assets or otherwise;
(c) purchases of Class A shares by any client of a
newly employed Salomon Smith Barney Financial
Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment
with Salomon Smith Barney), on the condition the
purchase of Class A shares is made with the proceeds of
the redemption of shares of a mutual fund which (i) was
sponsored by the Financial Consultant's prior employer,
(ii) was sold to the client by the Financial Consultant
and (iii) was subject to a sales charge; (d) purchases
by shareholders who have redeemed Class A shares in the
fund (or Class A shares of another Smith Barney Mutual
Fund that is offered with a sales charge) and who wish
to reinvest their redemption proceeds in the fund,
provided the reinvestment is made within 60 calendar
days of the redemption; (e) purchases by accounts
managed by registered investment advisory subsidiaries
of Citigroup; (f) direct rollovers by plan participants
of distributions from a 401(k) plan offered to
employees of Citigroup or its subsidiaries or a 401(k)
plan enrolled in the Smith Barney 401(k) Program (Note:
subsequent investments will be subject to the
applicable sales charge); (g) purchases by a separate
account used to fund certain unregistered variable
annuity contracts; (h) investments of distributions
from or proceeds from a sale of 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 the Transfer Agent to
obtain a Letter of Intent application.
Letter of Intent - Class Y Shares. A Letter of Intent
may also be used as a way for investors to meet the
minimum investment requirement for Class Y shares
(except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no
minimum purchase amount). For International Equity
Portfolio, investors must make an initial minimum
purchase of $1,000,000 in Class Y shares of the fund
and agree to purchase a total of $5,000,000 of Class Y
of the fund within 6 months of the date of the Letter.
For all of the other funds, investors must make an
initial minimum purchase of $5,000,000 in Class Y
shares of the fund and agree to purchase a total of
$15,000,000 of Class Y shares of the fund within 13
months from the date of the Letter. If a total
investment of $15,000,000 is not made within the 13-
month period, or $5 million is not made within 6 months
for the International Equity Portfolio, all Class Y
shares purchased to date will be transferred to Class A
shares, where they will be subject to all fees
(including a service fee of 0.25%) and expenses
applicable to the fund's Class A shares, which may
include a deferred sales charge of 1.00%. Please
contact a Salomon Smith Barney Financial Consultant or
the Transfer Agent for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B
shares; (b) Class L shares; and (c) Class A shares that
were purchased without an initial sales charge but are
subject to a deferred sales charge. A deferred sales
charge may be imposed on certain redemptions of these
shares.
Any applicable deferred sales charge will be assessed
on an amount equal to the lesser of the original cost
of the shares being redeemed or their net asset value
at the time of redemption. Deferred Sales Charge Shares
that are redeemed will not be subject to a deferred
sales charge to the extent that the value of such
shares represents: (a) capital appreciation of fund
assets; (b) reinvestment of dividends or capital gain
distributions; (c) with respect to Class B shares,
shares redeemed more than five years after their
purchase; or (d) with respect to Class L shares and
Class A shares that are Deferred Sales Charge Shares,
shares redeemed more than 12 months after their
purchase.
Class L shares and Class A shares that are Deferred
Sales Charge Shares are subject to a 1.00% deferred
sales charge if redeemed within 12 months of purchase.
In circumstances in which the deferred sales charge is
imposed on Class B shares, the amount of the charge
will depend on the number of years since the
shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of
determining the number of years since a purchase
payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last
day of the preceding Salomon Smith Barney statement
month. The following table sets forth the rates of the
charge for redemptions of Class B shares by
shareholders, except in the case of Class B shares held
under the Smith Barney 401(k) Program, as described
below. See ''Purchase of Shares-Smith Barney 401(k) and
ExecChoiceTM Programs.''
Deferred Sales Charge
Year Payment Was Made
Since Purchase
Global Government Bond
Portfolio
All other Funds
First
4.50%
5.00%
Second
4.00
4.00
Third
3.00
3.00
Fourth
2.00
2.00
Fifth
1.00
1.00
Sixth and thereafter
0.00
0.00
Class B shares will convert automatically to Class A
shares eight years after the date on which they were
purchased and thereafter will no longer be subject to
any distribution fees. There will also be converted at
that time such proportion of Class B Dividend Shares
(Class B shares that were acquired through the
reinvestment of dividends and distributions) owned by
the shareholder as the total number of his or her Class
B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class
B Dividend Shares) owned by the shareholder.
