PROSPECTUS

                                                                    SMITH BARNEY
                                                               WORLD FUNDS, INC.

                                                                   International
                                                                          Equity
                                                                       Portfolio

   
                                                               FEBRUARY 28, 1996
    

                                                   Prospectus begins on page one




[Logo] Smith Barney Mutual Funds
       Investing for your future.
       Every day.

<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio
   
================================================================================
Prospectus                                                     February 28, 1996
================================================================================
    

    388 Greenwich Street
    New York, New York 10013
    (212) 723-9218

     The International Equity Portfolio (the "Portfolio") is one of the
investment portfolios that currently comprise Smith Barney World Funds, Inc.
(the "Fund"). The Portfolio seeks a total return on its assets from growth of
capital and income. The Portfolio seeks to achieve its objective by investing at
least 65% of its assets in a diversified portfolio of equity securities of
established non-United States issuers. THE PORTFOLIO MAY BORROW FOR INVESTMENT
PURPOSES, WHICH INVOLVES CERTAIN RISK CONSIDERATIONS; SEE "LEVERAGE."

     This Prospectus sets forth concisely certain information about the Fund and
the Portfolio, including sales charges, distribution and service fees and
expenses, that prospective investors will find helpful in making an investment
decision. Investors are encouraged to read this Prospectus carefully and retain
it for future reference.

   
     Additional information about the Portfolio is contained in a Statement of
Additional Information dated February 28, 1996, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by
contacting a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
    

SMITH BARNEY INC.

Distributor

SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.

Investment Manager

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.


                                                                               1
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Smith Barney World Funds, Inc. --
International Equity Portfolio

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Table of Contents
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Prospectus Summary                                                            3
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Financial Highlights                                                         10
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Investment Objective and Management Policies                                 13
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Valuation of Shares                                                          20
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Dividends, Distributions and Taxes                                           22
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Purchase of Shares                                                           24
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Exchange Privilege                                                           34
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Redemption of Shares                                                         38
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Minimum Account Size                                                         41
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Performance                                                                  41
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Management of the Fund                                                       42
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Distributor                                                                  43
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Additional Information                                                       44
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     No person has been authorized to give or to make any representation in
connection with this offering other than those contained in this Prospectus and,
if given or made, such other information and representations must not be relied
upon as having been authorized by the Fund or the Distributor. This Prospectus
does not constitute an offer by the Fund or the Distributor to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.

================================================================================

2
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Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Prospectus Summary
================================================================================

     The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospectus.
See "Table of Contents."

     INVESTMENT OBJECTIVE  The Portfolio is an open-end, management investment
company whose investment objective is to seek a total return on its assets from
growth of capital and income. The Portfolio seeks to achieve its objective by
investing at least 65% of its assets in a diversified portfolio of equity
securities of established non-United States issuers. See "Investment Objective
and Management Policies." 

     ALTERNATIVE PURCHASE ARRANGEMENTS  The Portfolio offers several classes of
shares ("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. In
addition, a fifth Class, Class Z shares, which is offered pursuant to a separate
prospectus, is offered exclusively to tax-exempt employee benefit and retirement
plans of Smith Barney Inc. ("Smith Barney") and its affiliates. See "Purchase of
Shares" and "Redemption of Shares."

     Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which when
combined with current holdings of Class A shares offered with a sales charge
equal or exceed $500,000 in the aggregate, will be made at net asset value with
no initial sales charge, but will be subject to a contingent deferred sales
charge ("CDSC") of 1.00% on redemptions made within 12 months of purchase. See
"Prospectus Summary -- Reduced or No Initial Sales Charge."

     Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year after
the date of purchase to zero. This CDSC may be waived for certain redemptions.
Class B shares are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class. The
Class B shares' distribution fee may cause that Class to have higher expenses
and pay lower dividends than Class A shares.

     Class B Shares Conversion Feature. Class B shares will convert 

                                                                               3
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Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Prospectus Summary (continued)
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automatically to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain portion
of Class B shares that have been acquired through the reinvestment of dividends
and distributions ("Class B Dividend Shares") will be converted at that time.
See "Purchase of Shares -- Deferred Sales Change Alternatives."

   
     Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class C shares,
and investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months
of purchase. The CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Portfolio shares, which when
combined with current holdings of Class C shares of the Portfolio equal or
exceed $500,000 in the aggregate, should be made in Class A shares at net asset
value with no sales charge, and will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
    

     Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.

     In deciding which Class of Portfolio shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:

     Intended Holding Period.  The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject to
lower ongoing expenses over the term of the investment. As an alternative, Class
B and Class C shares are sold without any initial sales charge so the entire
purchase price is immediately invested in the Portfolio. Any investment return
on these additional invested amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Portfolio's future return cannot
be predicted, however, there can be no assurance that this would be the case.

     Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B

4
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Smith Barney World Funds, Inc. --
International Equity Portfolio

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Prospectus Summary (continued)
================================================================================

shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.

     Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or
distribution fees. The maximum purchase amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares is $499,999. There is no maximum
purchase amount for Class Y shares.

     Reduced or No Initial Sales Charge.  The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Portfolio. In addition, Class A share
purchases, which when combined with current holdings of Class A shares offered
with a sales charge equal or exceed $500,000 in the aggregate, will be made at
net asset value with no initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000 aggregate
investment may be met by adding the purchase to the net asset value of all Class
A shares offered with a sales charge held in funds sponsored by Smith Barney
listed under "Exchange Privilege." Class A share purchases also may be eligible
for a reduced initial sales charge. See "Purchase of Shares." Because the
ongoing expenses of Class A shares may be lower than those for Class B and Class
C shares, purchasers eligible to purchase Class A shares at net asset value or
at a reduced sales charge should consider doing so.

     Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.

     See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
class of shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.

     SMITH BARNEY 401(K) PROGRAM Investors may be eligible to participate in the
Smith Barney 401(k) Program, which is generally designed to assist plan sponsors
in the creation and operation of retirement plans under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as other types
of participant directed, tax-qualified employee benefit plans (collectively,
"Participating Plans"). Class A, Class B, Class C and Class Y shares are
available as investment alternatives for Participating Plans. See "Purchase of
Shares --Smith Barney 401(k) Program."

                                                                               5
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Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Prospectus Summary (continued)
================================================================================

   
     PURCHASE OF SHARES  Shares may be purchased through a brokerage account
maintained by Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
other institutional investors, may purchase shares directly from the Fund
through the Fund's transfer agent, First Data Investor Services Group, Inc.
("First Data"). See "Purchase of Shares."

     INVESTMENT MINIMUMS  Investors in Class A, Class B and Class C shares may
open an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a Self-Employed
Retirement Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. Subsequent investments of at least $50 may be made for
all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes of shares is $25. The minimum initial
investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes through the Systematic
Investment Plan described below is $50. See "Purchase of Shares."
    

     SYSTEMATIC INVESTMENT PLAN  The Portfolio offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Portfolio shares in an amount of at
least $50. See "Purchase of Shares."

     REDEMPTION OF SHARES  Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."

   
     MANAGEMENT OF THE PORTFOLIO  Smith Barney Mutual Funds Management Inc. (the
"Manager") serves as the Portfolio's investment manager. The Manager is a wholly
owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a diversified
financial services holding company engaged, through its subsidiaries,
principally in four business segments: Investment Services, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Services.
See "Management of the Fund."
    

     EXCHANGE PRIVILEGE  Shares of a Class may be exchanged for shares of the
same Class of certain other funds of the Smith Barney Mutual Funds at the
respective

6
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Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Prospectus Summary (continued)
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net asset values next determined, plus any applicable sales charge differential.
See "Exchange Privilege."

     VALUATION OF SHARES  Net asset value of the Portfolio for the prior day
generally is quoted daily in the financial section of most newspapers and is
also available from a Smith Barney Financial Consultant. See "Valuation of
Shares."

     DIVIDENDS AND DISTRIBUTIONS  Dividends from net investment income and
distributions of net realized capital gains, if any, are declared and paid
annually. See "Dividends, Distributions and Taxes."

     REINVESTMENT OF DIVIDENDS  Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and
distribution reinvestments will become eligible for conversion to Class A shares
on a pro rata basis. See "Dividends, Distributions and Taxes."

     RISK FACTORS AND SPECIAL CONSIDERATIONS  There can be no assurance that the
Portfolio's investment objective will be achieved. The value of the Portfolio's
investments, and thus the net asset value of the Portfolio's shares, will
fluctuate in response to changes in market and economic conditions, as well as
the financial condition and prospects of issuers in which the Portfolio invests.
The Portfolio will invest in foreign securities. Investments in foreign
securities incur higher costs than investments in U.S. securities, including
higher costs in making securities transactions as well as foreign government
taxes which may reduce the investment return of the Portfolio. In addition,
foreign investments may include additional risks associated with currency
exchange rates, less complete financial information about individual companies,
less market liquidity and political instability. See "Investment Objective and
Management Policies."

                                                                               7
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Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Prospectus Summary (continued)
================================================================================

     The Portfolio's Expenses The following expense table lists the costs and
expenses an investor will incur either directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption:

<TABLE>
<CAPTION>

                                                                           Class A         Class B          Class C        Class Y
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>             <C>              <C>            <C>    
Shareholder Transaction Expenses
   Maximum sales charge imposed on purchases
    (as a percentage of offering price)................................     5.00%           None             None           None
   Maximum CDSC (as a percentage of original cost or
    redemption proceeds, whichever is lower)...........................     None*           5.00%            1.00%          None

Annual Portfolio Operating Expenses
(as a percentage of average net assets)
    Management fees....................................................     0.85%           0.85%            0.85%          0.85%
    12b-1 fees**.......................................................     0.25            1.00             1.00             -
    Other expenses***..................................................     0.26            0.28             0.31           0.21
                                                                            ----            ----             ----           ----
Total Portfolio Operating Expenses.....................................     1.36%           2.13%            2.16%          1.06%
                                                                            ====            ====             ====           ====
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     *Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12 months.

     **Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a conversion
feature and, therefore, are subject to an ongoing distribution fee. As a result,
long-term shareholders of Class C shares may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.

   
     ***The Portfolio earned credits from the custodian which reduce service
fees incurred. If the credits are taken into consideration, the ratios of
expenses to average net assets for Class A, B, C and Y would be 1.28%, 2.04%,
2.08% and 0.98% respectively.
    

     The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Portfolio shares and investors
may actually pay lower or no charges, depending on the amount purchased and, in
the case of Class B, Class C and certain Class A shares, the length of time the
shares are held and whether the shares are held through the Smith Barney 401(k)
Program. See "Purchase of Shares" and "Redemption of Shares." Smith Barney
receives an annual 12b-1 service fee of 0.25% of the value of average daily net
assets of Class A shares. Smith Barney also receives with respect to Class B and
Class C shares an annual 12b-1 fee of 1.00% of the value of average daily net
assets of the respective Classes, consisting of a 0.75% distribution fee and a
0.25% service fee. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees, printing costs
and registration fees.

8
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Smith Barney World Funds, Inc. --
International Equity Portfolio

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Prospectus Summary (continued)
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Example

     The following example is intended to assist an investor in understanding
the various costs that an investor in the Portfolio will bear directly or
indirectly. The example assumes payment by the Portfolio of operating expenses
at the levels set forth in the table above. See "Purchase of Shares,"
"Redemption of Shares" and "Management of the Fund."

                                          1 Year   3 Years   5 Years   10 Years*
An investor would pay the following
 expenses on a $1,000 investment,  
 assuming (1) 5.00% annual return and
 (2) redemption at the end of each 
 time period:
       Class A.........................    $63       $91       $121      $205
       Class B.........................     72        97        124       227
       Class C.........................     32        68        116       249
       Class Y.........................     11        34         58       129

An investor would pay the following 
 expenses on the same investment, 
 assuming the same annual return and
 no redemption:
       Class A.........................    $63       $91        $121     $205
       Class B.........................     22        67         114      227
       Class C.........................     22        68         116      249
       Class Y.........................     11        34          58      129

     *Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.

     The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Portfolio's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.

                                                                               9
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Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Financial Highlights
================================================================================
   
     The following information for the three-year period ended December 31, 1993
and for the two-year period ended October 31, 1995 has been audited in
conjunction with the annual audits of the financial statements of Smith Barney
World Funds, Inc. by KPMG Peat Marwick LLP, independent auditors. The 1995
financial statements and the independent auditors' report thereon appear in the
October 31, 1995 Annual Report to Shareholders. 
    

For a share of each class of capital stock outstanding throughout each period:
   
                                                    Period Ended December 31,
Class A Shares(1)                 1995     1994(2)    1993     1992   1991(3)
--------------------------------------------------------------------------------
Net Asset Value, Beginning
  of Period                      $18.79    $18.71    $12.35   $12.31  $11.94
--------------------------------------------------------------------------------
Income From Operations:
  Net Investment Income (Loss)++   0.08     (0.01)    (0.01)    0.02   (0.01)
  Net Realized and Unrealized
    Gain (Loss)                   (1.50)     0.09      6.53     0.04    0.38
--------------------------------------------------------------------------------
Total Income (loss) from
  Operations                      (1.42)     0.08      6.52     0.06    0.37
--------------------------------------------------------------------------------
Less Distributions:
  Net Investment Income           (0.12)      --        --     (0.02)    --
  Net Realized Gains(4)           (0.10)      --       0.16)     --      --
--------------------------------------------------------------------------------
Total Distributions               (0.22)      --      (0.16)   (0.02)    --
--------------------------------------------------------------------------------
Net Asset Value, End
  of Period                      $17.15    $18.79    $18.71   $12.35  $12.31
--------------------------------------------------------------------------------
Total Return#                     (7.44)%    0.43%+++  52.78%    0.49%  3.10%+++
--------------------------------------------------------------------------------
Net Assets End of
  Period (000)'s               $489,533  $591,598  $355,926 $122,605 $54,958
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses(5)                     1.36%      1.35%+    1.35%    1.56%   1.73%+
  Net Investment Income (loss)    0.50      (0.05)+   (0.10)    0.24    0.75+
--------------------------------------------------------------------------------
Portfolio Turnover Rate          42.10      34.75%    26.75%   20.11%   1.85%
--------------------------------------------------------------------------------
Average Commissions Paid
  on equity security 
  transactions(6)                $0.01        --        --       --        --
--------------------------------------------------------------------------------

(1) On October 10, 1994, the former Class C shares were exchanged into Class A
    shares, therefore Class C share activity for the period from January 1,
 1994 to October 9, 1994 is included in Class A share activity.

(2) For the period from January 1, 1994 to October 31, 1994.

(3) For the period from November 22, 1991 (date of transfer of net assets of
    Fenimore International Fund, Inc.) to December 31, 1991.

(4) Net short term gains, if any, are included and reported as ordinary income
    for income tax purposes.

(5) During the year ended October 31, 1995 the Portfolio earned credits from the
    custodian which reduce service fees incurred. If the credits are taken into
    consideration, the ratio of expenses to average net assets for Class A would
    be 1.28%.

(6) Due to new SEC disclosure guidelines, average commissions per share are
    calculated only for the current year and not for the prior periods.

+   Annualized.

+++ Total return is not annualized, as it may not be representative of the total
    return for the year.

#   Total returns do not reflect any applicable sales loads or contingent
    deferred sales charges.

++ Includes realized gains and losses from foreign currency transactions. For a
   share of each class of capital stock outstanding throughout each period:
    
10
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Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Financial Highlights (continued)
================================================================================

For a share of each class of capital stock outstanding throughout each period:

                                          Class B             Class C(1)
                                          -------   ----------------------------
                                      1995(2)     1995     1994(3)      1993(4) 
--------------------------------------------------------------------------------
Net Asset Value, Beginning of Period  $18.38    $18.54   $18.58       $12.35
--------------------------------------------------------------------------------
Income (Loss) From Operations:
  Net Investment Income (Loss)++        0.06     (0.06)   (0.11)        0.14
  Net Realized and Unrealized
    Gain (Loss)                        (1.17)    (1.45)    0.07         6.25
--------------------------------------------------------------------------------
Total Income (Loss) From Operations    (1.11)    (1.51)   (0.04)        6.39
--------------------------------------------------------------------------------
Less Distributions From:
  Net Investment Income                  --       --        --           --
  Net Realized Gains(5)                (0.10)    (0.10)     --         (0.16)
--------------------------------------------------------------------------------
Total Distributions                    (0.10)    (0.10)     --         (0.16)
--------------------------------------------------------------------------------
Net Asset Value, End of Period        $17.17    $16.93   $18.54       $18.58
--------------------------------------------------------------------------------
Total Return#                          (6.00)%++ (8.11)%  (0.22)%+++   51.73%+++
--------------------------------------------------------------------------------
Net Assets, End of Period (000s)    $126,171  $240,090 $287,458     $114,951
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses(6)                           2.13%+    2.16%    2.10%+      2.14%+
  Net Investment Income (Loss)          0.34+    (0.34)   (0.77)+      (1.08)+
--------------------------------------------------------------------------------
Portfolio Turnover Rate                42.10%    42.10%   34.75%       26.75%
================================================================================
Average Commissions Paid on
  Equity Security Transactions(7)      $0.01     $0.01        --          --
================================================================================

(1) On November 7, 1994, the former Class B shares were renamed Class C shares.

(2) For the period from November 7, 1994 (inception date) to October 31, 1995.

(3) For the period from January 1, 1994 to October 31, 1994.

(4) For the period from January 4, 1993 (inception date) to December 31, 1993.

(5) Net short term gains, if any, are included and reported as ordinary income
    for income tax purposes.

(6) During the period ended October 31, 1995, the Portfolio earned credits from
    the custodian which reduce service fees incurred. If the credits are taken 
    into consideration, the ratios of expenses to average net assets for 
    Class B and C would be 2.04%+ and 2.08%, respectively; prior year numbers 
    have not been restated to reflect these credits.

(7) Due to new SEC disclosure guidelines, average commissions per share are
    calculated only for the current year and not for the prior periods.

++ Includes realized gains and losses from foreign currency transactions.

+++Total return is not annualized, as it may not be representative of the total
   return for the year.

+  Annualized.

#  Total returns do not reflect any applicable sales loads or contingent
   deferred sales charges.
    
                                                                              11
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Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Financial Highlights (continued)
================================================================================

   
For a share of each class of capital stock outstanding throughout each period:

                                                           Class Y(1)
                                                  ---------------------------
                                                   1995              1994(2)
--------------------------------------------------------------------------------
Net Asset Value, Beginning of Period              $18.80             $17.64
--------------------------------------------------------------------------------
Income (Loss) From Operations:
  Net Investment Income++                           0.10               0.01
  Net Realized and Unrealized
  Gain (Loss)                                      (1.50)              1.15
--------------------------------------------------------------------------------
Total Income (Loss) from Operations                (1.40)              1.16
--------------------------------------------------------------------------------
Less Distributions From:
  Net Investment Income (Loss)                     (0.17)               --
  Net Realized Gains (Loss)(3)                     (0.10)               --
--------------------------------------------------------------------------------
Total Distributions                                (0.27)               --
--------------------------------------------------------------------------------
Net Asset Value, End of Period                    $17.13             $18.80
--------------------------------------------------------------------------------
Total Return#                                      (7.11)%            (6.58)%+++
--------------------------------------------------------------------------------
Net Assets End of Period (000s)                  $97,132            $48,765
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses(4)                                       1.06%              1.09%+
  Net Investment Income                             0.91               0.29+
--------------------------------------------------------------------------------
Portfolio Turnover Rate                            42.10%             34.75%
================================================================================
Average Commissions Paid on
  Equity Security Transactions(5)                  $0.01                --
================================================================================

(1) On November 7, 1994, the Class D shares were renamed Class Y shares.

(2) For the period from June 16, 1994 (inception date) to October 31, 1994.

(3) Net short term gains, if any, are included and reported as ordinary income
    for income tax purposes.

(4) During the period ended October 31, 1995, the Portfolio has earned credits
    from the custodian which reduce service fees incurred. If the credits are 
    taken into consideration, the ratios of expenses to average net assets for 
    Class Y would be 0.98%; prior year numbers have not been restated to 
    reflect these credits.

(5) Due to new SEC disclosure guidelines, average commissions per share are
    calculated only for the current year and not for the prior periods.

++  Includes realized gains and losses from foreign currency transactions.

+++ Total return is not annualized, as it may not be representative of the total
    return for the year.

+   Annualized.

#   Total returns do not reflect any applicable sales loads or contingent
    deferred sales charges.
    

12
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Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Investment Objective and Management Policies
================================================================================

     The investment objective of the Portfolio is to provide a total return on
its assets from growth of capital and income. The Portfolio seeks to achieve its
objective by investing at least 65% of its assets in a diversified portfolio of
equity securities of established non-United States issuers. There can be no
assurance that the investment objective of the Portfolio will be achieved.

     Under normal market conditions, the Portfolio invests at least 65% 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 such securities and up to 35% of the Portfolio's assets
in bonds, notes and debt securities (consisting of securities issued in the
Eurocurrency markets or obligations of the United States or foreign governments
and their political subdivisions) of established non-United States issuers.
Investments may be made for capital appreciation or 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. There is no limitation on the percent or amount of the Portfolio'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.

     In seeking to achieve its objective, the Portfolio presently expects to
invest its assets primarily in common stocks of established non-United States
companies which in the opinion of the investment adviser have potential for
growth of capital. However, there is no requirement that the Portfolio invest
exclusively in common stocks or other equity securities and, if deemed
advisable, the Portfolio may invest up to 35% of its assets in bonds, notes and
other debt securities (including securities issued in the Eurocurrency markets
or obligations of the United States or foreign governments and their political
subdivisions). When the investment adviser believes that the return on debt
securities will equal or exceed the return on common stocks, the Portfolio may,
in seeking its objective of total return, substantially increase its holdings
(up to a maximum of 35% of its assets) in such debt securities. In determining
whether the Portfolio will be invested for capital appreciation or for income or
any combination of both, the investment adviser regularly analyzes a broad range
of international equity and fixed income markets in order to assess the degree
of risk and level of return that can be expected from each market.

     The Portfolio 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. Except as stated below, the Portfolio will
invest at least 65% of its assets in companies organized or governments located
in any area of the world other than the United States, such as the Far East
(e.g., Japan, Hong Kong, Singapore, Malaysia), Western Europe (e.g., United

                                                                              13
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Investment Objective and Management Policies (continued)
================================================================================

Kingdom, Germany, the Netherlands, France, Italy, Switzerland), Eastern Europe
(e.g., Hungary, Poland, The Czech Republic 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 investment adviser
may determine from time to time. However, under unusual economic or market
conditions as determined by the investment adviser, for defensive purposes the
Portfolio may temporarily invest all or a major portion of its assets in U.S.
government securities or in debt or equity securities of companies incorporated
in and having their principal business activities in the United States. To the
extent the Portfolio's assets are invested for temporary defensive purposes,
such assets will not be invested in a manner designed to achieve the Portfolio's
investment objective.

     In determining the appropriate distribution of investments among various
countries and geographic regions, the investment adviser ordinarily considers
the following factors: prospects for relative economic growth between countries;
expected levels of inflation; government policies influencing business
conditions; the outlook for currency relationships; and the range of individual
investment opportunities available to international investors. In the future, if
any other relevant factors arise they will also be considered. In analyzing
companies for investment, the investment adviser ordinarily looks for one or
more of the following characteristics: an above-average earnings growth per
share; high return on invested capital; healthy balance sheet; sound financial
and accounting policies and overall financial strength; strong competitive
advantages; effective research and product development and marketing; efficient
service; pricing flexibility; strength of management; and general operating
characteristics which will enable the company to compete successfully in its
market place. Ordinarily, the investment adviser will not view a company as
being sufficiently well established to be considered for inclusion in the
Portfolio unless the company, together with any predecessors, has been operating
for at least three fiscal years.

     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. 

     To the extent that the Portfolio'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.

14
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Investment Objective and Management Policies (continued)
================================================================================

     The Portfolio's investment objective may be changed only by the "vote of a
majority of the outstanding securities" as defined in the Investment Company Act
of 1940 (the "1940 Act"). Certain of the Portfolio's investment policies are
non-fundamental and, as such, may be changed by the Board of Directors, provided
such change is not prohibited by the investment restrictions (which are set
forth in the Statement of Additional Information) or applicable law, and any
such change will first be disclosed in the then current prospectus.

     INVESTMENT PRACTICES

     The Portfolio may utilize from time to time one or more of the investment
practices described below to assist it in reaching its investment objective.
These practices involve potential risks which are summarized below. In addition,
the Statement of Additional Information contains more detailed or additional
information about certain of these practices, the potential risks and/or the
limitations adopted by the Portfolio to reduce such risks. 

     In order to protect the dollar equivalent value of its portfolio securities
against declines resulting from currency value fluctuations and changes in
interest rate or other market changes, the Portfolio may enter into the
following hedging transactions: forward foreign currency contracts, interest
rate and currency swaps and financial instrument and market index futures
contracts and related options contracts. The Portfolio may also use leverage,
enter into repurchase transactions and lend its portfolio securities.

     Currency Transactions.  The Portfolio will enter into various currency
transactions, i.e., forward foreign currency contracts, currency swaps, foreign
currency or currency index futures contracts and put and call options on such
contracts or on currencies. A forward foreign currency contract involves an
obligation to purchase or sell a specific currency for a set price at a future
date. 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. Futures contracts are similar to
forward contracts except that they are traded on an organized exchange and the
obligations thereunder may be offset by taking an equal but opposite position to
the original contract, with profit or loss determined by the relative prices
between the opening and offsetting positions. The Portfolio may enter into these
currency contracts and swaps in primarily the following circumstances: to "lock
in" the U.S. dollar equivalent price of a security the Portfolio is

                                                                              15
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Investment Objective and Management Policies (continued)
================================================================================

contemplating to buy or sell that is denominated in a non-U.S. currency; or to
protect against a decline against the U.S. dollar of the currency of a
particular country to which the Portfolio has exposure. The Portfolio may seek
to achieve the same economic result by utilizing from time to time for such
hedging a currency different from the one of the given portfolio security as
long as, in the view of the investment adviser, such currency is essentially
correlated to the currency of the relevant portfolio security based on historic
and expected exchange rate patterns.

     Interest Rate Transactions.  The Portfolio will enter into various interest
rate transactions, i.e., futures contracts in various financial instruments and
interest rate related indices, put and call options on such futures contracts
and on such financial instruments and interest rate swaps. The Portfolio will
enter into these transactions primarily to "lock in" a return or spread on a
particular investment or portion of its portfolio and to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. Interest rate swaps involve the exchange by the Portfolio with
another party of their respective commitment to pay or receive interest, e.g.,
an exchange of floating-rate payments for fixed-rate payments. The Portfolio
will not enter into an interest rate swap transaction in which its interest
commitment is greater or measured differently than the interest receivable on
specific portfolio securities. Interest rate swaps may be combined with currency
swaps to take advantage of rate differentials in different markets on the same
or similar securities.

     The Portfolio may enter into futures contracts and options on futures
contracts for non-hedging purposes, subject to applicable law.

     Market Index Transactions. The Portfolio may also enter into various market
index contracts, i.e., index futures contracts on particular non-U.S. securities
markets or industry segments and related put and call options. These contracts
are used primarily to protect the value of the Portfolio's securities against a
decline in a particular market or industry in which it is invested.

     General.  The Portfolio will engage in the foregoing transactions primarily
as a means to hedge risks associated with management of its portfolio.
Investment in these contracts requires the Portfolio to deposit with the
applicable exchange or other specified financial intermediary as a good faith
deposit for its obligations an amount of cash or specified debt securities which
initially is 1-5% of the face amount of the contract and which thereafter
fluctuates on a periodic basis as the value of the contract fluctuates.

     Risks.  All of the foregoing transactions present certain risks. In
particular, the variable degree of correlation between price movements of
futures contracts and dollar equivalent price movements in the currency or
security being hedged creates the possibility that losses on the hedge may be

16
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Investment Objective and Management Policies (continued)
================================================================================

greater than gains in the value of the Portfolio's securities. In addition,
these instruments may not be liquid in all circumstances and are generally
closed out by entering into offsetting transactions rather than by disposing of
the Portfolio's obligations. As a result, in volatile markets, the Portfolio may
not be able to close out a transaction without incurring losses. Although the
contemplated use of these contracts should tend to minimize the risk of loss due
to a decline in the value of the hedged currency or security, at the same time
they tend to limit any potential gain which might result from an increase in the
value of such currency or security. The successful use of futures and options is
dependent upon the ability of the investment adviser to predict changes in
interest rates. Finally, the daily deposit requirements in futures contracts
create an ongoing greater potential financial risk than do option purchase
transactions, where the exposure is limited to the cost of the premium for the
option. Transactions in futures and options on futures for non-hedging purposes
involve greater risks and could result in losses which are not offset by gains
on other portfolio assets.

     With respect to interest rate swaps, the Portfolio recognizes that such
arrangements are relatively illiquid and will include the principal amount of
the obligations owed to it under a swap as an illiquid security for purposes of
the Portfolio's investment restrictions except to the extent a third party (such
as a large commercial bank) has guaranteed the Portfolio's ability to offset the
swap at any time.

     Options.  The Portfolio may purchase put and call options on securities
which are traded on an exchange in other markets, on currencies and, as
developed from time to time, various futures contracts on market indexes and
other instruments. Purchasing options may increase investment flexibility and
improve total return, but also risks loss of the option premium if an asset the
Portfolio has the option to buy declines in value or if an asset the Portfolio
has the option to sell increases in value. In order to assure that the Portfolio
will not be deemed to be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the Commodity Futures Trading Commission ("CFTC")
require that the Portfolio 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 Portfolio's assets.

     Leverage.  The Portfolio may borrow from banks, on a secured or unsecured
basis, up to 25% of the value of its assets. If the Portfolio borrows and uses
the proceeds to make additional investments, income and appreciation from such

                                                                              17
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Investment Objective and Management Policies (continued)
================================================================================

investments will improve its performance if they exceed the associated borrowing
costs but impair its performance if they are less than such borrowing costs.
This speculative factor is known as "leverage."

     Leverage creates an opportunity for increased returns to shareholders of
the Portfolio but, at the same time, creates special risk considerations. For
example, leverage may exaggerate changes in the net asset value of the
Portfolio's shares and in the Portfolio's yield. Although the principal or
stated value of such borrowings will be fixed, the Portfolio assets may change
in value during the time the borrowing is outstanding. Leverage will create
interest or dividend expenses for the Portfolio 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 or dividends the
Portfolio will have to pay in respect thereof, the Portfolio'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 Portfolio 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 Portfolio.

     Repurchase Agreements and Lending Securities.  The Portfolio may enter into
repurchase agreements up to 25% of its assets and may lend for a fee portfolio
securities amounting up to 15% of its assets. These transactions must be fully
collateralized at all times, and the investment adviser will monitor the value
of the collateral, which will be marked to the market daily, to determine that
the value is at least 100% of the agreed upon sum to be paid to the Portfolio.
Repurchase agreements and lending of portfolio securities involve some credit
risk to the Portfolio, if the other party defaults on its obligations, since the
Portfolio could be delayed or prevented from recovering the collateral. The
Portfolio currently does not expect that it will enter into repurchase
agreements on more than 5% of its assets.

     PORTFOLIO TRANSACTIONS AND TURNOVER

     Purchases and sales of securities, futures or options on futures on an
exchange (including a board of trade), and options on securities may be effected
through securities brokers or futures commission merchants that charge a
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Smith Barney. In
order for Smith Barney to effect any such transaction for the Fund, the
commissions, fees or other remuneration received by Smith Barney must be
reasonable and fair compared to the commissions, fees or other remuneration paid

18
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Investment Objective and Management Policies (continued)
================================================================================

to other brokers in connection with comparable transactions involving similar
securities, futures or options on futures being purchased or sold on an exchange
during a comparable period of time. This standard would allow Smith Barney to
receive no more than the remuneration that would be expected to be received by
an unaffiliated broker in a commensurate arms-length transaction. Furthermore,
the Board of Directors of the Fund, including a majority of the Directors who
are not "interested" Directors, has adopted procedures that are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Smith Barney are consistent with the foregoing standard. Brokerage transactions
with Smith Barney are also subject to such fiduciary standards as may be imposed
upon Smith Barney by applicable law. 

     Although it is anticipated that most investments of the Portfolio will be
long-term in nature, the rate of portfolio turnover will depend upon market and
other conditions, and it will not be a limiting factor when the investment
adviser believes that portfolio changes are appropriate. It is expected that the
Portfolio's annual turnover rate will not exceed 100% in normal circumstances.
Investors should realize that risk of loss is inherent in the ownership of any
securities and that shares of the Portfolio will fluctuate with the market value
of its securities.

     RISK FACTORS

     Non-U.S. Securities.  Investments in securities of non-U.S. 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 the
Portfolio 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 Portfolio 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. Non-U.S. 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 prices more volatile than securities of comparable U.S.

                                                                              19
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Investment Objective and Management Policies (continued)
================================================================================

companies. Transaction costs on non-U.S. 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. The Fund might have
greater difficulty taking appropriate legal action in non-U.S. courts.

     Dividend and interest income from non-U.S. securities will generally be
subject to withholding taxes by the country in which the issuer is located and
may not be recoverable by the Portfolio or the investors.

     Securities of Developing Countries.  A developing country generally is
considered to be a country that is in the initial stages of its
industrialization cycle. Investing in the equity and fixed-income 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 the Portfolio'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 were never finally settled. There can be no assurance that any
investments that the Portfolio 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 Portfolio could lose its entire investment in the market
involved. Moreover, changes in the leadership of 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.

================================================================================
Valuation of Shares
================================================================================

     The Portfolio's net asset value per share 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 Portfolio's net assets attributable to each Class by the total
number of shares of the Class outstanding. 

20
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Valuation of Shares (continued)
================================================================================

     Securities owned by the Portfolio 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 sale 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 has determined that amortized cost is fair value.
Premiums received on the sale of call options will be included in the
Portfolio's net assets, and current market value of such options sold by the
Portfolio will be subtracted from the Portfolio's net assets. Any other
investments of the Portfolio, 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 Portfolio 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 investment
manager.

     Foreign securities trading may not take place on all days on which the NYSE
is open. Further, trading takes place in various foreign markets on days on
which the NYSE is not open. Accordingly, the determination of the net asset
value of the Portfolio may not take place contemporaneously with the
determination of the prices of investments held by such Portfolio. 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 Portfolio's net asset value unless the investment manager, under the
supervision of the Fund's Board of Directors, determines that the particular
event would materially affect net asset value. As a result, the Portfolio's net
asset value may be significantly affected by such trading on days when a
shareholder has no access to the Portfolio.

                                                                              21
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Dividends, Distributions and Taxes
================================================================================

     DIVIDENDS AND DISTRIBUTIONS

     The Fund declares and pays income dividends at least annually on shares of
the Portfolio and makes annual distributions of capital gains, if any, on such
shares.

     If a shareholder does not otherwise instruct, dividends and capital gain
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC.

   
     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 Smith Barney Financial Consultant.
Accounts held directly by First Data should notify First Data 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 C shares of the Portfolio 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
C shares. The per share dividends on Class A shares of the Portfolio 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 C and Class Y
shares.

     TAXES

     The Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Code to be relieved of Federal income tax on that part of
its net investment income and realized capital gains which it pays out to its
shareholders. To qualify, the Portfolio must meet certain tests, including
distributing at least 90% of its investment company taxable income, and deriving
less than 30% of its gross income from the sale or other disposition of certain
investments held for less than three months.

     Dividends from net investment income and distributions of realized
short-term capital gains on the sale of securities, whether paid in cash or
automatically invested in additional shares of the Portfolio, are taxable to
shareholders as ordinary income. The Portfolio's dividends will not qualify for
the dividends received deduction for corporations. Dividends and distributions
declared by the Portfolio may also be subject to state and local taxes.
Distributions out of net long-term capital gains (i.e., net long-term capital
gains in excess of net short-term capital losses) 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.

22
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Dividends, Distributions and Taxes (continued)
================================================================================

     Income received by the Portfolio 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 Portfolio's assets to be invested in various
countries is not known. Such foreign taxes would reduce the income of the
Portfolio distributed to shareholders.

     If, at the end of the Portfolio's taxable year, more than 50% of the value
of the Portfolio's total assets consists of stock or securities of foreign
corporations, the Portfolio may make an election pursuant to which foreign
income taxes paid by it will be treated as paid directly by its shareholders.
The Portfolio 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 the Portfolio makes such an election, the amount of
such 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 or, provided the shareholder itemizes deductions, a
deduction for U.S. federal income tax purposes for such foreign taxes.
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 Portfolio from
its foreign source income will be treated as foreign source income. The
Portfolio'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 Portfolio 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 foreign income taxes paid by the Portfolio.

     In determining gain or loss, a shareholder who redeems or exchanges shares
in the Portfolio 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 for investing
in the Portfolio or a different Portfolio of the Fund, such as pursuant to the
rights discussed in "Exchange Privilege."

                                                                              23
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Dividends, Distributions and Taxes (continued)
================================================================================

     The Fund 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.

     Prior to investing in shares of the Portfolio, investors should consult
with their tax advisors concerning the federal, state and local tax consequences
of such an investment.

================================================================================
Purchase of Shares
================================================================================

     GENERAL

   
     The Portfolio offers five classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without an initial sales charge or CDSC and
are available only to investors investing a minimum of $5,000,000 (except for
purchases of Class Y shares by Smith Barney Concert Series Inc., for which there
is no minimum purchase amount). Class Z shares are offered without a sales
charge, CDSC, service fee or distribution fee, exclusively to tax-exempt
employee benefit and retirement plans of Smith Barney and its affiliates.
Investors meeting these criteria who are interested in acquiring Class Z shares
should contact a Smith Barney Financial Consultant for a Class Z Prospectus. See
"Prospectus Summary -- Alternative Purchase Arrangements" for a discussion of
factors to consider in selecting which Class of shares to purchase.

     Purchases of Portfolio shares must be made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group. In addition, certain investors, including qualified
retirement plans and certain other institutional investors, may purchase shares
directly from the Fund through First Data. When purchasing shares of the
Portfolio, investors must specify whether the purchase is for Class A, Class B,
Class C or Class Y shares. No maintenance fee will be charged by the Fund in
connection with a brokerage account through which an investor purchases or holds
shares.
    

     Investors in Class A, Class B and Class C shares may open an account by

24
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International Equity Portfolio

================================================================================
Purchase of Shares (continued)
================================================================================

   
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 Portfolio. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000.
Subsequent investments of at least $50 may be made for all Classes. For
participants in retirement plans qualified under Section 403(b)(7) or Section
401(a) of the Code, the minimum initial investment requirement for Class A,
Class B and Class C shares and the subsequent investment requirement for all
Classes in the Portfolio is $25. For the Portfolio's Systematic Investment Plan,
the minimum initial investment requirement for Class A, Class B and Class C
shares and the subsequent investment requirement for all Classes is $50. There
are no minimum investment requirements in Class A shares for employees of
Travelers and its subsidiaries, including Smith Barney, Directors or 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 Fund's
transfer agent, First Data. Share certificates are issued only upon a
shareholder's written request to First Data.

     Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Portfolio calculates its net asset
value, are priced according to the net asset value determined on that day (the
"trade date"). Orders received by dealers or introducing brokers prior to the
close of regular trading on the NYSE on any day the Portfolio 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 Smith Barney prior to Smith
Barney's close of business. For shares purchased through Smith Barney or
Introducing Brokers purchasing through Smith Barney, payment for Portfolio
shares is due on the third business day (the "settlement date") 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, Smith Barney or First Data is authorized through
preauthorized transfers of $50 or more to charge the regular bank account or
other financial institution indicated by the shareholder on a monthly or
quarterly basis to provide systematic additions to the shareholder's Portfolio
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or First Data. The Systematic
Investment Plan also authorizes Smith Barney to apply cash held in the
shareholder's Smith Barney brokerage account or redeem the shareholder's shares
    

                                                                              25
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Purchase of Shares (continued)
================================================================================

of a Smith Barney money market fund to make additions to the account. Additional
information is available from the Fund or a Smith Barney Financial Consultant.

