[LOGO] Smith Barney Mutual Funds
(R)
PROSPECTUS
Global
Government
Bond Portfolio
Class A, B, L and Y Shares
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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.
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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 ............................... 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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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>
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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
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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>
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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.
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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.
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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>
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Redeeming shares
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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.
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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 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 (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 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 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 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
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 ............................. 24
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds 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 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.
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 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.
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 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>
Fee 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 0.85% 0.85% 0.85% 0.85%
Distribution and service (12b-1) fees 0.25% 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 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 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 and/or other Smith
Barney mutual funds 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 Services
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 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.
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
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. R>
- --------------------------------------------------------------------------------
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, 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 B $0.00(/8/) 3.35%(/7/)
- -----------------------------------------------------------
</TABLE>
(/4/)Total return does not reflect any applicable sales loads or deferred sales
charges.
(/5/)Not annualized.
(/6/)During the year ended October 31, 1996 and the period ended October 31,
1995, the fund earned credits from the custodian which reduced service fees
incurred. If the credits are taken into consideration, the expense ratios
would have been 2.56% and 3.26%(/8/), respectively.
(/7/)Annualized.
(/8/)Amount represents less than $0.01 per share.
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 years 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 ............................. 24
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds 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 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.
</R?
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, New Zealand, Norway, Sweden, Switzerland, Spain, the
United Kingdom and the United States. Equity securities include common and
preferred stocks, debt securities convertible into equity securities, and
warrants and rights relating to equity securities.
Selection process The manager selects investments for their capital 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 Services
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%(/4/)
Net investment loss (0.80) (0.16)(/4/)
- ----------------------------------------------------------------
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
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 the International Equity 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, the International Balanced Portfolio and the
Emerging Markets Portfolio, which may be obtained from the
Company or your Salomon Smith Barney Financial Consultant.
TABLE OF CONTENTS
P
a
g
e
Directors, Advisory Director and Officers
3
Investment Policies
5
Investment Practices
10
Risk Factors
20
Investment Restrictions
24
Additional Tax Information
27
IRA and Other Prototype Retirement Plans
` 29
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 Markets 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 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.
On October 31, 1999, the unused capital loss carryovers, by
fund, were approximately as follows: Emerging Markets
Portfolio, $11,076,000, Global Government Bond Portfolio,
$2,148,000, International Balanced Portfolio, $338,000 and
Pacific Portfolio, $3,402,200. For Federal income tax
purposes, these amounts are available to be applied against
future capital gains of the fund that has the carryovers, if
any, that are realized prior to the expiration of the
applicable carryover. The carryovers expire as follows:
Name of Fund
OCTOBER
31,
(in thousands)
2003
2004
2005
2006
2007
Emerging
Markets
$45
- --
$880
$5,53
3
$4,61
8
Global Gov't
Bond
- --
- --
- --
- --
$2,14
8
Int'l Balanced
- --
- --
- --
- --
$338
Pacific
$917
$246
$515
$1,72
4
- --
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.
**There are no Class 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 Class 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 the 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 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 and converted to a Delaware
limited liability company in 1999. 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
_____________________
*For the fiscal year ended October 31, 1999, the Manager
waive $58,938 in management fees.
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 interests 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
10/31/99***
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
commissions 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 fee,
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.
Styles of Fund Management: In an industry where the average
portfolio manager has seven years of experience (source:
ICI, 1998), the portfolio managers of Smith Barney Mutual
Funds average 21 years in the industry and 15 years with the
firm.
Smith Barney Mutual Funds offers more than 60 mutual funds.
We understand that many investors prefer an active role in
allocating the mix of funds in their portfolio, while others
want the asset allocation decisions to be made by
experienced managers.
That's why we offer four "styles" of fund management that
can be tailored ot suit each investor's unique financial
goals.
Style Pure Series - Our style Pure Series funds stay fully
invested within their asset class and investment style,
enabling investors to make asset allocation decisions in
conjunction with their Salomon Smith Barney Financial
Consultant.
Classic Investor Series - Our Classic Investor Series funds
offer a range of equity and fixed income strategies that
seek to capture opportunities across asset classes and
investment styles using disciplined investment approaches.
The Concert Allocation Series - As a fund of funds,
investors can select a Concert Portfolio that may help their
investment needs. As needs change, investors can easily
choose another long-term, diversified investment from our
Concert family.
Special Discipline Series - Our Special Discipline Series
funds are designed for investors who are looking beyond more
traditional market categories: from natural resources to a
roster of state-specific municipal funds.
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-transfer 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.
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