In determining the applicability of any CDSC, it will
be assumed that a redemption is made first of shares
representing capital appreciation, next of shares
representing the reinvestment of dividends and capital
gain distributions and finally of other shares held by
the shareholder for the longest period of time. The
length of time that Deferred Sales Charge Shares
acquired through an exchange have been held will be
calculated from the date that the shares exchanged were
initially acquired in one of the other Smith Barney
Mutual Funds, and fund shares being redeemed will be
considered to represent, as applicable, capital
appreciation or dividend and capital gain distribution
reinvestments in such other funds. For Federal income
tax purposes, the amount of the deferred sales charge
will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption. The
amount of any deferred sales charge will be paid to
Salomon Smith Barney.
To provide an example, assume an investor purchased 100
Class B shares of the fund at $10 per share for a cost
of $1,000. Subsequently, the investor acquired 5
additional shares of the fund through dividend
reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of his or
her investment. Assuming at the time of the redemption
the net asset value had appreciated to $12 per share,
the value of the investor's shares would be $1,260 (105
shares at $12 per share). The deferred sales charge
would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested
dividend shares ($60). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged
at a rate of 4.00% (the applicable rate for Class B
shares) for a total deferred sales charge of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a)
exchanges (see ''Exchange Privilege''); (b) automatic
cash withdrawals in amounts equal to or less than 1.00%
per month of the value of the shareholder's shares at
the time the withdrawal plan commences (see ''Automatic
Cash Withdrawal Plan'') (provided, however, that
automatic cash withdrawals in amounts equal to or less
than 2.00% per month of the value of the shareholder's
shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions
of shares within 12 months following the death or
disability of the shareholder; (d) redemptions of
shares made in connection with qualified distributions
from retirement plans or IRAs upon the attainment of
age 591/2; (e) involuntary redemptions; and
(f) redemptions of shares to effect a combination of
the fund with any investment company by merger,
acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other Smith
Barney Mutual Funds may, under certain circumstances,
reinvest all or part of the redemption proceeds within
60 days and receive pro rata credit for any deferred
sales charge imposed on the prior redemption.
Deferred sales charge waivers will be granted subject
to confirmation (by Salomon Smith Barney in the case of
shareholders who are also Salomon Smith Barney clients
or by the Transfer Agent in the case of all other
shareholders) of the shareholder's status or holdings,
as the case may be.
Smith Barney 401(k) and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith
Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program. To the extent applicable, the same terms and
conditions, which are outlined below, are offered to
all plans participating (''Participating Plans'') in
these programs.
The fund offers to Participating Plans Class A and
Class L shares as investment alternatives under the
Smith Barney 401(k) and ExecChoiceTM Programs. Class A
and Class L shares acquired through the Participating
Plans are subject to the same service and/or
distribution fees as the Class A and Class L shares
acquired by other investors; however, they are not
subject to any initial sales charge or deferred sales
charge. Once a Participating Plan has made an initial
investment in the fund, all of its subsequent
investments in the fund must be in the same Class of
shares, except as otherwise described below.
Class A Shares. Class A shares of the fund are offered
without any sales charge or deferred sales charge to
any Participating Plan that purchases $1,000,000 or
more of Class A shares of one or more funds of the
Smith Barney Mutual Funds.
Class L Shares. Class L shares of the fund are offered
without any sales charge or deferred sales charge to
any Participating Plan that purchases less than
$1,000,000 of Class L shares of one or more funds of
the Smith Barney Mutual Funds.
401(k) and ExecChoiceTM Plans Opened On or After June
21, 1996. If, at the end of the fifth year after the
date the Participating Plan enrolled in the Smith
Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program, a Participating Plan's total Class L 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
for Class A shares of the fund. Such Plans will be
notified in writing within 30 days after the last
business day of the calendar year and, unless the
exchange offer has been rejected in writing, the
exchange will occur on or about the last business day
of the following March.