     INITIAL SALES CHARGE ALTERNATIVE - CLASS A SHARES

     The sales charges applicable to purchases of Class A shares of the
Portfolio are as follows:

                                                                      Dealers'
                              Sales Charge       Sales Charge       Reallowance
                                 % of              as % of            as % of
Amount of Investment         Offering Price    Amount Invested    Offering Price
--------------------------------------------------------------------------------
    Less than  $  25,000         5.00%              5.26%              4.50%
  $  25,000 -     49,999         4.00               4.17               3.60
     50,000 -     99,999         3.50               3.63               3.15
    100,000 -    249,999         3.00               3.09               2.70
    250,000 -    499,999         2.00               2.04               1.80
    500,000 and over             *                  *                  *
================================================================================

*Purchases of Class A shares, which when combined with current holdings of Class
A shares offered with a sales charge equal or exceed $500,000 in the aggregate,
will be made at net asset value without any initial sales charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12 months of purchase. The
CDSC on Class A shares is payable to Smith Barney, which compensates Smith
Barney Financial Consultants and other dealers whose clients make purchases of
$500,000 or more. The CDSC is waived in the same circumstances in which the CDSC
applicable to Class B and Class C shares is waived. See "Deferred Sales Charge
Alternatives" and "Waivers of CDSC."

     Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.

     The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the Portfolio made at one time by "any person," which
includes an individual, his or her spouse and children, or a trustee or other
fiduciary of a single trust estate or single fiduciary account. The reduced
sales charge minimums may also be met by aggregating the purchase with the net
asset value of all Class A shares offered with a sales charge held in funds
sponsored by Smith Barney listed under "Exchange Privilege."

   
     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 of Class A shares to Directors

26
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Purchase of Shares (continued)
================================================================================


    
   
employees of Travelers and its subsidiaries, Directors, Trustees or employees of
any of the Smith Barney Mutual Funds and the members of the immediate families 
of such persons 
(including the surviving spouse of a deceased Director, Trustee or employee,
 and retired Directors, Trustees or employees), or pension, profit-sharing 
or other benefit plan for such persons 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 or to 
members of the National Association of Securities Dealers, Inc.; (b)
offers of Class A shares to any other investment company in connection with the
combination of such company with the Portfolio by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares by any client of a newly employed
Smith Barney Financial Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with 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) shareholders who have
redeemed Class A shares in the Portfolio (or Class A shares of another fund of
the Smith Barney Mutual Funds that are sold with a maximum 5.00% sales charge)
and who wish to reinvest their redemption proceeds in the Portfolio, provided
the reinvestment is made within 60 calendar days of the redemption; (e) accounts
managed by registered investment advisory subsidiaries of Travelers; and (f)
purchases of Class A shares 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 Portfolio 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 Portfolio and of funds sponsored by Smith Barney
which are offered with a sales charge listed under "Exchange Privilege" then
held by such person and applying the sales charge applicable to such aggregate.
In order to obtain such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification that the purchase
qualifies for the reduced sales charge. The right of accumulation is subject to
modification or discontinuance at any time with respect to all shares purchased
thereafter.
    

                                                                              27
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Purchase of Shares (continued)
================================================================================

     GROUP PURCHASES

     Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative -- Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan
meeting certain requirements. One such requirement is that the plan must be open
to specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
at the reduced sales charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Portfolio shares at a discount and (c) satisfies uniform criteria
which enable Smith Barney to realize economies of scale in its costs of
distributing shares. A qualified group must have more than 10 members, must be
available to arrange for group meetings between representatives of the Portfolio
and the members, and must agree to include sales and other materials related to
the Portfolio in its publications and mailings to members at no cost to Smith
Barney. In order to obtain such reduced sales charge or to purchase at net asset
value, the purchaser must provide sufficient information at the time of purchase
to permit verification that the purchase qualifies for the reduced sales charge.
Approval of group purchase reduced sales charge plans is subject to the
discretion of Smith Barney.

     LETTER OF INTENT

   
     Class A Shares. A Letter of Intent for amounts of $50,000 or more provides
    

28
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Purchase of Shares (continued)
================================================================================

   
an opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes
purchases of all Class A shares of the Portfolio and other funds of the Smith
Barney Mutual Funds offered with a sales charge over the 13 month period based
on the total amount of intended purchases plus the value of all Class A shares
previously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
sales charges applicable to the purchases made and the charges previously paid,
or an appropriate number of escrowed shares will be redeemed. Please contact a
Smith Barney Financial Consultant or First Data to obtain a Letter of Intent
application.

     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. Such investors
must make an initial minimum purchase of $1,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of $5,000,000 of Class Y shares of the
same Portfolio within six months from the date of the Letter. If a total
investment of $5,000,000 is not made within the six-month period, all Class Y
shares purchased to date will be transferred to Class A shares, where they will
be subject to all fees (including a service fee of 0.25%) and expenses
applicable to the Portfolio's Class A shares, which may include a CDSC of 1.00%.
Please contact a Smith Barney Financial Consultant or First Data for further
information.
    

     DEFERRED SALES CHARGE ALTERNATIVES

     CDSC Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Portfolio. A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares which when combined with Class A shares
offered with a sales charge currently held by an investor equal or exceed
$500,000 in the aggregate.

   
     Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a CDSC
to the extent that the value of such shares represents: (a) capital appreciation
of Portfolio 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 C shares and Class
    

                                                                              29
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Purchase of Shares (continued)
================================================================================

A shares that are CDSC shares, shares redeemed more than 12 months after their
purchase.

     Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
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
purchases by Participating Plans, as described below. See "Purchase of Shares --
Smith Barney 401(k) Program."

              Year Since Purchase
               Payment Was Made                            CDSC
--------------------------------------------------------------------------------
                First                                      5.00%
                Second                                     4.00
                Third                                      3.00
                Fourth                                     2.00
                Fifth                                      1.00
                Sixth                                      0.00
                Seventh                                    0.00
                Eighth                                     0.00
================================================================================

     Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fees. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. Shareholders who held Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the "Short-Term World Income Fund") on
July 15, 1994 and who subsequently exchange those shares for Class B shares of
the Portfolio will be offered the opportunity to exchange all such Class B
shares for Class A shares of the Portfolio four years after the date on which
those shares were deemed to have been purchased. Holders of such Class B shares
will be notified of the pending exchange in writing approximately 30 days before
the fourth anniversary of the purchase date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the fourth anniversary
date. See "Prospectus Summary --Alternative Purchase 

30
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Purchase of Shares (continued)
================================================================================

Arrangements -- Class B Shares Conversion Feature."

     In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distributions
and finally of other shares held by the shareholder for the longest period of
time. The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Portfolio shares
being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gain distribution reinvestments in such
other funds. For Federal income tax purposes, the amount of the CDSC will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any CDSC will be paid to Smith Barney.

     To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for Class B shares) for a
total deferred sales charge of $9.60.

     WAIVERS OF CDSC

     The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the value of the
shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within twelve
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of shares in connection with a combination of the Portfolio with any
investment company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other funds of the Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or part of the redemption

                                                                              31
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Purchase of Shares (continued)
================================================================================

proceeds within 60 days and receive pro rata credit for any CDSC imposed on the
prior redemption.

   
     CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by First Data in
the case of all other shareholders) of the shareholder's status or holdings, as
the case may be.
    

     SMITH BARNEY 401(K) PROGRAM

     Investors may be eligible to participate in the Smith Barney 401(k)
Program, which is generally designed to assist plan sponsors in the creation and
operation of retirement plans under Section 401(a) of the Code. To the extent
applicable, the same terms and conditions are offered to all participating plans
in the Smith Barney 401(k) Program.

     The Portfolio offers to Participating Plans Class A, Class B, Class C and
Class Y shares as investment alternatives under the Smith Barney 401(k) Program.
Class A, Class B and Class C shares acquired through the Smith Barney 401(k)
Program are subject to the same service and/or distribution fees as, but
different sales charge and CDSC schedules than, the Class A, Class B and Class C
shares acquired by other investors. Similar to those shares available to other
investors, Class Y shares acquired through the Smith Barney 401(k) Program are
not subject to any service or distribution fees or any initial sales charge or
CDSC. Once a Participating Plan has made an initial investment in the Portfolio,
all of its subsequent investments in the Portfolio must be in the same Class of
shares, except as otherwise described below.

     Class A Shares.  Class A shares of the Portfolio are offered without any
sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds, if the
Participating Plan terminates within four years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.

     Class B Shares.  Class B shares of the Portfolio are offered to any
Participating Plan that purchases less than $250,000 of one or more funds of the
Smith Barney Mutual Funds. Class B shares acquired through the Smith Barney
401(k) Program are subject to a CDSC of 3.00% of redemption proceeds, if the
Participating Plan terminates within eight years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.

     Eight years after the date the Participating Plan enrolled in the Smith
Barney 401(k) Program, it will be offered the opportunity to exchange all of its
Class B shares for Class A shares of the Portfolio. Such Plans will be notified

32
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Purchase of Shares (continued)
================================================================================

of the pending exchange in writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the exchange has been rejected in
writing, the exchange will occur on or about the eighth anniversary date. Once
the exchange has occurred, a Participating Plan will not be eligible to acquire
additional Class B shares of the Portfolio but instead may acquire Class A
shares of the Portfolio. If the Participating Plan elects not to exchange all of
its Class B shares at that time, each Class B shares held by the Participating
Plan will have the same conversion feature as Class B shares held by other
investors. See "Purchase of Shares --Deferred Sales Charge Alternatives."

     Class C Shares.  Class C shares of the Portfolio are offered to any
Participating Plan that purchases from $250,000 to $499,999 of one or more funds
of the Smith Barney Mutual Funds. Class C shares acquired through the Smith
Barney 401(k) Program after November 7, 1994 are subject to a CDSC of 1.00% of
redemption proceeds, if the Participating Plan terminates within four years of
the date the Participating Plan first enrolled in the Smith Barney 401(k)
Program. Each year after the date a Participating Plan enrolled in the Smith
Barney 401(k) Program, if its total Class C holdings 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 C shares for Class A shares of the Portfolio. 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. Once the exchange has occurred, a Participating Plan will not be eligible
to acquire Class C shares of the Portfolio but instead may acquire Class A
shares of the Portfolio. Any Class C shares not converted will continue to be
subject to the distribution fee.

     Class Y Shares.  Class Y shares of the Portfolio are offered without any
service or distribution fees, sales charge or CDSC to any Participating Plan
that purchases $5,000,000 or more of Class Y shares of one or more funds of the
Smith Barney Mutual Funds.

   
     No CDSC is imposed on redemptions of CDSC Shares to the extent that the net
asset value of the shares redeemed does not exceed the current net asset value
of the shares purchased through reinvestment of dividends or capital gain
distributions, plus (a) with respect to Class A and Class C shares, the current
net asset value of such shares purchased more than one year prior to redemption
and, with respect to Class B shares, the current net asset value of Class B
shares purchased more than eight years prior to the redemption, plus (b) with
respect to Class A and Class C shares, increases in the net asset value of the
    

                                                                              33
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Purchase of Shares (continued)
================================================================================

   
shareholder's Class A or Class C shares above the purchase payments made during
the preceding year and, with respect to Class B shares, increases in the net
asset value of the shareholder's Class B shares above the purchase payments made
during the preceding eight years. Whether or not the CDSC applies to a
Participating Plan depends on the number of years since the Participating Plan
first became enrolled in the Smith Barney 401(k) Program, unlike the
applicabilty of the CDSC to other shareholders, which depends on the number of
years since those shareholders made the purchase payment for the shares which
are being redeemed.

     The CDSC will be waived on redemptions of Class A, Class B and Class C
shares in connection with lump-sum or other distributions made by a
Participating Plan as a result of: (a) the retirement of an employee in the
Participating Plan; (b) the termination of employment of an employee in the
Participating Plan; (c) the death or disability of an employee in the
Participating Plan; (d) the attainment of age 59 1/2 by an employee in the
Participating Plan; (e) hardship of an employee in the Participating Plan to the
extent permitted under Section 401(k) of the Code; or (f) redemptions of shares
in connection with a loan made by the Participating Plan to an employee.

     Participating Plans wishing to acquire shares of the Portfolio through the
Smith Barney 401(k) Program must purchase such shares directly from First Data.
For further information regarding the Smith Barney 401(k) Program, investors
should contact a Smith Barney Financial Consultant.
    

================================================================================
Exchange Privilege
================================================================================

     Except as otherwise noted below, shares of each Class may be exchanged for
shares of the same Class in the following funds of the 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 C shares are subject to
minimum investment requirements and all shares are subject to the other
requirements of the fund into which exchanges are made and a sales charge
differential may apply.

FUND NAME
--------------------------------------------------------------------------------
Growth Funds

   
    Smith Barney Aggressive Growth Fund Inc.
    Smith Barney Appreciation Fund Inc.
    Smith Barney Fundamental Value Fund Inc.
    

34
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Exchange Privilege (continued)
================================================================================

   
    Smith Barney Growth Opportunity Fund
    Smith Barney Managed Growth Fund
    Smith Barney Natural Resources Fund Inc.
    Smith Barney Special Equities Fund
    Smith Barney Telecommunications Growth Fund

Growth and Income Funds

    Smith Barney Convertible Fund
    Smith Barney Funds, Inc. -- Equity Income Portfolio
    Smith Barney Growth and Income Fund
    Smith Barney Premium Total Return Fund
    Smith Barney Strategic Investors Fund
    Smith Barney Utilities Fund

Taxable Fixed-Income Funds

 ** Smith Barney Adjustable Rate Government Income Fund
    Smith Barney Diversified Strategic Income Fund
  * Smith Barney Funds, Inc. -- Income Return Account Portfolio
+++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Portfolio
    Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
    Smith Barney Government Securities Fund
    Smith Barney High Income Fund
    Smith Barney Investment Grade Bond Fund
    Smith Barney Managed Governments Fund Inc.

Tax-Exempt Funds

    Smith Barney Arizona Municipals Fund Inc.
    Smith Barney California Municipals Fund Inc.
  * Smith Barney Intermediate Maturity California Municipals Fund
  * Smith Barney Intermediate Maturity New York Municipals Fund
    Smith Barney Managed Municipals Fund Inc.
    Smith Barney Massachusetts Municipals Fund
  * Smith Barney Muni Funds -- Florida Limited Term Portfolio
    Smith Barney Muni Funds -- Florida Portfolio
    Smith Barney Muni Funds -- Georgia Portfolio
  * Smith Barney Muni Funds-- Limited Term Portfolio
    Smith Barney Muni Funds-- National Portfolio
    Smith Barney Muni Funds-- New York Portfolio
    Smith Barney Muni Funds-- Ohio Portfolio
    Smith Barney Muni Funds-- Pennsylvania Portfolio
    

                                                                              35
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Exchange Privilege (continued)
================================================================================

    Smith Barney New Jersey Municipals Fund Inc.
    Smith Barney Oregon Municipals Fund
    Smith Barney Tax-Exempt Income Fund

   
International Funds

    Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
    Smith Barney World Funds, Inc. -- European Portfolio
    Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
    Smith Barney World Funds, Inc. -- International Balanced Portfolio
    Smith Barney World Funds, Inc. -- Pacific Portfolio
    

Smith Barney Concert Series Inc.

    Smith Barney Concert Series Inc. -- High Growth Portfolio
    Smith Barney Concert Series Inc. -- Growth Portfolio
    Smith Barney Concert Series Inc. -- Balanced Portfolio
    Smith Barney Concert Series Inc. -- Conservative Portfolio
    Smith Barney Concert Series Inc. -- Income Portfolio

Money Market Funds

  + Smith Barney Exchange Reserve Fund
 ++ Smith Barney Money Funds, Inc. -- Cash Portfolio
 ++ Smith Barney Money Funds, Inc. -- Government Portfolio
*** Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
+++ Smith Barney Muni Funds -- California Money Market Portfolio
+++ Smith Barney Muni Funds -- New York Money Market Portfolio
--------------------------------------------------------------------------------

  * Available for exchange with Class A, Class C and Class Y shares of the
    Portfolio.

 ** Available for exchange with Class A, Class B and Class Y shares of the
    Portfolio. In addition, shareholders who own Class C shares of the
    Portfolio through the Smith Barney 401(k) Program may exchange those
    shares for Class C shares of this fund.

*** Available for exchange with Class A shares of the Portfolio.
 
  + Available for exchange with Class B and Class C shares of the
    Portfolio.

 ++ Available for exchange with Class A and Class Y shares of the
    Portfolio. In addition, shareholders who own Class C shares of the
    Portfolio through the Smith Barney 401(k) Program may exchange those
    shares for Class C shares of this fund.

+++ Available for exchange with Class A and Class Y shares of the
    Portfolio.

     Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge of less than the maximum charged
by other Smith Barney Mutual Funds will be subject to the appropriate "sales
charge differential" upon the exchange of such shares for Class A shares of a
fund sold with a higher sales charge. The "sales charge differential" is limited
to a percentage rate no greater than the excess of the sales charge rate

36
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Exchange Privilege (continued)
================================================================================

applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For
purposes of the exchange privilege, shares obtained through automatic
reinvestment of dividends and capital gain distributions are treated as having
paid the same sales charges applicable to the shares on which the dividends or
distributions were paid; however, except in the case of the Smith Barney 401(k)
Program, if no sales charge was imposed upon the initial purchase of the shares,
any shares obtained through automatic reinvestment will be subject to a sales
charge differential upon exchange. Class A shares held in the Portfolio prior to
November 7, 1994 that are subsequently exchanged for shares of other funds of
the Smith Barney Mutual Funds will not be subject to a sales charge
differential.

     Class B Exchanges.  In the event a Class B shareholder (unless such
shareholder was a Class B shareholder of the Short-Term World Income Fund on
July 15, 1994) wishes to exchange all or a portion of his or her shares in any
of the funds imposing a CDSC higher than that imposed by the Portfolio, the
exchanged Class B shares will be subject to the higher applicable CDSC. Upon an
exchange, the new Class B shares will be deemed to have been purchased on the
same date as the Class B shares of the Portfolio that have been exchanged.

     Class C Exchanges.  Upon an exchange, the new Class C shares will be deemed
to have been purchased on the same date as the Class C shares of the Portfolio
that have been exchanged.

     Class Y Exchanges. Class Y shareholders of the Portfolio who wish to
exchange all or a portion of their Class Y shares for Class Y shares 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 Portfolio'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 Portfolio'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 Portfolio or (b) remain
invested in the Portfolio 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
    

                                                                              37
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Exchange Privilege (continued)
================================================================================

   
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 Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined, plus any applicable
sales charge differential. 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. A capital gain or loss for
tax purposes will be realized upon the exchange, depending upon the cost or
other basis of shares redeemed. Before exchanging shares, investors should read
the current prospectus describing the shares to be acquired. The Portfolio
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 Portfolio tendered to it,
as described below, at a redemption price equal to their net asset value per
share next determined after receipt of a written request in proper form at no
charge other than any applicable CDSC. Redemption requests received after the
close of regular trading on the NYSE are priced at the net asset value next
determined. If a shareholder holds shares in more than one Class, any request
for redemption must specify the Class being redeemed. In the event of a failure
to specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third 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 Smith Barney brokerage account, these funds will not be
invested for the shareholder's benefit without specific instruction and Smith
Barney will benefit from the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a certified or official bank
check, will be remitted upon clearance of the check, which may take up to ten
days or more.
    

     Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those

38
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Redemption of Shares (continued)
================================================================================

held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:

   
   Smith Barney World Funds, Inc./International Equity Portfolio 
   Class A,B,C or Y (please specify) 
   c/o First Data Investor Services Group, Inc.
   P.O. Box 9134
   Boston, Massachusetts  02205-9134

     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 First Data together with the redemption request. Any
signature appearing on a written redemption request in excess of $2,000, share
certificate or stock power must be guaranteed by an eligible guarantor
institution, such as a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $2,000 or less do
not require a signature guarantee unless more than one such redemption request
is made in any 10-day period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's address of record. First Data 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 First Data receives all required documents in
proper form.
    

     AUTOMATIC CASH WITHDRAWAL PLAN

     The Portfolio offers shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Portfolio. Any applicable CDSC will not be
waived on amounts withdrawn by a shareholder that exceed 1.00% per month of the
value of the shareholder's shares subject to the CDSC at the time the withdrawal
plan commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not exceed

                                                                              39
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Redemption of Shares (continued)
================================================================================

2.00% per month of the value of the shareholder's shares subject to the CDSC.)
For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.

   
     TELEPHONE REDEMPTION AND EXCHANGE PROGRAM

     Shareholders who do not have a Smith Barney brokerage account may be
eligible to redeem and exchange Fund shares by telephone. To determine if a
shareholder is entitled to participate in this program, he or she should contact
First Data 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 First Data 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 the Fund.) 

     Redemptions.  Redemption requests of up to $10,000 of any class or classes
of the Fund's shares, may be made by eligible shareholders by calling First Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day the NYSE is open. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset value
next determined. Redemptions of shares (i) by retirement plans or (ii) for which
certificates have been issued are not permitted under this program.

     A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the case
may be, on the next business day following the redemption request. In order to
use the wire procedures, the bank receiving the proceeds must be a member of the
Federal Reserve System or have a correspondent relationship with a member bank.
The 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 First Data at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m.
    

40
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Redemption of Shares (continued)
================================================================================

   
(New York City time) on any day on which the NYSE is open. Exchange requests
received after the close of regular trading on the NYSE are processed at the net
asset value next determined.

     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.
    

================================================================================
Minimum Account Size
================================================================================

     The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Portfolio if the aggregate net asset value of the shares held in
the Portfolio account is less than $500. (If a shareholder has more than one
account in this Portfolio, each account must satisfy the minimum account size.)
The Fund, however, will not redeem shares based solely on market reductions in
net asset value. Before the Fund exercises such right, shareholders will receive
written notice and will be permitted 60 days to bring accounts up to the minimum
to avoid automatic liquidation.

================================================================================
Performance
================================================================================

     From time to time the Fund may advertise the Portfolio's total return and
average annual total return in advertisements. In addition, in other types of
sales literature the Fund may include the Portfolio's current dividend return.
These figures are computed separately for Class A, Class B, Class C and Class Y
shares of the Portfolio. These figures are based on historical earnings and are
not intended to indicate future performance. Total return is computed for a
specified period of time assuming deduction of the maximum sales charge from the
initial amount invested and reinvestment of all income dividends and capital
gain distributions on the reinvestment dates at prices calculated as stated in
this Prospectus, then dividing the value of the investment at the end of the
period so calculated by the initial amount invested and subtracting 100%. The
standard average annual total return, as prescribed by the SEC is derived from
this total return, which provides the ending redeemable value. Such standard
total return information may also be accompanied with nonstandard total return

                                                                              41
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Performance (continued)
================================================================================

   
information for differing periods computed in the same manner but without
annualizing the total return or taking sales charges into account. The Portfolio
calculates current dividend return for each Class by dividing the current
dividend by the net asset value or the maximum public offering price (including
sales charge) on the last day of the period for which current dividend return is
presented. The current dividend return for each Class may vary from time to time
depending on market conditions, the composition of the investment portfolio and
operating expenses. These factors and possible differences in the methods used
in calculating current dividend return should be considered when comparing a
Class' current return to yields published for other investment companies and
other investment vehicles. The Portfolio may also include comparative
performance information in advertising or marketing its shares. Such performance
information may include data from Lipper Analytical Services, Inc. and other
financial publications.
    

================================================================================
Management of the Fund
================================================================================

     BOARD OF DIRECTORS

     Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Directors approve all significant
agreements between the Fund and the companies that furnish services to the Fund
and the Portfolio, including agreements with the Fund's distributor, investment
manager, custodian and transfer agent. The day-to-day operations of the
Portfolio are delegated to the Portfolio's investment manager. The Statement of
Additional Information contains background information regarding each Director
and executive officer of the Fund.

     MANAGER

   
     Smith Barney Mutual Funds Management Inc. (the "Manager") manages the
day-to-day operations of the Portfolio pursuant to a management agreement
entered into by the Fund on behalf of the Portfolio under which the Manager
offers the Portfolio advice and assistance with respect to the acquisition,
holding or disposal of securities and recommendations with respect to other
aspects and affairs of the Portfolio and furnishes the Portfolio with
bookkeeping, accounting and administrative services, office space and equipment,
and the services of the officers and employees of the Fund. By written agreement
Research and other departments and staff of Smith Barney furnish the Manager
with information, advice and assistance and are available for consultation on
    

42
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Management of the Fund (continued)
================================================================================

   
the Fund's Portfolios, thus Smith Barney may also be considered an investment
adviser to the Fund. Smith Barney's services are paid for by the Manager on the
basis of direct and indirect costs to Smith Barney of performing such services;
there is no charge to the Fund for such services. For the Portfolio's last
fiscal year the management fee was 0.85% of the Portfolio's average net assets
and the total operating expenses were 1.36% for Class A shares; 2.13% for Class
B shares; 2.16% for Class C shares; and 1.06% for Class Y shares.

     The Manager was incorporated on March 12, 1968 under the laws of Delaware.
As of October 31, 1995 the Manager had aggregate assets under management of
approximately $69 billion. The Manager, 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 Fund has been adopted by permission of Smith Barney
and is subject to the right of Smith Barney to elect that the Fund stop using
the term in any form or combination of its name.
    

     PORTFOLIO MANAGEMENT

   
     The Portfolio has been managed by Maurits E. Edersheim and a team of
seasoned international equity portfolio managers, who collectively have over 120
years of experience and who have been responsible for the day to day operations
of the Portfolio, including making all investment decisions since November 1991.
Mr. Edersheim is Chairman and Advisory Director of the Fund and is Deputy
Chairman of Smith Barney International Incorporated. Mr. James Conheady, Mr.
Rein Van der Does and Mr. Jeffrey Russell, all Vice Presidents of the Portfolio
and Managing Directors of Smith Barney, are members of the international equity
team. Together, Mr. Conheady, Mr. Van der Does and Mr. Russell currently manage
in excess of $1.5 billion of global equity assets for other investment companies
and managed accounts.

     Management's discussion and analysis, and additional performance
information regarding the Portfolio during the fiscal year ended October 31,
1995 is included in the Annual Report dated October 31, 1995. A copy of the
Annual Report may be obtained upon request and without charge from a Smith
Barney Financial Consultant or by writing or calling the Fund at the address or
phone number listed on page one of this Prospectus.
    

                                                                              43
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Distributor
================================================================================

   
     Smith Barney distributes shares of the Portfolio as principal underwriter
and as such conducts a continuous offering pursuant to a "best efforts"
arrangement requiring Smith Barney to take and pay for only such securities as
may be sold to the public. Pursuant to a plan of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid
a service fee with respect to Class A, Class B and Class C shares of the
Portfolio at the annual rate of 0.25% of the average daily net assets
attributable to these Classes. Smith Barney is also paid a distribution fee with
respect to Class B and Class C shares at the annual rate of 0.75% of the average
daily net assets attributable to these Classes. Class B shares that
automatically convert to Class A shares eight years after the date of original
purchase will no longer be subject to a distribution fee. The fees are used by
Smith Barney to pay its Financial Consultants for servicing shareholder accounts
and, in the case of Class B and Class C shares, to cover expenses primarily
intended to result in the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing prospectuses to potential
investors; payments to and expenses of 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
Smith Barney associated with the sale of Portfolio shares, including lease,
utility, communications and sales promotion expenses.
    

     The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.

   
     Payments under the Plan with respect to Class B and Class C shares are not
tied exclusively to the distribution and shareholder services expenses actually
incurred by Smith Barney and the payments may exceed distribution expenses
actually incurred. The Fund's Board of Directors will evaluate the
appropriateness of the Plan and its payment terms on a continuing basis and in
so doing will consider all relevant factors, including expenses borne by Smith
Barney, amounts received under the Plan and proceeds of the CDSC.
    

================================================================================
Additional Information
================================================================================

     The Fund, an open-end investment company, was incorporated in Maryland on
March 22, 1991. The Fund 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

44
<PAGE>

Smith Barney World Funds, Inc. --
International Equity Portfolio

================================================================================
Additional Information (continued)
================================================================================

issuance of six series of shares, each representing shares in one of six
separate Portfolios and may authorize the issuance of additional series of
shares in the future. The assets of each Portfolio are segregated and separately
managed and a shareholder's interest is in the assets of the Portfolio in which
he or she holds shares. Class A, Class B, Class C, Class Y and Class Z shares of
the Portfolio represent interests in the assets of the Portfolio 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 pertains to a particular Class. As described under "Voting" in the
Statement of Additional Information, the Fund ordinarily will not hold meetings
of shareholders annually; however, shareholders have the right to call a meeting
upon a vote of 10% of the Fund's outstanding shares for the purpose of voting to
remove directors, and the Fund 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. 

     Morgan Guaranty Trust Company of New York, located at 60 Wall Street, New
York 10260, serves as custodian of the Portfolio's investments.

   
     First Data, located at Exchange Place, Boston, Massachusetts 02109, serves
as the Fund's transfer agent.
    

     The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund at
the end of the period covered. In an effort to reduce the Fund's printing and
mailing costs, the Fund 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. In addition, the Fund also plans to consolidate the mailing
of its Prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not want this consolidation to
apply to their account should contact their Smith Barney Financial Consultant or
the Fund's transfer agent.

                                                                              45
<PAGE>

                                                                    SMITH BARNEY
                                                                    ------------
                                               A Member of Travelers Group[LOGO]





                                                                    Smith Barney
                                                               World Funds, Inc.
                                                                   International
                                                                Equity Portfolio


                                                            388 Greenwich Street
                                                        New York, New York 10013



                                                                   FD 0667  2/96





<PAGE>
PROSPECTUS

                                                                    SMITH BARNEY
                                                               WORLD FUNDS, INC.

                                                                          Global
                                                                      Government
                                                                            Bond
                                                                       Portfolio

   
                                                               FEBRUARY 28, 1996
    

                                                   Prospectus begins on page one

[Logo]

Smith Barney Mutual Funds
Investing for your future.
Every day.


<PAGE>

Smith Barney World Funds, Inc. --
Global Government Bond Portfolio

   
--------------------------------------------------------------------------------
Prospectus                                                     February 28, 1996
--------------------------------------------------------------------------------
    

     388 Greenwich Street
     New York, New York 10013
     (212) 723-9218



     The Global Government Bond Portfolio (the "Portfolio") is one of the
investment portfolios that currently comprise Smith Barney World Funds, Inc.
(the "Fund"). The Portfolio 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.

     This Prospectus sets forth concisely certain information about the Fund and
the Portfolio, including sales charges, distribution and service fees and
expenses, that prospective investors will find helpful in making an investment
decision. Investors are encouraged to read this Prospectus carefully and retain
it for future reference.

   
     Additional information about the Portfolio is contained in a Statement of
Additional Information dated February 28, 1996, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by
contacting a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
    


Smith Barney Inc.
Distributor

Smith Barney Mutual Funds Management Inc.
Investment Manager

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. 

                                                                               1
<PAGE>

Smith Barney World Funds, Inc. --
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Table of Contents
--------------------------------------------------------------------------------

Prospectus Summary                                                             3
--------------------------------------------------------------------------------
Financial Highlights                                                          10
--------------------------------------------------------------------------------
Investment Objective and Management Policies                                  14
--------------------------------------------------------------------------------
Valuation of Shares                                                           22
--------------------------------------------------------------------------------
Dividends, Distributions and Taxes                                            24
--------------------------------------------------------------------------------
Purchase of Shares                                                            26
--------------------------------------------------------------------------------
Exchange Privilege                                                            36
--------------------------------------------------------------------------------
Redemption of Shares                                                          40
--------------------------------------------------------------------------------
Minimum Account Size                                                          42
--------------------------------------------------------------------------------
Performance                                                                   43
--------------------------------------------------------------------------------
Management of the Fund                                                        44
--------------------------------------------------------------------------------
Distributor                                                                   45
--------------------------------------------------------------------------------
Additional Information                                                        46
--------------------------------------------------------------------------------

     
================================================================================

     No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund or
the Distributor. This Prospectus does not constitute and offer by the Fund or
the Distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.

================================================================================

2
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Prospectus Summary
--------------------------------------------------------------------------------

The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospectus.
See "Table of Contents."

     INVESTMENT OBJECTIVE   The Portfolio is an open-end, management investment
company whose investment objective is to seek 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.
See "Investment Objective and Management Policies."

     ALTERNATIVE PURCHASE ARRANGEMENTS   The Portfolio offers several classes of
shares ("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."

   
     Class A Shares.  Class A shares are sold at net asset value plus an initial
sales charge of up to 4.50% and are subject to an annual service fee of 0.25% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which when
combined with current holdings of Class A shares offered with a sales charge
equal or exceed $500,000 in the aggregate, will be made at net asset value with
no initial sales charge, but will be subject to a contingent deferred sales
charge ("CDSC") of 1.00% on redemptions made within 12 months of purchase. See
"Prospectus Summary-- Reduced or No Initial Sales Charge."
    

     Class B Shares.  Class B shares are offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds, declining by 0.50% the first year
after purchase and by 1.00% each year thereafter to zero. This CDSC may be
waived for certain redemptions. Class B shares are subject to an annual service
fee of 0.25% and an annual distribution fee of 0.50% of the average daily net
assets of the Class. The Class B shares' distribution fee may cause that Class
to have higher expenses and pay lower dividends than Class A shares.

     Class B Shares Conversion Feature.   Class B shares will convert
automatically to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain portion
of Class B shares that have been acquired through the reinvestment of dividends


                                                                               3
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------

and distributions ("Class B Dividend Shares") will be converted at that time.
See "Purchase of Shares -- Deferred Sales Charge Alternatives."

   
     Class C Shares.  Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.45% of the average daily net assets of the Class C shares,
and investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months
of purchase. The CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Portfolio shares, which when
combined with current holdings of Class C shares of the Portfolio equal or
exceed $500,000 in the aggregate, should be made in Class A shares at net asset
value with no sales charge, and will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
    

     Class Y Shares.  Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.

     In deciding which Class of Portfolio shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:

     Intended Holding Period.  The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject to
lower ongoing expenses over the term of the investment. As an alternative, Class
B and Class C shares are sold without any initial sales charge so the entire
purchase price is immediately invested in the Portfolio. Any investment return
on these additional invested amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Portfolio's future return cannot
be predicted, however, there can be no assurance that this would be the case.

     Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.

     Investors investing a minimum of $5,000,000 must purchase Class Y shares,


4
<PAGE>

Ssmith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Prospectus Summary continued)
--------------------------------------------------------------------------------

which are not subject to an initial sales charge, CDSC or service or
distribution fees. The maximum purchase amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares is $499,999. There is no maximum
purchase amount for Class Y shares.

     Reduced or No Initial Sales Charge.  The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Portfolio. In addition, Class A share
purchases, which when combined with current holdings of Class A shares offered
with a sales charge equal or exceed $500,000 in the aggregate, will be made at
net asset value with no initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000 aggregate
investment may be met by aggregating the purchase to the net asset value of all
Class A shares offered with a sales charge held in funds sponsored by Smith
Barney Inc. ("Smith Barney") listed under "Exchange Privilege." Class A share
purchases also may be eligible for a reduced initial sales charge. See "Purchase
of Shares." Because the ongoing expenses of Class A shares may be lower than
those for Class B and Class C shares, purchasers eligible to purchase Class A
shares at net asset value or at a reduced sales charge should consider doing so.

     Smith Barney Financial Consultants may receive different compensation for
selling each class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.

     See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
class of shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.

     SMITH BARNEY 401(K) PROGRAM   Investors may be eligible to participate in
the Smith Barney 401(k) Program, which is generally designed to assist plan
sponsors in the creation and operation of retirement plans under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), as well as other
types of participant directed, tax-qualified employee benefit plans
(collectively, "Participating Plans"). Class A, Class B, Class C and Class Y
shares are available as investment alternatives for Participating Plans. See
"Purchase of Shares --Smith Barney 401(k) Program."

   
     PURCHASE OF SHARES   Shares may be purchased through a brokerage account
maintained by Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
    


                                                                               5
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Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------
   
addition, certain investors, including qualified retirement plans and certain
institutional investors, may purchase shares directly from the Fund made through
the Fund's transfer agent, First Data Investor Services Group, Inc. ("First
Data"). See "Purchase of Shares."
    

     INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may
open an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a Self-Employed
Retirement Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. Subsequent investments of at least $50 may be made for
all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes of shares is $25. The minimum initial
investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes through the Systematic
Investment Plan described below is $50. See "Purchase of Shares."

     SYSTEMATIC INVESTMENT PLAN The Portfolio offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Portfolio shares in an amount of at
least $50. See "Purchase of Shares."

     REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."

   
     MANAGEMENT OF THE PORTFOLIO Smith Barney Mutual Funds Management Inc. (the
"Manager") serves as the Portfolio's investment manager. The Manager is a wholly
owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a diversified
financial services holding company engaged, through its subsidiaries,
principally in four business segments: Investment Services, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Services.
See "Management of the Fund."
    

     EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the
same Class of certain other funds of the Smith Barney Mutual Funds at the
respective net asset values next determined, plus any applicable sales charge
differential. See "Exchange Privilege."

     VALUATION OF SHARES Net asset value of the Portfolio for the prior day
generally is quoted daily in the financial section of most newspapers and is
also available from a Smith Barney Financial Consultant. See "Valuation of
Shares."



6
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Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Prospectus Summary continued)
--------------------------------------------------------------------------------

     DIVIDENDS AND DISTRIBUTIONS  Dividends are paid monthly from net investment
income. Distributions of net realized capital gains, if any, are paid annually.
See "Dividends, Distributions and Taxes."

     REINVESTMENT OF DIVIDENDS  Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and
distribution reinvestments will become eligible for conversion to Class A shares
on a pro rata basis. See "Dividends, Distributions and Taxes."

     RISK FACTORS AND SPECIAL CONSIDERATIONS  There can be no assurance that the
Portfolio's investment objective will be achieved. The value of the Portfolio's
investments, and thus the net asset value of the Portfolio's shares, will
fluctuate in response to changes in market and economic conditions, as well as
the financial condition and prospects of issuers in which the Portfolio invests.
The Fund will invest in foreign securities. Investments in foreign securities
incur higher costs than investments in U.S. securities, including higher costs
in making securities transactions as well as foreign government taxes which may
reduce the investment return of the Portfolio. In addition, foreign investments
may include additional risks associated with currency exchange rates, less
complete financial information about individual companies, less market liquidity
and political instability. See "Investment Objective and Management Policies."


                                                                               7
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------

     THE PORTFOLIO'S EXPENSES   The following expense table lists the costs and
expenses an investor will incur either directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption:

                                              Class A  Class B  Class C  Class Y
--------------------------------------------------------------------------------
   
Shareholder Transaction Expenses
   Maximum sales charge imposed on purchases
     (as a percentage of offering price) ..... 4.50%    None     None      None
   Maximum CDSC (as a percentage of original 
     cost or redemption proceeds, 
     whichever is lower) ..................... None*    4.50%    1.00%     None
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
   Management fees ........................... 0.75%    0.75%    0.75%     0.75%
   12b-1 fees** .............................. 0.25     0.75     0.70       --
   Other expenses*** ......................... 0.38     0.42     0.39      0.23
Total Portfolio Operating Expenses ........... 1.38%   1.92%     1.84%     0.98%
    
--------------------------------------------------------------------------------

  *  Purchases of Class A shares, which when combined with current holdings of
     Class A shares offered with a sales charge equal or exceed $500,000 in the
     aggregate, will be made at net asset value with no sales charge, but will
     be subject to a CDSC of 1.00% on redemptions made within 12 months.

 **  Upon conversion of Class B shares to Class A shares, such shares will no
     longer be subject to a distribution fee. Class C shares do not have a
     conversion feature and, therefore, are subject to an ongoing distribution
     fee. As a result, long-term shareholders of Class C shares may pay more
     than the economic equivalent of the maximum front-end sales charge
     permitted by the National Association of Securities Dealers, Inc.

   
***  The Portfolio has earned credits from the custodian which reduce service
     fees incurred. If the credits are taken into consideration, the ratios of
     expenses to average net assets for Class A, B, C and Y would be 1.32%,
     1.86%, 1.78% and 0.93%, respectively.
    

     The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Portfolio shares and investors
may actually pay lower or no charges, depending on the amount purchased and, in
the case of Class B shares, Class C shares and certain Class A shares, the
length of time the shares are held and whether the shares are held through the
Smith Barney 401(k) Program. See "Purchase of Shares" and "Redemption of
Shares." Smith Barney receives an annual 12b-1 service fee of 0.25% of the value
of average daily net assets of Class A shares. Smith Barney also receives with
respect to Class B shares an annual 12b-1 fee of 0.75% of the value of average
daily net assets of that Class, consisting of a 0.50% distribution fee and a
0.25% service fee. For Class C shares, Smith Barney receives an annual 12b-1 fee
of 0.70% of the value of average daily net assets of this Class, consisting of a
0.45% distribution fee and a 0.25% service fee. "Other expenses" in the above
table include fees for shareholder services, custodial fees, legal and
accounting fees, printing costs and registration fees.

8
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Prospectus Summary (Continued)
--------------------------------------------------------------------------------

     EXAMPLE

     The following example is intended to assist an investor in understanding
the various costs that an investor in the Portfolio will bear directly or
indirectly. The example assumes payment by the Portfolio of operating expenses
at the levels set forth in the table above. See "Purchase of Shares,"
"Redemption of Shares" and "Management of the Fund."

<TABLE>
<CAPTION>

                                                            1 Year    3 Years     5 Years    10 Years*
------------------------------------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000
  investment, assuming (1) 5.00% annual return and
  (2) redemption at the end of each time period:

<S>                                                           <C>        <C>        <C>        <C> 
         Class A                                              $58        $87        $117       $203
         Class B                                               64         90         114        210
         Class C                                               29         58         100        216
         Class Y                                               10         31          54        120
                                                                                            
An investor would pay the following expenses on the 
  same investment, assuming the same annual return and 
  no redemption:

         Class A                                              $58        $87        $117       $203
         Class B                                               19         60         104        210
         Class C                                               19         58         100        216
         Class Y                                               10         31          54        120
                                                                                        
------------------------------------------------------------------------------------------------------
</TABLE>

*  Ten-year figures assume conversion of Class B shares to Class A shares at
   the end of the eighth year following the date of purchase.

     The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Portfolio's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.

                                                                               9
<PAGE>

Smith Barney World Funds, Inc. --
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------

   
     The following information for the three-year period ended December 31, 1993
and for the two-year period ended October 31, 1995 has been audited in
conjunction with the annual audits of the financial statements of Smith Barney
World Funds, Inc. by KPMG Peat Marwick LLP, independent auditors. The 1995
financial statements and the independent auditors' report thereon appear in the
October 31, 1995 Annual Report to Shareholders.
    

For a share of each class of capital stock outstanding
throughout each period:


                                                    Period Ended December 31,

Class A Shares                1995     1994(1)     1993       1992    1991(2)
   
--------------------------------------------------------------------------------
Net Asset Value, Beginning of 
  Period                     $11.68    $12.92     $11.84     $12.90   $12.00
--------------------------------------------------------------------------------
Income from Operations:
  Net Investment Income++      0.92      0.69       0.83       1.00     0.35
  Net Realized and Unrealized
   Gain (Loss) on 
   Investments                 0.48     (1.28)      1.36      (0.90)    1.12
--------------------------------------------------------------------------------
Total Income (Loss) from 
  Operations                   1.40     (0.59)      2.19       0.10     1.47
================================================================================
Less Distributions From:
  Net Investment Income       (0.78)    (0.23)     (0.52)     (0.97)   (0.44)
  Net Realized Gains(3)          --        --      (0.59)     (0.19)   (0.13)
  Capital                        --     (0.42)        --         --       --
--------------------------------------------------------------------------------
Total Distributions           (0.78)    (0.65)     (1.11)     (1.16)   (0.57)
--------------------------------------------------------------------------------
Net Asset Value, End 
  of Period                  $12.30    $11.68     $12.92     $11.84   $12.90
--------------------------------------------------------------------------------
Total Return#                 12.40%    (4.64)%+++ 19.13%      0.93%   12.42%+++
--------------------------------------------------------------------------------
Net Assets, End of 
  Period (000)'s           $123,917   $77,961   $107,415   $107,609  $99,855
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses(5)                  1.38%    1.32%+     1.30%       1.36%    1.15%+
  Net investment income        7.44     6.57+      6.67        7.72     8.26+
--------------------------------------------------------------------------------
Portfolio Turnover Rate      195.40%  179.29%    119.06%     177.06%   63.46%
================================================================================

(1)  For the period from January 1, 1994 to October 31, 1994.
(2)  For the period from July 22, 1991 (inception date) to December 31, 1991.
(3)  Net short term gains, if any, are included and reported as ordinary income
     for income tax purposes.
(4)  During the period ended October 31, 1995, the Portfolio earned credits from
     the custodian which reduce service fees incurred. If the credits are taken
     into consideration, the ratio of expenses to average net assets for Class A
     would be 1.32%; prior year numbers have not been restated to reflect these
     credits.
 ++  Includes realized gains and losses from foreign currency transactions.
+++  Total return is not annualized, as it may not be representative of the
     total return for the year.
 +   Annualized.
 #   Total returns do not reflect any applicable sales loads or contingent
     deferred sales charges.

    

10
<PAGE>

Smith Barney World Funds, Inc. --
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------

   
Class B Shares                                    1995(1)
--------------------------------------------------------------------------------
Net Asset Value, Beginning of Period              $11.57
--------------------------------------------------------------------------------
Income from Operations:
  Net investment income++                           0.78
  Net realized and unrealized gain                  0.57
--------------------------------------------------------------------------------
Total Income from Operations                        1.35
--------------------------------------------------------------------------------
Less Distributions From:
================================================================================
  Net Investment Income                            (0.66)
--------------------------------------------------------------------------------


Total Distributions                                (0.66)
--------------------------------------------------------------------------------
Net Asset Value, End of Period                    $12.26
--------------------------------------------------------------------------------
Total Return#                                      11.97%+++
--------------------------------------------------------------------------------
Net Assets, End of Period (000)'s                $35,159
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses(2)                                       1.92%+
  Net investment income                             6.65+
--------------------------------------------------------------------------------
Portfolio Turnover Rate                           195.40%
================================================================================


(1)  For the period from November 18, 1994 (inception date) to October 31, 1995.
(2)  During the period ended October 31, 1995, the Portfolio earned credits from
     the custodian which reduce service fees incurred. If the credits are taken
     into consideration, the ratio of expenses to average net assets for Class B
     would be 1.86%.+
++   Includes realized gains and losses from foreign currency transactions.
+++  Total return is not annualized, as it may not be representative of the
     total return for the year.
+    Annualized.
#    Total return does not reflect any applicable sales loads or contingent
     deferred sales charges.
    

                                                                              11
<PAGE>

Smith Barney World Funds, Inc. --
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------

   
Class C Shares(a)                            1995         1994(b)       1993(c)
--------------------------------------------------------------------------------
Net Asset Value, Beginning of Period        $11.68       $12.93        $11.83
--------------------------------------------------------------------------------
Income (Loss) from Operations:                                       
  Net Investment Income++                     0.85         0.90          0.79
  Net Realized and Unrealized Gain                                   
  (Loss) on Investments                       0.42        (1.55)         1.37
--------------------------------------------------------------------------------
Total Income (Loss) from Operations           1.27        (0.65)         2.16
================================================================================
Less Distributions From:                                             
  Net Investment Income                      (0.72)       (0.21)       (0.47)
  Net Realized Gains(1)                        --           --         (0.59)
  Capital                                      --         (0.39)         --
--------------------------------------------------------------------------------
Total Distributions                          (0.72)       (0.60)       (1.06)
--------------------------------------------------------------------------------
Net Asset Value, End of Period              $12.23       $11.68       $12.93
--------------------------------------------------------------------------------
Total Return#                                11.25%       (5.33)%+++   18.89%+++
--------------------------------------------------------------------------------
Net Assets, End of Period (000)'s           $4,141       $5,835       $4,972
--------------------------------------------------------------------------------
Ratios to Average Net Assets:                                        
  Expenses(2)                                 1.84%        1.80%+       1.74%+
  Net Investment Income                       7.15         6.05+        6.28+
--------------------------------------------------------------------------------
Portfolio Turnover Rate                     195.40%      179.29%      119.06%
================================================================================
                                                                     
(a)  On November 7, 1994, the former Class B Shares were renamed Class C Shares.

(b)  For the period from January 1, 1994 to October 31, 1994.

(c)  For the period from January 4, 1993 (inception date) to December 31, 1993.

(1)  Net short term gains, if any, are included and reported as ordinary income
     for income tax purposes.

(2)  During the year ended October 31, 1995, the Portfolio earned credits from
     the custodian which reduce service fees incurred. If the credits are taken
     into consideration, the ratio of expenses to average net assets for Class C
     would be 1.78%; prior year numbers have not been restated to reflect these
     credits.

+    Annualized.

+++  Total return is not annualized, as it may not be representative of the
     total return for the year.

#    Total returns do not reflect any applicable sales loads or contingent
     deferred sales charges.

++   Includes realized gains and losses from foreign currency transactions.
    


12
<PAGE>

Smith Barney World Funds, Inc. --
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
   
Class Y Shares(1)                           1995         1994(a)       1993(b)
--------------------------------------------------------------------------------
Net Asset Value, Beginning of Period       $11.68        $12.93        $11.97
--------------------------------------------------------------------------------
Income from Operations:                                              
  Net Investment Income++                    0.78          0.76          0.69
  Net Realized and Unrealized Gain                                   
  (Loss) on Investments                      0.49         (1.35)         1.23
--------------------------------------------------------------------------------
Total Income (Loss) from Operations          1.27         (0.59)        1.92
================================================================================
Less Distributions From:                                             
  Net Investment Income                     (0.81)        (0.23)       (0.37)
  Net Realized Gains(2)                       --            --         (0.59)
  Capital                                     --          (0.43)         --
--------------------------------------------------------------------------------
Total Distributions                         (0.81)        (0.66)       (0.96)
--------------------------------------------------------------------------------
Net Asset Value, End of Period             $12.14        $11.68       $12.93
--------------------------------------------------------------------------------
Total Return#                               11.27%        (4.86)%+++   16.49%+++
--------------------------------------------------------------------------------
Net Assets, End of Period (000)'s             $62        $3,202         $371
--------------------------------------------------------------------------------
Ratios to Average Net Assets:                                        
  Expenses(3)                                0.98%         1.23%+       1.20%+
  Net Investment Income                      6.38          6.76+        6.73+
--------------------------------------------------------------------------------
Portfolio Turnover Rate                    195.40%       179.29%      119.06%
================================================================================
                                                                 

(a)  For the period from January 1, 1994 to October 31, 1994. Effective October
     1, 1994, the Fund changed its fiscal year end to October 31.

(b)  For the period from February 19, 1993 (inception date) to December 31,
     1993.

(1)  On November 7, 1994, the former Class C shares were renamed Class Y shares.

(2)  Net short term gains, if any, are included and reported as ordinary income
     for income tax purposes.

(3)  During the year ended October 31, 1995, the Portfolio earned credits from
     the custodian which reduce service fees incurred. If the credits are taken
     into consideration, the ratio of expenses to average net assets for Class Y
     would be 0.93%; prior year numbers have not been restated to reflect these
     credits.

+    Annualized.

+++  Total return is not annualized, as it may not be representative of the
     total return for the year.

#    Total returns do not reflect any applicable sales loads or contingent
     deferred sales charges.

++   Includes realized gains and losses from foreign currency transactions.
    


                                                                              13

<PAGE>

Smith Barney World Funds, Inc. --
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Investment Objective and Management Policies
--------------------------------------------------------------------------------

     The investment objective of the Portfolio is to provide 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. There can be no assurance that the investment objective of the
Portfolio will be achieved.

     Under normal market conditions, the Portfolio invests at least 65% of its
total assets in bonds issued or guaranteed by the United States or foreign
governments (including foreign states, provinces, cantons and municipalities) or
their agencies, authorities, or instrumentalities denominated in various
currencies, including U.S. dollars, or in multinational currency units, such as
the European Currency Unit ("ECU"). Except with respect to government securities
of less developed countries (see below), the Portfolio 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 Corporation ("S&P") (see "Appendix--Ratings of Debt
Obligations" in the Statement of Additional Information), or if unrated, are of
comparable quality in the determination of the investment adviser.

     Consistent with its investment objective, under normal circumstances the
Portfolio 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 Portfolio 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 investment adviser to be of
comparable quality. For certain risks associated with investments in foreign
issues, see "Risk Factors."

     The Portfolio 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 investment adviser believes
to pose limited credit risks. These countries currently are Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Ireland, Italy, Japan, Luxembourg,
Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, The
United Kingdom and Germany. The Portfolio also will invest in securities


14

<PAGE>

Smith Barney World Funds, Inc. --
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

denominated in the currencies of such countries or in multinational currency
units. Under normal market conditions the Portfolio 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
Portfolio's total assets.

     In seeking to achieve its investment objective of high current income, the
investment adviser 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 investment manager
allocates the Portfolio's assets among securities of countries and in currency
denominations where opportunities for meeting the Portfolio's investment
objective are expected to be the most attractive. The investment 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 investment manager generally
evaluates currencies on the basis of fundamental economic criteria (e.g.,
relative inflation and interest rate 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 of less
developed countries (i.e., Argentina, Brazil, Chile, Mexico and Venezuela).
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 have provided higher rates of
return to investors. The investment adviser does not intend to invest more than
10% of the Fund's total assets in government securities of less developed
countries and will not invest more than 5% of its assets in the government
securities of any one such country. Such investments will be made only if the
issue or the issuer thereof is rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A
or BBB by S&P, commonly referred to as investment grade securities, or if
unrated, are judged to be of comparable quality by the investment adviser.


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Investment Objective and Management Policies (continued)
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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 make principal and interest payments than is the
case with higher grade securities.

     During times when the investment manager believes a temporary defensive
posture in the market is warranted, including times involving international
political or economic uncertainty, the Portfolio may hold cash (U.S. dollars and
foreign currencies) and/or invest any portion or all of its assets in high
quality money market instruments. It is impossible to predict when or for how
long the Portfolio will employ defensive strategies. The Portfolio also may
temporarily hold cash (U.S. dollars and foreign currencies) and may, pending
investment of proceeds from new sales of Portfolio shares, invest all or a
portion of its assets in high quality money market instruments or, to meet
ordinary daily cash needs, also invest in the latter, but only up to 35% of its
assets. High quality money market instruments in which the Portfolio may invest
include, but are not limited to, the following instruments of U.S. or foreign
issuers that are rated in one of the two highest ratings categories of Moody's
or S&P (see "Appendix--Ratings of Debt Obligations" in the Statement of
Additional Information), or if unrated, are of comparable quality in the
determination of the investment adviser: short-term government securities;
commercial paper; bank certificates of deposit; time deposits; and bankers'
acceptances; and repurchase agreements related to any of the foregoing.

     When-Issued and Delayed Delivery Securities.  The Portfolio 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 the
Portfolio 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 Portfolio
at the time of entering into the transaction. The Fund's Custodian will
maintain, in a segregated account of the Portfolio, cash, U.S. Government
securities or other liquid, high-grade debt obligations having a value equal to
or greater than the Portfolio's purchase commitments; 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 the
Portfolio enters into the commitment and no interest accrues to the Portfolio
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.

     Repurchase Agreements. The Portfolio may on occasion enter into repurchase
agreements, wherein the seller agrees to repurchase a security from the
Portfolio at an agreed-upon future date, normally the next business day. The


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Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

resale price is greater than the purchase price, which reflects the agreed-upon
rate of return for the period the Portfolio holds the security and which is not
related to the coupon rate on the purchased security. The Portfolio requires
continual maintenance of the market value of the collateral in amounts at least
equal to the resale price, thus risk is limited to the ability of the seller to
pay the agreed-upon amount on the delivery date; however, if the seller
defaults, realization upon the collateral by the Portfolio may be delayed or
limited or the Portfolio might incur a loss if the value of the collateral
securing the repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. The Portfolio will only enter into
repurchase agreements with broker/dealers or other financial institutions that
are deemed creditworthy by the Manager under guidelines approved by the Board of
Directors. It is the policy of the Fund not to invest in repurchase agreements
that do not mature within seven days if any such investment together with any
other illiquid assets held by the Portfolio amount to more than 15% of the
Portfolio's total assets.

     Securities Lending.  The Portfolio may seek to increase its investment
income by lending its securities to unaffiliated brokers, dealers and other
financial institutions, provided such loans are callable at any time and are
continuously secured by cash, U.S. Government securities or other liquid,
high-grade debt securities equal to no less than the market value, determined
daily, of the securities loaned. Management will limit such lending to not more
than one-third of the value of the Portfolio's total assets. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delay in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans will only be made to borrowers whom the
investment adviser deems to be of good standing and will not be made unless, in
the judgment of the investment adviser, the consideration to be earned from such
loans would justify the risk.

     Options, Futures and Currency Strategies.  The Portfolio 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 Portfolio. There can be no assurance that such efforts will
succeed. These hedging techniques are described below and are further detailed
in the Statement of Additional Information.

     In order to assure that the Portfolio will not be deemed to be a "commodity
pool" for purposes of the Commodity Exchange Act, regulations of the Commodity
Futures Trading Commission ("CFTC") require that the Portfolio enter into
transactions in futures contracts and options on futures contracts only (i) for

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Investment Objective and Management Policies (Continued)
--------------------------------------------------------------------------------

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
Portfolio's assets. The Portfolio, however, does not intend to use such
instruments for non-hedging purposes.

     To attempt to hedge against adverse movements in exchange rates between
currencies, the Portfolio may enter into forward currency contracts for the
purchase or sale of a specified currency at a specified future date. Such
contracts may involve the purchase or sale of a foreign currency against the
U.S. dollar or may involve two foreign currencies. The Portfolio may enter into
forward currency contracts either with respect to specific transactions or with
respect to its portfolio positions. For example, when the Portfolio anticipates
making a purchase or sale of a security, it may enter a forward currency
contract in order to set the rate (either relative to the U.S. dollar or another
currency) at which a currency exchange transaction related to the purchase or
sale will be made ("transaction hedging"). Further, when the investment manager
believes that a particular currency may decline compared to the U.S. dollar or
another currency, the Portfolio may enter into a forward contract to sell the
currency the investment manager expects to decline in an amount approximating
the value of some or all of the Portfolio's securities denominated in that
currency, or when the investment manager believes that one currency may decline
against a currency in which some or all of the portfolio securities held by the
Portfolio are denominated, it may enter into a forward contract to buy the
currency expected to decline for a fixed amount ("position hedging"). In this
situation, the Portfolio may, in the alternative, enter into a forward contract
to sell a different currency for a fixed amount of the currency expected to
decline where the investment manager believes that the value of the currency to
be sold pursuant to the forward contract will fall whenever there is a decline
in the value of the currency in which portfolio securities of the the Portfolio
are denominated ("cross hedging"). The Fund's custodian places cash or U.S.
Government securities or other high-quality debt securities denominated in
certain currencies in a separate account of the Portfolio having a value equal
to the aggregate amount of the Portfolio's commitments under forward contracts
entered into with respect to position hedges and cross-hedges. If the value of
the securities placed in a separate account declines, additional cash or
securities are placed in the account on a daily basis so that the value of the
account will equal the amount of the Portfolio's commitments with respect to
such contracts.

     For hedging purposes, the Portfolio may write covered call options and
purchase put and call options on currencies to hedge against movements in
exchange rates and on debt securities to hedge against the risk of fluctuations

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Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

in the prices of securities held by the Portfolio or which the investment
manager intends to include in its portfolio. The Portfolio also may use interest
rate futures contracts and options thereon to hedge against changes in the
general level of interest rates.

     The Portfolio may write call options on securities and currencies only if
they are covered, and such options must remain covered so long as the Portfolio
is obligated as a writer. A call option written by the Portfolio is "covered" if
the Portfolio owns the securities or currency underlying the option or has an
absolute and immediate right to acquire that security or currency without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities or currencies held in its portfolio. A call option is also covered if
the Portfolio holds on a share-for-share basis a call on the same security or
holds a call on the same currency as the call written where the exercise price
of the call held is equal to or less than the exercise price of the call written
or greater than the exercise price of the call written if the difference is
maintained by the Portfolio in cash, Treasury bills or other high-grade,
short-term obligations in a segregated account with its custodian.

     Although the Portfolio might not employ the use of forward currency
contracts, options and futures, the use of any of these strategies would involve
certain investment risks and transaction costs to which it might not otherwise
be subject. These risks include: dependence on the investment manager's ability
to predict movements in the prices of individual debt securities, fluctuations
in the general fixed-income markets and movements in interest rates and currency
markets; imperfect correlation between movements in the price of currency,
options, futures contracts or options thereon and movements in the price of the
currency or security hedged or used for cover; the fact that skills and
techniques needed to trade options, futures contracts and options thereon or to
use forward currency contracts are different from those needed to select the
securities in which the Portfolio invests; lack of assurance that a liquid
market will exist for any particular option, futures contract or option thereon
at any particular time and the possible need to defer or accelerate closing out
certain options, futures contracts and options thereon in order to continue to
qualify for the beneficial tax treatment afforded "regulated investment
companies" under the Internal Revenue Code of 1986, as amended (the "Code"). See
"Dividends, Distributions and Taxes."

     The Portfolio's investment objective 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"). The Portfolio's investment policies are

                                                                              19
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Global Government Bond Portfolio

--------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

non-fundamental and, as such, may be changed by the Board of Directors, provided
such change is not prohibited by the investment restrictions (which are set
forth below and in the Statement of Additional Information) or applicable law,
and any such change will first be disclosed in the then current prospectus.

     RISK FACTORS

     The Portfolio's net asset value will fluctuate, reflecting fluctuations in
the market value of its portfolio positions. The value of the fixed-income
securities held by the Portfolio generally fluctuates inversely with interest
rate movements. The Portfolio normally will invest in a substantial number of
issuers; however, the Portfolio has registered under the 1940 Act as a
"non-diversified" fund so that it will be able to invest more than 5% of its
assets in high quality, fixed-income obligations of an issuer. Since, as a
"non-diversified" fund, the Portfolio is permitted to invest a greater
proportion of its assets in the securities of a smaller number of issuers, the
Portfolio may be subject to greater credit risk with respect to its individual
portfolio than a fund that is more broadly diversified.

   
     According to Smith Barney Global Capital Management ("Global Capital"),
which will furnish the investment manager with advice with respect to
investments in the Portfolio (see "Management of the Fund"), as of October 31,
1995 over 50% of the value of all outstanding government debt obligations
throughout the world was represented by obligations denominated in currencies
other than the U.S. dollar. Moreover, from time to time, primarily because of
the U.S. dollar--domestic currency exchange rate and differing demand--supply
relationships, the debt securities of issuers located outside the U.S. have
substantially outperformed the debt obligations of U.S. issuers in U.S. dollar
terms. Accordingly, the investment manager believes that the Portfolio's policy
of investing in debt securities of issuers throughout the world may enable it to
produce U.S. dollar-based returns greater than those produced by funds investing
solely in domestic debt securities.
    

     Nonetheless, foreign investing does entail certain risks, such as the
Portfolio's income may be subject to foreign withholding taxes (see "Dividends,
Distributions and Taxes"), foreign brokerage fees generally are higher than in
the United States, and the potential difficulty in enforcing contractual
obligations outside the U.S. The securities of non-U.S. issuers generally will
not be registered with, nor will the issuers thereof be subject to, the
reporting requirements of the U.S. Securities and Exchange Commission.
Accordingly, there may be less publicly available information about foreign
securities and issuers than is available about domestic securities and issuers.
With respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of the Portfolio, political or social instability, or diplomatic

20
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Global Government Bond Portfolio

--------------------------------------------------------------------------------
Investment Objective and Management Policies continued)
--------------------------------------------------------------------------------

developments that could affect the Portfolio's investments in those countries.
In addition, foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Securities of some foreign
companies are less liquid and their prices may be more volatile than securities
of comparable domestic companies. Moreover, individual foreign economies may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross national product, rate of inflation, rate of savings and
capital reinvestment, resource self-sufficiency and balance of payments
positions. Global Capital will rely on its worldwide financial and investment
expertise to attempt to limit these risks.

     Since the Portfolio may invest substantially in securities denominated in
currencies other than the U.S. dollar, and since the Portfolio may hold foreign
currencies, the Portfolio will be affected favorably or unfavorably by exchange
control regulations or changes in the exchange rates between such currencies and
the U.S. dollar. Changes in currency exchange rates will influence the value of
the Portfolio's shares and also may affect the value of dividends and interest
earned by the Portfolio and gains and losses it realizes. Exchange rates are
determined by the forces of supply and demand in the foreign exchange markets.
These forces are affected by the international balance of payments and other
economic and financial conditions, government intervention and speculation.

     PORTFOLIO TURNOVER

     Although it is anticipated that most investments of the Portfolio will be
long-term in nature, the rate of portfolio turnover will depend upon market and
other conditions, and it will not be a limiting factor when the investment
manager believes that portfolio changes are appropriate. It is expected that the
Portfolio's annual turnover rate will not exceed 100% in normal circumstances.
Investors should realize that risk of loss is inherent in the ownership of any
securities and that shares of the Portfolio will fluctuate with the market value
of its securities.

     INVESTMENT RESTRICTIONS

     The following investment restrictions and those described in the Statement
of Additional Information are fundamental policies of the Portfolio that may be
changed only by the "vote of a majority of the outstanding securities" as
defined in the 1940 Act. The Portfolio may not: 1. Borrow money, except from
banks for temporary or emergency purposes not in excess of 331/3% of the value
of the Portfolio's total assets. Whenever such borrowings exceed 5% of the value

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--------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

of the Portfolio's total assets, the Portfolio will not make any additional
investments. This restriction shall not prevent the Portfolio from entering into
reverse repurchase agreements, provided that reverse repurchase agreements and
any other transactions constituting borrowing by the Portfolio may not exceed
one-third of the Portfolio's total assets. In the event that the asset coverage
falls below 300%, the Portfolio would reduce, within three days (excluding
Saturdays, Sundays and holidays), the amount of its borrowings in order to
provide for 300% asset coverage; and 2. Acquire securities subject to
restrictions on disposition or securities for which there is no readily
available market; enter into repurchase agreements, or purchase time deposits or
variable amount master demand notes, if any of the foregoing have a term or
demand feature of more than seven days; or purchase OTC options or set aside
assets to cover OTC options written by the Portfolio if, immediately after and
as a result, the value of such securities would exceed, in the aggregate, 15% of
the Portfolio's total assets. Subject to this limitation, the Fund's Board of
Directors has authorized the Portfolio to invest in restricted securities if
such investment is consistent with the Portfolio's investment objective and has
authorized such securities to be considered to be liquid to the extent the
investment adviser determines on a daily basis that there is a liquid
institutional market for such securities. The Board of Directors retains
ultimate ongoing responsibility for the determination that a restricted security
is liquid. To the extent the Portfolio invests in restricted securities that are
deemed liquid, the general level of illiquidity in the Portfolio may be
increased if qualified institutional buyers become uninterested in purchasing
these securities or the market for these securities contracts. To the extent
such restricted securities revert to illiquid status subsequent to the
Portfolio's purchase, the Board of Directors will consider appropriate remedies
to maximize the Portfolio's liquidity and its ability to meet redemption
demands.

--------------------------------------------------------------------------------
Valuation of Shares
--------------------------------------------------------------------------------

     The Portfolio's net asset value per share 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 Portfolio's net assets attributable to each Class by the total
number of shares of the Class outstanding.

     Securities owned by the Portfolio 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

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--------------------------------------------------------------------------------
Valuation of Shares (continued)
--------------------------------------------------------------------------------

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 sale 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 has determined that amortized cost is fair value.
Premiums received on the sale of call options will be included in the
Portfolio's net assets, and current market value of such options sold by the
Portfolio will be subtracted from the Portfolio's net assets. Any other
investments of the Portfolio, 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 Portfolio 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 investment
adviser.

     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 Portfolio may not take place contemporaneously with the
determination of the prices of investments held by such Portfolio. 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 Portfolio's net asset value unless the investment adviser, under the
supervision of the Fund's Board of Directors, determines that the particular
event would materially affect net asset value. As a result, the Portfolio's net
asset value may be significantly affected by such trading on days when a
shareholder has no access to the Portfolio.

                                                                              23
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Dividends, Distributions and Taxes continued)
--------------------------------------------------------------------------------

     DIVIDENDS AND DISTRIBUTIONS

     The Fund declares and pays monthly income dividends on shares of the
Portfolio and makes annual distributions of capital gains, if any, on such
shares.

     If a shareholder does not otherwise instruct, dividends and capital gain
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC.

   
     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 Smith Barney Financial Consultant.
Accounts held directly by First Data should notify First Data 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 C shares of the Portfolio 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
C shares. The per share dividends on Class A shares of the Portfolio 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 C and Class Y
shares.

     TAXES

     The Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Code to be relieved of Federal income tax on that part of
its net investment income and realized capital gains which it pays out to its
shareholders. To qualify, the Portfolio must meet certain tests, including
distributing at least 90% of its investment company taxable income, and deriving
less than 30% of its gross income from the sale or other disposition of certain
investments held for less than three months.

     Dividends from net investment income and distributions of realized
short-term capital gains on the sale of securities, whether paid in cash or
automatically invested in additional shares of the Portfolio, are taxable to
shareholders as ordinary income. The Portfolio's dividends will not qualify for
the dividends received deduction for corporations. Dividends and distributions
declared by the Portfolio may also be subject to state and local taxes.
Distributions out of net long-term capital gains (i.e., net long-term capital
gains in excess of net short-term capital losses) 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.

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Global Government Bond Portfolio

--------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
--------------------------------------------------------------------------------

     Under Internal Revenue Code sections 988 and 1256, unrealized gains
(losses) from certain foreign currency positions are treated as ordinary income
(loss) at year end. Due to the uncertainty during the taxable year surrounding
the amount that might ultimately be treated as a net ordinary loss under these
rules, dividends made during the year may have to be reclassified as
distributions of short-term capital gain at the end of the year. Distributions
of short-term capital gain and net investment income will generally be treated
as ordinary income to shareholders for tax purposes.

     Income received by the Portfolio 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 Portfolio's assets to be invested in various
countries is not known. Such foreign taxes would reduce the income of the
Portfolio distributed to shareholders.

     If, at the end of the Portfolio's taxable year, more than 50% of the value
of the Portfolio's total assets consists of stock or securities of foreign
corporations, the Portfolio may make an election pursuant to which foreign
income taxes paid by it will be treated as paid directly by its shareholders.
Because, under normal market conditions, the Portfolio will invest at least 65%
of its total assets in securities issued or guaranteed by the United States or
foreign governments or their agencies, authorities or instrumentalities, it is
not likely that the Portfolio will be eligible to make this election. If the
Portfolio were entitled to and did make such an election, the amount of such
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 or, provided the shareholder itemizes deductions, a deduction
for U.S. federal income tax purposes for such foreign taxes. The amount of
foreign taxes for which a shareholder can claim a credit in any year is
generally subject to limitation, including a separate limitation for "passive
income," which includes, among other items, dividends, interest and certain
foreign currency gains.

     In determining gain or loss, a shareholder who redeems or exchanges shares
in the Portfolio 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 for investing
in the Portfolio or a different Portfolio of the Fund, such as pursuant to the
rights discussed in "Exchange Privilege."

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--------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
--------------------------------------------------------------------------------

     The Fund 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.

     Prior to investing in shares of the Portfolio, investors should consult
with their tax advisors concerning the federal, state and local tax consequences
of such an investment.

--------------------------------------------------------------------------------
Purchase of Shares
--------------------------------------------------------------------------------

     GENERAL

   
     The Portfolio offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without an initial sales charge or a CDSC
and are available only to investors investing a minimum of $5,000,000 (except
for purchases of Class Y shares by Smith Barney Concert Series Inc., for which
there is no minimum purchase amount). See "Prospectus Summary-Alternative
Purchase Arrangements" for a discussion of factors to consider in selecting
which Class of shares to purchase.

     Purchases of Portfolio shares must be made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group. In addition, certain investors, including qualified
retirement plans and certain institutional investors, may purchase shares
directly from the Fund through First Data. When purchasing shares of the
Portfolio, investors must specify whether the purchase is for Class A, Class B,
Class C or Class Y shares. No maintenance fee will be charged by the Fund in
connection with a brokerage account through which an investor purchases or holds
shares.

     Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan in the Portfolio. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000.
Subsequent investments of at least $50 may be made for all Classes. For
participants in retirement plans qualified under Section 403(b)(7) or Section
401(a) of the Code, the minimum initial investment requirement for Class A,
Class B and Class C shares and the subsequent investment requirement for all
Classes in the Portfolio is $25. For the Portfolio's Systematic Investment Plan,
    

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Global Government Bond Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

   
the minimum initial investment requirement for Class A, Class B and Class C
shares and the subsequent investment requirement for all Classes is $50. There
are no minimum investment requirements in Class A shares for employees of
Travelers and its subsidiaries, including Smith Barney, Directors or 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 Fund's transfer
agent, First Data. Share certificates are issued only upon a shareholder's
written request to First Data.

     Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Portfolio calculates its net asset
value, are priced according to the net asset value determined on that day (the
"trade date"). Orders received by dealers or Introducing Brokers prior to the
close of regular trading on the NYSE on any day the Portfolio 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 Smith Barney prior to Smith
Barney's close of business. For shares purchased through Smith Barney or
Introducing Brokers purchasing through Smith Barney, payment for Portfolio
shares is due on the third business day (the "settlement date") after the trade
date. In all other cases, payments 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, Smith Barney or First Data is authorized through
preauthorized transfers of $50 or more to charge the regular bank account or
other financial institution indicated by the shareholder on a monthly or
quarterly basis to provide systematic additions to the shareholder's Portfolio
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or First Data. The Systematic
Investment Plan also authorizes Smith Barney to apply cash held in the
shareholder's 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 Smith Barney Financial Consultant.
    

                                                                              27
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Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

Initial Sales Charge Alternative - Class A Shares

     The sales charges applicable to purchases of Class A shares of the
Portfolio are as follows:

                                          Sales Charge          Dealers'
                                       % of         % of      Reallowance
                                     Offering      Amount       as % of
         Amount of Investment          Price      Invested   Offering Price
--------------------------------------------------------------------------------
         Less than    $25,000           4.50%       4.71%         4.00%
         $  25,000 --  49,999           4.00        4.17          3.60
            50,000 --  99,999           3.50        3.63          3.15
           100,000 -- 249,999           2.50        2.56          2.25
           250,000 -- 499,999           1.50        1.52          1.35
           500,000 and over             *           *             *
--------------------------------------------------------------------------------
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value without any initial sales charge, but
will be subject to a CDSC of 1.00% on redemptions made within 12 months of
purchase. The CDSC on Class A shares is payable to Smith Barney, which
compensates Smith Barney Financial Consultants and other dealers whose clients
make purchases of $500,000 or more. The CDSC is waived in the same circumstances
in which the CDSC applicable to Class B and Class C shares is waived. See
"Deferred Sales Charge Alternatives" and "Waivers of CDSC."

     Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.

     The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the Portfolio made at one time by "any person," which
includes an individual, his or her spouse and children, or a trustee or other
fiduciary of a single trust estate or single fiduciary account. The reduced
sales charge minimums may also be met by aggregating the purchase with the net
asset value of all Class A shares offered with a sales charge held in funds
sponsored by Smith Barney that are listed under "Exchange Privilege."

     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 of Class A shares to
Directors and employees of Travelers and its subsidiaries, Directors, 
Trustees or employees of any of the Smith Barney Mutual Funds and the members
 of the immediate families of such persons 
(including the surviving spouse of a deceased Director, Trustee or employee, 
and retired
Directors, Trustees or employees), or pension, profit-sharing or other
benefit plan for such persons 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 or to 
members of the National Association of Securities Dealers, Inc.;
    

                                                                              28
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Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------
   
(b) offers of Class A shares to any other investment company in connection 
with the
combination of such company with the Portfolio by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares by any client of a newly employed
Smith Barney Financial Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with 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) shareholders who have
redeemed Class A shares in the Portfolio (or Class A shares of another fund of
the Smith Barney Mutual Funds that are offered with a sales charge equal to or
greater than the maximum sales charge of the Portfolio) and who wish to reinvest
their redemption proceeds in the Portfolio, provided the reinvestment is made
within 60 calendar days of the redemption; and (e) accounts managed by
registered investment advisory subsidiaries of Travelers. 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 Portfolio may be purchased by "any person" (as
defined above) at a reduced sales charge 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 Portfolio and of funds sponsored by Smith Barney
which are offered with a sales charge listed under "Exchange Privilege" then
held by such person and applying the sales charge applicable to such aggregate.
In order to obtain such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification that the purchase
qualifies for the reduced sales charge. The right of accumulation is subject to
modification or discontinuance at any time with respect to all shares purchased
thereafter.
    

     GROUP PURCHASES

     Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative -- Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a

                                                                              29
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Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

sales charge to, and share holdings of, all members of the group. To be eligible
for such reduced sales charges or to purchase at net asset value, all purchases
must be pursuant to an employer- or partnership-sanctioned plan meeting certain
requirements. One such requirement is that the plan must be open to specified
partners or employees of the employer and its subsidiaries, if any. Such plan
may, but is not required to, provide for payroll deductions, IRAs or investments
pursuant to retirement plans under Sections 401 or 408 of the Code. Smith Barney
may also offer a reduced sales charge or net asset value purchase for
aggregating related fiduciary accounts under such conditions that Smith Barney
will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
at the reduced sales charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Portfolio shares at a discount and (c) satisfies uniform criteria
which enables Smith Barney to realize economies of scale in its costs of
distributing shares. A qualified group must have more than 10 members, must be
available to arrange for group meetings between representatives of the Portfolio
and the members, and must agree to include sales and other materials related to
the Portfolio in its publications and mailings to members at no cost to Smith
Barney. In order to obtain such reduced sales charge or to purchase at net asset
value, the purchaser must provide sufficient information at the time of purchase
to permit verification that the purchase qualifies for the reduced sales charge.
Approval of group purchase reduced sales charge plans is subject to the
discretion of Smith Barney.

     LETTER OF INTENT

     Class A Shares. A Letter of Intent for amounts of $50,000 or more provides
an opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes
purchases of all Class A shares of the Portfolio and other funds of the Smith
Barney Mutual Funds offered with a sales charge over the 13 month period based
on the total amount of intended purchases plus the value of all Class A shares
previously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales charge

30
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

   
applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
sales charges applicable to the purchases made and the charges previously paid,
or an appropriate number of escrowed shares will be redeemed. Please contact a
Smith Barney Financial Consultant or First Data to obtain a Letter of Intent
application.

     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. Such investors
must make an initial minimum purchase of $1,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of $5,000,000 of Class Y shares of the
same Portfolio within six months from the date of the Letter. If a total
investment of $5,000,000 is not made within the six-month period, all Class Y
shares purchased to date will be transferred to Class A shares, where they will
be subject to all fees (including a service fee of 0.25%) and expenses
applicable to the Portfolio's Class A shares, which may include a CDSC of 1.00%.
Please contact a Smith Barney Financial Consultant or First Data for further
information.
    

     DEFERRED SALES CHARGE ALTERNATIVES

     CDSC Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Portfolio. A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares which when combined with Class A shares
offered with a sales charge currently held by an investor equal or exceed
$500,000 in the aggregate.

   
     Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a CDSC
to the extent that the value of such shares represents: (a) capital appreciation
of Portfolio 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 C shares and Class
A shares that are CDSC Shares, shares redeemed more than 12 months after their
purchase.
    

     Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will

                                                                              31
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

be aggregated and deemed to have been made on the last day of the preceding
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
purchases by Participating Plans, as described below. See "Purchase of Shares --
Smith Barney 401(k) Program."

     Year Since Purchase
     Payment Was Made                                              CDSC
   ---------------------------------------------------------------------
     First                                                         4.50%
     Second                                                        4.00
     Third                                                         3.00
     Fourth                                                        2.00
     Fifth                                                         1.00
     Sixth                                                         0.00
     Seventh                                                       0.00
     Eighth                                                        0.00

     Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fees. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B Dividend 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. Shareholders who held Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the "Short-Term World Income Fund") on
July 15, 1994 and who subsequently exchange those shares for Class B shares of
the Portfolio will be offered the opportunity to exchange all such Class B
shares for Class A shares of the Portfolio four years after the date on which
those shares were deemed to have been purchased. Holders of such Class B shares
will be notified of the pending exchange in writing approximately 30 days before
the fourth anniversary of the purchase date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the fourth anniversary
date. See "Prospectus Summary -- Alternative Purchase Arrangements -- Class B
Shares Conversion Feature."