Any Participating Plan in the Smith Barney 401(k) or
the Smith Barney ExecChoiceTM Programs, whether opened
before or after June 21, 1996, that has not previously
qualified for an exchange into Class A shares will be
offered the opportunity to exchange all of its Class L
shares for Class A shares of the fund, regardless of
asset size, at the end of the eighth year after the
date the Participating Plan enrolled in the Smith
Barney 401(k) Program. Such Plans will be notified of
the pending exchange in writing approximately 60 days
before the eighth anniversary of the enrollment date
and, unless the exchange has been rejected in writing,
the exchange will occur on or about the eighth
anniversary date. Once an exchange has occurred, a
Participating Plan will not be eligible to acquire
additional Class L shares of the fund, but instead may
acquire Class A shares of the fund. Any Class L shares
not converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the
fund through the Smith Barney 401(k) Program or the
Smith Barney ExecChoiceTM Program must purchase such
shares directly from the sub-transfer agent. For
further information regarding these Programs, investors
should contact a Salomon Smith Barney Financial
Consultant.
EXCHANGE PRIVILEGE
Shares of each Class of the fund may be exchanged for
shares of the same Class of certain Smith Barney Mutual
Funds, to the extent shares are offered for sale in the
shareholder's state of residence. Exchanges of Class
A, Class B and Class L shares are subject to minimum
investment requirements and all shares are subject to
the other requirements of the fund into which exchanges
are made.
Class B Exchanges. If a Class B shareholder wishes to
exchange all or a portion of his or her shares in any
of the funds imposing a higher deferred sales charge
than that imposed by the fund, the exchanged Class B
shares will be subject to the higher applicable
deferred sales charge. Upon an exchange, the new Class
B shares will be deemed to have been purchased on the
same date as the Class B shares of the fund that have
been exchanged.
Class L Exchanges. Upon an exchange, the new Class L
shares will be deemed to have been purchased on the
same date as the Class L shares of the fund that have
been exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the fund who wish to exchange all or a
portion of their shares for shares of the respective
Class in any of the funds identified above may do so
without imposition of any charge.
Additional Information Regarding the Exchange
Privilege. Although the exchange privilege is an
important benefit, excessive exchange transactions can
be detrimental to the fund's performance and its
shareholders. The manager may determine that a pattern
of frequent exchanges is excessive and contrary to the
best interests of the fund's other shareholders. In
this event, the fund may, at its discretion, decide to
limit additional purchases and/or exchanges by the
shareholder. Upon such a determination, the fund will
provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her
shares in the fund or (b) remain invested in the fund
or exchange into any of the funds of the Smith Barney
Mutual Funds ordinarily available, which position the
shareholder would be expected to maintain for a
significant period of time. All relevant factors will
be considered in determining what constitutes an
abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by
telephone. See ''Redemption of Shares-Telephone
Redemptions and Exchange Program.'' Exchanges will be
processed at the net asset value next determined.
Redemption procedures discussed below are also
applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper
form. If the account registration of the shares of the
fund being acquired is identical to the registration of
the shares of the fund exchanged, no signature
guarantee is required. An exchange involves a taxable
redemption of shares, subject to the tax treatment
described in "Additional Tax Information" above,
followed by a purchase of shares of a different fund.
Before exchanging shares, investors should read the
current prospectus describing the shares to be
acquired. The fund reserves the right to modify or
discontinue exchange privileges upon 60 days' prior
notice to shareholders.
REDEMPTION OF SHARES
The fund is required to redeem the shares of the fund
tendered to it, as described below, at a redemption
price equal to their net asset value per share next
determined after receipt of a written request in proper
form at no charge other than any applicable deferred
sales charge. Redemption requests received after the
close of regular trading on the NYSE are priced at the
net asset value next determined.
If a shareholder holds shares in more than one Class,
any request for redemption must specify the Class being
redeemed. In the event of a failure to specify which
Class, or if the investor owns fewer shares of the
Class than specified, the redemption request will be
delayed until the Transfer Agent receives further
instructions from Salomon Smith Barney, or if the
shareholder's account is not with Salomon Smith Barney,
from the shareholder directly. The redemption proceeds
will be remitted on or before the third business day
following receipt of proper tender, except on any days
on which the NYSE is closed or as permitted under the
1940 Act in extraordinary circumstances. Generally, if
the redemption proceeds are remitted to a Salomon Smith
Barney brokerage account, these funds will not be
invested for the shareholder's benefit without specific
instruction and Salomon Smith Barney will benefit from
the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a
certified or official bank check, will be remitted upon
clearance of the check, which may take up to fifteen
days or more.