     In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distributions
and finally of other shares held by the shareholder for the longest period of
time. The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Portfolio shares

32
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gain distribution reinvestments in such
other funds. For Federal income tax purposes, the amount of the CDSC will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any CDSC will be paid to Smith Barney.

     To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for Class B shares) for a
total deferred sales charge of $9.60.

     WAIVERS OF CDSC

     The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the value of the
shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within twelve
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of shares in connection with a combination of the Portfolio with any
investment company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other funds of the Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive pro rata credit for any CDSC imposed on the
prior redemption.

   
     CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by First Data in
the case of all other shareholders) of the shareholder's status or holdings, as
the case may be.
    

                                                                              33
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Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

     SMITH BARNEY 401(K) PROGRAM

     Investors may be eligible to participate in the Smith Barney 401(k)
Program, which is generally designed to assist plan sponsors in the creation and
operation of retirement plans under Section 401(a) of the Code. To the extent
applicable, the same terms and conditions are offered to all Participating Plans
in the Smith Barney 401(k) Program.

     The Portfolio offers to Participating Plans Class A, Class B, Class C and
Class Y shares as investment alternatives under the Smith Barney 401(k) Program.
Class A, Class B and Class C shares acquired through the Smith Barney 401(k)
Program are subject to the same service and/or distribution fees as, but
different sales charge and CDSC schedules than, the Class A, Class B and Class C
shares acquired by other investors. Similar to those shares available to other
investors, Class Y shares acquired through the Smith Barney 401(k) Program are
not subject to any service or distribution fees or any initial sales charge or
CDSC. Once a Participating Plan has made an initial investment in the Portfolio,
all of its subsequent investments in the Portfolio must be in the same Class of
shares, except as otherwise described below.

     Class A Shares. Class A shares of the Portfolio are offered without any
initial sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds, if the
Participating Plan terminates within four years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.

     Class B Shares. Class B shares of the Portfolio are offered to any
Participating Plan that purchases less than $250,000 of one or more funds of the
Smith Barney Mutual Funds. Class B shares acquired through the Smith Barney
401(k) Program are subject to a CDSC of 3.00% of redemption proceeds, if the
Participating Plan terminates within eight years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.

     Eight years after the date the Participating Plan enrolled in the Smith
Barney 401(k) Program, it will be offered the opportunity to exchange all of its
Class B shares for Class A shares of the Portfolio. 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
the exchange has occurred, a Participating Plan will not be eligible to acquire
additional Class B shares of the Portfolio but instead may acquire Class A

34
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

shares of the Portfolio. If the Participating Plan elects not to exchange all of
its Class B shares at that time, each Class B share held by the Participating
Plan will have the same conversion feature as Class B shares held by other
investors. See "Purchase of Shares --Deferred Sales Charge Alternatives."

     Class C Shares. Class C shares of the Portfolio are offered to any
Participating Plan that purchases from $250,000 to $499,999 of one or more funds
of the Smith Barney Mutual Funds. Class C shares acquired through the Smith
Barney 401(k) Program after November 7, 1994 are subject to a CDSC of 1.00% of
redemption proceeds, if the Participating Plan terminates within four years of
the date the Participating Plan first enrolled in the Smith Barney 401(k)
Program. Each year after the date a Participating Plan enrolled in the Smith
Barney 401(k) Program, if its total Class C holdings 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 C shares for Class A shares of the Portfolio. 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. Once the exchange has occurred, a Participating Plan will not be eligible
to acquire Class C shares of the Portfolio but instead may acquire Class A
shares of the Portfolio. Any Class C shares not converted will continue to be
subject to the distribution fee.

     Class Y Shares. Class Y shares of the Portfolio are offered without any
service or distribution fees, sales charge or CDSC to any Participating Plan
that purchases $5,000,000 or more of Class Y shares of one or more funds of the
Smith Barney Mutual Funds.

     Whether or not the CDSC applies to a Participating Plan depends on the
number of years since the Participating Plan first became enrolled in the Smith
Barney 401(k) Program, unlike the applicability of the CDSC to other
shareholders, which depends on the number of years since those shareholders made
the purchase payment for the shares which are being redeemed. Where applicable,
the CDSC will be assessed on shares held through the Smith Barney 401(k) Program
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; provided, however,
that shares will not be subject to a CDSC to the extent that the value of such
shares represents capital appreciation of Fund assets and/or reinvestments of
dividends or capital gain distributions. In addition, the CDSC will be waived on
redemptions of Class A, Class B and Class C shares in connection with lump-sum
or other distributions made by a Participating Plan as a result of: (a) the

                                                                              35
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Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

retirement of an employee in the Participating Plan; (b) the termination of
employment of an employee in the Participating Plan; (c) the death or disability
of an employee in the Participating Plan; (d) the attainment of age 591/2 by an
employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code; or
(f) redemptions of shares in connection with a loan made by the Participating
Plan to an employee.

   
     Participating Plans wishing to acquire shares of the Portfolio through the
Smith Barney 401(k) Program must purchase such shares directly from First Data.
For further information regarding the Smith Barney 401(k) Program, investors
should contact their Smith Barney Financial Consultant.
    

--------------------------------------------------------------------------------
Exchange Privilege
--------------------------------------------------------------------------------

     Except as otherwise noted below, shares of each Class may be exchanged for
shares of the same Class in the following funds of the 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 C shares are subject to
minimum investment requirements and all shares are subject to the other
requirements of the fund into which exchanges are made and a sales charge
differential may apply.

Fund Name
--------------------------------------------------------------------------------
   
Growth Funds

                  Smith Barney Aggressive Growth Fund Inc.
                  Smith Barney Appreciation Fund Inc.
                  Smith Barney Fundamental Value Fund Inc.
                  Smith Barney Growth Opportunity Fund
                  Smith Barney Managed Growth Fund
                  Smith Barney Natural Resources Fund Inc.
                  Smith Barney Special Equities Fund
                  Smith Barney Telecommunications Growth Fund

Growth and Income Funds

                  Smith Barney Convertible Fund
                  Smith Barney Funds, Inc. -- Equity Income Portfolio
                  Smith Barney Growth and Income Fund
                  Smith Barney Premium Total Return Fund
                  Smith Barney Strategic Investors Fund
                  Smith Barney Utilities Fund
    

36

<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Exchange Privilege (continued)
--------------------------------------------------------------------------------

Taxable Fixed-Income Funds

   
   **  Smith Barney Adjustable Rate Government Income Fund
       Smith Barney Diversified Strategic Income Fund
   *   Smith Barney Funds, Inc. -- Income Return Account Portfolio
   +++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Portfolio
       Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
       Smith Barney Government Securities Fund
       Smith Barney High Income Fund
       Smith Barney Investment Grade Bond Fund
       Smith Barney Managed Governments Fund Inc.

Tax-Exempt Funds

       Smith Barney Arizona Municipals Fund Inc.
       Smith Barney California Municipals Fund Inc.
   *   Smith Barney Intermediate Maturity California Municipals Fund
   *   Smith Barney Intermediate Maturity New York Municipals Fund
       Smith Barney Managed Municipals Fund Inc.
       Smith Barney Massachusetts Municipals Fund
   *   Smith Barney Muni Funds -- Florida Limited Term Portfolio
       Smith Barney Muni Funds -- Florida Portfolio
       Smith Barney Muni Funds -- Georgia Portfolio
   *   Smith Barney Muni Funds -- Limited Term Portfolio
       Smith Barney Muni Funds -- National Portfolio
       Smith Barney Muni Funds -- New York Portfolio
       Smith Barney Muni Funds -- Ohio Portfolio
       Smith Barney Muni Funds -- Pennsylvania Portfolio
       Smith Barney New Jersey Municipals Fund Inc.
       Smith Barney Oregon Municipals Fund
       Smith Barney Tax-Exempt Income Fund

International Funds

       Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
       Smith Barney World Funds, Inc. -- European Portfolio
       Smith Barney World Funds, Inc. -- International Balanced Portfolio
       Smith Barney World Funds, Inc. -- International Equity Portfolio
       Smith Barney World Funds, Inc. -- Pacific Portfolio

Smith Barney Concert Series Inc.

       Smith Barney Concert Series Inc. -- High Growth Portfolio
       Smith Barney Concert Series Inc. -- Growth Portfolio
       Smith Barney Concert Series Inc. -- Balanced Portfolio
       Smith Barney Concert Series Inc. -- Conservative Portfolio
       Smith Barney Concert Series Inc. -- Income Portfolio
    

                                                                              37
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Exchange Privilege (continued)
--------------------------------------------------------------------------------

Money Market Funds

 +     Smith Barney Exchange Reserve Fund
 ++    Smith Barney Money Funds, Inc. -- Cash Portfolio
 ++    Smith Barney Money Funds, Inc. -- Government Portfolio     
 ***   Smith Barney Money Funds, Inc. -- Retirement Portfolio     
 +++   Smith Barney Municipal Money Market Fund, Inc.     
 +++   Smith Barney Muni Funds -- California Money Market Portfolio 
 +++   Smith Barney Muni Funds -- New York Money Market Portfolio
--------------------------------------------------------------------------------
 *     Available for exchange with Class A, Class C and Class Y shares of the
 **    Available  for exchange  with Class A, Class B and Class Y shares of
       Portfolio. the Portfolio. In addition, shareholders who own Class C 
       shares of the Portfolio through the Smith Barney  401(k)  Program may 
       exchange those shares for Class C shares of this fund.
 ***   Available for exchange with Class A shares of the Portfolio.
   +   Available for exchange with Class B and Class C shares of the Portfolio.
  ++   Available  for  exchange  with  Class A and  Class Y shares  of the
       Portfolio.  In addition,  shareholders  who own Class C shares of the 
       Portfolio through the Smith Barney  401(k)  Program may exchange  those 
       shares for Class C shares of this fund.
 +++   Available for exchange with Class A and Class Y shares of the Portfolio .

     Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge of less than the maximum charged
by other Smith Barney Mutual Funds will be subject to the appropriate "sales
charge differential" upon the exchange of such shares for Class A shares of a
fund sold with a higher sales charge. The "sales charge differential" is limited
to a percentage rate no greater than the excess of the sales charge rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For
purposes of the exchange privilege, shares obtained through automatic
reinvestment of dividends and capital gain distributions are treated as having
paid the same sales charges applicable to the shares on which the dividends or
distributions were paid; however, except in the case of the Smith Barney 401(k)
Program, if no sales charge was imposed upon the initial purchase of the shares,
any shares obtained through automatic reinvestment will be subject to a sales
charge differential upon exchange. Class A shares held in the Portfolio prior to
November 7, 1994 that are subsequently exchanged for shares of other funds of
the Smith Barney Mutual Funds will not be subject to a sales charge
differential.

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Smith Barney World Funds, Inc.--
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--------------------------------------------------------------------------------
Exchange Privilege (continued)
--------------------------------------------------------------------------------

     Class B Exchanges. In the event a Class B shareholder (unless such
shareholder was a Class B shareholder of the Short-Term World Income Fund on
July 15, 1994) wishes to exchange all or a portion of his or her shares in any
of the funds imposing a higher CDSC than that imposed by the Portfolio, the
exchanged Class B shares will be subject to the higher applicable CDSC. Upon an
exchange, the new Class B shares will be deemed to have been purchased on the
same date as the Class B shares of the Portfolio that have been exchanged.

     Class C Exchanges. Upon an exchange, the new Class C shares will be deemed
to have been purchased on the same date as the Class C shares of the Portfolio
that have been exchanged.

     Class Y Exchanges. Class Y shareholders of the Portfolio who wish to
exchange all or a portion of their Class Y shares for Class Y shares 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 Portfolio'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 Portfolio'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 Portfolio or (b) remain
invested in the Portfolio 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 Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined, plus any applicable
sales charge differential. 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. A capital gain or loss for
tax purposes will be realized upon the exchange, depending upon the cost or
other basis of shares redeemed. Before exchanging shares, investors should read
the current prospectus describing the shares to be acquired. The Portfolio
reserves the right to modify or discontinue exchange privileges upon 60 days'
prior notice to shareholders.
    

                                                                              39
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Redemption Of Shares
--------------------------------------------------------------------------------

     The Fund is required to redeem the shares of the Portfolio tendered to it,
as described below, at a redemption price equal to their net asset value per
share next determined after receipt of a written request in proper form at no
charge other than any applicable CDSC. Redemption requests received after the
close of regular trading on the NYSE are priced at the net asset value next
determined.

   
     If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third day following receipt of proper
tender, except on 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 Smith Barney brokerage account, these funds will not be
invested for the shareholder's benefit without specific instruction and Smith
Barney will benefit from the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a certified or official bank
check, will be remitted upon clearance of the check, which may take up to ten
days or more.
    

     Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:

   
          Smith Barney World Funds, Inc./Global Government Bond Portfolio
          Class A,B,C or Y (please specify)
          c/o First Data Investor Services Group, Inc.
          P.O. Box 9134
          Boston, Massachusetts  02205-9134

     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 First Data together with the redemption request. Any
signature appearing on a written redemption request in excess of $2,000, share
certificate or stock power must be guaranteed by an eligible guarantor
institution, such as a domestic bank, savings and loan institution, domestic
    

40
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Redemption of Shares (continued)
--------------------------------------------------------------------------------

   
credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $2,000 or less do
not require a signature guarantee unless more than one such redemption request
is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. First Data 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 First Data receives all required documents in proper form.
    

     AUTOMATIC CASH WITHDRAWAL PLAN

     The Portfolio offers shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Portfolio. Any applicable CDSC will not be
waived on amounts withdrawn by a shareholder that exceed 1.00% per month of the
value of the shareholder's shares subject to the CDSC at the time the withdrawal
plan commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not exceed
2.00% per month of the value of the shareholder's shares subject to the CDSC.)
For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.

   
     TELEPHONE REDEMPTION AND EXCHANGE PROGRAM

     Shareholders who do not have a Smith Barney brokerage account may be
eligible to redeem and exchange Fund shares by telephone. To determine if a
shareholder is entitled to participate in this program, he or she should contact
First Data 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 First Data 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 the Fund.)

     Redemptions. Redemption requests of up to $10,000 of any class or classes
of the Fund's shares, may be made by eligible shareholders by calling First Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day the NYSE is open. Redemptions of shares (i) by
retirement plans or (ii) for which certificates have been issued are not
permitted under this program.
    

                                                                              41
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Redemption of Shares (continued)
--------------------------------------------------------------------------------

   
     A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the case
may be, on the next business day following the redemption request. In order to
use the wire procedures, the bank receiving the proceeds must be a member of the
Federal Reserve System or have a correspondent relationship with a member bank.
The 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 First Data at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day on which the NYSE is open.

     Additional Information regarding Telephone Redemption and Exchange Program.
Neither the 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.
    

--------------------------------------------------------------------------------
Minimum Account Size
--------------------------------------------------------------------------------

     The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Portfolio if the aggregate net asset value of the shares held in
the Portfolio account is less than $500. (If a shareholder has more than one
account in this Portfolio, each account must satisfy the minimum account size.)
The Fund, however, will not redeem shares based solely on market reductions in
net asset value. Before the Fund exercises such right, shareholders will receive
written notice and will be permitted 60 days to bring accounts up to the minimum
to avoid automatic liquidation.

42
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Performance
--------------------------------------------------------------------------------

   
     From time to time the Portfolio may advertise its total return, average
annual total return and yield in advertisements. In addition, in other types of
sales literature the Fund may include the Portfolio's current dividend return.
These figures are computed separately for Class A, Class B, Class C and Class Y
shares of the Portfolio. These figures are based on historical earnings and are
not intended to indicate future performance. Total return is computed for a
specified period of time assuming deduction of the maximum sales charge, if any,
from the initial amount invested and reinvestment of all income dividends and
capital gain distributions on the reinvestment dates at prices calculated as
stated in this Prospectus, then dividing the value of the investment at the end
of the period so calculated by the initial amount invested and subtracting 100%.
The standard average annual total return, as prescribed by the SEC is derived
from this total return, which provides the ending redeemable value. Such
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. The yield of
a Portfolio class refers to the net investment income earned by investments in
the class over a thirty-day period. This net investment income is then
annualized, i.e., the amount of income earned by the investments during that
30-day period is assumed to be earned each 30-day period for twelve periods and
is expressed as a percentage of the investments. The yield is calculated
according to a formula prescribed by the SEC to facilitate comparison with
yields quoted by other investment companies. The Portfolio calculates current
dividend return for each Class by annualizing the most recent monthly
distribution and dividing 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 for a Portfolio class is presented. The current dividend return
for each Class may vary from time to time depending on market conditions, the
composition of its investment portfolio and operating expenses. These factors
and possible differences in the methods used in calculating current dividend
return should be considered when comparing a Class' current return to yields
published for other investment companies and other investment vehicles. The
Portfolio may also include comparative performance information in advertising or
marketing its shares. Such performance information may include data from Lipper
Analytical Services, Inc. and other financial publications.
    

                                                                              43
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Management of the Fund
--------------------------------------------------------------------------------

     BOARD OF DIRECTORS

     Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Directors approve all significant
agreements between the Fund and the companies that furnish services to the Fund
and the Portfolio, including agreements with the Fund's distributor, investment
manager, custodian and transfer agent. The day-to-day operations of the
Portfolio are delegated to the Portfolio's investment manager. The Statement of
Additional Information contains background information regarding each Director
and executive officer of the Fund.

     MANAGER

   
     Smith Barney Mutual Funds Management Inc. (the "Manager") manages the
day-to-day operations of the Portfolio pursuant to a management agreement
entered into by the Fund on behalf of the Portfolio under which the Manager
offers the Portfolio advice and assistance with respect to the acquisition,
holding or disposal of securities and recommendations with respect to other
aspects and affairs of the Portfolio and furnishes the Portfolio with
bookkeeping, accounting and administrative services, office space and equipment,
and the services of the officers and employees of the Fund. By written agreement
Smith Barney Global Capital Management, Inc., a U.S. registered investment
adviser located at 10 Piccadilly, London, England ("Global Capital"), furnishes
the Manager with information, advice and assistance and is available for
consultation on the Portfolio, thus Global Capital may also be considered an
investment adviser to the Fund. Global Capital currently manages the portfolios
of clients in the international securities markets, particularly in the fixed
income area. Global Capital's services are paid for by the Manager; there is no
charge to the Fund for such services. Also, by written agreement Research and
other departments and staff of Smith Barney furnish the Manager with
information, advice and assistance and are available for consultation on the
Fund's Portfolios, thus Smith Barney may also be considered an investment
adviser to the Fund. Smith Barney's services are paid for by the Manager on the
basis of direct and indirect costs to Smith Barney of performing such services;
there is no charge to the Fund for such services. For the Portfolio's last
fiscal year the management fee was 0.75% of the Portfolio's average net assets
and the total operating expenses were 1.38% for Class A shares, 1.92% for Class
B shares, 1.84% for Class C shares and 0.98% for Class Y shares.

     The Manager was incorporated on March 12, 1968 under the laws of Delaware.
As of October 31, 1995, the Manager had aggregate assets under management of
approximately $69 billion. The Manager, Smith Barney and Holdings are each
    

44
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Management of the Fund (continued)
--------------------------------------------------------------------------------

   
located at 388 Greenwich Street, New York, New York 10013. The term "Smith
Barney" in the title of the Fund has been adopted by permission of Smith Barney
and is subject to the right of Smith Barney to elect that the Fund stop using
the term in any form or combination of its name.
    

     PORTFOLIO MANAGEMENT

     Victor S. Filatov and Simon R. Hildreth are responsible for management of
the Portfolio within the investment framework described above. Mr. Filatov and
Mr. Hildreth are Vice Presidents of the Fund, Managing Directors of Smith Barney
and members of the Investment Policy Committee of Global Capital. Prior to
joining Smith Barney in 1993, Mr. Filatov was a Vice President at J.P. Morgan
Securities, Inc. Prior to joining Smith Barney in 1994, Mr. Hildreth was
Director of Mercury Asset Management, a fund manager located in the United
Kingdom.

   
     Management's discussion and analysis and additional performance information
regarding the Portfolio during the fiscal year ended October 31, 1995 is
included in the Annual Report dated October 31, 1995. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
    

--------------------------------------------------------------------------------
Distributor
--------------------------------------------------------------------------------

     Smith Barney distributes shares of the Portfolio as principal underwriter
and as such conducts a continuous offering pursuant to a "best efforts"
arrangement requiring Smith Barney to take and pay for only such securities as
may be sold to the public. Pursuant to a plan of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid
a service fee with respect to Class A, Class B and Class C shares of the
Portfolio at the annual rate of 0.25% of the average daily net assets
attributable to these Classes. Smith Barney is also paid a distribution fee with
respect to Class B and Class C shares at the annual rate of 0.50% and 0.45%,
respectively, of the average daily net assets attributable to these Classes.
Class B shares that automatically convert to Class A shares eight years after
the date of original purchase will no longer be subject to a distribution fee.
The fees are used by Smith Barney to pay its Financial Consultants for servicing
shareholder accounts and, in the case of Class B and Class C shares, to cover
expenses primarily intended to result in the sale of those shares. These
expenses include: advertising expenses; the cost of printing and mailing

                                                                              45
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Distributor (continued)
--------------------------------------------------------------------------------

prospectuses to potential investors; payments to and expenses of 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 Smith Barney associated with the sale of
Portfolio shares, including lease, utility, communications and sales promotion
expenses.

     The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.

   
     Payments under the Plan with respect to Class B and Class C shares are not
tied exclusively to the distribution and shareholder services expenses actually
incurred by Smith Barney and the payments may exceed distribution expenses
actually incurred. The Fund's Board of Directors will evaluate the
appropriateness of the Plan and its payment terms on a continuing basis and in
so doing will consider all relevant factors, including expenses borne by Smith
Barney, amounts received under the Plan and proceeds of the CDSC.
    

--------------------------------------------------------------------------------
Additional Information
--------------------------------------------------------------------------------

     The Fund, an open-end investment company, was incorporated in Maryland on
March 22, 1991. The Fund 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 Portfolios and may authorize the issuance of additional series of
shares in the future. Class A, Class B, Class C and Class Y shares of the
Portfolio represent interests in the assets of the Portfolio 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. As described under "Voting" in the Statement of
Additional Information, the Fund ordinarily will not hold meetings of
shareholders annually; however, shareholders have the right to call a meeting
upon a vote of 10% of the Fund's outstanding shares for the purpose of voting to
remove directors, and the Fund will assist shareholders in calling such a
meeting as required by the 1940 Act. Shares do not have cumulative voting rights

46
<PAGE>

Smith Barney World Funds, Inc.--
Global Government Bond Portfolio

--------------------------------------------------------------------------------
Additional Information (continued)
--------------------------------------------------------------------------------

or preemptive rights and are fully paid, transferable and nonassessable when
issued for payment as described in this Prospectus.

     Morgan Guaranty Trust Company of New York, located at 60 Wall Street, New
York 10260, serves as custodian of the Portfolio's investments.

   
     First Data, located at Exchange Place, Boston, Massachusetts 02109, serves
as the Fund's transfer agent.
    

     The Fund sends shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund at
the end of the period covered. In an effort to reduce the Fund's printing and
mailing costs, the Fund 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. In addition, the Fund also plans to consolidate the mailing
of its Prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not want this consolidation to
apply to their account should contact their Smith Barney Financial Consultant or
the Fund's transfer agent.

                                                                              47
<PAGE>


                     SMITH BARNEY
                     ------------
Amember of Travelers Group [Logo]



      Smith Barney

 World Funds, Inc.

 Global Government
 
    Bond Portfolio





    388 Greenwich Street

New York, New York 10013




FD 0666  2/96



================================================================================
PROSPECTUS

                                                                    SMITH BARNEY
                                                               WORLD FUNDS, INC.

                                                                   International
                                                                        Balanced
                                                                       Portfolio




   
                                                               FEBRUARY 28, 1996
    

                                                   Prospectus begins on page one







(logo)    Smith Barney Mutual Funds
          Investing for your future.
          Every day.






================================================================================
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Prospectus                                                     February 28, 1996
--------------------------------------------------------------------------------

     388 Greenwich Street
     New York, New York 10013
     (212) 723-9218

   
     The International Balanced Portfolio (the "Portfolio") is one of the
investment portfolios that currently comprise Smith Barney World Funds, Inc.
(the "Fund"). The Portfolio seeks a competitive total return on its assets from
growth of capital and income through a portfolio invested primarily in
securities of established non-U.S. issuers. THE PORTFOLIO MAY BORROW UP TO 15%
OF THE VALUE OF ITS ASSETS FOR INVESTMENT PURPOSES, WHICH COULD BE CONSIDERED A
SPECULATIVE ACTIVITY AND WHICH COULD RESULT IN GREATER RISKS OR COSTS TO THE
PORTFOLIO. SEE "BORROWINGS" IN THE APPENDIX.
    

     This Prospectus sets forth concisely certain information about the Fund and
the Portfolio, including sales charges, distribution and service fees and
expenses, that prospective investors will find helpful in making an investment
decision. Investors are encouraged to read this Prospectus carefully and retain
it for future reference.

   
     Additional information about the Portfolio is contained in a Statement of
Additional Information dated February 28, 1996, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by
contacting a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
    

SMITH BARNEY INC.
Distributor

SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                                                                               1
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Table of Contents
--------------------------------------------------------------------------------

   
Prospectus Summuary                                                            3
-------------------------------------------------------------------------------
Financial Highlights                                                          10
-------------------------------------------------------------------------------
Investment Objective and Management Policies                                  11
-------------------------------------------------------------------------------
Valuation of Shares                                                           16
-------------------------------------------------------------------------------
Dividends, Distributions and Taxes                                            17
-------------------------------------------------------------------------------
Purchase of Shares                                                            19
-------------------------------------------------------------------------------
Exchange Privilege                                                            29
-------------------------------------------------------------------------------
Redemption of Shares                                                          33
-------------------------------------------------------------------------------
Minimum Account Size                                                          36
-------------------------------------------------------------------------------
Performance                                                                   36
-------------------------------------------------------------------------------
Management of the Fund                                                        37
-------------------------------------------------------------------------------
Distributor                                                                   40
-------------------------------------------------------------------------------
Additional Information                                                        41
-------------------------------------------------------------------------------
Appendix                                                                     A-1
-------------------------------------------------------------------------------
    


================================================================================

     No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund or
the Distributor. This Prospectus does not constitute an offer by the Fund or the
Distributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.

================================================================================


2
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Prospectus Summary
--------------------------------------------------------------------------------

     The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospectus.
See "Table of Contents."

     INVESTMENT OBJECTIVE The Portfolio is an open-end, management investment
company whose investment objective is to seek 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. See "Investment Objective and
Management Policies."

     ALTERNATIVE PURCHASE ARRANGEMENTS The Portfolio offers several classes of
shares ("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."

   
     Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which when
combined with current holdings of Class A shares offered with a sales charge
equal or exceed $500,000 in the aggregate, will be made at net asset value with
no initial sales charge, but will be subject to a contingent deferred sales
charge ("CDSC") of 1.00% on redemptions made within 12 months of purchase. See
"Prospectus Summary -- Reduced or No Initial Sales Charge."
    

     Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year after
the date of purchase to zero. This CDSC may be waived for certain redemptions.
Class B shares are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class. The
Class B shares' distribution fee may cause that Class to have higher expenses
and pay lower dividends than Class A shares.

     Class B Shares Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain portion
of Class B shares that have been acquired through the reinvestment of dividends


                                                                               3
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------

and distributions ("Class B Dividend Shares") will be converted at that time.
See "Purchase of Shares -- Deferred Sales Charge Alternatives."

   
     Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class C shares,
and investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months
of purchase. The CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Portfolio shares, which when
combined with current holdings of Class C shares of the Portfolio equal or
exceed $500,000 in the aggregate, should be made in Class A shares at net asset
value with no sales charge, and will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
    

     Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to service or
distribution fees.

     In deciding which Class of Portfolio shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:

     Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject to
lower ongoing expenses over the term of the investment. As an alternative, Class
B and Class C shares are sold without any initial sales charge so the entire
purchase price is immediately invested in the Portfolio. Any investment return
on these additional invested amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Portfolio's future return cannot
be predicted, however, there can be no assurance that this would be the case.

     Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion future, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.

4
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------

     Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or
distribution fees. The maximum purchase amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares is $499,999. There is no maximum
purchase amount for Class Y shares.

     Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Portfolio. In addition, Class A share
purchases, which when combined with current holdings of Class A shares offered
with a sales charge equal or exceed $500,000 in the aggregate, will be made at
net asset value with no initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000 aggregate
investment may be met by adding the purchase to the net asset value of all Class
A shares offered with a sales charge held in funds sponsored by Smith Barney
Inc. ("Smith Barney") listed under "Exchange Privilege." Class A share purchases
also may be eligible for a reduced initial sales charge. See "Purchase of
Shares." Because the ongoing expenses of Class A shares may be lower than those
for Class B and Class C shares, purchasers eligible to purchase Class A shares
at net asset value or at a reduced sales charge should consider doing so.

     Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.

     See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.

     SMITH BARNEY 401(k) PROGRAM Investors may be eligible to participate in the
Smith Barney 401(k) Program, which is generally designed to assist plan sponsors
in the creation and operation of retirement plans under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as other types
of participant directed, tax-qualified employee benefit plans (collectively,
"Participating Plans"). Class A, Class B. Class C and Class Y shares are
available as investment alternatives for Participating Plans. See "Purchase of
Shares -- Smith Barney 401(k) Program."

   
     PURCHASE OF SHARES Shares may be purchased through a brokerage account
maintained with Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
    


                                                                               5
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------

   
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
institutional investors, may purchase shares directly from the Fund through the
Fund's transfer agent, First Data Investor Services Group Inc. ("First Data").
See "Purchase of Shares."

     INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may
open an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a Self-Employed
Retirement Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. Subsequent investments of at least $50 may be made for
all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes of shares is $25. The minimum initial
investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement through the Systematic Investment Plan
described below is $50. See "Purchase of Shares."

     SYSTEMATIC INVESTMENT PLAN The Portfolio offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
    
     REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
   
     MANAGEMENT OF THE PORTFOLIO Smith Barney Mutual Funds Management Inc. (the
"Manager") serves as the Portfolio's investment manager. The Manager is a wholly
owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a diversified
financial services holding company engaged, through its subsidiaries,
principally in four business segments: Investment Services, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Services.
See "Management of the Fund."
    

     EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the
same Class of certain other funds of the Smith Barney Mutual Funds at the
respective net asset values next determined, plus any applicable sales charge
differential. See "Exchange Privilege."

6
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Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------

     VALUATION OF SHARES Net asset value of the Portfolio for the prior day
generally is quoted daily in the financial section of most newspapers and is
also available from a Smith Barney Financial Consultant. See "Valuation of
Shares."

     DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are
declared and paid quarterly. Distributions of net realized capital gains, if
any, are declared and paid annually. See "Dividends, Distributions and Taxes."

     REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and
distribution reinvestments will become eligible for conversion to Class A shares
on a pro rata basis. See "Dividends, Distributions and Taxes."

     RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Portfolio's investment objective will be achieved. The value of the Portfolio's
investments, and thus the net asset value of the Portfolio's shares, will
fluctuate in response to changes in market and economic conditions, as well as
the financial condition and prospects of issuers in which the Portfolio invests.
The Portfolio will invest in foreign securities. Investments in foreign
securities incur higher costs than investments in U.S. securities, including
higher costs in making securities transactions as well as foreign government
taxes which may reduce the investment return of the Portfolio. In addition,
foreign investments may include additional risks associated with currency
exchange rates, less complete financial information about individual companies,
less market liquidity and political instability. See "Investment Objective and
Management Policies."




                                                                               7
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------


     THE PORTFOLIO'S EXPENSES The following expense table lists the costs and
expenses an investor will incur either directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption:

   
                                                 Class A Class B Class C Class Y
--------------------------------------------------------------------------------
Shareholder Transaction Expenses
   Maximum sales charge imposed
     on purchases (as a percentage
     of offering price) .......................   5.00%   None    None    None
   Maximum CDSC (as a percentage of
     original cost or redemption
     proceeds, whichever is lower) ............   None*   5.00%   1.00%   None
================================================================================
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
   Management fees (after fee waiver) .........   0.51%   0.51%   0.51%   0.51%
   12b-1 fees*** ..............................   0.25    1.00    1.00      --
   Other expenses .............................   0.86    0.98    0.86    0.86
--------------------------------------------------------------------------------
Total Portfolio Operating Expenses ............   1.62%   2.49%   2.37%   1.37%
================================================================================
    

     *Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12 months.

   
     **These expenses reflect the management fee waiver currently in effect for
the Portfolio. Absent the fee waiver, the management fee would be incurred at
the rate of 0.85% of each Class' average daily net assets for the current fiscal
period. Absent the fee waiver, total expenses would be at the rate of 1.96%,
2.86%, 2.71% and 1.71% for Class A, Class B, Class C and Class Y shares,
respectively. For Class Y shares, "Other expenses" have been estimated because
no Class Y shares were outstanding for the period ended October 31, 1995.

     In addition, during the period ended October 31, 1995, the Portfolio has
earned credits from the custodian which reduce service fees incurred. If the
credits are taken into consideration, the ratios of expenses to average net
assets for Class A, B, C and Y would be 1.52%, 2.39%, 2.27% and 1.27%,
respectively.

     ***Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a conversion
feature and, therefore, are subject to an ongoing distribution fee. As a result,
long-term shareholders of Class C shares may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
    

     The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Portfolio shares and investors
may actually pay lower or no charges, depending on the amount purchased and, in
the case of Class B, Class C and certain Class A shares, the length of time the


8
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------

shares are held and whether the shares are held through the Smith Barney 401(k)
Program. See "Purchase of Shares" and "Redemption of Shares." Smith Barney
receives an annual 12b-1 service fee of 0.25% of the value of average daily net
assets of Class A shares. Smith Barney also receives with respect to Class B and
Class C shares an annual 12b-1 fee of 1.00% of the value of average daily net
assets of the respective Classes, consisting of a 0.75% distribution fee and a
0.25% service fee. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees, printing costs
and registration fees.

Example

     The following example is intended to assist an investor in understanding
the various costs that an investor in the Portfolio will bear directly or
indirectly. The example assumes payment by the Portfolio of operating expenses
at the levels set forth in the table above. See "Purchase of Shares,"
"Redemption of Shares" and "Management of the Fund."

   
                                               1 Year 3 Years 5 Years  10 Years*
--------------------------------------------------------------------------------
Aninvestor would pay the following expenses 
  on a $1,000 investment, assuming (1) 5.00% 
  annual return and (2) redemption at the end 
  of each time period:
      Class A                                    $66      $99     $134     $233
      Class B                                     75      108      143      261
      Class C                                     34       74      127      271
      Class Y                                     14       43       75      165
================================================================================
An investor would pay the following expenses on
  the same investment, assuming the same annual 
  return and no redemption:
      Class A                                    $66      $99     $134     $233
      Class B                                     25       78      133      261
      Class C                                     24       74      127      271
      Class Y                                     14       43       75      165
================================================================================
    

     *Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.

     The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Portfolio's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.




                                                                               9
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------

   
     The following information for the year ended October 31, 1995 and the
period ended October 31, 1994 has been audited in conjunction with the annual
audits of the financial statements of Smith Barney World Funds, Inc. by KPMG
Peat Marwick LLP, independent auditors. The 1995 financial statements and the
independent auditors' report thereon appear in the October 31, 1995 Annual
Report to Shareholders. No information is presented for Class Y shares since
there were no Class Y shares outstanding during the periods presented.

For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
                                                               Class A                   Class B                   Class C
                                                        ----------------------           -------           -----------------------
                                                         1995           1994(1)          1995(2)            1995            1994(1)
====================================================================================================================================
<S>                                                    <C>             <C>               <C>               <C>             <C>   
Net Asset Value, Beginning of Period ...........        $12.20          $12.00           $12.08            $12.18          $12.00
------------------------------------------------------------------------------------------------------------------------------------
Income from Operations:
  Net Investment Income(3) .....................          0.35            0.07             0.36              0.28            0.05
  Net Realized and Unrealized gain .............          0.48            0.13             0.50              0.46            0.13
------------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations ...................          0.83            0.20             0.86              0.74            0.18
------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
  Net Investment Income (Loss) .................         (0.39)             --            (0.29)            (0.29)             --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions ............................         (0.39)             --            (0.29)            (0.29)             --
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period .................        $12.64          $12.20           $12.65            $12.63          $12.18
------------------------------------------------------------------------------------------------------------------------------------
Total Return* ..................................          7.05%           1.67%++          7.33%++           6.29%           1.50%++
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) ...............       $17,667         $20,634           $3,064            $4,317          $4,310
------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses(3) ..................................          1.62%           1.34%+           2.49%+            2.37%           2.03%+
  Net Investment Income ........................          2.89            1.37+            3.11+             2.33            0.79+
------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate ........................         41.72%           5.52%           41.72%            41.72%           5.52%
====================================================================================================================================
Average commissions paid on
  equity security transaction(4) ...............         $0.02              --            $0.02             $0.02              --
====================================================================================================================================
<FN>

(a)  On November 7, 1994 the former Class B shares were renamed Class C shares.

(1)  For the period from August 25, 1994 (inception date) to October 31, 1994.

(2)  For the period from November 7, 1994 (inception date) to October 31, 1995.

(3)  The Manager has agreed to waive all or part of its management fees for the
     International Balanced Portfolio for the year ended October 31, 1995 and
     the period ended October 31, 1994. If the Manager had not agreed to the fee
     waivers, the per share decreases in net investment income and the ratios of
     expenses to average net assets would have been:

                           Per Share Decreases            Expense Ratios
                        in Net Investment Income        Without Fee Waivers
                          --------------------           ----------------
                            1995       1994              1995        1994
                            ----       ----              ----        ----
     Class A                $0.04      $0.02             1.96%       2.03%+
     Class B                 0.04        .--             2.86+        .--
     Class C                 0.04       0.02             2.71        2.74+

     In addition, during the period ended October 31, 1995, the Portfolio has
     earned credits from the custodian which reduce service fees incurred. If
     the credits are taken into consideration, the ratios of expenses to average
     net assets for Class A, B and C would be 1.52%, 2.39%+ and 2.27%,
     respectively; prior year numbers have not been restated to reflect these
     credits.

(4)  Due to new SEC disclosure guidelines, average commissions per share are
     calculated only for the current year and not for the prior periods.

++   Total return is not annualized, as it may not be representative of the
     total return for the year.

+    Annualized.

*    Total return does not reflect applicable sales loads or contingent deferred
     sales charges.
</FN>
</TABLE>

    


10
<PAGE>
                                       
Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Investment Objective and Management Policies
--------------------------------------------------------------------------------
     
     The investment objective of the Portfolio is 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-US issuers. The Portfolio's
investment objective may be changed only with the approval of a majority of the
Portfolio's outstanding shares. There can be no assurance that the investment
objective of the Portfolio will be achieved.

     Under normal market conditions, the Portfolio will invest its assets in an
international portfolio of equity securities (consisting of dividend and
non-dividend paying common stocks, preferred stocks, convertible securities,
American Depository Receipts and rights and warrants to such 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 Portfolio attempts to achieve a balance between equity
and debt securities. However, the proportion of equity and debt held by the
Portfolio at any one time will depend on the investment adviser's views on
current market and economic conditions. The investment adviser will evaluate
economic and political factors in attempting to identify countries and
industries likely to produce above-average investment opportunities. The
Portfolio will invest in securities of issuers that, in the investment adviser's
opinion, are well positioned to benefit from these factors.

     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
Portfolio's assets will be invested in either equity or debt securities;
however, there is no limitation on the percent or amount of the Portfolio'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. In determining whether the Portfolio
will be invested for capital appreciation or for income or any combination of
both, the investment adviser regularly analyzes a broad range of international
equity and fixed income markets in order to assess the degree of risk and level
of return that can be expected from each market.

     The Portfolio 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 Portfolio may invest in companies
organized or governments located in any area of the world: the Far East (e.g.,
Japan, Hong Kong, Singapore, Malaysia), Western Europe (e.g., United Kingdom,

                                                                             11

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

Germany, the Netherlands, France, Italy, Switzerland), Eastern Europe, Central
and South America (e.g., Mexico, Chile and Venezuela), the Middle East, Africa,
Asia, Australia, New Zealand and Canada. However, under unusual economic or
market conditions as determined by the investment adviser, for defensive
purposes the Portfolio may temporarily invest all or a major portion of its
assets in U.S. government securities, debt or equity securities of companies
incorporated in and having their principal business activities in the United
States or in U.S. as well as foreign money market instruments and equivalents.
To the extent the Portfolio's assets are invested for temporary defensive
purposes, such assets will not be invested in a manner designed to achieve the
Portfolio's investment objective.

     In analyzing a company for equity investment, the investment adviser
ordinarily looks at one or more of the following characteristics: earnings
growth per share; return on invested capital; balance sheet attributes;
financial and accounting policies and overall financial strength; competitive
advantages; research and product development and marketing; service; pricing
flexibility; management; and general operating characteristics which may enable
a company to compete successfully in its marketplaces. Ordinarily, the
investment adviser will not view a company as being sufficiently well
established to be considered for inclusion in the Portfolio unless the company,
together with any predecessors, has been operating for at least three fiscal
years.

     It is expected that equity securities purchased by the Portfolio 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 Portfolio 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.

     Investments in debt securities will be allocated based upon the investment
adviser's analysis of credit risk and its consideration of a number of factors,
including: prospects for relative economic growth between the different
countries in which the Portfolio may invest; expected levels of inflation;
government policies influencing business conditions; the outlook for currency
relationships; and the range of the individual investment opportunities
available to international investors. 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, and the

12

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

tax implications to the Portfolio. The debt securities in which the Portfolio
expects to invest will generally range in maturity from two to ten years. Debt
securities of developed foreign countries must 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 investment adviser to be of
comparable quality. If the rating drops below investment grade subsequent to
purchase, the investment adviser will not necessarily sell the security, but
will consider such an event in determining whether the Portfolio 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. Up to 25% of the total assets
of the Portfolio may be invested in securities of emerging market countries.
Please see the Statement of Additional Information for a complete description of
the ratings referred to above.

     In determining the appropriate distribution of investments among various
countries and geographic regions, the investment adviser ordinarily considers
the following factors: prospects for relative economic growth between countries;
expected levels of inflation; government policies influencing business
conditions; the outlook for currency relationships; and the range of individual
investment opportunities available to international investors. In the future, if
any other relevant factors arise they will also be considered.

     The relative performance of foreign currencies is an important factor in
the Portfolio's performance. The investment adviser may manage the Portfolio'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 Portfolio 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 Portfolio 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
Portfolio will use options and futures contracts relating to foreign currencies
to allow the investment adviser to hedge portfolio securities, to shift
investment exposure from one currency to another, or to attempt to profit from

                                                                             13

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

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 Portfolio's assets
that may be committed to currency management strategies.

   
     Refer to the Appendix or the Statement of Additional Information for
further information on the Portfolio's investments, including options and
futures contracts, swap agreements and indexed securities (sometimes referred to
as "derivatives"); loans and other direct debt instruments, floating and
variable rate income securities, zero coupon, discount and payment-in-kind
securities, premium securities, Yankee bonds, borrowings, repurchase agreements,
reverse repurchase agreements and securities loans, foreign repurchase
agreements, illiquid investments, restricted securities, and delayed-delivery
transactions.
    

     PORTFOLIO TRANSACTIONS AND TURNOVER

     All orders for transactions in securities and options on behalf of the
Portfolio are placed by the investment adviser with broker/dealers that the
investment adviser selects, including Smith Barney and other affiliated brokers.
Brokerage will be allocated to Smith Barney, to the extent and in the manner
permitted by applicable law, provided that, in the judgment of the Board of
Directors of the Fund, the commission, fee or other remuneration received or to
be received by Smith Barney (or any broker/dealer affiliate of Smith Barney that
is also a member of a securities exchange) is reasonable and fair compared to
the commission, fee or other remuneration received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during the same or comparable period
of time. The same standard applies to the use of Smith Barney as a commodities
broker in connection with entering into options and futures contracts. In all
trades directed to Smith Barney, the Fund has been assured that its orders will
be accorded priority over those received from Smith Barney for its own account
or for any of its directors, officers or employees. The Fund will not deal with
Smith Barney in any transaction in which Smith Barney acts as principal.

     Under certain market conditions, the Portfolio may experience high
portfolio turnover as a result of its investment strategies. For example, the
exercise of a substantial number of options written by the Portfolio and the
purchase or sale of securities by the Portfolio in anticipation of a rise or
decline in interest rates could result in high portfolio turnover. Short-term
gains realized from portfolio transactions are taxable to shareholders as
ordinary income. In addition, higher portfolio turnover rates can result in
corresponding increases in brokerage commissions for the Portfolio. While the
Portfolio does not intend to engage in short-term trading, it will not consider
portfolio turnover rate a limiting factor in making investment decisions

14

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

consistent with its respective objectives and policies. Although the Portfolio
cannot predict precisely its portfolio turnover rate, it presently estimates
that its annualized portfolio turnover rate will generally not exceed 200% with
respect to the debt portion of its assets and 100% with respect to the equity
portion of its assets.

     RISK FACTORS

     General. The Portfolio's net asset value will fluctuate, reflecting
fluctuations in the market value of its portfolio positions. For debt
securities, the market value is subject to changing interest rates, which
generally vary inversely from the prices of debt securities. The Portfolio
normally will invest in a substantial number of issuers; however, the Portfolio
has registered under the Investment Company Act of 1940 (the "Act") as a
"non-diversified" fund so that it will be able to invest more than 5% of its
assets in the securities of an issuer. Since, as a "non-diversified" fund, the
Portfolio is permitted to invest a greater proportion of its assets in the
securities of a smaller number of issuers, the Portfolio may be subject to
greater credit risk with respect to its individual portfolio than a fund that is
more broadly diversified. Please see the Appendix for additional information
about the risks associated with an investment in the Portfolio.

     Non-U.S. Securities. Investments in securities of non-U.S. 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 the
Portfolio 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 Portfolio 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, repatriation, 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. Non-U.S. 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

                                                                             15

<PAGE>

Smith Barney World Funds, Inc. -- 
International Balanced Portfolio

--------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

liquid and their prices more volatile than securities of comparable U.S.
companies. Transaction costs on non-U.S. 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. The Portfolio might
also have greater difficulty taking appropriate legal action in non-U.S. courts.

     Dividend and interest income from non-U.S. securities will generally be
subject to withholding taxes by the country in which the issuer is located and
may not be recoverable by the Portfolio or the investors.

     Securities of Emerging Market Countries. An emerging market country
generally is considered to be a country that is in the initial stages of its
industrialization cycle. Investing in the equity and fixed-income markets of
emerging market 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.

     Many of the Portfolio'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.

--------------------------------------------------------------------------------
Valuation of Shares
--------------------------------------------------------------------------------
     The Portfolio's net asset value per share 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 Portfolio's net assets attributable to each Class by the total
number of shares of the Class outstanding.

     Generally, the Portfolio's investments are valued at market value or, in
the absence of a market value with respect to any securities, at fair value as
determined by or under the direction of the Fund's Board of Directors. Portfolio
securities which are traded primarily on foreign exchanges are generally valued
at the preceding closing values of such securities on their respective

16

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Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Valuation of Shares (continued)
--------------------------------------------------------------------------------

exchanges, except that when an occurrence subsequent to the time a value was so
established is likely to have changed such value, then the fair market value of
those securities will be determined by consideration of other factors or under
the direction of the Board of Directors. A security that is traded primarily on
an exchange is valued at the last sale price on that exchange or, if there were
no sales during the day, at the current quoted bid price. Over-the-counter
securities are valued on the basis of the bid price at the close of business on
each day. Long-term debt obligations are valued at the average of the quoted bid
and asked prices for such securities or, if such prices are not available, at
the prices for securities of comparable maturity, quality and type; however,
when the investment adviser deems it appropriate, prices obtained for the day of
valuation from a bond pricing service will be used. Short-term investments that
will mature in 60 days or less are stated at amortized cost, which approximates
market value. An option generally is valued at the last sale price or, in the
absence of the last sale price, the last offer price.

--------------------------------------------------------------------------------
Dividends, Distributions and Taxes
--------------------------------------------------------------------------------

     DIVIDENDS AND DISTRIBUTIONS

     The Fund declares and pays quarterly income dividends on shares of the
Portfolio and makes annual distributions of capital gains, if any, on such
shares.

     If a shareholder does not otherwise instruct, dividends and capital gain
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC.
   
     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 Smith Barney Financial Consultant.
Accounts held directly by First Data should notify First Data 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 C shares of the Portfolio 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
C shares. The per share dividends on Class A shares of the Portfolio 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 C and Class Y
shares.


                                                                             17
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Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
--------------------------------------------------------------------------------

     TAXES

     The Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Code to be relieved of federal income tax on that part of
its net investment income and realized capital gains which it pays out to its
shareholders. To qualify, the Portfolio must meet certain tests, including
distributing at least 90% of its investment company taxable income, and deriving
less than 30% of its gross income from the sale or other disposition of certain
investments held for less than three months.

     Dividends from net investment income and distributions of realized
short-term capital gains on the sale of securities, whether paid in cash or
automatically invested in additional shares of the Portfolio, are taxable to
shareholders as ordinary income. The Portfolio's dividends will not qualify for
the dividends received deduction for corporations. Dividends and distributions
declared by the Portfolio may also be subject to state and local taxes.
Distributions out of net long-term capital gains (i.e., net long-term capital
gains in excess of net short-term capital losses) 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 3l.

     Income received by the Portfolio 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 Portfolio's assets to be invested in various
countries is not known. Such foreign taxes would reduce the income of the
Portfolio distributed to shareholders.

     If, at the end of the Portfolio's taxable year, more than 50% of the value
of the Portfolio's total assets consist of stock or securities of foreign
corporations, the Portfolio may make an election pursuant to which foreign
income taxes paid by it will be treated as paid directly by its shareholders.
The Portfolio 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 the Portfolio makes such an election, the amount of
such foreign taxes would be included in the income of shareholders, and a
shareholder other than a foreign corporation or nonresident alien individual
could claim either a credit or, provided the shareholder itemizes deductions, a
deduction for U.S. federal income tax purposes for such foreign taxes.
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

18

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Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
--------------------------------------------------------------------------------

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 Portfolio from
its foreign source income will be treated as foreign source income. The
Portfolio'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 Portfolio 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 foreign income taxes paid by the Portfolio.

     In determining gain or loss, a shareholder who redeems or exchanges shares
in the Portfolio within 90 days of the acquisition of such shares will not be
entitled to include in the tax basis the sales charges incurred in acquiring
such shares to the extent of any subsequent reduction in sales charges for
investing in the Portfolio or a different Portfolio of the Fund, such as
pursuant to the rights discussed in "Exchange Privilege."

     The Fund 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.

     Prior to investing in shares of the Portfolio, investors should consult
with their tax advisors concerning the federal, state and local tax consequences
of such an investment.

--------------------------------------------------------------------------------
Purchase of Shares
--------------------------------------------------------------------------------
     GENERAL

   
     The Portfolio offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without an initial sales charge or CDSC and
    

                                                                             19
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
 Purchase of Shares (continued)
------------------------------------------------------------------------------

   
are available only to investors investing a minimum of $5,000,000 (except for
purchases of Class Y shares by Smith Barney Concert Series Inc., for which there
is no minimum purchase amount). See "Prospectus Summary --Alternative Purchase
Arrangements" for a discussion of factors to consider in selecting which Class
of shares to purchase.

     Purchases of Portfolio shares must be made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group. In addition, certain investors, including qualified
retirement plans and certain institutional investors, may purchase shares
directly from the Fund. When purchasing shares of the Portfolio, investors must
specify whether the purchase is for Class A, Class B, Class C or Class Y shares.
No maintenance fee will be charged by the Fund in connection with a brokerage
account through which an investor purchases or holds shares.

     Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan in the Portfolio. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000.
Subsequent investments of at least $50 may be made for all Classes. For
participants in retirement plans qualified under Section 403(b)(7) or Section
401(a) of the Code, the minimum initial investment requirement for Class A,
Class B and Class C shares and the subsequent investment requirement for all
Classes in the Portfolio is $25. For the Portfolio's Systematic Investment Plan,
the minimum initial investment requirement for Class A, Class B and Class C
shares and the subsequent investment requirement for all Classes is $50. There
are no minimum investment requirements in Class A shares for employees of
Travelers and its subsidiaries, including Smith Barney, Directors or 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 Fund's transfer
agent, First Data. Share certificates are issued only upon a shareholder's
written request to First Data.

     Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Portfolio calculates its net asset
value, are priced according to the net asset value determined on that day (the
"trade date"). Orders received by dealers or Introducing Brokers prior to the
close of regular trading on the NYSE on any day the Portfolio 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 Smith Barney prior to Smith
    

20

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Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
 Purchase of Shares (continued)
--------------------------------------------------------------------------------
   

Barney's close of business. For shares purchased through Smith Barney or
Introducing Brokers purchasing through Smith Barney, payment for Portfolio
shares 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, Smith Barney or First Data is authorized through
preauthorized transfers of $50 or more to charge the regular bank account or
other financial institution indicated by the shareholder on a monthly or
quarterly basis to provide systematic additions to the shareholder's Portfolio
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or First Data. The Systematic
Investment Plan also authorizes Smith Barney to apply cash held in the
shareholder's 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 Smith Barney Financial Consultant.
    

     INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES

     The sales charges applicable to purchases of Class A shares of the
Portfolio are as follows:
                                                                     Dealers'
                              Sales Charge        Sales Charge      Reallowance
                                  % of               as % of          as % of
Amount of Investment         Offering Price      Amount Invested  Offering Price
--------------------------------------------------------------------------------
   Less than  $ 25,000           5.00%                5.26%           4.50%
  $ 25,000 -    49,999           4.00                 4.17            3.60
    50,000 -    99,999           3.50                 3.63            3.15
   100,000 -   249,999           3.00                 3.09            2.70
   250,000 -   499,999           2.00                 2.04            1.80
   500,000 and over              *                    *               *
--------------------------------------------------------------------------------

*Purchases of Class A shares, which when combined with current holdings of Class
A shares offered with a sales charge equal or exceed $500,000 in the aggregate,
will be made at net asset value without any initial sales charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12 months of purchase. The
CDSC on Class A shares is payable to Smith Barney, which compensates Smith
Barney Financial Consultants and other dealers whose clients make purchases of
$500,000 or more. The CDSC is waived in the same circumstances in which the CDSC
applicable to Class B and Class C shares is waived. See "Deferred Sales Charge
Alternatives" and "Waivers of CDSC."

                                                                             21
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Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

     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 Securities Act of
1933, as amended.

     The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the Portfolio made at one time by "any person," which
includes an individual, his or her spouse and children, or a trustee or other
fiduciary of a single trust estate or single fiduciary account. The reduced
sales charge minimums may also be met by aggregating the purchase with the net
asset value of all Class A shares offered with a sales charge held in funds
sponsored by Smith Barney listed under "Exchange Privilege."

     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 of Class A shares to Directors
 and employees of Travelers and its subsidiaries, Directors, Trustees or 
employees of any of the Smith Barney Mutual Funds and the members of the 
immediate families of such persons 
(including the surviving spouse of a deceased Director, Trustee or employee,
and retired Directors, Trustees or employees), or pension, profit-sharing or
other benefit plan for such persons 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 or to 
members of the National Association of Securities Dealers, Inc.; (b)
offers of Class A shares to any other investment company in connection with the
combination of such company with the Portfolio by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares by any client of a newly employed
Smith Barney Financial Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with 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) shareholders who have
redeemed Class A shares in the Portfolio (or Class A shares of another fund of
the Smith Barney Mutual Funds that are sold with a maximum 5.00% sales charge)
and who wish to reinvest their redemption proceeds in the Portfolio, provided
the reinvestment is made within 60 calendar days of the redemption; and (e)
accounts managed by registered investment advisory subsidiaries of Travelers. 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.
    

22

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Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

     RIGHT OF ACCUMULATION

   
     Class A shares of the Portfolio 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 Portfolio and of funds sponsored by Smith Barney
which are offered with a sales charge listed under "Exchange Privilege" then
held by such person and 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.
    

     GROUP PURCHASES

     Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares," and will be based upon
the aggregate sales of Class A shares of Smith Barney Mutual Funds offered with
a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan
meeting certain requirements. One such requirement is that the plan must be open
to specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Section 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
at the reduced sales charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A"qualified group" is one which (a) has
been in existence for more than six months, (b) has a purpose other than
acquiring Portfolio shares at a discount and (c) satisfies uniform criteria
which enable Smith Barney to realize economies of scale in its costs of
distributing shares. A qualified group must have more than 10 members, must be

                                                                             23

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Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

available to arrange for group meetings between representatives of the Portfolio
and the members, and must agree to include sales and other materials related to
the Portfolio in its publications and mailings to members at no cost to Smith
Barney. In order to obtain such reduced sales charge or to purchase at net asset
value, the purchaser must provide sufficient information at the time of purchase
to permit verification that the purchase qualifies for the reduced sales charge.
Approval of group purchase reduced sales charge plans is subject to the
discretion of Smith Barney.

     LETTER OF INTENT
   
     Class A Shares. A Letter of Intent for amounts of $50,000 or more provides
an opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes
purchases of all Class A shares of the Portfolio and other funds of the Smith
Barney Mutual Funds offered with a sales charge over the 13 month period based
on the total amount of intended purchases plus the value of all Class A shares
previously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
sales charges applicable to the purchases made and the charges previously paid,
or an appropriate number of escrowed shares will be redeemed. Please contact a
Smith Barney Financial Consultant or First Data to obtain a Letter of Intent
application.

     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. Such investors
must make an initial minimum purchase of $1,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of $5,000,000 of Class Y shares of the
same Portfolio within six months from the date of the Letter. If a total
investment of $5,000,000 is not made within the six-month period, all Class Y
shares purchased to date will be transferred to Class A shares, where they will
be subject to all fees (including a service fee of 0.25%) and expenses
applicable to the Portfolio's Class A shares, which may include a CDSC of 1.00%.
Please contact a Smith Barney Financial Consultant or First Data for further
information.
    

24
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

     DEFERRED SALES CHARGE ALTERNATIVES

     CDSC Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares which when combined with Class A shares offered
with a sales charge currently held by an investor equal or exceed $500,000 in
the aggregate.
   

     Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a CDSC
to the extent that the value of such shares represents: (a) capital appreciation
of Portfolio 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 C shares and Class
A shares that are CDSC Shares, shares redeemed more than 12 months after their
purchase.
    

     Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
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
purchases by Participating Plans, as described below. See "Purchase of
Shares--Smith Barney 401(k) Program."

                Year Since Purchase
                 Payment Was Made                        CDSC
--------------------------------------------------------------------------------
                  First                                  5.00%
                  Second                                 4.00
                  Third                                  3.00
                  Fourth                                 2.00
                  Fifth                                  1.00
                  Sixth                                  0.00
                  Seventh                                0.00
                  Eighth                                 0.00
================================================================================

                                                                             25
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

     Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fees. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. Shareholders who held Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the "Short-Term World Income Fund") on
July 15, 1994 and who subsequently exchange those shares for Class B shares of
the Portfolio will be offered the opportunity to exchange all such Class B
shares for Class A shares of the Portfolio four years after the date on which
those shares were deemed to have been purchased. Holders of such Class B shares
will be notified of the pending exchange in writing approximately 30 days before
the fourth anniversary of the purchase date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the fourth anniversary
date. See "Prospectus Summary-- Alternative Purchase Arrangements--Class B
Shares Conversion Feature."

     In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distributions
and finally of other shares held by the shareholder for the longest period of
time. The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Portfolio shares
being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gain distribution reinvestments in such
other funds. For Federal income tax purposes, the amount of the CDSC will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any CDSC will be paid to Smith Barney.

     To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for Class B shares) for a
total deferred sales charge of $9.60.

26

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Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

     WAIVERS OF CDSC

   
     The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the value of the
shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within twelve
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of shares in connection with a combination of the Portfolio with any
investment company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other funds of the Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive pro rata credit for any CDSC imposed on the
prior redemption.

     CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by First Data in
the case of all other shareholders) of the shareholder's status or holdings, as
the case may be.
    

     SMITH BARNEY 401(K) PROGRAM

     Investors may be eligible to participate in the Smith Barney 401(k)
Program, which is generally designed to assist plan sponsors in the creation and
operation of retirement plans under Section 401(a) of the Code. To the extent
applicable, the same terms and conditions are offered to all Participating Plans
in the Smith Barney 401(k) Program.

     The Portfolio offers to Participating Plans Class A, Class B. Class C and
Class Y shares as investment alternatives under the Smith Barney 401(k) Program.
Class A, Class B and Class C shares acquired through the Smith Barney 401(k)
Program are subject to the same service and/or distribution fees as, but
different sales charge and CDSC schedules than, the Class A, Class B and Class C
shares acquired by other investors. Similar to those shares available to other
investors, Class Y shares acquired through the Smith Barney 401(k) Program are
not subject to any service or distribution fees or any initial sales charge or
CDSC. Once a Participating Plan has made an initial investment in the Portfolio,
all of its subsequent investments in the Portfolio must be in the same Class of
shares, except as otherwise described below.

     Class A Shares. Class A shares of the Portfolio are offered without any
initial sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual

                                                                             27

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds, if the
Participating Plan terminates within four years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.

     Class B Shares. Class B shares of the Portfolio are offered to any
Participating Plan that purchases less than $250,000 of one or more funds of the
Smith Barney Mutual Funds. Class B shares acquired through the Smith Barney
401(k) Program are subject to a CDSC of 3.00% of redemption proceeds, if the
Participating Plan terminates within eight years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.

     Eight years after the date the Participating Plan enrolled in the Smith
Barney 401(k) Program, it will be offered the opportunity to exchange all of its
Class B shares for Class A shares of the Portfolio. 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
the exchange has occurred, a Participating Plan will not be eligible to acquire
additional Class B shares of the Portfolio but instead may acquire Class A
shares of the Portfolio. If the Participating Plan elects not to exchange all of
its Class B shares at that time, each Class B share held by the Participating
Plan will have the same conversion feature as Class B shares held by other
investors. See "Purchase of Shares -- Deferred Sales Charge Alternatives."

     Class C Shares. Class C shares of the Portfolio are offered to any
Participating Plan that purchases from $250,000 to $499,999 of one or more funds
of the Smith Barney Mutual Funds. Class C shares acquired through the Smith
Barney 401(k) Program after November 7, 1994 are subject to a CDSC of 1.00% of
redemption proceeds, if the Participating Plan terminates within four years of
the date the Participating Plan first enrolled in the Smith Barney 401(k)
Program. Each year after the date a Participating Plan enrolled in the Smith
Barney 401(k) Program, if its total Class C holdings 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 C shares for Class A shares of the Portfolio. 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. Once the exchange has occurred, a Participating Plan will not be eligible
to acquire Class C shares of the Portfolio but instead may acquire Class A
shares of the Portfolio. Any Class C shares not converted will continue to be
subject to the distribution fee.

28

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Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

     Class Y Shares. Class Y shares of the Portfolio are offered without any
service or distribution fees, sales charge or CDSC to any Participating Plan
that purchases $5,000,000 or more of Class Y shares of one or more funds of the
Smith Barney Mutual Funds.
   
     Whether or not the CDSC applies to a Participating Plan depends on the
number of years since the Participating Plan first became enrolled in the Smith
Barney 401(k) Program, unlike the applicability of the CDSC to other
shareholders, which depends on the number of years since those shareholders made
the purchase payment for the shares which are being redeemed. Where applicable,
the CDSC will be assessed on shares held through the Smith Barney 401(k) Program
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; provided, however,
that shares will not be subject to a CDSC to the extent that the value of such
shares represents capital appreciation of Fund assets and/or reinvestments of
dividends or capital gain distributions. In addition, the CDSC will be waived on
redemptions of Class A, Class B and Class C shares in connection with lump-sum
or other distributions made by a Participating Plan as a result of: (a) the
retirement of an employee in the Participating Plan; (b) the termination of
employment of an employee in the Participating Plan; (c) the death or disability
of an employee in the Participating Plan; (d) the attainment of age 59 1/2 by an
employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code; or
(f) redemptions of shares in connection with a loan made by the Participating
Plan to an employee.

     Participating Plans wishing to acquire shares of the Portfolio through the
Smith Barney 401(k) Program must purchase such shares directly from First Data.
For further information regarding the Smith Barney 401(k) Program, investors
should contact a Smith Barney Financial Consultant.
    

--------------------------------------------------------------------------------
Exchange Privilege
--------------------------------------------------------------------------------
     
    Except as otherwise noted below, shares of each Class may be exchanged for
shares of the same Class in the following funds of the 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 C shares are subject to
minimum investment requirements and all shares are subject to the other
requirements of the fund into which exchanges are made and a sales charge
differential may apply.
    

                                                                             29
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio
   
--------------------------------------------------------------------------------
Exchange Privilege (continued)
--------------------------------------------------------------------------------

FUND NAME

Growth Funds

      Smith Barney Aggressive Growth Fund Inc.
      Smith Barney Appreciation Fund Inc.
      Smith Barney Fundamental Value Fund Inc.
      Smith Barney Growth Opportunity Fund
      Smith Barney Managed Growth Fund
      Smith Barney Natural Resources Fund Inc.
      Smith Barney Special Equities Fund
      Smith Barney Telecommunications Growth Fund

--------------------------------------------------------------------------------
Growth and Income Funds

      Smith Barney Convertible Fund
      Smith Barney Funds, Inc. -- Equity Income Portfolio
      Smith Barney Growth and Income Fund
      Smith Barney Premium Total Return Fund
      Smith Barney Strategic Investors Fund
      Smith Barney Utilities Fund

Taxable Fixed-Income Funds

   ** Smith Barney Adjustable Rate Government Income Fund
      Smith Barney Diversified Strategic Income Fund
    * Smith Barney Funds, Inc. -- Income Return Account Portfolio
  +++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Portfolio
      Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
      Smith Barney Government Securities Fund
      Smith Barney High Income Fund
      Smith Barney Investment Grade Bond Fund
      Smith Barney Managed Governments Fund Inc.

Tax-Exempt Funds

      Smith Barney Arizona Municipals Fund Inc.
      Smith Barney California Municipals Fund Inc.
    * Smith Barney Intermediate Maturity California Municipals Fund
    * Smith Barney Intermediate Maturity New York Municipals Fund
      Smith Barney Managed Municipals Fund Inc.
      Smith Barney Massachusetts Municipals Fund
    * Smith Barney Muni Funds -- Florida Limited Term Portfolio
      Smith Barney Muni Funds -- Florida Portfolio
      Smith Barney Muni Funds -- Georgia Portfolio
    

30
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Exchange Privilege (continued)
--------------------------------------------------------------------------------

   
    * Smith Barney Muni Funds -- Limited Term Portfolio 
      Smith Barney Muni Funds -- National Portfolio 
      Smith Barney Muni Funds -- New York Portfolio 
      Smith Barney Muni Funds -- Ohio Portfolio 
      Smith Barney Muni Funds -- Pennsylvania Portfolio 
      Smith Barney New Jersey Municipals Fund Inc. 
      Smith Barney Oregon Municipals Fund 
      Smith Barney Tax-Exempt Income Fund

International Funds

      Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
      Smith Barney World Funds, Inc. -- European Portfolio
      Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
      Smith Barney World Funds, Inc. -- International Equity Portfolio
      Smith Barney World Funds, Inc. -- Pacific Portfolio

Smith Barney Concert Series Inc.


    
   
      Smith Barney Concert Series Inc. -- High Growth Portfolio
      Smith Barney Concert Series Inc. -- Growth Portfolio
      Smith Barney Concert Series Inc. -- Balanced Portfolio
      Smith Barney Concert Series Inc. -- Conservative Portfolio
      Smith Barney Concert Series Inc. -- Income Portfolio
    

Money Market Funds

    + Smith Barney Exchange Reserve Fund
   ++ Smith Barney Money Funds, Inc. -- Cash Portfolio
   ++ Smith Barney Money Funds, Inc. -- Government Portfolio

  *** Smith Barney Money Funds, Inc. -- Retirement Portfolio
  +++ Smith Barney Municipal Money Market Fund, Inc.
  +++ Smith Barney Muni Funds -- California Money Market Portfolio
  +++ Smith Barney Muni Funds -- New York Money Market Portfolio

================================================================================

    * Available for exchange with Class A, Class C and Class Y shares of the
Portfolio.

   ** Available for exchange with Class A, Class B and Class Y shares of the
Portfolio. In addition, shareholders who own Class C shares of the Portfolio
through the Smith Barney 401(k) Program may exchange those shares for Class C
shares of this fund.

  *** Available for exchange with Class A shares of the Portfolio.
    + Available for exchange with Class B and Class C shares of the Portfolio.

   ++ Available for exchange with Class A and Class Y shares of the Portfolio.
In addition, shareholders who own Class C shares of the Portfolio through the
Smith Barney 401(k) Program may exchange those shares for Class C shares of this
fund.

  +++ Available for exchange with Class A and Class Y shares of the Portfolio.

                                                                             31
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Exchange Privilege (continued)
--------------------------------------------------------------------------------

     Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge of less than the maximum charged
by other Smith Barney Mutual Funds will be subject to the appropriate "sales
charge differential" upon the exchange of such shares for Class A shares of a
fund sold with a higher sales charge. The "sales charge differential" is limited
to a percentage rate no greater than the excess of the sales charge rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For
purposes of the exchange privilege, shares obtained through automatic
reinvestment of dividends and capital gain distributions are treated as having
paid the same sales charges applicable to the shares on which the dividends or
distributions were paid; however, except in the case of the Smith Barney 401(k)
Program, if no sales charge was imposed upon the initial purchase of the shares,
any shares obtained through automatic reinvestment will be subject to a sales
charge differential upon exchange. Class A shares held in the Portfolio prior to
November 7, 1994 that are subsequently exchanged for shares of other funds of
the Smith Barney Mutual Funds will not be subject to a sales charge
differential.

     Class B Exchanges. In the event a Class B shareholder (unless such
shareholder was a Class B shareholder of the Short-Term World Income Fund on
July 15, 1994) wishes to exchange all or a portion of his or her shares in any
of the funds imposing a higher CDSC than that imposed by the Portfolio, the
exchanged Class B shares will be subject to the higher applicable CDSC. Upon an
exchange, the new Class B shares will be deemed to have been purchased on the
same date as the Class B shares of the Portfolio that have been exchanged.

     Class C Exchanges. Upon an exchange, the new Class C shares will be deemed
to have been purchased on the same date as the Class C shares of the Portfolio
that have been exchanged.

     Class Y Exchanges. Class Y shareholders of the Portfolio who wish to
exchange all or a portion of their Class Y shares for Class Y shares 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 Portfolio'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 Portfolio'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
    
32

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Exchange Privilege (continued)
--------------------------------------------------------------------------------
   
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 Portfolio or (b) remain
invested in the Portfolio 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 Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined, plus any applicable
sales charge differential. 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. A capital gain or loss for
tax purposes will be realized upon the exchange, depending upon the cost or
other basis of shares redeemed. Before exchanging shares, investors should read
the current prospectus describing the shares to be acquired. The Portfolio
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 Portfolio tendered to it,
as described below, at a redemption price equal to their net asset value per
share next determined after receipt of a written request in proper form at no
charge other than any applicable CDSC. Redemption requests received after the
close of regular trading on the NYSE are priced at the net asset value next
determined.

   
     If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third day following receipt of proper
tender, except on any days on which the NYSE is closed or as permitted under the
Act in extraordinary circumstances. Generally, if the redemption proceeds are
    

                                                                             33
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Redemption of Shares (continued)
--------------------------------------------------------------------------------

remitted to a Smith Barney brokerage account, these funds will not be invested
for the shareholder's benefit without specific instruction and Smith Barney will
benefit from the use of temporarily uninvested funds.

     Redemption proceeds for shares purchased by check, other than a certified
or official bank check, will be remitted upon clearance of the check, which may
take up to ten days or more.

     Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:

   
     Smith Barney World Funds, Inc./ International Balanced Portfolio
     Class A, B. C or Y (please specify) 
     c/o First Data Investor Services Group, Inc.
     P.O. Box 9134
     Boston, Massachusetts 02205-9134

     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 First Data together with the redemption request. Any
signature appearing on a written redemption request in excess of $2,000, share
certificate or stock power must be guaranteed by an eligible guarantor
institution, such as a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $2,000 or less do
not require a signature guarantee unless more than one such redemption request
is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. First Data 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 First Data receives all required documents in proper form.

    
     AUTOMATIC CASH WITHDRAWAL PLAN
   
     The Portfolio 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
    

34

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Redemption of Shares (continued)
--------------------------------------------------------------------------------
   
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be earned over on exchanges
between funds or Classes of the Portfolio. Any applicable CDSC will not be
waived on amounts withdrawn by a shareholder that exceed 1.00% per month of the
value of the shareholder's shares subject to the CDSC at the time the withdrawal
plan commences.

     (With respect to withdrawal plans in effect prior to November 7, 1994, any
applicable CDSC will be waived on amounts withdrawn that do not exceed 2.00% per
month of the value of the shareholder's shares subject to the CDSC.) For further
information regarding the automatic cash withdrawal plan, shareholders should
contact a Smith Barney Financial Consultant.

    
     TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
   

     Shareholders who do not have a Smith Barney brokerage account may be
eligible to redeem and exchange Fund shares by telephone. To determine if a
shareholder is entitled to participate in this program, he or she should contact
First Data 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 First Data 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 the Fund.)

     Redemptions. Redemption requests of up to $10,000 of any class or classes
of the Fund's shares, may be made by eligible shareholders by calling First Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day the NYSE is open. Redemptions of shares (i) by
retirement plans or (ii) for which certificates have been issued are not
permitted under this program.

     A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the case
may be, on the next business day following the redemption request. In order to
use the wire procedures, the bank receiving the proceeds must be a member of the
Federal Reserve System or have a correspondent relationship with a member bank.
The 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
    

                                                                             35
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Redemption of Shares (continued)
--------------------------------------------------------------------------------
   
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 First Data at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day on which the NYSE is open.

     Additional Information regarding Telephone Redemption and Exchange Program.
Neither the 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.
    
       
--------------------------------------------------------------------------------
Minimum Account Size
--------------------------------------------------------------------------------

   
     The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Portfolio if the aggregate net asset value of the shares held in
the Portfolio account is less than $500. (If a shareholder has more than one
account in this Portfolio, each account must satisfy the minimum account size.)
The Fund, however, will not redeem shares based solely on market reductions in
net asset value. Before the Fund exercises such right, shareholders will receive
written notice and will be permitted 60 days to bring accounts up to the minimum
to avoid automatic liquidation.
    

--------------------------------------------------------------------------------
Performance
--------------------------------------------------------------------------------
     From time to time the Portfolio may include its total return, average
annual total return and current dividend return in advertisements andtor other
types of sales literature. These figures are computed separately for Class A,
Class B, Class C and Class Y shares of the Portfolio. These figures are based on
historical earnings and are not intended to indicate future performance. Total
return is computed for a specified period of time assuming deduction of the
maximum sales charge, if any, from the initial amount invested and reinvestment
of all income dividends and capital gain distributions on the reinvestment dates

36

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Performance (continued)
--------------------------------------------------------------------------------

   
at prices calculated as stated in this Prospectus, then dividing the value of
the investment at the end of the period so calculated by the initial amount
invested and subtracting 100%. The standard average annual total return, as
prescribed by the SEC is derived from this total return, which provides the
ending redeemable value. Such 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. The Portfolio calculates current dividend return for
each Class by annualizing the most recent monthly distribution and dividing by
the net asset value or the maximum public offering price (including sales
charge) on the last day of the period for which current dividend return is
presented. The current dividend return for each Class may vary from time to time
depending on market conditions, the composition of its investment portfolio and
operating expenses. These factors and possible differences in the methods used
in calculating current dividend return should be considered when comparing a
Class's current return to yields published for other investment companies and
other investment vehicles. The Portfolio may also include comparative
performance information in advertising or marketing its shares. Such performance
information may include data from Lipper Analytical Services, Inc. and other
financial publications.
    

--------------------------------------------------------------------------------
Management of the Fund
--------------------------------------------------------------------------------

     BOARD OF DIRECTORS

   
     Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Directors approve all significant
agreements between the Fund and the companies that furnish services to the Fund
and the Portfolio, including agreements with the Fund's distributor, investment
manager, custodian and transfer agent. The day-to-day operations of the
Portfolio are delegated to the Portfolio's investment manager. The Statement of
Additional Information contains background information regarding each Director
and executive officer of the Fund.
    
   
 MANAGER

     Smith Barney Mutual Funds Management Inc. (the "Manager") manages the
day-to-day operations of the Portfolio pursuant to a management agreement
entered into by the Fund on behalf of the Portfolio under which the Manager is

                                                                             37

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Management of the Fund (continued)
--------------------------------------------------------------------------------

responsible for furnishing or causing to be furnished to the Portfolio advice
and assistance with respect to the acquisition, holding or disposal of
securities and recommendations with respect to other aspects and affairs of the
Portfolio and furnishes the Portfolio with bookkeeping, accounting and
administrative services, office space and equipment, and the services of the
officers and employees of the Fund. By written agreement the research and other
departments and staff of Smith Barney furnish the Manager with information,
advice and assistance and are available for consultation on the Portfolio, thus
Smith Barney may also be considered an investment adviser to the Fund. Smith
Barney's services are paid for by the Manager on the basis of direct and
indirect costs to Smith Barney of performing such services; there is no charge
to the Fund for such services. For the services provided by the Manager, the
Portfolio pays the Manager an annual fee calculated at the rate of 0.85% of the
Portfolio's average daily net assets, paid monthly. Although this fee is higher
than that paid by most investment companies, the Portfolio's management has
determined that it is comparable to the fee charged by other investment advisers
of investment companies that have similar investment objectives and policies.

   
     For the Portfolio's last fiscal year, the Manager waived a portion of its
fees; the management fee was 0.51% of the Portfolio's average net assets and the
total operating expenses were 1.62% for the Class A shares; 2.49% for Class B
shares; and 2.37% for Class C shares.
    

     The management agreement further provides that all other expenses not
specifically assumed by the Manager under the management agreement on behalf of
the Portfolio are borne by the Fund. Expenses payable by the Fund 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 Fund) 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 Fund's shares and the Fund
under federal or state securities laws and maintaining such registrations and
qualifications (including the printing of the Fund'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



38
<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Management of the Fund (continued)
--------------------------------------------------------------------------------
costs incident to the Fund's existence and extraordinary expenses such as
litigation and indemnification expenses. Direct expenses are charged to each of
the Fund's Portfolios; general corporate expenses are allocated on the basis of
relative net assets.

   
     The Manager was incorporated on March 12, 1968 under the laws of Delaware.
As of October 31, 1995 the Manager had aggregate assets under management of
approximately $69 billion. The Manager, 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 Fund has been adopted by permission of Smith Barney
and is subject to the right of Smith Barney to elect that the Fund stop using
the term in any form or combination of its name.
    

     PORTFOLIO MANAGEMENT

     The Portfolio is managed by Maurits E. Edersheim, Jeffrey Russell, James
Conheady and Victor Filatov. Mr. Edersheim is Chairman and Advisory Director of
the Fund and is Deputy Chairman of Smith Barney International Incorporated. Mr.
Conheady and Mr. Russell, both Vice Presidents of the Fund and Managing
Directors of Smith Barney, are members of the International Money Management
team. Mr. Filatov is a Vice President of the Fund and President and Director of
Smith Barney Global Capital Management, Inc., an affiliate of Smith Barney. He
is also a Managing Director of Smith Barney. Prior to joining Smith Barney in
1993, Mr. Filatov was a Vice President of J.P. Morgan Securities, Inc.