Shares held by Salomon Smith Barney as custodian must
be redeemed by submitting a written request to a
Salomon Smith Barney Financial Consultant. Shares other
than those held by Salomon Smith Barney as custodian
may be redeemed through an investor's Financial
Consultant, Dealer Representative or by submitting a
written request for redemption to:
Smith Barney World Funds, Inc./[name of fund]
Class A, B, L or Y (please specify)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
A written redemption request must (a) state the Class
and number or dollar amount of shares to be redeemed,
(b) identify the shareholder's account number and (c)
be signed by each registered owner exactly as the
shares are registered. If the shares to be redeemed
were issued in certificate form, the certificates must
be endorsed for transfer (or be accompanied by an
endorsed stock power) and must be submitted to the sub-
transfer agent together with the redemption request.
Any signature appearing on a share certificate, stock
power or written redemption request in excess of
$10,000 must be guaranteed by an eligible guarantor
institution, such as a domestic bank, savings and loan
institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of
$10,000 or less do not require a signature guarantee
unless more than one such redemption request is made in
any 10-day period. Redemption proceeds will be mailed
to an investor's address of record. The Transfer Agent
may require additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A redemption
request will not be deemed properly received until the
Transfer Agent receives all required documents in
proper form.
Automatic Cash Withdrawal Plan. The fund offers
shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at
least $10,000 may elect to receive cash payments of at
least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal
plans only where the shareholder is eligible to receive
qualified distributions and has an account value of at
least $5,000. The withdrawal plan will be carried over
on exchanges between Classes of a fund. Any applicable
deferred sales charge will not be waived on amounts
withdrawn by a shareholder that exceed 1.00% per month
of the value of the shareholder's shares subject to the
deferred sales charge at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect
prior to November 7, 1994, any applicable deferred
sales charge will be waived on amounts withdrawn that
do not exceed 2.00% per month of the value of the
shareholder's shares subject to the deferred sales
charge.) For further information regarding the
automatic cash withdrawal plan, shareholders should
contact a Salomon Smith Barney Financial Consultant or
your Dealer Representative or the sub-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 sub-
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 sub-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 sub-
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
Manager
SSB Citi Fund Management LLC (successor to SSBC Fund
Management Inc.) (the ''Manager'') serves as each
fund's investment manager. The Manager is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc.
(''Holdings''). Holdings is a wholly owned subsidiary
of Citigroup. The Manager was incorporated on March
12, 1968 under the laws of Delaware. As of January 31,
2000 the Manager had aggregate assets under management
of in excess of $127.4 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 1997, 1998 and 1999 the management
fees for each fund were as follows:
Fund
1997
1998
1999
International Equity
$11,766,569
$11,110,120
$10,291,301
Global Government
Bond
1,123,627
1,055,789
1,024,623
European
390,268
530,065
708,758
Pacific
79,628
50,789
58,938
International
Balanced
471,084
403,368
126,157
Emerging Markets
380,979
242,829
140,773
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.
Code of Ethics. Pursuant to Rule 17j-1 of the 1940 Act,
the funds, their investment advisers and principal
underwriter have adopted codes of ethics that permit
personnel to invest in securities for their own
accounts, including securities that may be purchased or
held by the funds. All personnel must place the
interest of clients first and avoid activities,
interests and relationships that might interfere with
the duty to make decisions in the best interests of the
clients. All personal securities transactions by
employees must adhere to the requirements of the codes
and must be conducted in such a manner as to avoid any
actual or potential conflict of interest, the
appearance of such a conflict, or the abuse of an
employee's position of trust and responsibility.
Distributor. CFBDS, Inc. ("CFBDS"), located at 20 Milk
Street, Boston, Massachusetts 02109-5408, serves as the
Company's distributor pursuant to a written agreement
dated October 8, 1998 (the "Distribution Agreement")
which was approved by the Company's Board of Directors,
including a majority of the Independent Directors on
July 13, 1998. Prior to the merger of Travelers Group
Inc. and Citicorp Inc. on October 8, 1998, Salomon
Smith Barney served as the fund's distributor. Salomon
Smith Barney continues to sell the funds shares as part
of the selling group.