   
     The percentage of the Portfolio's assets to be invested in equity and debt
securities will be determined by an asset allocation committee, made up of Mr.
Russell, Mr. Filatov and Heath B. McLendon, who is Chief Executive Officer of
the Fund.

     Management's discussion and analysis, and additional performance
information regarding the Portfolio during the fiscal year ended October 31,
1995 is included in the Annual Report dated October 31, 1995. A copy of the
Annual Report may be obtained upon request and without charge from a Smith
Barney Financial Consultant or by writing or calling the Fund at the address or
phone number listed on page one of this Prospectus.
    


                                                                             39

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Distriubtor
--------------------------------------------------------------------------------
   

     Smith Barney distributes shares of the Portfolio as principal underwriter
and as such conducts a continuous offering pursuant to a "best efforts"
arrangement requiring Smith Barney to take and pay for only such securities as
may be sold to the public. Pursuant to a plan of distribution adopted by the
Portfolio under Rule 12b-1 under the Act (the "Plan"), Smith Barney is paid a
service fee with respect to Class A, Class B and Class C shares of the Portfolio
at the annual rate of 0.25% of the average daily net assets attributable to
these Classes. Smith Barney is also paid a distribution fee with respect to
Class B and Class C shares at the annual rate of 0.75% of the average daily net
assets attributable to these Classes. Class B shares that automatically convert
to Class A shares eight years after the date of original purchase will no longer
be subject to a distribution fee. The fees are used by Smith Barney to pay its
Financial Consultants for servicing shareholder accounts and, in the case of
Class B and Class C shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include: advertising expenses; the cost
of printing and mailing prospectuses to potential investors; payments to and
expenses of 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 Smith Barney associated
with the sale of Portfolio shares, including lease, utility, communications and
sales promotion expenses.
    

     The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.

   
     Payments under the Plan with respect to Class B and Class C shares are not
tied exclusively to the distribution and shareholder services expenses actually
incurred by Smith Barney and the payments may exceed distribution expenses
actually incurred. The Fund's Board of Directors will evaluate the
appropriateness of the Plan and its payment terms on a continuing basis and in
so doing will consider all relevant factors, including expenses borne by Smith
Barney, amounts received under the Plan and proceeds of the CDSC.
    

40

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Additional Information
--------------------------------------------------------------------------------

     The Fund, an open-end investment company, was incorporated in Maryland on
March 22, 1991. The Fund 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 Portfolios and may authorize the issuance of additional series of
shares in the future. The assets of each Portfolio are segregated and separately
managed and a shareholder's interest is in the assets of the Portfolio in which
he or she holds shares. Class A, Class B. Class C and Class Y shares of the
Portfolio represent interests in the assets of the Portfolio 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. As described under "Voting" in the Statement of
Additional Information, the Fund ordinarily will not hold meetings of
shareholders annually; however, shareholders have the right to call a meeting
upon a vote of 10% of the Fund's outstanding shares for the purpose of voting to
remove directors, and the Fund will assist shareholders in calling such a
meeting as required by the 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.

     Morgan Guaranty Trust Company of New York, located at 60 Wall Street, New
York 10260, serves as custodian of the Portfolio's investments.
   

     First Data, located at Exchange Place, Boston, Massachusetts 02109, serves
as the Fund's transfer agent.
    

     The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund at
the end of the period covered. In an effort to reduce the Fund's printing and
mailing costs, the Fund 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. In addition, the Fund also plans to consolidate the mailing
of its Prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not want this consolidation to
apply to their account should contact their Smith Barney Financial Consultant or
the Fund's transfer agent.

                                                                              41

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Appendix
--------------------------------------------------------------------------------

     FOREIGN CURRENCIES. The value of the Portfolio's investments, and the value
of dividends and interest earned by the Portfolio, may be significantly affected
by changes in currency exchange rates. Some foreign currency values may be
volatile, and there is the possibility of governmental controls on currency
exchange or governmental intervention in currency markets, which could adversely
affect the Portfolio. Although the Manager may attempt to manage currency
exchange rate risks, there is no assurance that the Manager will do so at an
appropriate time or that the Manager will be able to predict exchange rates
accurately. For example, if the Manager increases the Portfolio's exposure to a
foreign currency, and that currency's value subsequently falls, the Manager's
currency management may result in increased losses to the Portfolio. Similarly,
if the Manager hedges the Portfolio's exposure to a foreign currency, and that
currency's value rises, the Portfolio will lose the opportunity to participate
in the currency's appreciation.

     OPTIONS AND FUTURES CONTRACTS. The Portfolio may buy and sell options and
futures contracts to manage its exposure to changing interest rates, security
prices, and currency exchange rates. Some options and futures strategies,
including selling futures, buying puts, and writing calls, tend to hedge the
Portfolio's investments against price fluctuations. Other strategies, including
buying futures, writing puts, and buying calls, tend to increase market
exposure. Options and futures may be combined with each other or with forward
contracts in order to adjust the risk and return characteristics of the overall
strategy. The Portfolio may invest in options and futures based on any type of
security, index, or currency, including options and futures traded on foreign
exchanges and options not traded on exchanges.

     Options and futures can be volatile investments, and involve certain risks.
If the Manager applies a hedge at an inappropriate time or judges market
conditions incorrectly, options and futures strategies may lower the Portfolio's
return. The Portfolio could also experience losses if the prices of its options
and futures positions were poorly correlated with its other investments, or if
it could not close out its positions because of an illiquid secondary market.

     The Portfolio will not hedge more than 25% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. In addition,
the Portfolio will not buy futures or write puts whose underlying value exceeds
25% of its total assets, and will not buy calls with a value exceeding 5% of its
total assets.

                                                                             A-1

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Appendix (continued)
--------------------------------------------------------------------------------

     SWAP AGREEMENTS. As one way of managing its exposure to different types of
investments, the Portfolio may enter into interest rate swaps, currency swaps,
and other types of swap agreements such as caps, collars, and floors. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount for a specified period of
time. If a swap agreement provides for payments in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of a index or mortgage
prepayment rates.

     Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Portfolio's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Portfolio may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.

     INDEXED SECURITIES. The Portfolio may invest in indexed securities,
including inverse floaters, whose value is linked to currencies, interest rates,
commodities, indices, or other financial indicators. Most indexed securities are
short to intermediate term fixed-income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be positively or negatively
indexed (i.e., their value may increase or decrease if the underlying instrument
appreciates), and may have return characteristics similar to direct investments
in the underlying instrument or to one or more options on the underlying
instrument. Indexed securities may be more volatile than underlying instrument
itself. No more than 5% of the Portfolio's assets will be invested in inverse
floaters.

     SOVEREIGN DEBT OBLIGATIONS. . The Portfolio 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

A-2

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Appendix (continued)
--------------------------------------------------------------------------------

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. The Portfolio 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 Portfolio 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
Portfolio 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 and 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. The Portfolio 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.


                                                                            A-3

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Appendix (continued)
--------------------------------------------------------------------------------

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. The Portfolio 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. The Portfolio 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 the Portfolio a higher level of investment
income distributable to shareholders on a current basis than if the Portfolio
purchased securities bearing current market rates of interest. If securities
purchased by the Portfolio at a premium are called or sold prior to maturity,
the Portfolio will recognize a capital loss to the extent the call or sale price
is less than the purchase price. Additionally, the Portfolio will recognize a
capital loss if it holds such securities to maturity.

     YANKEE BONDS. The Portfolio 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.

     BORROWINGS. The Portfolio may borrow from banks, on a secured or unsecured
basis, up to 25% of the value of its assets so long as the Portfolio maintains
asset coverage ratios specified in the Act. If the Portfolio borrows and uses
the proceeds to make additional investments, income and appreciation from such
investments will improve its performance if they exceed the associated borrowing
costs but impair its performance if they are less than such borrowing costs.
This speculative factor is known as "leverage."

     Leverage creates an opportunity for increased returns to shareholders of
the Portfolio but, at the same time, creates special risk considerations. For
example, leverage may exaggerate changes in the net asset value of the
Portfolio's shares and in the Portfolio's yield. Although the principal or
stated value of such borrowings will be fixed, the Portfolio assets may change
in value during the time the borrowing is outstanding. Leverage will create
interest or dividend expenses for the Portfolio which can exceed the income from

A-4

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Appendix (continued)
--------------------------------------------------------------------------------

the assets retained. To the extent the income or other gain derived from
securities purchased with borrowed funds exceeds the interest or dividends the
Portfolio will have to pay in respect thereof, the Portfolio'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 Portfolio 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 Portfolio.

     REPURCHASE AGREEMENTS AND SECURITIES LOANS. The Portfolio may enter into
repurchase agreements on up to 25% of its assets and may lend for a fee
portfolio securities amounting up to one-third of its assets. These transactions
must be fully collateralized at all times, and the Manager will monitor the
value of the collateral, which will be marked to the market daily, to determine
that the value is at least 100% of the agreed upon sum to be paid to the
Portfolio. Repurchase agreements and lending of portfolio securities involve
some credit risk to the Portfolio, if the other party defaults on its
obligations, since the Portfolio could be delayed or prevented from recovering
the collateral. The Portfolio currently does not expect that it will enter into
repurchase agreements on more than 5% of its assets.

     FOREIGN REPURCHASE AGREEMENTS. In addition to repurchase agreements solely
in U.S. markets, the Portfolio may enter into repurchase agreements with respect
to foreign securities and repurchase agreements denominated in foreign
currencies. Foreign repurchase agreements may be less well secured than
repurchase agreements in U.S. markets, and may involve greater risks of loss if
the counterparty should default on its obligations. As a result, the
creditworthiness of the other party is an especially important concern.

     ILLIQUID INVESTMENTS. The Portfolio may invest up to 15% of its assets in
illiquid investments. Under the supervision of the Board of Directors, the
Manager determines the liquidity of the Portfolio's investments. The absence of
a trading market can make it difficult to ascertain a market value for illiquid
investments. Disposing of illiquid investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for a
Portfolio to sell them promptly at an acceptable price.

                                                                             A-5

<PAGE>

Smith Barney World Funds, Inc. --
International Balanced Portfolio

--------------------------------------------------------------------------------
Appendix (continued)
--------------------------------------------------------------------------------

     RESTRICTED SECURITIES. The Portfolio may invest no more than 10% of its
total assets in securities which cannot be sold to the public without
registration under the Securities Act of 1933 (restricted securities). Unless
registered for sale, these securities can only be sold in privately negotiated
transactions or pursuant to an exemption from registration. Restricted
securities (excluding securities issued pursuant to Rule 144A of the Securities
Act of 1933) are considered to be illiquid and are subject to the 15% limitation
on investments in illiquid securities.

     DELAYED-DELIVERY TRANSACTIONS. The Portfolio may buy and sell securities on
a when-issued or delayed-delivery basis, with payment and delivery taking place
at a future date. The market value of securities purchased in this way may
change before the delivery date, which could increase fluctuation in the
Portfolio's yield. Although the Portfolio has not established any limit on the
percentage of its assets that may be committed in connection with such
transactions, the Portfolio will maintain a segregated account with its
custodian of cash, cash equivalents, U.S. Government securities or other high
grade liquid debt or equity securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the amount of its commitment in
connection with such transactions.

A-6
<PAGE>



================================================================================

                                                                    Smith Barney
                                                                    ------------

                                                      A Member of TravelersGroup








                                                                    Smith Barney
                                                               World Funds, Inc.
                                                                   International
                                                              Balanced Portfolio




                                                            388 Greenwich Street
                                                        New York, New York 10013









   
                                                                    FD 0575 2/96
    
================================================================================

<PAGE>
 
 
 
                                                  SMITH BARNEY WORLD FUNDS, INC.
                                                              European Portfolio
                                                             
                                                          FEBRUARY 28, 1996     
 
                                                   PROSPECTUS BEGINS ON PAGE ONE




P R O S P E C T U S




[LOGO] Smith Barney Mutual Funds
       Investing For Your Future.
       Every Day.

<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PROSPECTUS                                                  
                                                         FEBRUARY 28, 1996     
 
  388 Greenwich Street
  New York, New York 10013
  (212) 723-9218
 
  The European Portfolio (the "Portfolio") is one of the investment portfolios
that currently comprise Smith Barney World Funds, Inc. (the "Fund"). The Port-
folio seeks long term capital appreciation by investing primarily in equity
securities of issuers based in countries of Europe.
 
  This Prospectus sets forth concisely certain information about the Fund and
the Portfolio, including sales charges, distribution and service fees and
expenses, that prospective investors will find helpful in making an investment
decision. Investors are encouraged to read this Prospectus carefully and
retain it for future reference.
   
  Additional information about the Portfolio is contained in a Statement of
Additional Information dated February 28, 1996, as amended or supplemented
from time to time, that is available upon request and without charge by call-
ing or writing the Fund at the telephone number or address set forth above or
by contacting a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
    
SMITH BARNEY INC.
Distributor
 
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
 
                                                                              1
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
TABLE OF CONTENTS
 
<TABLE>   
<S>                                           <C>
PROSPECTUS SUMMARY                              3
-------------------------------------------------
FINANCIAL HIGHLIGHTS                           10
-------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES   12
-------------------------------------------------
VALUATION OF SHARES                            17
-------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES             18
-------------------------------------------------
PURCHASE OF SHARES                             21
-------------------------------------------------
EXCHANGE PRIVILEGE                             32
-------------------------------------------------
REDEMPTION OF SHARES                           36
-------------------------------------------------
MINIMUM ACCOUNT SIZE                           39
-------------------------------------------------
PERFORMANCE                                    39
-------------------------------------------------
MANAGEMENT OF THE FUND                         40
-------------------------------------------------
DISTRIBUTOR                                    43
-------------------------------------------------
ADDITIONAL INFORMATION                         44
-------------------------------------------------
APPENDIX                                      A-1
-------------------------------------------------
</TABLE>    
 
  No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund
or the Distributor. This Prospectus does not constitute an offer by the Fund or
the Distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
--------------------------------------------------------------------------------
 
2
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PROSPECTUS SUMMARY
 
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
 
INVESTMENT OBJECTIVE The Portfolio is an open-end, management investment com-
pany whose investment objective is to seek long-term capital appreciation by
investing primarily in equity securities of issuers based in countries of
Europe. See "Investment Objective and Management Policies."
 
ALTERNATIVE PURCHASE ARRANGEMENTS The Portfolio offers several classes of
shares ("Classes") to investors designed to provide them with the flexibility
of selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of
expenses to which they are subject. A fourth Class of shares, Class Y shares,
is offered only to investors meeting an initial investment minimum of
$5,000,000. See "Purchase of Shares" and "Redemption of Shares."
 
  Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25%
of the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which
when combined with current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be made at net asset
value with no initial sales charge, but will be subject to a contingent
deferred sales charge ("CDSC") of 1.00% on redemptions made within 12 months
of purchase. See "Prospectus Summary --  Reduced or No Initial Sales Charge."
 
  Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after the date of purchase to zero. This CDSC may be waived for certain
redemptions. Class B shares are subject to an annual service fee of 0.25% and
an annual distribution fee of 0.75% of the average daily net assets of the
Class. The Class B shares' distribution fee may cause that Class to have
higher expenses and pay lower dividends than Class A shares.
 
  Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of
 
                                                                              3
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
the original purchase. Upon conversion, these shares will no longer be subject
to an annual distribution fee. In addition, a certain portion of Class B shares
that have been acquired through the reinvestment of dividends and distributions
("Class B Dividend Shares") will be converted at that time. See "Purchase of
Shares -- Deferred Sales Charge Alternatives."
   
  Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class C
shares, and investors pay a CDSC of 1.00% if they redeem Class C shares within
12 months of purchase. The CDSC may be waived for certain redemptions. The
Class C shares' distribution fee may cause that Class to have higher expenses
and pay lower dividends than Class A shares. Purchases of Portfolio shares,
which when combined with current holdings of Class C shares of the Portfolio
equal or exceed $500,000 in the aggregate, should be made in Class A shares at
net asset value with no sales charge, and will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.     
 
  Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
 
  In deciding which Class of Portfolio shares to purchase, investors should
consider the following factors, as well as any other relevant facts and circum-
stances:
 
  Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject
to lower ongoing expenses over the term of the investment. As an alternative,
Class B and Class C shares are sold without any initial sales charge so the
entire purchase price is immediately invested in the Portfolio. Any investment
return on these additional invested amounts may partially or wholly offset the
higher annual expenses of these Classes. Because the Portfolio's future return
cannot be predicted, however, there can be no assurance that this would be the
case.
 
4
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
  Finally, investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature, and therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
 
  Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or distribu-
tion fees. The maximum purchase amount for Class A shares is $4,999,999, Class
B shares is $249,999 and Class C shares is $499,999. There is no maximum pur-
chase amount for Class Y shares.
 
  Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Portfolio. In addition, Class A share
purchases, which when combined with current holdings of Class A shares offered
with a sales charge equal or exceed $500,000 in the aggregate, will be made at
net asset value with no initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000 aggregate
investment may be met by adding the purchase to the net asset value of all
Class A shares offered with a sales charge held in funds sponsored by Smith
Barney Inc. ("Smith Barney") listed under "Exchange Privilege." Class A share
purchases also may be eligible for a reduced initial sales charge. See "Pur-
chase of Shares." Because the ongoing expenses of Class A shares may be lower
than those for Class B and Class C shares, purchasers eligible to purchase
Class A shares at net asset value or at a reduced sales charge should consider
doing so.
 
  Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.
 
  See "Purchase of Shares" and "Management of the Fund" for a complete descrip-
tion of the sales charges and service and distribution fees for each Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and "Ex-
change Privilege" for other differences between the Classes of shares.
 
                                                                               5
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
SMITH BARNEY 401(K) PROGRAM Investors may be eligible to participate in the
Smith Barney 401(k) Program, which is generally designed to assist plan spon-
sors in the creation and operation of retirement plans under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), as well as other
types of participant directed, tax-qualified employee benefit plans (collec-
tively, "Participating Plans"). Class A, Class B, Class C and Class Y shares
are available as investment alternatives for Participating Plans. See "Purchase
of Shares -- Smith Barney 401(k) Program."
   
PURCHASE OF SHARES Shares may be purchased through a brokerage account main-
tained with Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
other institutional investors may purchase shares directly from the Fund
through the Fund's transfer agent, First Data Investor Services Group, Inc.
("First Data"). See "Purchase of Shares."     
   
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each account,
or $250 for an individual retirement account ("IRA") or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. Subsequent investments of at least $50 may be made
for all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes of shares is $25. The minimum initial invest-
ment requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes through the Systematic Investment Plan
described below is $50. See "Purchase of Shares."     
 
SYSTEMATIC INVESTMENT PLAN The Portfolio offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
 
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and "Re-
demption of Shares."
 
6
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
   
MANAGEMENT OF THE PORTFOLIO Smith Barney Mutual Funds Management Inc. (the
"Manager") serves as the Portfolio's investment manager. The Manager is a
wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Holdings is
a wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a diversified
financial services holding company engaged, through its subsidiaries, princi-
pally in four business segments: Investment Services, Consumer Finance Servic-
es, Life Insurance Services and Property & Casualty Insurance Services. See
"Management of the Fund."     
 
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined, plus any applicable sales charge differen-
tial. See "Exchange Privilege."
 
VALUATION OF SHARES Net asset value of the Portfolio for the prior day gener-
ally is quoted daily in the financial section of most newspapers and is also
available from a Smith Barney Financial Consultant. See "Valuation of Shares."
 
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are declared and paid annually.
See "Dividends, Distributions and Taxes."
 
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution rein-
vestments will become eligible for conversion to Class A shares on a pro rata
basis. See "Dividends, Distributions and Taxes."
 
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Portfolio's investment objective will be achieved. The value of the Portfolio's
investments, and thus the net asset value of the Portfolio's shares, will fluc-
tuate in response to changes in market and economic conditions, as well as the
financial condition and prospects of issuers in which the Portfolio invests.
The Portfolio will invest in foreign securities. Investments in foreign securi-
ties incur higher costs than investments in U.S. securities, including higher
costs in making securities transactions as well as foreign government taxes
which may reduce the investment return of the Portfolio. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about individual companies, less
market liquidity and political instability. See "Investment Objective and Man-
agement Policies."
 
                                                                               7
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
THE PORTFOLIO'S EXPENSES The following expense table lists the costs and
expenses an investor will incur either directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption:
 
<TABLE>   
<CAPTION>
                                                CLASS A CLASS B CLASS C CLASS Y
-------------------------------------------------------------------------------
<S>                                             <C>     <C>     <C>     <C>
SHAREHOLDER TRANSACTION EXPENSES
 Maximum sales charge imposed on purchases
 (as a percentage of offering price)             5.00%   None    None    None
 Maximum CDSC (as a percentage of original cost
 or redemption proceeds, whichever is lower)     None*   5.00%   1.00%   None
-------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES**
 (as a percentage of average net assets)
 Management fees (after fee waiver)              0.82%   0.82%   0.82%   0.82%
 12b-1 fees***                                   	0.25        1.00      1.00      --
 Other expenses (after reimbursement)            0.99    1.49    0.69    0.99
-------------------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES               2.06%   3.31%   2.51%   1.81%
-------------------------------------------------------------------------------
</TABLE>    
  * Purchases of Class A shares, which when combined with current holdings of
    Class A shares offered with a sales charge equal or exceed $500,000 in the
    aggregate, will be made at net asset value with no sales charge, but will
    be subject to a CDSC of 1.00% on redemptions made within 12 months.
   
 ** These expenses reflect the management fee waiver currently in effect for
    the Portfolio. Absent the fee waiver, the management fee would be incurred
    at the rate of 0.85% of each Class' average daily net assets for the cur-
    rent fiscal period. Absent the fee waiver and expense reimbursement, total
    expenses would be at the rate of 2.09%, 3.35%, 2.54% and 1.84% for Class A,
    Class B, Class C and Class Y shares, respectively. For Class Y shares,
    "Other expenses" have been estimated because no Class Y shares were out-
    standing for the period ended October 31, 1995. In addition, during the
    period ended October 31, 1995, the Portfolio has earned credits from the
    custodian which reduce service fees incurred. If the credits are taken into
    consideration, the ratios of expenses to average net assets for Class A, B,
    C and Y would be 2.02%, 3.26%, 2.48% and 1.77%, respectively.     
 
*** Upon conversion of Class B shares to Class A Shares, such shares will no
    longer be subject to a distribution fee. Class C shares do not have a con-
    version feature and, therefore, are subject to an ongoing distribution fee.
    As a result, long-term shareholders of Class C shares may pay more than the
    economic equivalent of the maximum front-end sales charge permitted by the
    National Association of Securities Dealers, Inc.
 
  The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Portfolio shares and investors
may actually pay lower or no charges, depending on the amount purchased and, in
the case of Class B, Class C and certain Class A shares, the length of time the
shares are held and whether the shares are held through the Smith Barney 401(k)
Program. See "Purchase of Shares" and "Redemption of Shares." Smith Barney
receives an annual 12b-1 service fee of 0.25% of the
 
8
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
value of average daily net assets of Class A shares. Smith Barney also receives
with respect to Class B and Class C shares an annual 12b-1 fee of 1.00% of the
value of average daily net assets of the respective Classes, consisting of a
0.75% distribution fee and a 0.25% service fee. "Other expenses" in the above
table include fees for shareholder services, custodial fees, legal and account-
ing fees, printing costs and registration fees.
 
 
 EXAMPLE
 
  The following example is intended to assist an investor in understanding the
various costs that an investor in the Portfolio will bear directly or indirect-
ly. The example assumes payment by the Portfolio of operating expenses at the
levels set forth in the table above. See "Purchase of Shares," "Redemption of
Shares" and "Management of the Fund."
 
<TABLE>   
<CAPTION>
                                        1 Year 3 Years 5 Years 10 Years*
------------------------------------------------------------------------
<S>                                     <C>    <C>     <C>     <C>
 An investor would pay the following
 expenses on a $1,000 investment,
 assuming (1) 5.00% annual return and
 (2) redemption at the end of each
 time period:
  Class A                                $70    $111    $155     $277
  Class B                                 83     132     183      332
  Class C                                 35      78     134      285
  Class Y                                 18      57      98      213
 An investor would pay the following
 expenses on the same investment,
 assuming the same annual return and
 no redemption:
  Class A                                $70    $111    $155     $277
  Class B                                 33     102     173      332
  Class C                                 25      78     134      285
  Class Y                                 18      57      98      213
------------------------------------------------------------------------
</TABLE>    
 
* Ten-year figures assume conversion of Class B shares to Class A shares at the
  end of the eighth year following the date of purchase.
 
  The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Portfolio's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
 
                                                                               9
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
FINANCIAL HIGHLIGHTS
   
  The following information for the year ended October 31, 1995 and period
ended October 31, 1994 has been audited in conjunction with the annual audit of
the financial statements of Smith Barney World Funds, Inc. by KPMG Peat Marwick
LLP, independent auditors. The 1995 financial statements and the independent
auditors' report thereon appear in the October 31, 1995 Annual Report to
Shareholders. No information is presented for Class Y shares, since there were
no Class Y shares outstanding during the periods presented.     
   
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
    
<TABLE>   
<CAPTION>
                                 CLASS A(A)        CLASS B      CLASS C(B)
                               ----------------    -------    ---------------
CLASS                           1995    1994(1)    1995(2)     1995   1994(3)
-------------------------------------------------------------------------------
<S>                            <C>      <C>        <C>        <C>     <C>
NET ASSET VALUE, BEGINNING OF
 PERIOD                         $12.88  $12.50      $12.62    $12.83  $12.48
-------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
 Net investment income
  (loss)(4)                       0.07   (0.11)       0.02    (0.08)   (0.16)
 Net realized and unrealized
  gain                            1.72    0.49        1.92      1.76    0.51
-------------------------------------------------------------------------------
Total Income From Operations      1.79    0.38        1.94      1.68    0.35
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
 Net investment income              --      --          --        --      --
-------------------------------------------------------------------------------
Total Distributions                 --      --          --        --      --
-------------------------------------------------------------------------------
NET ASSET VALUE, END OF
 PERIOD                         $14.67  $12.88      $14.56    $14.51  $12.83
-------------------------------------------------------------------------------
TOTAL RETURN(P)                  13.90%   3.04%++    15.37%++  13.09%   2.80%++
-------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
 (000S)                        $11,870  $5,189     $24,825    $1,311  $1,607
-------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
 Expenses(4)                      2.06%   1.34%+      3.31%+    2.51%   2.02%+
 Net investment income (loss)     0.51   (1.12)+      0.26+    (0.64)  (1.60)+
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE          34.38%  20.57%      34.38%    34.38%  20.57%
-------------------------------------------------------------------------------
AVERAGE COMMISSIONS PAID ON
 EQUITY
 SECURITY TRANSACTIONS(5)        $0.06      --       $0.06     $0.06      --
-------------------------------------------------------------------------------
</TABLE>    
   
(a) On October 10, 1994, the former Class C shares were exchanged into Class A
    shares; therefore Class C share activity for the period from February 14,
    1994 to October 9, 1994 is included with the Class A share activity.     
   
(b)On November 7, 1994, the former Class B shares were renamed Class C shares.
          
(1)For the period from February 7, 1994 (inception date) to October 31, 1994.
          
(2)For the period from November 7, 1994 (inception date) to October 31, 1995.
          
(3)For the period from February 14, 1994 (inception date) to October 31, 1994.
       
10
<PAGE>
 
   
Smith Barney World Funds, Inc.     
   
European Portfolio     
   
FINANCIAL HIGHLIGHTS (CONTINUED)                                          
   
(4) The Manager has agreed to waive all or part of its management fees for the
    European Portfolio for the year ended October 31, 1995 and the period ended
    October 31, 1994. In addition, the manager has agreed to reimburse the
    European Portfolio for $10,344 of the Portfolio's expenses for the period
    ended October 31, 1994. If the Manager had not agreed to the fee waivers
    and the expense reimbursement, the per share decreases in net investment
    income and the ratios of expenses to average net assets would have been:
        
<TABLE>    
<CAPTION>
                                       Expense Ratios
              Per Share Decrease     Without Fee Waivers
           in Net Investment Income   and Reimbursement
           ------------------------  -------------------
               1995         1994       1995       1994
           ------------ ------------ ---------  ---------   ---
  <S>      <C>          <C>          <C>        <C>         <C>
  Class A         $0.01        $0.10      2.09%      2.37%+
  Class B            --           --      3.35+        --
  Class C          0.01         0.10      2.54       3.07+
</TABLE>    
    
 In addition, during the period ended October 31, 1995, the Portfolio has
 earned credits from the custodian which reduce service fees incurred. If the
 credits are taken into consideration, the ratios of expenses to average net
 assets for Class A, B and C would be 2.02%, 3.26%+ and 2.48%, respectively;
 prior year numbers have not been restated to reflect these credits.     
   
(5)Due to new SEC disclosure guidelines, average commissions per share are cal-
   culated only for the current year and not for the prior periods.     
   
++Total return is not annualized, as it may not be representative of the total
   return for the year.     
   
+Annualized.     
   
(P)Total return does not reflect applicable sales loads or contingent deferred
   sales charges.     
 
                                                                              11
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
 
  The investment objective of the Portfolio is to achieve long-term capital
appreciation by investing primarily in equity securities of issuers based in
countries of Europe. There can be no assurance that the investment objective
of the Portfolio will be achieved.
 
  The Portfolio's investment objective 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"). The Portfolio's investment policies are
nonfundamental and, as such, may be changed by the Board of Directors, pro-
vided such change is not prohibited by the investment restrictions (which are
set forth in the Statement of Additional Information) or applicable law, and
any such change will first be disclosed in the then current prospectus.
 
  The 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"). Smith Barney Mutual Funds Management
Inc., the Portfolio's investment adviser, believes that the Portfolio's objec-
tive can best be achieved by an investment policy based on the identification
of countries and industries with above-average growth rates, the assessment of
currency factors, and the identification of companies in those countries and
industries with potential for above-average growth in earnings. It is a funda-
mental policy of the Portfolio 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 Portfolio.
 
  In addition, the Portfolio 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 American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"), securities issued by com-
panies domiciled outside the Primary Investment Area of the Portfolio, includ-
ing, but not limited to, Eastern Europe, U.S. and foreign government securi-
ties, and U.S. and non-U.S. money market securities. Money market securities
will generally be held by the Portfolio for temporary defensive purposes. With
respect to certain countries, investments by the Portfolio presently may only
be made by acquiring shares of other investment companies with local govern-
mental authority to invest in those countries. It is not expected that the
income yield of the Portfolio will be significant.
 
  The Portfolio may also hold cash in U.S. dollars to meet redemption requests
and other expenses and cash in other currencies to meet settlement require-
 
12
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
ments for foreign securities. The Portfolio may engage in currency exchange
transactions with up to 100% of its assets in order to protect against uncer-
tainty in the level of future exchange rates between a particular foreign cur-
rency and the U.S. dollar or between foreign currencies in which the Portfo-
lio's securities are or may be denominated. The Portfolio may conduct its cur-
rency 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 Portfolio's dealings in forward
foreign currency exchange contracts will be limited to hedging involving either
specific transactions or aggregate portfolio positions.
 
  The Portfolio 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 Portfolio to invest in Samurai bond issues only after taking into
account considerations of quality and liquidity, as well as yield. These bonds
would be of Organization of Economic Cooperation and Development governments or
would have AAA ratings.
 
  As a fundamental policy, the Portfolio 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 secu-
rity is suspended or, in the case of unlisted securities, market makers do not
exist or will not entertain bids or offers). When the Portfolio has borrowed in
excess of 5% of the value of its total assets, the Portfolio will not make fur-
ther investments. The Portfolio 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 Port-
folio will invest no more than 10% of the value of its net assets in warrants
valued at the lower of cost or market. The Portfolio does not currently intend
to engage in trading options or futures contracts but may do so in the future
if determined to be in the Portfolio's best interests by the Portfolio's Board
of Directors. Special considerations associated with the Portfolio's invest-
ments are described
 
                                                                              13
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
below under "Risk Factors and Special Considerations" and in the Appendix to
this Prospectus.
 
  ADDITIONAL INVESTMENTS
 
  Short-Term Investments. As noted above, in certain circumstances the Portfo-
lio may invest without limitation in short-term money market instruments, such
as 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), domes-
tic branches of foreign banks, savings and loan associations and similar
institutions; high grade commercial paper; and repurchase agreements. To the
extent the Portfolio is investing in short-term investments as a temporary
defensive posture, the Portfolio's investment objective may not be achieved.
 
  U.S. Government Securities. The U.S. Government securities in which the
Portfolio 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. Trea-
sury; 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 pur-
chase 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.
 
  Reverse Repurchase Agreements. The Portfolio may invest up to 5% of its
assets in reverse repurchase agreements. Reverse repurchase agreements are con-
 
14
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
sidered to be borrowings by the Portfolio and involve the sale of portfolio
securities with an agreement to repurchase the securities at an agreed-upon
price, date and interest payment.
 
  Hedging Transactions. The Portfolio may also enter into various types of
securities, index and currency futures, options and related contracts and
interest rate swaps, caps and floors in order to hedge the existing or antici-
pated value of its portfolio securities. See the Statement of Additional
Information for further information about these techniques.
 
  Lending of Portfolio Securities. From time to time, the Portfolio may lend
its portfolio securities to brokers, dealers and other financial organiza-
tions. These loans may not exceed 33 1/3% of the Portfolio's total assets
taken at value. Loans of portfolio securities by the Portfolio will be collat-
eralized by cash, letters of credit or U.S. Government securities, which are
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. By lending its portfolio securities,
the Portfolio will seek to generate income by continuing to receive interest
on the loaned securities, by investing the cash collateral in short-term
instruments or by obtaining yield in the form of interest paid by the borrower
when U.S. Government securities are used as collateral. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delays in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially. Loans will be made to firms deemed by the investment adviser
to be of good standing and will not be made unless, in the judgment of the
investment adviser, the consideration to be earned from such loans would jus-
tify the risk.
 
  PORTFOLIO TRANSACTIONS AND TURNOVER
 
  All orders for transactions in securities and options on behalf of the Port-
folio are placed by the investment manager with broker/dealers that the
investment manager selects, including Smith Barney and other affiliated bro-
kers. Brokerage will be allocated to Smith Barney, to the extent and in the
manner permitted by applicable law, provided that, in the judgment of the
Board of Directors of the Fund, the commission, fee or other remuneration
received or to be received by Smith Barney (or any broker/dealer affiliate of
Smith Barney that is also a member of a securities exchange) is reasonable and
fair compared to the commission, fee or other remuneration received by other
brokers in connection with comparable transactions involving similar securi-
ties being purchased
 
                                                                             15
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
or sold on a securities exchange during the same or comparable period of time.
In all trades directed to Smith Barney, the Fund has been assured that its
orders will be accorded priority over those received from Smith Barney for its
own account or for any of its directors, officers or employees. The Fund will
not deal with Smith Barney in any transaction in which Smith Barney acts as
principal.
 
  Under certain market conditions, the Portfolio may experience high portfolio
turnover as a result of its investment strategies. For example, the exercise of
a substantial number of options written by the Portfolio and the purchase or
sale of securities by the Portfolio in anticipation of a rise or decline in
interest rates could result in high portfolio turnover. Short-term gains real-
ized from portfolio transactions are taxable to shareholders as ordinary
income. In addition, higher portfolio turnover rates can result in correspond-
ing increases in brokerage commissions for the Portfolio. The annual portfolio
turnover rate for the Portfolio may vary significantly from year to year, but
it is generally not expected to exceed 75%. The Portfolio will not consider
portfolio turnover rate a limiting factor in making investment decisions con-
sistent with its respective objectives and policies.
 
 RISK FACTORS AND SPECIAL CONSIDERATIONS
 
  Foreign Securities. There are certain risks involved in investing in securi-
ties of companies and governments of foreign nations which are in addition to
the usual risks inherent in domestic investments. These risks include those
resulting from revaluation of currencies, future adverse political and economic
developments and the possible imposition of currency exchange blockages or
other foreign governmental laws or restrictions, reduced availability of public
information concerning issuers and the lack of uniform accounting, auditing and
financial reporting standards or of other regulatory practices and requirements
comparable to those applicable to domestic companies. The yield of the Portfo-
lio may be adversely affected by fluctuations in value of one or more foreign
currencies relative to the U.S. dollar. Moreover, securities of many foreign
companies and their markets may be less liquid and their prices more volatile
than those of securities of comparable domestic companies. In addition, with
respect to certain foreign countries, there is the possibility of expropria-
tion, nationalization, confiscatory taxation and limitations on the use or
removal of funds or other assets of the Portfolio, including the withholding of
dividends. Foreign securities
 
16
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
may be subject to foreign government taxes that could reduce the yield on such
securities. Because the Portfolio will invest in securities denominated or
quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates may adversely affect the value of portfolio securities and the
appreciation or depreciation of investments. Investments in foreign securities
also may result in higher expenses due to the cost of converting foreign cur-
rency to U.S. dollars, the payment of fixed brokerage commissions on foreign
exchanges, which generally are higher than commissions on domestic exchanges,
and the expense of maintaining securities with foreign custodians, and the
imposition of transfer taxes or transaction charges associated with foreign
exchanges. Finally, investments in unsponsored ADR's may entail certain risks
and costs not encountered by investments in sponsored ADR's.
 
  Securities of Developing Countries. A developing country generally is con-
sidered to be a country that is in the initial stages of its industrialization
cycle. Investing in the equity and fixed-income markets of developing coun-
tries involves exposure to economic structures that are generally less diverse
and mature, and to political systems that can be expected to have less stabil-
ity, 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.
 
VALUATION OF SHARES
 
 
  The Portfolio's net asset value per share 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 Portfolio's net assets attributable to each Class by the
total number of shares of the Class outstanding.
 
  Securities owned by the Portfolio 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 val-
ued 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
 
                                                                             17
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
VALUATION OF SHARES (CONTINUED)
 
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 valu-
ation, 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
Portfolio's net assets, and current market value of such options sold by the
Portfolio will be subtracted from the Portfolio's net assets. Any other invest-
ments of the Portfolio, 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 deter-
mined by the Board of Directors in good faith. This value generally is deter-
mined as the amount that the Portfolio 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 denomi-
nated in a currency other than U.S. dollars will be converted into U.S. dollars
at the prevailing market rate as determined by the investment adviser.
 
  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 Portfolio may not take place contemporaneously with the determina-
tion of the prices of investments held by such Portfolio. 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
Portfolio's net asset value unless the investment adviser, under the supervi-
sion of the Fund's Board of Directors, determines that the particular event
would materially affect net asset value. As a result, the Portfolio's net asset
value may be significantly affected by such trading on days when a shareholder
has no access to the Portfolio.
 
DIVIDENDS, DISTRIBUTIONS AND TAXES
 
 
 DIVIDENDS AND DISTRIBUTIONS
 
  The Fund declares and pays income dividends at least annually on shares of
the Portfolio and makes annual distributions of capital gains, if any, on such
shares.
 
 
 
18
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
 
  If a shareholder does not otherwise instruct, dividends and capital gain dis-
tributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC.
   
  Income dividends and capital gain distributions that are invested are cred-
ited 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 Smith Barney Financial Consultant.
Accounts held directly by First Data should notify First Data 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 C shares of the Portfolio 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 C
shares. The per share dividends on Class A shares of the Portfolio 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 C and Class Y
shares.
 
 TAXES
 
  The Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Code to be relieved of Federal income tax on that part of
its net investment income and realized capital gains which it pays out to its
shareholders. To qualify, the Portfolio must meet certain tests, including dis-
tributing at least 90% of its investment company taxable income, and deriving
less than 30% of its gross income from the sale or other disposition of certain
investments held for less than three months.
 
  Dividends from net investment income and distributions of realized short-term
capital gains on the sale of securities, whether paid in cash or automatically
invested in additional shares of the Portfolio, are taxable to shareholders as
ordinary income. The Portfolio's dividends will not qualify for the dividends
received deduction for corporations. Dividends and distributions declared by
the Portfolio may also be subject to state and local taxes. Distributions out
of net long-term capital gains (i.e., net long-term capital gains in excess of
net short-term capital losses) are taxable to shareholders as long-term capital
gains. Information as to the tax status of dividends paid or deemed paid in
each calen-
 
                                                                              19
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
 
dar year will be mailed to shareholders as early in the succeeding year as
practical but not later than January 31.
 