Commissions on Class A Shares. For the 1997 fiscal
year, the aggregate dollar amount of commissions on
Class A shares, all of which was paid to Salomon Smith
Barney, is as follows:
Class A
Name of Fund
Fiscal Year
Ended 10/31/97
Global Government Bond
$11,000
International Equity
633,000
International Balanced
12,000
Emerging Markets
94,000
European
56,000
Pacific
9,000
For the period November 1, 1997 through October 7, 1998
, for the period October 8, 1998 through October 31,
1998 and for the fiscal year ended October 31, 1999 the
aggregate dollar amounts of commissions on Class A
shares, are as follows:
Class A
Name of Fund
11/01/97
through
10/07/98*
10/08/98
through
10/31/98**
11/01/98
through
11/01/99***
Global Government Bond
$15,000
$1,000
$7,000
International Equity
467,000
51,000
646,000
International Balanced
4,000
0
14,000
Emerging Markets
15,000
0
6,0000
European
213,000
29,000
181,000
Pacific
35,000
0
11,000
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith
Barney: $900, $45,900, $0, $0, $26,100 and $0,
respectively. The remainder was paid to CFBDS.
***The following amounts were paid to Salomon Smith
Barney: $6,300, $581,400, $12,600, $5,400, $162,000
and $9,990.
Commissions on Class L Shares. For the period June 12,
1998 through October 7, 1998, for the period October 8,
1998 through October 31, 1998 and for the fiscal year
ended October 31, 1999, the aggregate dollar amounts of
commission on Class L shares are as follows:
Class L
(On June 12, 1998, Class C shares were
renamed Class L Shares)
Name of Fund
06/12/98
through
10/07/98*
10/08/98
through
10/31/98**
11/01/98
through
10/31/99***
Global Government Bond
$0
$0
$0
International Equity
25,000
1,000
67,000
International Balanced
0
0
0
Emerging Markets
0
0
3,000
European
61,000
1,000
33,000
Pacific
0
0
7,0000
* The entire amount was paid to Salomon Smith
Barney.
** The following amounts were paid to Salomon Smith
Barney: $0, $900, $0, $0, $900, and $0,
respectively. The remainder was paid to CFBDS.
***The following amounts were paid to Salomon Smith
Barney: $0, $60,300, $0, $2,700, $29,700 and $6,300.
The remainder was paid to CFBDS
Deferred Sales Charges on Class A, B and L Shares For
the 1997, 1998 and 1999 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 10/31/97
Fiscal Year
Ended 10/31/98
Fiscal Year
Ended 10/31/99
Global Government Bond
$0
$0
$0
International Equity
2,000
$5,000
10,000
International Balanced
0
0
5,000
Emerging Markets
0
0
1,000
European
0
7,0000
1,000
Pacific
0
1,000
0
Class B
Name of Fund
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Fiscal Year
Ended 10/31/99
Global Government Bond
$41,000
$16,000
$8,000
International Equity
608,000
568,000
384,000
International Balanced
17,000
14,000
11,000
Emerging Markets
61,000
72,000
31,000
European
36,000
259,000
106,000
Pacific
12,000
25,000
24,000
Class L
(On June 12,1998, Class C shares were
renamed Class L Shares)
Name of Fund
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Fiscal Year
Ended 10/31/99
Global Government Bond
$0
$0
$0
International Equity
15,000
11,000
19,000
International Balanced
0
0
0
Emerging Markets
0
1,0000
0
European
1,000
8,000
6,000
Pacific
1,000
0
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 1997, 1998 and 1999 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 10/31/97
Fiscal Year
Ended 10/31/98
Fiscal Year
Ended 10/31/99
Global Government Bond
$249,862
$222,926
195,608
International Equity
1,282,917
1,108,230
1,072,787
International Balanced
34,906
24,416
21,777
Emerging Markets
37,470
23,548
13,847
European
32,501
53,687
77,884
Pacific
9,943
5,418
6,297
Class B
Name of Fund
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Fiscal Year
Ended 10/31/99
Global Government Bond
$169,569
$127,964
$91,284
International Equity
2,375,547
2,106,818
1,856,625
International Balanced
56,286
41,008
34,584
Emerging Markets
189,861
117,539
57,331
European
302,094
350,335
403,279
Pacific
37,798
28,064
24,979
Class L
(On June 12, 1998, Class C shares were
renamed Class L Shares)
Name of Fund
Fiscal Year
Ended 10/31/97
Fiscal Year
Ended 10/31/98
Fiscal Year
Ended 10/31/98
Global Government Bond
$25,078
$20,234
$14,313
International Equity
2,261,441
1,771,900
1,574,066
International Balanced
42,281
31,758
26,727
Emerging Markets
41,594
29,080
16,714
European
27,521
58,524
119,017524
Pacific
16,217
10,015
19,168
For the fiscal year ended October 31, 1999, Salomon
Smith Barney incurred the following distribution
expenses for the funds:
Fund Name
Advertis
ing
Printing
and
Mailing
of
Prospectu
ses
Support
Service
s
Salomon
Smith
Barney
Financial
Consultant
s
Intere
st
Expens
e
Total
Emerging
Markets
$468
$145
$7,073
$4,455
$119
$12,261
European
2,806
930
39,802
30,127
5,188
78,854
Global
Government
2,432
234
58,643
28,037
2,320
91,665
Internatio
nal
Balanced
383
383
106
4,754
2,962
15,821
Internatio
nal Equity
25,260
25,260
6,389
419,641
123,17
0
883,982
Pacific
4,088
816
110
11,852
1,928
22,243
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, 1999, 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 , 1997, 1998 and 1999. 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 1999, the total
amount of commissionable transactions was $
1,034,377,889 of which $ 67,234,562 (6.50%) was
directed to Salomon Smith Barney and executed by
unaffiliated brokers and $967,143,327 (93.50%) of which
was directed to other brokers.