  Income received by the Portfolio from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. Tax con-
ventions between certain countries and the United States may reduce or elimi-
nate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of the Portfolio's assets to be invested in various
countries is not known. Such foreign taxes would reduce the income of the
Portfolio distributed to shareholders.
 
  If, at the end of the Portfolio's taxable year, more than 50% of the value
of the Portfolio's total assets consist of stock or securities of foreign cor-
porations, the Portfolio may make an election pursuant to which foreign income
taxes paid by it will be treated as paid directly by its shareholders. The
Portfolio 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 the Portfolio makes such an election, the amount
of such 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 or, provided the shareholder itemizes deductions,
a deduction for U.S. federal income tax purposes for such foreign taxes.
Shareholders who choose to utilize a credit (rather than a deduction) for for-
eign 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 Portfolio
from its foreign source income will be treated as foreign source income. The
Portfolio's gains and losses from the sale of securities and from certain for-
eign 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 Portfolio 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 pro-
portionate share of the foreign income taxes paid by the Portfolio.
 
 
20
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
 
  In determining gain or loss, a shareholder who redeems or exchanges shares
in the Portfolio 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 for invest-
ing in the Portfolio or a different Portfolio of the Fund, such as pursuant to
the rights discussed in "Exchange Privilege."
 
  The Fund is required to withhold and remit to the U.S. Treasury 31% of divi-
dends, distributions and redemption proceeds to shareholders who fail to pro-
vide 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.
 
  Prior to investing in shares of the Portfolio, investors should consult with
their tax advisors concerning the federal, state and local tax consequences of
such an investment.
 
PURCHASE OF SHARES
 
 
 GENERAL
   
  The Portfolio offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without an initial sales charge or CDSC
and are available only to investors investing a minimum of $5,000,000 (except
for purchases of Class Y shares by Smith Barney Concert Series Inc., for which
there is no minimum purchase amount). See "Prospectus Summary--Alternative
Purchase Arrangements" for a discussion of factors to consider in selecting
which Class of shares to purchase.     
   
  Purchases of Portfolio shares must be made through a brokerage account main-
tained with Smith Barney, an Introducing Broker or an investment dealer in the
selling group. In addition, certain investors, including qualified retirement
plans and certain other institutional investors may purchase shares directly
from the Fund through First Data. When purchasing shares of the Portfolio,
investors must specify whether the purchase is for Class A, Class B, Class C
or Class Y shares. No maintenance fee will be charged by the Fund in connec-
tion with a brokerage account through which an investor purchases or holds
shares.     
 
                                                                             21
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PURCHASE OF SHARES (CONTINUED)
   
  Investors in Class A, Class B and Class C shares may open an account by mak-
ing an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan in the Portfolio. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000. Sub-
sequent investments of at least $50 may be made for all Classes. For partici-
pants in retirement plans qualified under Section 403(b)(7) or Section 401(a)
of the Code, the minimum initial investment requirement for Class A, Class B
and Class C shares and the subsequent investment requirement for all Classes
in the Portfolio is $25. For the Portfolio's Systematic Investment Plan, the
minimum initial investment requirement for Class A, Class B and Class C shares
and the subsequent investment requirement for all Classes is $50. There are no
minimum investment requirements in Class A shares for employees of Travelers
and its subsidiaries, including Smith Barney, Directors or 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 pur-
chase 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 Fund's
transfer agent, First Data. Share certificates are issued only upon a share-
holder's written request to First Data.     
   
  Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Portfolio calculates its net asset
value, are priced according to the net asset value determined on that day (the
"trade date"). Orders received by dealers or Introducing Brokers prior to the
close of regular trading on the NYSE on any day the Portfolio 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 Smith Barney prior to
Smith Barney's close of business. For shares purchased through Smith Barney or
Introducing Brokers purchasing through Smith Barney, payment for Portfolio
shares is due on the third business day (the "settlement date") 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, Smith Barney or First Data is authorized through
preauthorized transfers of $50 or more to charge the regular bank account or
other financial institution indicated by the shareholder on a monthly     
 
22
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PURCHASE OF SHARES (CONTINUED)
   
or quarterly basis to provide systematic additions to the shareholder's Portfo-
lio account. A shareholder who has insufficient funds to complete the transfer
will be charged a fee of up to $25 by Smith Barney or First Data. The System-
atic Investment Plan also authorizes Smith Barney to apply cash held in the
shareholder's Smith Barney brokerage account or redeem the shareholder's shares
of a Smith Barney money market fund to make additions to the account. Addi-
tional information is available from the Fund or a Smith Barney Financial
Consultant.     
 
 INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
 
  The sales charges applicable to purchases of Class A shares of the Portfolio
are as follows:
 
<TABLE>
<CAPTION>
                                  SALES CHARGE
                         ------------------------------
                                                             DEALERS'
                              % OF           % OF       REALLOWANCE AS % OF
  AMOUNT OF INVESTMENT   OFFERING PRICE AMOUNT INVESTED   OFFERING PRICE
---------------------------------------------------------------------------
  <S>                    <C>            <C>             <C>
  Less than $25,000           5.00%          5.26%             4.50%
  $ 25,000 - 49,999           4.00           4.17              3.60
    50,000 - 99,999           3.50           3.63              3.15
   100,000 - 249,999          3.00           3.09              2.70
   250,000 - 499,999          2.00           2.04              1.80
   500,000 and over            *               *                 *
---------------------------------------------------------------------------
</TABLE>
 
* Purchases of Class A shares, which when combined with current holdings of
 Class A shares offered with a sales charge equal or exceed $500,000 in the
 aggregate, will be made at net asset value without any initial sales charge,
 but will be subject to a CDSC of 1.00% on redemptions made within 12 months of
 purchase. The CDSC on Class A shares is payable to Smith Barney, which
 compensates Smith Barney Financial Consultants and other dealers whose clients
 make purchases of $500,000 or more. The CDSC is waived in the same
 circumstances in which the CDSC applicable to Class B and Class C shares is
 waived. See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
 
  Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act
of 1933, as amended.
 
  The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Portfolio made at one time by "any person," which
includes an individual, his or her spouse and children, or a trustee or other
fiduciary of a single trust estate or single fiduciary account. The reduced
sales
 
                                                                              23
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
charge minimums may also be met by aggregating the purchase with the net asset
value of all Class A shares offered with a sales charge held in funds spon-
sored by Smith Barney listed under "Exchange Privilege."
 
 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 of Class A shares to Direc-
tors and employees of Travelers and its subsidiaries, Directors, Trustees or 
employees of any of the Smith Barney Mutual Funds and the members of the 
immediate families of such persons 
(including the surviving spouse of a deceased Director, Trustee or employee,
 and retired
Directors, Trustees or employees), or pension, profit-sharing or other
benefit plan for such persons 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 or to
 members of the National Association of Securities Dealers, Inc.; (b) offers
of Class A shares to any other investment company in
connection with the combination of such company with the Portfolio by merger,
acquisition of assets or otherwise; (c) purchases of Class A shares by any
client of a newly employed Smith Barney Financial Consultant (for a period up
to 90 days from the commencement of the Financial Consultant's employment with
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 spon-
sored by the Financial Consultant's prior employer, (ii) was sold to the cli-
ent by the Financial Consultant and (iii) was subject to a sales charge;
(d) shareholders who have redeemed Class A shares in the Portfolio (or Class A
shares of another fund of the Smith Barney Mutual Funds that are sold with a
maximum 5.00% sales charge) and who wish to reinvest their redemption proceeds
in the Portfolio, provided the reinvestment is made within 60 calendar days of
the redemption; and (e) accounts managed by registered investment advisory
subsidiaries of Travelers. In order to obtain such discounts, the purchaser
must provide sufficient information at the time of purchase to permit verifi-
cation that the purchase would qualify for the elimination of the sales
charge.     
 
 RIGHT OF ACCUMULATION
 
  Class A shares of the Portfolio may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value
 
24
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PURCHASE OF SHARES (CONTINUED)
   
of all Class A shares of the Portfolio and of funds sponsored by Smith Barney
which are offered with a sales charge listed under "Exchange Privilege" then
held by such person and applying the sales charge applicable to such aggre-
gate. 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 pur-
chased thereafter.     
 
 GROUP PURCHASES
 
  Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares", and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds
offered with a sales charge to, and share holdings of, all members of the
group. To be eligible for such reduced sales charges or to purchase at net
asset value, all purchases must be pursuant to an employer- or partnership-
sanctioned plan meeting certain requirements. One such requirement is that the
plan must be open to specified partners or employees of the employer and its
subsidiaries, if any. Such plan may, but is not required to, provide for pay-
roll deductions, IRAs or investments pursuant to retirement plans under Sec-
tions 401 or 408 of the Code. Smith Barney may also offer a reduced sales
charge or net asset value purchase for aggregating related fiduciary accounts
under such conditions that Smith Barney will realize economies of sales
efforts and sales related expenses. An individual who is a member of a quali-
fied group may also purchase Class A shares at the reduced sales charge appli-
cable to the group as a whole. The sales charge is based upon the aggregate
dollar value of Class A shares offered with a sales charge that have been pre-
viously purchased and are still owned by the group, plus the amount of the
current purchase. A "qualified group" is one which (a) has been in existence
for more than six months, (b) has a purpose other than acquiring Portfolio
shares at a discount and (c) satisfies uniform criteria which enable Smith
Barney to realize economies of scale in its costs of distributing shares. A
qualified group must have more than 10 members, must be available to arrange
for group meetings between representatives of the Portfolio and the members,
and must agree to include sales and other materials related to the Portfolio
in its publications and mailings to members at no cost to Smith Barney.
 
                                                                             25
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
In order to obtain such reduced sales charge or to purchase at net asset value,
the purchaser must provide sufficient information at the time of purchase to
permit verification that the purchase qualifies for the reduced sales charge.
Approval of group purchase reduced sales charge plans is subject to the discre-
tion of Smith Barney.
 
 LETTER OF INTENT
   
  Class A Shares. A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes pur-
chases of all Class A shares of the Portfolio and other funds of the Smith Bar-
ney Mutual Funds offered with a sales charge over the 13 month period based on
the total amount of intended purchases plus the value of all Class A shares
previously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales
charge applicable to the total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay the difference between
the sales charges applicable to the purchases made and the charges previously
paid, or an appropriate number of escrowed shares will be redeemed. Please con-
tact a Smith Barney Financial Consultant or First Data to obtain a Letter of
Intent application.     
   
  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. Such investors must
make an initial minimum purchase of $1,000,000 in Class Y shares of the Portfo-
lio and agree to purchase a total of $5,000,000 of Class Y shares of the same
Portfolio within six months from the date of the Letter. If a total investment
of $5,000,000 is not made within the six-month period, all Class Y shares pur-
chased to date will be transferred to Class A shares, where they will be sub-
ject to all fees (including a service fee of 0.25%) and expenses applicable to
the Portfolio's Class A shares, which may include a CDSC of 1.00%. Please con-
tact a Smith Barney Financial Consultant or First Data for further information.
    
 DEFERRED SALES CHARGE ALTERNATIVES
 
  CDSC Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
 
26
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
immediately invested in the Portfolio. A CDSC, however, may be imposed on cer-
tain redemptions of these shares. "CDSC Shares" are: (a) Class B shares;
(b) Class C shares; and (c) Class A shares which when combined with Class A
shares offered with a sales charge currently held by an investor equal or
exceed $500,000 in the aggregate.
   
  Any applicable CDSC will be assessed on an amount equal to the lesser of the
original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a
CDSC to the extent that the value of such shares represents: (a) capital
appreciation of Portfolio 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 C shares
and Class A shares that are CDSC Shares, shares redeemed more than 12 months
after their purchase.     
 
  Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
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 purchases by Participating Plans, as described below. See "Purchase of
Shares--Smith Barney 401(k) Program."
 
<TABLE>
<CAPTION>
    YEAR SINCE PURCHASE
    PAYMENT WAS MADE      CDSC
   ----------------------------
    <S>                   <C>
    First                 5.00%
    Second                4.00
    Third                 3.00
    Fourth                2.00
    Fifth                 1.00
    Sixth                 0.00
    Seventh               0.00
    Eighth                0.00
   ----------------------------
</TABLE>
 
                                                                             27
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
 
  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 pro-
portion of Class B Dividend Shares owned by the shareholder as the total number
of his or her Class B Shares converting at the time bears to the total number
of outstanding Class B shares (other than Class B Dividend Shares) owned by the
shareholder. Shareholders who held Class B shares of Smith Barney Shearson
Short-Term World Income Fund (the "Short-Term World Income Fund") on July 15,
1994 and who subsequently exchange those shares for Class B shares of the Port-
folio will be offered the opportunity to exchange all such Class B shares for
Class A shares of the Portfolio four years after the date on which those shares
were deemed to have been purchased. Holders of such Class B shares will be
notified of the pending exchange in writing approximately 30 days before the
fourth anniversary of the purchase date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the fourth anniversary
date. See "Prospectus Summary--Alternative Purchase Arrangements--Class B
Shares Conversion Feature."
 
  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 distribu-
tions and finally of other shares held by the shareholder for the longest
period of time. The length of time that CDSC Shares acquired through an
exchange have been held will be calculated from the date that the shares
exchanged were initially acquired in one of the other Smith Barney Mutual
Funds, and Portfolio shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain distribution
reinvestments in such other funds. For Federal income tax purposes, the amount
of the CDSC will reduce the gain or increase the loss, as the case may be, on
the amount realized on redemption. The amount of any CDSC will be paid to Smith
Barney.
 
  To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
 
28
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
 
 WAIVERS OF CDSC
 
  The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b) au-
tomatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the value of
the shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within twelve
months following the death or disability of the shareholder;(d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of shares in connection with a combination of the Portfolio with
any investment company by merger, acquisition of assets or otherwise. In addi-
tion, a shareholder who has redeemed shares from other funds of the Smith Bar-
ney Mutual Funds may, under certain circumstances, reinvest all or part of the
redemption proceeds within 60 days and receive pro rata credit for any CDSC
imposed on the prior redemption.
   
  CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by First Data in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.     
 
 SMITH BARNEY 401(K) PROGRAM
 
  Investors may be eligible to participate in the Smith Barney 401(k) Program,
which is generally designed to assist plan sponsors in the creation and opera-
tion of retirement plans under Section 401(a) of the Code. To the extent appli-
cable, the same terms and conditions are offered to all Participating Plans in
the Smith Barney 401(k) Program.
 
  The Portfolio offers to Participating Plans Class A, Class B, Class C and
Class Y shares as investment alternatives under the Smith Barney 401(k) Pro-
gram. Class A, Class B and Class C shares acquired through the Smith Barney
401(k) Program are subject to the same service and/or distribution fees as, but
 
                                                                              29
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
different sales charge and CDSC schedules than, the Class A, Class B and Class
C shares acquired by other investors. Similar to those shares available to
other investors, Class Y shares acquired through the Smith Barney 401(k) Pro-
gram are not subject to any service or distribution fees or any initial sales
charge or CDSC. Once a Participating Plan has made an initial investment in the
Portfolio, all of its subsequent investments in the Portfolio must be in the
same Class of shares, except as otherwise described below.
 
  Class A Shares. Class A shares of the Portfolio are offered without any
initial sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds, if the
Participating Plan terminates within four years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.
 
  Class B Shares. Class B shares of the Portfolio are offered to any Partici-
pating Plan that purchases less than $250,000 of one or more funds of the
Smith Barney Mutual Funds. Class B shares acquired through the Smith Barney
401(k) Program are subject to a CDSC of 3.00% of redemption proceeds, if the
Participating Plan terminates within eight years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.
 
  Eight years after the date the Participating Plan enrolled in the Smith Bar-
ney 401(k) Program, it will be offered the opportunity to exchange all of its
Class B shares for Class A shares of the Portfolio. 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 the exchange has occurred, a Participating Plan will not be eligible to
acquire additional Class B shares of the Portfolio but instead may acquire
Class A shares of the Portfolio. If the Participating Plan elects not to
exchange all of its Class B shares at that time, each Class B share held by the
Participating Plan will have the same conversion feature as Class B shares held
by other investors. See "Purchase of Shares--Deferred Sales Charge Alterna-
tives."
 
  Class C Shares. Class C shares of the Portfolio are offered to any Partici-
pating Plan that purchases from $250,000 to $499,999 of one or more funds of
the Smith Barney Mutual Funds. Class C shares acquired through the Smith Barney
401(k) Program after November 7, 1994 are subject to a CDSC
 
30
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
of 1.00% of redemption proceeds, if the Participating Plan terminates within
four years of the date the Participating Plan first enrolled in the Smith Bar-
ney 401(k) Program. Each year after the date a Participating Plan enrolled in
the Smith Barney 401(k) Program, if its total Class C holdings 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 C shares for Class A shares of
the Portfolio. 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. Once the exchange has occurred, a Participating Plan
will not be eligible to acquire Class C shares of the Portfolio but instead
may acquire Class A shares of the Portfolio. Any Class C shares not converted
will continue to be subject to the distribution fee.
 
  Class Y Shares. Class Y shares of the Portfolio are offered without any
service or distribution fees, sales charge or CDSC to any Participating Plan
that purchases $5,000,000 or more of Class Y shares of one or more funds of
the Smith Barney Mutual Funds.
   
  Whether or not the CDSC applies to a Participating Plan depends on the num-
ber of years since the Participating Plan first became enrolled in the Smith
Barney 401(k) Program, unlike the applicability of the CDSC to other share-
holders, which depends on the number of years since those shareholders made
the purchase payment for the shares which are being redeemed. Where applica-
ble, the CDSC will be assessed on shares held through the Smith Barney 401(k)
Program 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; provided,
however, that shares will not be subject to a CDSC to the extent that the
value of such shares represents capital appreciation of Fund assets and/or
reinvestments of dividends or capital gain distributions.     
 
  The CDSC will be waived on redemptions of Class A, Class B and Class C
shares in connection with lump-sum or other distributions made by a Partici-
pating Plan as a result of: (a) the retirement of an employee in the Partici-
pating Plan; (b) the termination of employment of an employee in the Partici-
pating Plan; (c) the death or disability of an employee in the Participating
Plan; (d) the attainment of age 59 1/2 by an employee in the Participating
Plan; (e) hardship of an employee in the Participating Plan to the extent per-
mitted under Section
 
                                                                             31
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
401(k) of the Code; or (f) redemptions of shares in connection with a loan made
by the Participating Plan to an employee.
   
  Participating Plans wishing to acquire shares of the Portfolio through the
Smith Barney 401(k) Program must purchase such shares directly from First Data.
For further information regarding the Smith Barney 401(k) Program, investors
should contact a Smith Barney Financial Consultant.     
 
EXCHANGE PRIVILEGE
 
 
  Except as otherwise noted below, shares of each Class may be exchanged for
shares of the same Class in the following funds of the 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 C shares are subject to min-
imum investment requirements and all shares are subject to the other require-
ments of the fund into which exchanges are made and a sales charge differential
may apply.
 
  FUND NAME
 
  Growth Funds
 
    Smith Barney Aggressive Growth Fund Inc.
    Smith Barney Appreciation Fund Inc.
    Smith Barney Fundamental Value Fund Inc.
       
    Smith Barney Growth Opportunity Fund     
       
    Smith Barney Managed Growth Fund     
       
    Smith Barney Natural Resources Fund Inc.     
    Smith Barney Special Equities Fund
    Smith Barney Telecommunications Growth Fund
 
  Growth and Income Funds
 
    Smith Barney Convertible Fund
       
    Smith Barney Funds, Inc.--Equity Income Portfolio     
       
    Smith Barney Growth and Income Fund
    Smith Barney Premium Total Return Fund
    Smith Barney Strategic Investors Fund
    Smith Barney Utilities Fund
 
 
32
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
EXCHANGE PRIVILEGE (CONTINUED)
 
  Taxable Fixed-Income Funds
 
 ** Smith Barney Adjustable Rate Government Income Fund
    Smith Barney Diversified Strategic Income Fund
  * Smith Barney Funds, Inc.--Income Return Account Portfolio
       
+++ Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Portfolio
    Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
    Smith Barney Government Securities Fund
    Smith Barney High Income Fund
    Smith Barney Investment Grade Bond Fund
    Smith Barney Managed Governments Fund Inc.
 
  Tax-Exempt Funds
 
    Smith Barney Arizona Municipals Fund Inc.
    Smith Barney California Municipals Fund Inc.
       
  * Smith Barney Intermediate Maturity California Municipals Fund
  * Smith Barney Intermediate Maturity New York Municipals Fund
       
    Smith Barney Managed Municipals Fund Inc.
    Smith Barney Massachusetts Municipals Fund
       
  * Smith Barney Muni Funds--Florida Limited Term Portfolio
    Smith Barney Muni Funds--Florida Portfolio
    Smith Barney Muni Funds--Georgia Portfolio
  * Smith Barney Muni Funds--Limited Term Portfolio
    Smith Barney Muni Funds--National Portfolio
       
    Smith Barney Muni Funds--New York Portfolio
    Smith Barney Muni Funds--Ohio Portfolio
    Smith Barney Muni Funds--Pennsylvania Portfolio
    Smith Barney New Jersey Municipals Fund Inc.
       
    Smith Barney Oregon Municipals Fund
    Smith Barney Tax-Exempt Income Fund
 
  International Funds
       
    Smith Barney World Funds, Inc.--Emerging Markets Portfolio     
    Smith Barney World Funds, Inc.--Global Government Bond Portfolio
    Smith Barney World Funds, Inc.--International Balanced Portfolio
    Smith Barney World Funds, Inc.--International Equity Portfolio
    Smith Barney World Funds, Inc.--Pacific Portfolio
       
                                                                              33
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
EXCHANGE PRIVILEGE (CONTINUED)
     
  Smith Barney Concert Series Inc.     
       
    Smith Barney Concert Series Inc.--High Growth Portfolio     
       
    Smith Barney Concert Series Inc.--Growth Portfolio     
       
    Smith Barney Concert Series Inc.--Balanced Portfolio     
       
    Smith Barney Concert Series Inc.--Conservative Portfolio     
       
    Smith Barney Concert Series Inc.--Income Portfolio     
 
  Money Market Funds
 
  + Smith Barney Exchange Reserve Fund
 ++ Smith Barney Money Funds, Inc.--Cash Portfolio
 ++ Smith Barney Money Funds, Inc.--Government Portfolio
*** Smith Barney Money Funds, Inc.--Retirement Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
+++ Smith Barney Muni Funds--California Money Market Portfolio
+++ Smith Barney Muni Funds--New York Money Market Portfolio
-------------------------------------------------------------------------------
 
  * Available for exchange with Class A, Class C and Class Y shares of the
    Portfolio.
 ** Available for exchange with Class A, Class B and Class Y shares of the
    Portfolio. In addition, shareholders who own Class C shares of the
    Portfolio through the Smith Barney 401(k) Program may exchange those
    shares for Class C shares of this fund.
*** Available for exchange with Class A shares of the Portfolio.
  + Available for exchange with Class B and Class C shares of the Portfolio.
 ++ Available for exchange with Class A and Class Y shares of the Portfolio.
    In addition, shareholders who own Class C shares of the Portfolio through
    the Smith Barney 401(k) Program may exchange those shares for Class C
    shares of this fund.
+++ Available for exchange with Class A and Class Y shares of the Portfolio.
 
  Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge of less than the maximum charged
by other Smith Barney Mutual Funds will be subject to the appropriate "sales
charge differential" upon the exchange of such shares for Class A shares of a
fund sold with a higher sales charge. The "sales charge differential" is lim-
ited to a percentage rate no greater than the excess of the sales charge rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For pur-
poses of the exchange privilege, shares obtained through automatic reinvest-
ment of dividends and capital gain distributions are treated as having paid
the same
 
34
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
EXCHANGE PRIVILEGE (CONTINUED)
 
sales charges applicable to the shares on which the dividends or distributions
were paid; however, except in the case of the Smith Barney 401(k) Program, if
no sales charge was imposed upon the initial purchase of the shares, any
shares obtained through automatic reinvestment will be subject to a sales
charge differential upon exchange. Class A shares held in the Portfolio prior
to November 7, 1994 that are subsequently exchanged for shares of other funds
of the Smith Barney Mutual Funds will not be subject to a sales charge differ-
ential.
 
  Class B Exchanges. In the event a Class B shareholder (unless such share-
holder was a Class B shareholder of the Short-Term World Income Fund on July
15, 1994) wishes to exchange all or a portion of his or her shares in any of
the funds imposing a higher CDSC than that imposed by the Portfolio, the
exchanged Class B shares will be subject to the higher applicable CDSC. Upon
an exchange, the new Class B shares will be deemed to have been purchased on
the same date as the Class B shares of the Portfolio that have been exchanged.
 
  Class C Exchanges. Upon an exchange, the new Class C shares will be deemed
to have been purchased on the same date as the Class C shares of the Portfolio
that have been exchanged.
 
  Class Y Exchanges. Class Y shareholders of the Portfolio who wish to
exchange all or a portion of their Class Y shares for Class Y shares 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 Portfolio's performance and its shareholders. The
investment manager may determine that a pattern of frequent exchanges is
excessive and contrary to the best interests of the Portfolio's other share-
holders. In this event, the Fund may, at its discretion, decide to limit addi-
tional purchases and/or exchanges by the shareholder. Upon such a determina-
tion, the Fund will provide notice in writing or by telephone to the share-
holder 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 Portfolio or (b) remain invested in the Portfolio 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.     
 
                                                                             35
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
EXCHANGE PRIVILEGE (CONTINUED)
   
  Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange Program." Exchanges will
be processed at the net asset value next determined, plus any applicable sales
charge differential. Redemption procedures discussed below are also applicable
for exchanging shares, and exchanges will be made upon receipt of all support-
ing 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. A capital gain or loss for tax
purposes will be realized upon the exchange, depending upon the cost     
or other basis of shares redeemed. Before exchanging shares, investors should
read the current prospectus describing the shares to be acquired. The Portfolio
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 Portfolio tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until the Fund's transfer agent
receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third 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 Smith Barney brokerage account, these funds will not
be invested for the shareholder's benefit without specific instruction and
Smith Barney will benefit from the use of temporarily uninvested funds. Redemp-
tion proceeds for shares purchased by check, other than a certified or official
bank check, will be remitted upon clearance of the check, which may take up to
ten days or more.     
 
  Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
 
36
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
REDEMPTION OF SHARES (CONTINUED)
 
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
 
  Smith Barney World Funds, Inc./European Portfolio
  Class A, B, C or Y (please specify)
     
  c/o First Data Investor Services Group, Inc.     
  P.O. Box 9134
  Boston, Massachusetts 02205-9134
   
  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 regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed
stock power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a written redemption request in excess of
$2,000, share certificate or stock power must be guaranteed by an eligible
guarantor institution, such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal Reserve System or member
firm of a national securities exchange. Written redemption requests of $2,000
or less do not require a signature guarantee unless more than one such redemp-
tion request is made in any 10-day period. Redemption proceeds will be mailed
to an investor's address of record. First Data may require additional support-
ing documents for redemptions made by corporations, executors, administrators,
trustees or guardians. A redemption request will not be deemed properly
received until First Data receives all required documents in proper form.     
 
 AUTOMATIC CASH WITHDRAWAL PLAN
 
  The Portfolio offers shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at least $10,000 may elect
to receive cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on
exchanges between funds or Classes of the Portfolio. Any applicable CDSC will
not be waived on amounts withdrawn by a shareholder that exceed 1.00% per
month of the value of the shareholder's shares subject to the CDSC at the time
the withdrawal plan commences. (With respect to withdrawal plans in effect
prior to November 7, 1994, any applicable CDSC will be waived on amounts with
 
                                                                             37
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
REDEMPTION OF SHARES (CONTINUED)
 
drawn that do not exceed 2.00% per month of the value of the shareholder's
shares subject to the CDSC.) For further information regarding the automatic
cash withdrawal plan, shareholders should contact a Smith Barney Financial Con-
sultant.
    
 TELEPHONE REDEMPTION AND EXCHANGE PROGRAM     
   
  Shareholders who do not have a Smith Barney brokerage account may be eligible
to redeem and exchange Fund shares by telephone. To determine if a shareholder
is entitled to participate in this program, he or she should contact First Data
at 1-800-451-2010. Once eligibility is confirmed, the shareholder must complete
and return a Telephone/Wire Authorization Form, along with a signature guaran-
tee, that will be provided by First Data 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 the Fund.)     
   
  Redemptions. Redemption requests of up to $10,000 of any class or classes of
the Fund's shares, may be made by eligible shareholders by calling First Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day the NYSE is open. Redemptions of shares (i) by
retirement plans or (ii) for which certificates have been issued are not per-
mitted under this program.     
   
  A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent relationship with
a member bank. The 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 com-
plete 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.     
 
 
38
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
REDEMPTION OF SHARES (CONTINUED)
   
  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 First Data at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (New York City time) on any day on which the NYSE is open.     
   
  Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions 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 follow-
ing at least seven (7) days prior notice to shareholders.     
 
MINIMUM ACCOUNT SIZE
 
 
  The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Portfolio if the aggregate net asset value of the shares held in
the Portfolio account is less than $500. (If a shareholder has more than one
account in this Portfolio, each account must satisfy the minimum account size.)
The Fund, however, will not redeem shares based solely on market reductions in
net asset value. Before the Fund exercises such right, shareholders will
receive written notice and will be permitted 60 days to bring accounts up to
the minimum to avoid automatic liquidation.
 
PERFORMANCE
 
 
  From time to time the Portfolio may include its total return, average annual
total return and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A, Class
B, Class C and Class Y shares of the Portfolio. These figures are based on his-
torical earnings and are not intended to indicate future performance. Total
return is computed for a specified period of time assuming deduction of the
maximum sales charge, if any, from the initial amount invested and reinvestment
of all income dividends and capital gain distributions on the reinvestment
dates at prices calculated as stated in this Prospectus, then dividing the
value of the investment at the end of the period so calculated by the initial
amount invested
 
                                                                              39
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
PERFORMANCE (CONTINUED)
   
and subtracting 100%. The standard average annual total return, as prescribed
by the SEC is derived from this total return, which provides the ending redeem-
able value. Such 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. The Portfolio calculates current dividend return for each Class by
dividing the current dividend by the net asset value or the maximum public
offering price (including sales charge) on the last day of the period for which
current dividend return is presented. The current dividend return for each
Class may vary from time to time depending on market conditions, the composi-
tion of its investment portfolio and operating expenses. These factors and pos-
sible differences in the methods used in calculating current dividend return
should be considered when comparing a Class' current return to yields published
for other investment companies and other investment vehicles. The Portfolio may
also include comparative performance information in advertising or marketing
its shares. Such performance information may include data from Lipper Analyti-
cal Services, Inc. and other financial publications.     
 
MANAGEMENT OF THE FUND
 
 
 BOARD OF DIRECTORS
 
  Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant agreements
between the Fund and the companies that furnish services to the Fund and the
Portfolio, including agreements with the Fund's distributor, investment manag-
er, custodian and transfer agent. The day-to-day operations of the Portfolio
are delegated to the Portfolio's investment manager. The Statement of Addi-
tional Information contains background information regarding each Director and
executive officer of the Fund.
 
 MANAGER
 
  Smith Barney Mutual Funds Management Inc. (the "Manager") manages the day-to-
day operations of the Portfolio pursuant to a management agreement entered into
by the Fund on behalf of the Portfolio under which the Manager is responsible
for furnishing or causing to be furnished to the Portfolio advice and assis-
tance with respect to the acquisition, holding or disposal of securities and
recommendations with respect to other aspects and affairs of the Portfolio and
 
40
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
MANAGEMENT OF THE FUND (CONTINUED)
   
furnishes the Portfolio with bookkeeping, accounting and administrative servic-
es, office space and equipment, and the services of the officers and employees
of the Fund. By written agreement the Research and other departments and staff
of Smith Barney furnish the Manager with information, advice and assistance and
are available for consultation on the Portfolio, thus Smith Barney may also be
considered an investment adviser to the Fund. Smith Barney services are paid
for by the Manager on the basis of direct and indirect costs to Smith Barney of
performing such services; there is no charge to the Fund for such services. For
the investment advisory services provided by the Manager, the Portfolio pays
the Manager an investment advisory fee calculated at the rate of 0.85% of the
Portfolio's average daily net assets, paid monthly. Although this fee is higher
than that paid by most investment companies, the Portfolio's management has
determined that it is comparable to the fee charged by other investment advis-
ers of investment companies that have similar investment objectives and poli-
cies. For the Portfolio's fiscal year ended October 31, 1995, the Manager
waived part of its management fee; the management fee was 0.82% of the Portfo-
lio's average net assets. Total operating expenses incurred by the Portfolio
for this period were 2.06% for Class A shares, 3.31% for Class B shares and
2.51% for Class C shares.     
 
  The management agreement further provides that all other expenses not specif-
ically assumed by the Manager under the management agreement on behalf of the
Portfolio are borne by the Fund. Expenses payable by the Fund 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 Fund) and shareholder
servicing agents, expenses of preparing, printing and distributing all prospec-
tuses, 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 Fund's shares and the Fund under federal
or state securities laws and maintaining such registrations and qualifications
(including the printing of the Fund's registration statements), fees of audi-
tors 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 1940 Act, interest, taxes and governmental fees, fees and com-
missions of every kind, expenses of issue, repurchase or redemption of shares,
insurance expense, association membership dues, all other costs incident to the
Fund's existence and extraordinary expenses such as litigation and indemnifica-
tion expenses. Direct expenses are charged to each of the Fund's Portfolios;
general corporate expenses are allocated on the basis of relative net assets.
 
                                                                              41
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
MANAGEMENT OF THE FUND (CONTINUED)
   
  The Manager was incorporated on March 12, 1968 under the laws of Delaware. As
of October 31, 1995 the Manager had aggregate assets under management of
approximately $69 billion. The Manager, Smith Barney and Holdings are each
located at 388 Greenwich Street, New York, New York 10013. The term "Smith Bar-
ney" in the title of the Fund has been adopted by permission of Smith Barney
and is subject to the right of Smith Barney to elect that the Fund stop using
the term in any form or combination of its name.     
 
 PORTFOLIO MANAGEMENT
   
  The Portfolio has been managed by Maurits E. Edersheim and a team of seasoned
international equity portfolio managers, who collectively have over 120 years
of experience and who have been responsible for the day to day operations of
the Portfolio, including making all investment decisions since the Portfolio's
inception (February 7, 1994). Mr. Edersheim is Chairman and Advisory Director
of the Fund and is Deputy Chairman of Smith Barney International Incorporated.
Mr. James Conheady and Mr. Jeffrey Russell, both Vice Presidents of the Portfo-
lio and Managing Directors of Smith Barney are members of the international
equity team. Together, Mr. Conheady and Mr. Russell currently manage in excess
of $1.5 billion of global equity assets for other investment companies and man-
aged accounts.     
   
  Management's discussion and analysis, and additional performance information
regarding the Portfolio during the fiscal year ended October 31, 1995 is
included in the Annual Report dated October 31, 1995. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.     
                                                                          
DISTRIBUTOR     
 
 
  Smith Barney distributes shares of the Portfolio as principal underwriter and
as such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Portfolio
under Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a serv-
ice fee with respect to Class A, Class B and Class C shares of the Portfolio at
the annual rate of 0.25% of the average daily net assets attributable to these
 
42
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
   
DISTRIBUTOR (CONTINUED)     
 
Classes. Smith Barney is also paid a distribution fee with respect to Class B
and Class C shares at the annual rate of 0.75% of the average daily net assets
attributable to these Classes. Class B shares that automatically convert to
Class A shares eight years after the date of original purchase will no longer
be subject to a distribution fee. The fees are used by Smith Barney to pay its
Financial Consultants for servicing shareholder accounts and, in the case of
Class B and Class C shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include: advertising expenses; the
cost of printing and mailing prospectuses to potential investors; payments to
and expenses of Smith Barney Financial Consultants and other persons who pro-
vide support services in connection with the distribution of shares; interest
and/or carrying charges; and indirect and overhead costs of Smith Barney asso-
ciated with the sale of Portfolio shares, including lease, utility, communica-
tions and sales promotion expenses.
 
  The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C Shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
   
  Payments under the Plan with respect to Class B and Class C shares are not
tied exclusively to the distribution and shareholder services expenses actu-
ally incurred by Smith Barney and the payments may exceed distribution
expenses actually incurred. The Fund's Board of Directors will evaluate the
appropriateness of the Plan and its payment terms on a continuing basis and in
so doing will consider all relevant factors, including expenses borne by Smith
Barney, amounts received under the Plan and proceeds of the CDSC.     
 
ADDITIONAL INFORMATION

  The Fund, an open-end investment company, was incorporated in Maryland on
March 22, 1991. The Fund 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 sepa-
rate Portfolios and may authorize the issuance of additional series of shares
in the future. The assets of each Portfolio are segregated and separately man-
 
                                                                             43
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
   
ADDITIONAL INFORMATION (CONTINUED)     
 
aged and a shareholder's interest is in the assets of the Portfolio in which he
or she holds shares. Class A, Class B, Class C and Class Y shares of the Port-
folio represent interests in the assets of the Portfolio 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. As described under "Voting" in the Statement of
Additional Information, the Fund ordinarily will not hold meetings of share-
holders annually; however, shareholders have the right to call a meeting upon a
vote of 10% of the Fund's outstanding shares for the purpose of voting to
remove directors, and the Fund will assist shareholders in calling such a meet-
ing 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.
 
  Morgan Guaranty Trust Company of New York, located at 60 Wall Street, New
York 10260, serves as custodian of the Portfolio's investments.
   
  First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Fund's transfer agent.     
 
  The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund at
the end of the period covered. In an effort to reduce the Fund's printing and
mailing costs, the Fund 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. In addition, the Fund also plans to consolidate the mail-
ing of its Prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not want this consolidation to
apply to their account should contact their Smith Barney Financial Consultant
or the Fund's transfer agent.
 
44
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
APPENDIX
 
 CERTAIN INVESTMENT STRATEGIES
 
  In attempting to achieve its investment objective, the Portfolio may employ,
among others, one or more of the strategies set forth below. More detailed
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
 
  Repurchase Agreements. The Portfolio may enter into repurchase agreement
transactions on U.S. Government securities with certain banks and
broker/dealers. Under the terms of a typical repurchase agreement, the Portfo-
lio would acquire an underlying debt obligation for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Portfolio's holding
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Portfolio's holding period. Repurchase
agreements are considered to be loans by the Portfolio. The value of the
underlying securities will be at least equal at all times to the total amount
of the repurchase obligation, including interest. The Portfolio bears a risk
of loss in the event that the other party to a repurchase agreement defaults
on its obligations and the Portfolio is delayed or prevented from exercising
its rights to dispose of the collateral securities, including the risk of a
possible decline in the value of the underlying securities during the period
while the Portfolio seeks to assert these rights to them, the risk of incur-
ring expenses associated with asserting those rights and the risk of losing
all or part of the income from the agreement. The Portfolio's investment
adviser, acting under the supervision of the Board of Directors, reviews on an
ongoing basis the creditworthiness and the value of the collateral of those
banks and dealers with which the Portfolio enters into repurchase agreements
to evaluate potential risks.
 
  Short Sales. The Portfolio may sell securities "short against the box."
While a short sale is the sale of a security the Portfolio does not own, it is
"against the box" if at all times when the short position is open, the Portfo-
lio 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. Short sales "against the box" are used to defer
recognition of capital gains or losses.
 
                                                                            A-1
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
APPENDIX (CONTINUED)
 
 
  Illiquid Securities. The Portfolio 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"), as amended) with contractual or other restrictions on
resale and other instruments that are not readily marketable, including (a)
repurchase agreements with maturities greater than seven days, (b) time depos-
its maturing from two business days through seven calendar days, (c) to the
extent that a liquid secondary market does not exist for the instruments,
futures contracts and options on those contracts and (d) other securities that
are subject to restrictions on resale that the investment adviser has deter-
mined are not liquid under guidelines established by the Fund's Board of
Directors; provided however that the Portfolio will not invest more than 5% of
its assets in securities that are restricted from sale to the public until
they have been registered under the 1933 Act.
 