Commissions
Total
To Salomon Smith Barney
To Others
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
1999
2,594,887
161,411
6.22
2,433,476
93.78
* Directed to Salomon Smith Barney and executed by
unaffiliated brokers.
CUSTODIAN
Portfolio securities and cash owned by the Company are
held in the custody of The Chase Manhattan Bank, Chase
Metrotech Center, Brooklyn, New York 11245.
INDEPENDENT AUDITORS
KPMG LLP, 757 Third Avenue, New York, New York 10017,
has been selected as the Company's independent auditors
to examine and report on the financial statements and
financial highlights of the Company for its fiscal year
ending October 31, 2000.
VOTING
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 a majority of the
outstanding shares of the Company have voted that the
director be removed by votes cast in person or by
proxy. The Company will assist shareholders in calling
such a meeting as required by the 1940 Act. Except as
set forth above, the directors shall continue to hold
office and may appoint successor directors.
As used in the Prospectus and this Statement of
Additional Information, a "vote of a majority of the
outstanding voting securities" means the affirmative
vote of the lesser of (a) more than 50% of the
outstanding shares of the Company (or the affected fund
or class) or (b) 67% or more of such shares present at
a meeting if more than 50% of the outstanding shares of
the Company (or the affected fund or class) are
represented at the meeting in person or by proxy.
The following table contains a list of shareholders who
of record or beneficially owned at least 5% of the
outstanding shares of a particular class of shares of a
fund of the Company as of February 7, 2000.
INTERNATIONAL BALANCED PORTFOLIO CLASS L PERCENTAGE OF
SHARES
1
Daniel H. & Margaret L. Becker
Charitable Remainder Unitrust
Attn: A N Plato Jr. TTTEE
1111 Baordman Canfield Road
Youngstown Oh 44512-4062
5.8390
PACIFIC PORTFOLIO CLASS A
PERCENTAGE OF SHARES
1
Michael F. Konak
Holanda 337, D-805
Santiago Chile
5.1358
PACIFIC PORTFOLIO CLASS L
PERCENTAGE OF SHARES
1
Molly F. Greene and George C. Greene JTWROS
P.O. Box 30712
Charleston, SC 29417-0712
5.4761
GLOBAL GOVERNMENT BOND PORTFOLIO CLASS Y PERCENTAGE OF
SHARES
1
Salomon Smith Barney
Concert Allocation Series Inc.
Balanced Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
53.5829
2
Salomon Smith Barney
Concert Allocation Series, Inc.
Select Balanced Portfolio
PNC Bank Attn: Beverly Timpson
200 Steven Drive Suite 440
Lester, Pa 19113-1522
20.0873
3
Salomon Smith Barney
Concert Allocation Series Inc.
Conservative Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
14.6620
4
Salomon Smith Barney
Concert Allocation Series
Select Balanced Portfolio PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113-1522
5.8752
EMERGING MARKETS PORTFOLIO CLASS A PERCENTAGE
OF SHARES
1
Pension Plan of Grand Lodge
Of Free and Accepted Masons of
PA and of the Masonic Homes
One North Broad Street
Philiadelphia, Pa 19107-2520
5.7923
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 and Sub-Transfer Agent: Smith Barney
Private Trust Company, located at 388 Greenwich Street,
New York, New York 10013 serves as the Transfer Agent
and shareholder services agent for the fund. PFPC
Global Fund Services, located at P.O. Box 9699
Providence, R.I. 02940-9699 serves as the fund's sub-
trnasfer agent to render certain shareholder record
keeping and accounting services functions.
Annual and Semi-Annual Reports. Management's
discussion and analysis, and additional performance
information regarding the funds during the fiscal year
ended October 31, 1999 is included in the annual report
dated October 31, 1999. 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
The following financial information is hereby
incorporated by reference to the indicated pages of the
Company's 1999 Annual Report to Shareholders( filed on
January 6, 2000; Accession number 0000091155-00-
000018), copies of which are furnished with this
Statement of Additional Information.
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.
3
3
U/legal/funds/sbwf/2000/secdocs/SAI2000
A-3
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A-
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A-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(18)
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 (18)
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(18)
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(18)
Footnotes:
(1) Incorporated by reference to to the Fund's
Registration
Statement on Form N-1A filed on March 26, 1991.
(2) Incorporated by reference to Post-Effective
Amendment
No. 2 to the Fund's Registration Statement on Form
N-1A filed
on September 24, 1991.
(3) Incorporated by reference to Post-Effective
Amendment
No. 6 to the Fund's Registration Statement on Form
N-1A filed
on December 21, 1992.
(4) Incorporated by reference to Pre-Effective
Amendment
No. 1 to the Fund's Registration Statement on Form
N-1A filed
on May 27, 1991.
(5) Intentionally left blank.
(6) Incorporated by reference to Pre-Effective
Amendment
No. 2 to the Fund's Registration Statement on Form
N-1A filed
on June 14, 1991.
(7) Intentionally left blank.
(8) Incorporated by reference to Post-Effective
Amendment
No. 3 to the Fund's Registration Statement on Form
N-1A filed
on January 17, 1992.
(9) Incorporated by reference to Post-Effective
Amendment
No. 8 to the Fund's Registration Statement on Form
N-1A filed
on November 5, 1993.
(10) Incorporated by reference to Post-Effective
Amendment
No. 9 to the Fund's Registration Statement on Form
N-1A filed
on January 4, 1994.
(11) Incorporated by reference to Post-Effective
Amendment
No. 12 to the Fund's Registration Statement on
Form N-1A filed
on July 27, 1994.
(12) Incorporated by reference to Post-Effective
Amendment
No. 14 to the Fund's Registration Statement on
Form N-1A filed
on October 31, 1994.
(13) Incorporated by reference to Post-Effective
Amendment
No. 15 to the Fund's Registration Statement on
Form N-1A filed
on February 28, 1995.
(14) Incorporated by reference to Post-Effective
Amendment
No. 17 to the Fund's Registration Statement on
Form N-1A filed
on February 28, 1996.
(15) Incorporated by reference to Post-Effective
Amendment
No. 18 to the Fund's Registration Statement on
Form N-1A filed
on December 27, 1996.
(16) Incorporated by reference to Post-Effective
Amendment
No. 19 to the Fund's Registration Statement on
Form N-1A filed
on February 21, 1997.
(17) Incorporated by reference to Post-Effective
Amendment
No. 22 to the Fund's Registration Statement on
Form N-1A filed
on December 29, 1998.
(18) Incorporated by reference to Post-Effective
Amendment
No. 23 to the Fund's Registration Statement on
Form N1-A filed
On February 25, 1999.
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
Investment Adviser - SSB Citi Fund Management LLC ("SSB
Citi")
(successor to as Mutual Management Corp. Smith Barney
Mutual Funds
Management Inc. and Smith, Barney Advisers, Inc.) was
incorporated in December 1968 under the laws of the
State of Delaware. On September 21, 1999, SSB Citi was
converted into a Delaware Limited Liability Company. SSB
Citi is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"), which in turn is a
wholly owned subsidiary of Citigroup Inc. (formerly
known as Travelers Group Inc.). SSB Citi is registered
as an investment adviser under the Investment Advisers
Act of 1940 (the "Advisers Act") and has, through its
predecessors, been in the investment counseling business
since 1968.
The list required by this Item 26 of officers and
directors of SSB Citi together with information as to
any other business, profession, vocation or employment
of a substantial nature engaged in by such officers and
directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of FORM
ADV filed by SSB Citi pursuant to the Advisers Act (SEC
File No. 801-8314).
Item 27. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor, is also
the distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM
Large Cap
Growth Portfolio, CitiFundsSM Intermediate Income
Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash
Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM
Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid
Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax Free
Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM
Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM
Growth & Income
Portfolio,CitiFundsSM Small Cap Growth Portfolio,
CitiFundsSM National
Tax Free Income Portfolio, CitiFundsSM New York Tax Free
Income
Portfolio,CitiSelect VIP Folio 200, Citiselect VIP Folio
300,
CitiSelect VIP Folio 400, CitiSelect VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect
Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400, and
CitiSelect Folio
500.
CFBDS is also the placement agent for Large Cap Value
Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity
Portfolio,
Balanced Portfolio, Government Income Portfolio,
Emerging
Asian Markets Equity Portfolio, Tax Free Reserves
Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves
Portfolio.
CFBDS, Inc. is also the distributor for the following
Smith Barney Mutual Fund registrants:
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 Trust
Smith Barney Investment Funds Inc.
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 Natural Resources 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
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, Inc. is also the distributor for the following
Salomon Brothers funds;
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
In addition, CFBDS is also the distributor for the
Centurion Funds,
Inc.
(b) The information required by this Item 27 with
respect to each
director and officer of CFBDS is incorporated by
reference to
Schedule A of Form BD filed by CFBDS pursuant to the
Securities and
Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records
(1) With respect to the Registrant,
Investment Adviser and Administrator:
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(2) With respect to the Registrant's Custodian:
The Chase Manhattan Bank of New York
Chase Metrotech Center
Brooklyn, New York 11245
(3) With respect to the Registrant's Transfer
Agent:
Smith Barney Private Trust Company
388 Greenwich Street
New York, New York 10013
(4) With respect to the Registrant's Sub-
Transfer Agent:
PFPC Global Fund Services
Exchange Place
Boston, Massachusetts 02109
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 2000.
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
2/25/00
/s/Victor Atkins* Director
2/25/00
(Victor Atkins)
/s/Abraham E. Cohen* Director
2/25/00
Abraham E. Cohen
/s/Robert Frankel* Director
2/25/00
(Robert Frankel)
/s/ Michael Gellert* Director
2/25/00
(Michael Gellert)
/s/Rainer Greeven* Director
2/25/00
(Rainer Greeven)
/s/Susan M. Heilbron* Director
2/25/00
(Susan M. Heibron)
/s/ Lewis E. Daidone (Treasurer
2/25/00
(Lewis E. Daidone) Principal Financial
Officer) and Principal
Accounting Officer
*By:/s/ Christina T. Sydor
2/25/00
(Christina T. Sydor)
Pursuant to Power of Attorney
EXHIBIT INDEX
j. Auditor's Consent
n. Financial Data Schedule
Cover
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney World Funds, Inc.:
We consent to the incorporation by reference, with
respect to the portfolios listed below for the Smith
Barney World Funds, Inc. (the Funds), in the
respective Prospectus and Statement of Additional
Information, of our report dated December 15, 1999, on
the statement of assets and liabilities as of October
31, 1999 and the related statement of operations for
the year then ended, the statements of changes in net
assets for each of the years in the two-year period
then ended and the financial highlights for each of
the years in the five-year period then ended. These
financial statements and financial highlights and our
report thereon are included in the Annual Report of
the Funds as filed on Form N-30D.
We also consent to the references to our firm under
the headings "Financial Highlights" in the respective
Prospectus and "Independent Auditors" in the Statement
of Additional Information.
Portfolio
Global Government Bond Portfolio
International Equity Portfolio
Pacific Portfolio
European Portfolio
International Balanced Portfolio
Emerging Markets Portfolio
K
PMG
LLP
New York, New York
February 24, 2000
Page
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 6
<CIK> 0000873637
<NAME> SMITH BARNEY WORLD FUNDS, INC.
<SERIES>
<NUMBER> 6
<NAME> EMERGING MARKETS PORTFOLIO. CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> OCT-31-1999
<INVESTMENTS-AT-COST> 10,803,276
<INVESTMENTS-AT-VALUE> 13,511,487
<RECEIVABLES> 207,527
<ASSETS-OTHER> 843,920
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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.
<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.
<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.
<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.
<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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<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.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY WORLD FUNDS, INC.
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