  Currency Exchange Transactions and Options on Foreign Currencies. In order
to protect against uncertainty in the level of future exchange rates, the
Portfolio may engage in currency exchange transactions and purchase exchange-
traded put and call options on foreign currencies. The Portfolio will 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 for-
ward contracts to purchase or sell currencies. The Portfolio's dealings in
forward currency exchange and options on foreign currencies are limited to
hedging involving either specific transactions or portfolio positions.
 
  A forward currency contract involves an obligation to purchase or sell a
specific currency for an agreed-upon price at an agreed-upon date which may be
any fixed number of days from the date of the contract agreed upon by the par-
ties. These contracts are entered into in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. Although these contracts are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
tend to limit any potential gain that might result should the value of the
currency increase.
 
  The Portfolio may purchase put options on a foreign currency in which secu-
rities held by the Portfolio are denominated to protect against a decline in
the value of the currency in relation to the currency in which the exercise
price is denominated. The Portfolio may purchase a call option on a foreign
currency to
 
A-2
<PAGE>
 
Smith Barney World Funds, Inc. -
European Portfolio
 
APPENDIX (CONTINUED)
 
hedge against an adverse exchange rate of the currency in which a security that
it anticipates purchasing is denominated in relation to the currency in which
the exercise price is denominated. An option on a foreign currency gives the
purchaser, in return for a premium, the right to sell, in the case of a put,
and buy, in the case of a call, the underlying currency at a specified price
during the term of the option. Although the purchase of an option on a foreign
currency may constitute an effective hedge by a Portfolio against fluctuations
in the exchange rates, in the event of rate movements adverse to the Portfo-
lio's position, the Portfolio may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies purchased by the Port-
folio may be traded on domestic and foreign exchanges or traded over-the-count-
er.
 
  Although the foreign currency market may not necessarily be more volatile
than the market in other commodities, the foreign currency market offers less
protection against defaults in the forward trading of currencies than is avail-
able when trading in currencies occurs on an exchange. Because a forward clear-
ing contract is not guaranteed by an exchange or clearinghouse, a default on
the contract would deprive the Portfolio of unrealized profits or force the
Portfolio to cover its commitments for the purchase or resale, if any, at the
current market price.
 
                                                                             A-3
<PAGE>
 

                                              SMITH BARNEY
                                              ------------
                                              A MEMBER OF TRAVELERS GROUP [LOGO]
 
 
 
 
 
 
 
 
 
 
                                                                    SMITH BARNEY
                                                               WORLD FUNDS, INC.
                                                              EUROPEAN PORTFOLIO
 
 
                                   388 Greenwich Street New York, New York 10013
                                                                  
                                                               FD 0478 2/96     


<PAGE>
 
P R O S P E C T U S
 
 
                                                                    SMITH BARNEY
                                                               WORLD FUNDS, INC.

                                                                         Pacific
                                                                       Portfolio
                                                             
                                                          FEBRUARY 28, 1996     
 
                                                   PROSPECTUS BEGINS ON PAGE ONE

[LOGO] Smith Barney Mutual Funds
       Investing for your future.
       Everyday.
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PROSPECTUS                                       
                                              FEBRUARY 28, 1996     
 
  388 Greenwich Street
  New York, New York 10013
  (212) 723-9218
 
  The Pacific Portfolio (the "Portfolio") is one of the investment portfolios
that currently comprise Smith Barney World Funds, Inc. (the "Fund"). The Port-
folio's primary investment objective is long-term capital appreciation. In
seeking to achieve its objective, the Portfolio will invest primarily in a
diversified portfolio of equity securities of companies in Australia, Hong
Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Papua New Guin-
ea, the People's Republic of China, the Philippines, Singapore, South Korea,
Sri Lanka, Taiwan and Thailand.
 
  This Prospectus sets forth concisely certain information about the Fund and
the Portfolio, including sales charges, distribution and service fees and
expenses, that prospective investors will find helpful in making an investment
decision. Investors are encouraged to read this Prospectus carefully and retain
it for future reference.
   
  Additional information about the Portfolio is contained in a Statement of
Additional Information dated February 28, 1996, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by con-
tacting a Smith Barney Financial Consultant. The Statement of Additional Infor-
mation has been filed with the Securities and Exchange Commission (the "SEC")
and is incorporated by reference into this Prospectus in its entirety.     
 
SMITH BARNEY INC.
Distributor
 
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
 
                                                                               1
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
TABLE OF CONTENTS
 
<TABLE>   
<S>                                           <C>
PROSPECTUS SUMMARY                              3
-------------------------------------------------
FINANCIAL HIGHLIGHTS                           11
-------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES   12
-------------------------------------------------
VALUATION OF SHARES                            20
-------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES             22
-------------------------------------------------
PURCHASE OF SHARES                             24
-------------------------------------------------
EXCHANGE PRIVILEGE                             35
-------------------------------------------------
REDEMPTION OF SHARES                           39
-------------------------------------------------
MINIMUM ACCOUNT SIZE                           42
-------------------------------------------------
PERFORMANCE                                    42
-------------------------------------------------
MANAGEMENT OF THE FUND                         43
-------------------------------------------------
DISTRIBUTOR                                    46
-------------------------------------------------
ADDITIONAL INFORMATION                         47
-------------------------------------------------
</TABLE>    
 
  No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund
or the Distributor. This Prospectus does not constitute an offer by the Fund or
the Distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
--------------------------------------------------------------------------------
 
2
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PROSPECTUS SUMMARY
 
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
 
INVESTMENT OBJECTIVE The Portfolio is an open-end, management investment com-
pany whose primary investment objective is to seek long-term capital apprecia-
tion. In seeking to achieve its objective, the Portfolio will invest primarily
in a diversified portfolio of equity securities of companies in Australia, Hong
Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Papua New Guin-
ea, the People's Republic of China, the Philippines, Singapore, South Korea,
Sri Lanka, Taiwan and Thailand ("Asia Pacific Countries"). See "Investment
Objective and Management Policies."
 
ALTERNATIVE PURCHASE ARRANGEMENTS The Portfolio offers several classes of
shares ("Classes") to investors designed to provide them with the flexibility
of selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."
 
  Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25%
of the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which
when combined with current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be made at net asset
value with no initial sales charge, but will be subject to a contingent
deferred sales charge ("CDSC") of 1.00% on redemptions made within 12 months of
purchase. See "Prospectus Summary--Reduced or No Initial Sales Charge."
 
  Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after the date of purchase to zero. This CDSC may be waived for certain redemp-
tions. Class B shares are subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the average daily net assets of the Class.
 
                                                                               3
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
The Class B shares' distribution fee may cause that Class to have higher
expenses and pay lower dividends than Class A shares.
 
  Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and dis-
tributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
   
  Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class C
shares, and investors pay a CDSC of 1.00% if they redeem Class C shares within
12 months of purchase. The CDSC may be waived for certain redemptions. The
Class C shares' distribution fee may cause that Class to have higher expenses
and pay lower dividends than Class A shares. Purchases of Portfolio shares,
which when combined with current holdings of Class C shares of the Portfolio
equal or exceed $500,000 in the aggregate, should be made in Class A shares at
net asset value with no sales charge, and will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.     
 
  Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
 
  In deciding which Class of Portfolio shares to purchase, investors should
consider the following factors, as well as any other relevant facts and circum-
stances:
 
  Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject
to lower ongoing expenses over the term of the investment. As an alternative,
Class B and Class C shares are sold without any initial sales charge so the
 
4
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
entire purchase price is immediately invested in the Portfolio. Any investment
return on these additional invested amounts may partially or wholly offset the
higher annual expenses of these Classes. Because the Portfolio's future return
cannot be predicted, however, there can be no assurance that this would be the
case.
 
  Finally, investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature, and therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
 
  Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or distribu-
tion fees. The maximum purchase amount for Class A shares is $4,999,999, Class
B shares is $249,999 and Class C shares is $499,999. There is no maximum pur-
chase amount for Class Y shares.
 
  Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Portfolio. In addition, Class A share
purchases, which when combined with current holdings of Class A shares offered
with a sales charge equal or exceed $500,000 in the aggregate, will be made at
net asset value with no initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000 aggregate
investment may be met by adding the purchase to the net asset value of all
Class A shares offered with a sales charge held in funds sponsored by Smith
Barney Inc. ("Smith Barney") listed under "Exchange Privilege." Class A share
purchases also may be eligible for a reduced initial sales charge. See "Pur-
chase of Shares." Because the ongoing expenses of Class A shares may be lower
than those for Class B and Class C shares, purchasers eligible to purchase
Class A shares at net asset value or at a reduced sales charge should consider
doing so.
 
  Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.
 
 
                                                                               5
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
  See "Purchase of Shares" and "Management of the Fund" for a complete descrip-
tion of the sales charges and service and distribution fees for each Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and "Ex-
change Privilege" for other differences between the Classes of shares.
 
SMITH BARNEY 401(K) PROGRAM Investors may be eligible to participate in the
Smith Barney 401(k) Program, which is generally designed to assist plan spon-
sors in the creation and operation of retirement plans under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), as well as other
types of participant directed, tax-qualified employee benefit plans
(collectively,"Participating Plans"). Class A, Class B, Class C and Class Y
shares are available as investment alternatives for Participating Plans. See
"Purchase of Shares--Smith Barney 401(k) Program."
   
PURCHASE OF SHARES Shares may be purchased through a brokerage account main-
tained with Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
other institutional investors, may purchase shares directly from the Fund
through the Fund's transfer agent, First Data Investor Services Group Inc.
("First Data"). See "Purchase of Shares."     
   
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each account,
or $250 for an individual retirement account ("IRA") or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. Subsequent investments of at least $50 may be made
for all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes of shares is $25. The minimum initial invest-
ment requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes through the Systematic Investment Plan
described below is $50. See "Purchase of Shares."     
 
SYSTEMATIC INVESTMENT PLAN The Portfolio offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
 
6
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and "Re-
demption of Shares."
   
MANAGEMENT OF THE PORTFOLIO Smith Barney Mutual Funds Management Inc. (the
"Manager") serves as the Portfolio's investment manager. The Manager is a
wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Holdings is
a wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a diversified
financial services holding company engaged, through its subsidiaries, princi-
pally in four business segments: Investment Services, Consumer Finance Servic-
es, Life Insurance Services and Property & Casualty Insurance Services. See
"Management of the Fund."     
 
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined, plus any applicable sales charge differen-
tial. See "Exchange Privilege."
   
VALUATION OF SHARES Net asset value of the Portfolio for the prior day may be
quoted daily in the financial section of many newspapers and is also available
from a Smith Barney Financial Consultant. See "Valuation of Shares."     
 
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are declared and paid annually.
See "Dividends, Distributions and Taxes."
 
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution rein-
vestments will become eligible for conversion to Class A shares on a pro rata
basis. See "Dividends, Distributions and Taxes."
 
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Portfolio's investment objective will be achieved. The value of the Portfolio's
investments, and thus the net asset value of the Portfolio's shares, will fluc-
tuate in response to changes in market and economic conditions, as well as the
financial condition and prospects of issuers in which the Portfolio invests.
The Portfolio will invest in foreign securities. Investments in foreign securi-
ties incur higher costs than investments in U.S. securities, including higher
costs in mak-
 
                                                                               7
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
ing securities transactions as well as foreign government taxes which may
reduce the investment return of the Portfolio. In addition, foreign investments
may include additional risks associated with currency exchange rates, less com-
plete financial information about individual companies, less market liquidity
and political instability. See "Investment Objective and Management Policies."
 
THE PORTFOLIO'S EXPENSES The following expense table lists the costs and
expenses an investor will incur either directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption:
 
<TABLE>   
<CAPTION>
                                                CLASS A CLASS B CLASS C CLASS Y
-------------------------------------------------------------------------------
<S>                                             <C>     <C>     <C>     <C>
SHAREHOLDER TRANSACTION EXPENSES
 Maximum sales charge imposed on purchases
 (as a percentage of offering price)             5.00%   None    None    None
 Maximum CDSC (as a percentage of original cost
 or redemption proceeds, whichever is lower)     None*   5.00%   1.00%   None
-------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES**
 (as a percentage of average net assets)
 Management fees (after fee waiver)              0.00%   0.00%   0.00%   0.00%
 12b-1 fees***                                   0.25    1.00    1.00     --
 Other expenses (after reimbursement)            1.72    2.39    1.69    1.72
-------------------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES               1.97%   3.39%   2.69%   1.72%
-------------------------------------------------------------------------------
</TABLE>    
   *Purchases of Class A shares, which when combined with current holdings of
   Class A shares offered with a sales charge equal or exceed $500,000 in the
   aggregate, will be made at net asset value with no sales charge, but will be
   subject to a CDSC of 1.00% on redemptions made within 12 months.
   
  **Currently, the Manager is waiving all of its management fee. Absent the fee
   waiver, the management fee would be incurred at the rate of 0.85% of each
   Class' average daily net assets. Absent fee waiver and expense
   reimbursement, total expenses would be 3.18%, 4.90%, 3.88% and 2.93% for
   Class A, Class B, Class C and Class Y, respectively. "Other Expenses" for
   Class Y shares are based on estimated amounts since no Class Y shares 
   were outstanding for period ended October
   31, 1995. In addition, during the period ended October 31, 1995, the
   Portfolio earned credits from the custodian which reduce service fees
   incurred. If the credits are taken into consideration, the ratios of
   expenses to average net assets for Class A, B, C and Y would be 1.70%,
   3.06%, 2.42% and 1.45%, respectively.     
 
 ***Upon conversion of Class B shares to Class A shares, such shares will no
   longer be subject to a distribution fee. Class C shares do not have a con-
   version feature and, therefore, are subject to an ongoing distribution fee.
   As a result, long-term shareholders of Class C shares may pay more than the
   economic equivalent of the maximum front-end sales charge permitted by the
   National Association of Securities Dealers, Inc.
       
  The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Portfolio shares and investors
 
8
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
may actually pay lower or no charges, depending on the amount purchased and, in
the case of Class B, Class C and certain Class A shares, the length of time the
shares are held and whether the shares are held through the Smith Barney 401(k)
Program. See "Purchase of Shares" and "Redemption of Shares." Smith Barney
receives an annual 12b-1 service fee of 0.25% of the value of average daily net
assets of Class A shares. Smith Barney also receives with respect to Class B
and Class C shares an annual 12b-1 fee of 1.00% of the value of average daily
net assets of the respective Classes, consisting of a 0.75% distribution fee
and a 0.25% service fee. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees, printing costs
and registration fees.
 
 EXAMPLE
 
  The following example is intended to assist an investor in understanding the
various costs that an investor in the Portfolio will bear directly or indirect-
ly. The example assumes payment by the Portfolio of operating expenses at the
levels set forth in the table above. See "Purchase of Shares," "Redemption of
Shares" and "Management of the Fund."
 
<TABLE>   
<CAPTION>
                                              1 YEAR 3 YEARS 5 YEARS 10 YEARS*
------------------------------------------------------------------------------
<S>                                           <C>    <C>     <C>     <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
 Class A                                       $69    $109    $151     $268
 Class B                                        84     134     186      335
 Class C                                        37      84     142      302
 Class Y                                        17      54      93      203
------------------------------------------------------------------------------
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
 Class A                                       $69    $109    $151     $268
 Class B                                        34     104     176      335
 Class C                                        27      84     142      302
 Class Y                                        17      54      93      203
------------------------------------------------------------------------------
</TABLE>    
* Ten-year figures assume conversion of Class B shares to Class A shares at the
  end of the eighth year following the date of purchase.
 
                                                                               9
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
  The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Portfolio's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
 
10
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
FINANCIAL HIGHLIGHTS
   
  The following information for the two-year period ended October 31, 1995 has
been audited in conjunction with the annual audits of the financial statements 
of Smith Barney World Funds, Inc. by KPMG Peat Marwick LLP, independent 
auditors.The 1995 financial statements and the independent auditors' report 
thereon appear in the October 31, 1995 Annual Report to Shareholders. 
No information is presented for Class Y shares since there were no Class Y 
shares outstanding during the periods presented.     
   
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
    
<TABLE>   
<CAPTION>
                               CLASS A(A)         CLASS B       CLASS C(B)
                             ----------------    ---------    ----------------
                              1995    1994(1)     1995(2)      1995    1994(3)
--------------------------------------------------------------------------------
<S>                          <C>      <C>        <C>          <C>      <C>
NET ASSET VALUE, BEGINNING
OF PERIOD                    $12.92   $12.50      $12.64      $12.86   $12.50
--------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
 Net Investment loss(4)       (0.01)   (0.07)      (0.01)      (0.02)   (0.11)
 Net realized and unrealized
  gain (loss)                 (2.84)    0.49       (2.64)      (2.89)    0.47
--------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM
  OPERATIONS                  (2.85)    0.42       (2.65)      (2.91)    0.36
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
 Net Investment Income           --       --          --          --       --
--------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS              --       --          --          --       --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF
  PERIOD                     $10.07   $12.92       $9.99       $9.95   $12.86
--------------------------------------------------------------------------------
TOTAL RETURN(P)              (22.06)%   3.36%++   (20.97)%++  (22.63)%   2.88%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
  (000S)                     $4,409   $7,538      $1,031      $1,952   $3,167
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
  ASSETS:
 Expenses(4)                   1.97%    1.51%+      3.39%+      2.69%    2.29%+
 Net Investment loss          (0.71)   (0.82)+     (1.47)+     (1.45)   (1.49)+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE       31.25%    6.14%      31.25%      31.25%    6.14%
--------------------------------------------------------------------------------
AVERAGE COMMISSIONS PAID ON
  EQUITY SECURITY
  TRANSACTIONS(5)             $0.01       --       $0.01       $0.01       --
--------------------------------------------------------------------------------
</TABLE>    
   
(a) On October 10, 1994, the former Class C shares were exchanged into Class A
    shares; therefore Class C share activity for the period from February 11,
    1994 to October 9, 1994 is included with the Class A share activity.     
   
(b) On November 7, 1994 the former Class B shares were renamed Class C shares.
           
(1)For the period from February 7, 1994 (inception date) to October 31, 1994.
       
(2)For the period from November 7, 1994 (inception date) to October 31, 1995.
    
                                                                              11
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
FINANCIAL HIGHLIGHTS (CONTINUED)
   
(3)For the period from February 11, 1994 (inception date) to October 31, 1994.
       
(4) The Manager has agreed to waive all or part of its management fees for the
    Pacific Portfolio for the year ended October 31, 1995 and the period ended
    October 31, 1994. In addition, the Manager has agreed to reimburse the
    Portfolio for $30,862 of the Portfolio's expenses for the period ended
    October 31, 1995. If the Manager had not agreed to the fee waivers and
    expense reimbursement, the per share increases in net investment loss and
    the ratios of expenses to average net assets would have been:     
<TABLE>    
<CAPTION>
                                     Expense Ratios
             Per Share Increases   Without Fee Waivers
           in Net Investment Loss   and Reimbursement
           ----------------------- --------------------
              1995        1994       1995       1994
           ----------- ----------- ---------  ---------
  <S>      <C>         <C>         <C>        <C>
  Class A        $0.14       $0.03      3.18%      1.87%+
  Class B         0.16          --      4.90+        --
  Class C         0.13        0.03      3.88       2.70+
</TABLE>    
    
 In addition, during the period ended October 31, 1995, the Portfolio earned
 credits from the custodian which reduce service fees incurred. If the
 credits are taken into consideration, the ratios of expenses to average net
 assets for Class A, B and C would be 1.70%, 3.06%+ and 2.42%, respectively.
        
(5) Due to new SEC disclosure guidelines, average commissions per share are
    calculated only for the current year and not for the prior periods.     
   
 ++ Total return is not annualized, as it may not be representative of the
    total return for the year.     
   
 +  Annualized.     
   
 (P)Total return does not reflect any applicable sales loads or contingent 
deferred sales charges.     
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
   
  The Portfolio is designed for investors seeking experienced professional man-
agement of a diversified portfolio of equity securities in the Asia Pacific
Countries. The Portfolio's investment objective is long-term capital apprecia-
tion through investment primarily in equity securities of companies in Austra-
lia, 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 add or delete countries
from this list without prior notice to shareholders. There can be no assurance
that the Portfolio will achieve its investment objective.     
 
  The Portfolio's investment objective 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"). The Portfolio's investment policies are
nonfundamental and, as such, may be changed by the Board of Directors, provided
such change is not prohibited by the investment restrictions (which are set
forth in the Statement of Additional Information) or applicable law, and any
such change will first be disclosed in the then current prospectus.
 
12
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
 
  The Portfolio's investments will primarily consist of (i) securities traded
principally on stock exchanges in the Asia Pacific Countries, (ii) securities
of companies that derive 50% or more of their total revenue from either goods
produced, sales made, or services performed in the Asia Pacific Countries and
(iii) securities (including American Depository Receipts) of companies orga-
nized under the laws of an Asia Pacific Country that are publicly traded on
recognized securities exchanges outside of the Asia Pacific Countries.
 
  The Portfolio will normally invest at least 80% of its total assets in equity
securities of companies in the Asia Pacific Countries, consisting of the secu-
rities listed above. For the purposes of the foregoing limitation equity secu-
rities include common stocks, preferred stocks, securities convertible into
common or preferred stocks and warrants. The Portfolio may also invest up to
20% of its total assets in debt securities and other types of investments if
the investment adviser believes they would help achieve the Portfolio's invest-
ment objective. The Portfolio has no predetermined policy on the allocation of
funds for investment among such countries or securities.
 
  Under unusual economic or market conditions as determined by the investment
adviser, the Portfolio may temporarily invest for defensive purposes all or a
major portion of its assets in U.S. government securities or debt or equity
securities of companies incorporated in and having their principal business
activities in the U.S. To the extent the Portfolio's assets are invested for
temporary defensive purposes, such assets will not be invested in a manner
designed to achieve the Portfolio's investment objective.
 
  In determining the appropriate distribution of investments among various
countries and geographic regions, the investment adviser ordinarily considers
the following factors: prospects for relative economic growth between coun-
tries; expected levels of inflation; government policies influencing business
conditions; the outlook for currency relationships; and the range of individual
investment opportunities available to international investors. In the future,
if any other relevant factors arise they will also be considered. In analyzing
companies for investment, the investment adviser ordinarily looks for one or
more of the following characteristics: an above-average earnings growth per
share; high return on invested capital; healthy balance sheet; sound financial
and accounting policies and overall financial strength; strong competitive
advantages; effective research and product development and marketing; efficient
service; pricing flexibility; strength of management; and general operating
characteristics which will enable
 
                                                                              13
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
the company to compete successfully in its market place. Ordinarily, the
investment adviser will not view a company as being sufficiently well estab-
lished to be considered for inclusion in the Portfolio unless the company,
together with any predecessors, has been operating for at least three fiscal
years.
 
  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
Portfolio 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 Portfolio may invest will generally be
rated at the time of purchase at least Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation ("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 capac-
ity of their issuers to pay interest and repay principal than is the case with
higher rated securities.
 
  To the extent that the Portfolio'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 equiva-
lents.
 
  INVESTMENT PRACTICES
 
  The Portfolio may utilize from time to time one or more of the investment
practices described below to assist it in reaching its investment objective.
These practices involve potential risks which are summarized below.
 
  CURRENCY, INTEREST RATE AND OTHER HEDGING TRANSACTIONS. In order to protect
the dollar equivalent value of its portfolio securities against declines
resulting from currency value fluctuations and changes in interest rate or
other market changes, the Portfolio may enter into the following hedging trans-
actions: forward foreign currency contracts, interest rate and currency swaps
and financial instrument and market index futures contracts and related options
contracts.
 
  Currency Transactions -- The Portfolio will enter into various currency
transactions, i.e. forward foreign currency contracts, currency swaps, foreign -
 
14
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
currency or currency index futures contracts and put and call options on such
contracts or on currencies. A forward foreign currency contract involves an
obligation to purchase or sell a specific currency for a set price at a future
date. A currency swap is an arrangement whereby each party exchanges one cur-
rency 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. Futures contracts are similar to
forward contracts except that they are traded on an organized exchange and the
obligations thereunder may be offset by taking an equal but opposite position
to the original contract, with profit or loss determined by the relative prices
between the opening and offsetting positions. The Portfolio may enter into
these currency contracts and swaps in primarily the following circumstances: to
"lock in" the U.S. dollar equivalent price of a security the Portfolio is con-
templating to buy or sell that is denominated in a non-U.S. currency; or to
protect against a decline against the U.S. dollar of the currency of a particu-
lar country to which the Portfolio has exposure. The Portfolio may seek to
achieve the same economic result by utilizing from time to time for such hedg-
ing a currency different from the one of the given portfolio security as long
as, in the view of the investment adviser, such currency is essentially corre-
lated to the currency of the relevant portfolio security based on historic and
expected exchange rate patterns.
 
  Interest Rate Transactions -- The Portfolio will enter into various interest
rate transactions, i.e., futures contracts in various financial instruments and
interest rate related indices, put and call options on such futures contracts
and on such financial instruments and interest rate swaps. The Portfolio will
enter into these transactions primarily to "lock in" a return or spread on a
particular investment or portion of its portfolio and to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. Interest rate swaps involve the exchange by the Portfolio with
another party of their respective commitment to pay or receive interest, e.g.,
an exchange of floating-rate payments for fixed-rate payments. The Portfolio
will not enter into an interest rate swap transaction in which its interest
commitment is greater or measured differently from the interest receivable on
specific portfolio securities. Interest rate swaps may be combined with cur-
rency swaps to take advantage of rate differentials in different markets on the
same or similar securities.
 
                                                                              15
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
 
  The Portfolio may enter into futures contracts and options on futures con-
tracts for non-hedging purposes, subject to applicable law.
 
  Market Index Transactions -- The Portfolio may also enter into various market
index contracts, i.e., index futures contracts on particular non-U.S. securi-
ties markets or industry segments and related put and call options. These con-
tracts are used primarily to protect the value of the Portfolio's securities
against a decline in a particular market or industry in which it is invested.
 
  General -- The Portfolio will engage in the foregoing transactions primarily
as a means to hedge risks associated with management of its portfolio. Invest-
ment in these contracts requires the Portfolio to deposit with the applicable
exchange or other specified financial intermediary as a good faith deposit for
its obligations an amount of cash or specified debt securities which initially
is 1-5% of the face amount of the contract and which thereafter fluctuates on a
periodic basis as the value of the contract fluctuates.
 
  Risks -- All of the foregoing transactions present certain risks. In particu-
lar, the variable degree of correlation between price movements of futures con-
tracts and dollar equivalent price movements in the currency or security being
hedged creates the possibility that losses on the hedge may be greater than
gains in the value of the Portfolio's securities. In addition, these instru-
ments may not be liquid in all circumstances and are generally closed out by
entering into offsetting transactions rather than by disposing of the Portfo-
lio's obligations. As a result, in volatile markets, the Portfolio may not be
able to close out a transaction without incurring losses. Although the contem-
plated use of these contracts should tend to minimize the risk of loss due to a
decline in the value of the hedged currency or security, at the same time they
tend to limit any potential gain which might result from an increase in the
value of such currency or security. The successful use of futures and options
is dependent upon the ability of the investment adviser to predict changes.
Finally, the daily deposit requirements in futures contracts create an ongoing
greater potential financial risk than do option purchase transactions, where
the exposure is limited to the cost of the premium for the option. Transactions
in futures and options on futures for non-hedging purposes involve greater
risks and could result in losses which are not offset by gains on other portfo-
lio assets.
 
  With respect to interest rate swaps, the Portfolio recognizes that such
arrangements are relatively illiquid and will include the principal amount of
the obliga-
 
16
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
tions owed to it under a swap as an illiquid security for purposes of the Port-
folio's investment restrictions except to the extent a third party (such as a
large commercial bank) has guaranteed the Portfolio's ability to offset the
swap at any time.
 
  OPTIONS. The Portfolio may purchase put and call options on securities which
are traded on an exchange in other markets, on currencies and, as developed
from time to time, various futures contracts on market indexes and other
instruments. Purchasing options may increase investment flexibility and improve
total return, but also risks loss of the option premium if an asset the Portfo-
lio has the option to buy declines in value or if an asset the Portfolio has
the option to sell increases in value. In order to assure that the Portfolio
will not be deemed to be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the Commodity Futures Trading Commission ("CFTC")
require that the Portfolio 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 Portfolio's assets.
 
  LEVERAGE. The Portfolio may borrow from banks, on a secured or unsecured
basis, up to 25% of the value of its assets. If the Portfolio borrows and uses
the proceeds to make additional investments, income and appreciation from such
investments will improve its performance if they exceed the associated borrow-
ing costs but impair its performance if they are less than such borrowing
costs. This speculative factor is known as "leverage".
 
  Leverage creates an opportunity for increased returns to shareholders of the
Portfolio but, at the same time, creates special risk considerations. For exam-
ple, leverage may exaggerate changes in the net asset value of the Portfolio's
shares and in the Portfolio's yield. Although the principal or stated value of
such borrowings will be fixed, the Portfolio assets may change in value during
the time the borrowing is outstanding. Leverage will create interest or divi-
dend expenses for the Portfolio which can exceed the income from the assets
retained. To the extent the income or other gain derived from securities pur-
chased with borrowed funds exceeds the interest or dividends the Portfolio will
have to pay in respect thereof, the Portfolio'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,
 
                                                                              17
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
the net income or other gain of the Portfolio 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 liqui-
dated to obtain required funds. Depending on market or other conditions, such
liquidations could be disadvantageous to the Portfolio.
 
  REPURCHASE AGREEMENTS AND LENDING SECURITIES. The Portfolio may enter into
repurchase agreements with up to 25% of its assets and may lend for a fee port-
folio securities amounting up to 15% of its assets. These transactions must be
fully collateralized at all times, and the investment adviser will monitor the
value of the collateral, which will be marked to the market daily, to determine
that the value is at least 100% of the agreed upon sum to be paid to the Port-
folio. Repurchase agreements and lending of portfolio securities involve some
credit risk to the Portfolio, if the other party defaults on its obligations,
since the Portfolio could be delayed or prevented from recovering the collater-
al. The Portfolio currently does not expect that it will enter into repurchase
agreements on more than 5% of its assets.
 
  REVERSE REPURCHASE AGREEMENTS. The Portfolio may invest up to 5% of its
assets in reverse repurchase agreements. Reverse repurchase agreements are con-
sidered to be borrowings by the Portfolio and involve the sale of portfolio
securities with an agreement to repurchase the securities at an agreed-upon
price, date and interest payment.
 
  ILLIQUID SECURITIES. The Portfolio may invest up to 15% of its assets in
securities (excluding those subject to Rule 144A under the Securities Act of
1933, as amended (the "1933 Act")), with contractual or other restrictions on
resale and other instruments that are not readily marketable, including (a)
repurchase agreements with maturities greater than seven days, (b) time depos-
its maturing from two business days through seven calendar days, (c) to the
extent that a liquid secondary market does not exist for the instruments,
futures contracts and options on those contracts and (d) other securities that
are subject to restrictions on resale that the investment adviser has deter-
mined are not liquid under guidelines established by the Fund's Board of Direc-
tors; provided, however, that the Portfolio will not invest more than 5% of its
assets in securities that are restricted from resale to the public until they
have been registered under the 1933 Act.
 
18
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
 
  PORTFOLIO TRANSACTIONS AND TURNOVER
 
  All orders for transactions in securities and options on behalf of the Port-
folio are placed by the investment manager with broker/dealers that the invest-
ment manager selects, including Smith Barney and other affiliated brokers. Bro-
kerage will be allocated to Smith Barney, to the extent and in the manner per-
mitted by applicable law, provided that, in the judgement of the Board of
Directors of the Fund, the commission, fee or other remuneration received or to
be received by Smith Barney (or any broker-dealer affiliate of Smith Barney
that is also a member of a securities exchange) is reasonable and fair compared
to the commission, fee or other remuneration received by other brokers in con-
nection with comparable transactions involving similar securities being pur-
chased or sold on a securities exchange during the same or comparable period of
time. In all trades directed to Smith Barney, the Fund has been assured that
its orders will be accorded priority over those received from Smith Barney for
its own accounts or for any of its directors, officers or employees. The Fund
will not deal with Smith Barney in any transaction in which Smith Barney acts
as principal.
 
  Although it is anticipated that most investments of the Portfolio will be
long-term in nature, the rate of portfolio turnover will depend upon market and
other conditions, and it will not be a limiting factor when the investment
adviser believes that portfolio changes are appropriate. It is expected that
the Portfolio's annual turnover rate will not exceed 75% in normal circumstanc-
es. Investors should realize that risk of loss is inherent in the ownership of
any securities and that shares of the Portfolio will fluctuate with the market
value of its securities.
 
  RISK FACTORS
 
  NON-U.S. SECURITIES. Investments in securities of non-U.S. 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 the
Portfolio 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 Portfolio 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 addi-
tion, with respect to
 
                                                                              19
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
certain countries, there is the possibility of expropriation of assets, confis-
catory 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. Non-U.S. securities markets, while grow-
ing 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 non-U.S. 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. The Portfolio might have greater
difficulty taking appropriate legal action in non-U.S. courts. Dividend and
interest income from non-U.S. securities will generally be subject to withhold-
ing taxes by the country in which the issuer is located and may not be recover-
able by the Portfolio or the investors.
 
  SECURITIES OF DEVELOPING COUNTRIES. A developing country generally is consid-
ered to be a country that is in the initial stages of its industrialization
cycle. Investing in the equity markets of developing countries involves expo-
sure 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 devel-
oping 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.
 
VALUATION OF SHARES
 
 
  The Portfolio's net asset value per share 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 Portfolio's net assets attributable to each Class by the total
number of shares of the Class outstanding.
 
  Securities owned by the Portfolio for which market quotations are readily
available are valued at current market value or, in their absence, at fair val-
ue. Securities traded on an exchange are valued at last sales prices on the
principal
 
20
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
VALUATION OF SHARES (CONTINUED)
 
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 valua-
tion 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 Portfolio's net assets, and current market value of such options sold by
the Portfolio will be subtracted from the Portfolio's net assets. Any other
investments of the Portfolio, including restricted securities and listed secu-
rities for which there is a thin market or that trade infrequently (i.e., secu-
rities 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 Portfolio 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 investment adviser.
 
  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 Portfolio may not take place contemporaneously with the determina-
tion of the prices of investments held by such Portfolio. 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
Portfolio's net asset value unless the investment adviser, under the supervi-
sion of the Fund's Board of Directors, determines that the particular event
would materially affect net asset value. As a result, the Portfolio's net asset
value may be significantly affected by such trading on days when a shareholder
has no access to the Portfolio.
 
                                                                              21
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
   
DIVIDENDS, DISTRIBUTIONS AND TAXES     
 
 
 DIVIDENDS AND DISTRIBUTIONS
 
  The Fund declares and pays income dividends at least annually on shares of
the Portfolio and makes annual distributions of capital gains, if any, on such
shares.
 
 
  If a shareholder does not otherwise instruct, dividends and capital gain dis-
tributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC.
   
  Income dividends and capital gain distributions that are invested are cred-
ited 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 Smith Barney Financial Consultant.
Accounts held directly by First Data should notify First Data 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 C shares of the Portfolio 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 C
shares. The per share dividends on Class A shares of the Portfolio 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 C and Class Y
shares.
 
 TAXES
 
  The Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Code to be relieved of Federal income tax on that part of
its net investment income and realized capital gains which it pays out to its
shareholders. To qualify, the Portfolio must meet certain tests, including dis-
tributing at least 90% of its investment company taxable income, and deriving
less than 30% of its gross income from the sale or other disposition of certain
investments held for less than three months.
 
  Dividends from net investment income and distributions of realized short-term
capital gains on the sale of securities, whether paid in cash or automatically
invested in additional shares of the Portfolio, are taxable to shareholders as
ordinary income. The Portfolio's dividends will not qualify for the dividends
 
22
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
 
received deduction for corporations. Dividends and distributions declared by
the Portfolio may also be subject to state and local taxes. Distributions out
of net long-term capital gains (i.e., net long-term capital gains in excess of
net short-term capital losses) 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.
 
  Income received by the Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax conven-
tions 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 Portfolio's assets to be invested in various countries
is not known. Such foreign taxes would reduce the income of the Portfolio dis-
tributed to shareholders.
 
  If, at the end of the Portfolio's taxable year, more than 50% of the value of
the Portfolio's total assets consist of stock or securities of foreign corpora-
tions, the Portfolio may make an election pursuant to which foreign income
taxes paid by it will be treated as paid directly by its shareholders. The
Portfolio 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 the Portfolio makes such an election, the amount
of such 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 or, provided the shareholder itemizes deductions, a
deduction for U.S. federal income tax purposes for such foreign taxes. Share-
holders 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 Portfolio from
its foreign source income will be treated as foreign source income. The Portfo-
lio'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. sourc-
es. The limitation on the foreign tax credit is applied separately to foreign
source "passive income," such as the portion of dividends received from the
Portfolio that qualifies as foreign source income. In addition, the foreign tax
credit is allowed to offset only 90% of the alternative minimum
 
                                                                              23
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
 
tax imposed on corporations and individuals. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their pro-
portionate share of the foreign income taxes paid by the Portfolio.
 
  In determining gain or loss, a shareholder who redeems or exchanges shares in
the Portfolio 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 for investing
in the Portfolio or a different Portfolio of the Fund, such as pursuant to the
rights discussed in "Exchange Privilege."
 
  The Fund is required to withhold and remit to the U.S. Treasury 31% of divi-
dends, distributions and redemption proceeds to shareholders who fail to pro-
vide 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.
 
  Prior to investing in shares of the Portfolio, investors should consult with
their tax advisors concerning the federal, state and local tax consequences of
such an investment.
 
PURCHASE OF SHARES
 
 
 GENERAL
   
  The Portfolio offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without an initial sales charge or CDSC
and are available only to investors investing a minimum of $5,000,000 (except
for purchases of Class Y shares by Smith Barney Concert Series Inc., for which
there is no minimum purchase amount). See "Prospectus Summary--Alternative Pur-
chase Arrangements" for a discussion of factors to consider in selecting which
Class of shares to purchase.     
 
  Purchases of Portfolio shares must be made through a brokerage account main-
tained with Smith Barney, an Introducing Broker or an investment dealer
 
24
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PURCHASE OF SHARES (CONTINUED)                                  
   
in the selling group. In addition, certain investors, including qualified
retirement plans and certain other institutional investors, may purchase shares
directly from the Fund through First Data. When purchasing shares of the Port-
folio, investors must specify whether the purchase is for Class A, Class B,
Class C or Class Y shares. No maintenance fee will be charged by the Fund in
connection with a brokerage account through which an investor purchases or
holds shares.     
   
  Investors in Class A, Class B and Class C shares may open an account by mak-
ing an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan in the Portfolio. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000. Sub-
sequent investments of at least $50 may be made for all Classes. For partici-
pants in retirement plans qualified under Section 403(b)(7) or Section 401(a)
of the Code, the minimum initial and subsequent investment requirement for
Class A, Class B and Class C shares and the subsequent investment requirement
for all Classes in the Portfolio is $25. For the Portfolio's Systematic Invest-
ment Plan, the minimum initial investment requirement for Class A, Class B and
Class C shares and the subsequent investment requirement for all Classes is
$50. There are no minimum investment requirements in Class A shares for employ-
ees of Travelers and its subsidiaries, including Smith Barney, Directors or
Trustees of any of the Smith Barney Mutual Funds, and their spouses and chil-
dren. 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 Fund's
transfer agent, First Data. Share certificates are issued only upon a share-
holder's written request to First Data.     
   
  Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Portfolio calculates its net asset
value, are priced according to the net asset value determined on that day (the
"trade date"). Orders received by dealers or Introducing Brokers prior to the
close of regular trading on the NYSE on any day the Portfolio 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 Smith Barney prior to Smith
Barney's close of business. For shares purchased through Smith Barney and
Introducing Brokers purchasing through Smith Barney, payment for Portfolio
shares is due on the third business day after the trade date. In all other
cases, payment must be made with the purchase order.     
 
                                                                              25
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PURCHASE OF SHARES (CONTINUED)                                  
 
 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, Smith Barney or First Data is authorized through
preauthorized transfers of $50 or more to charge the regular bank account or
other financial institution indicated by the shareholder on a monthly or quar-
terly basis to provide systematic additions to the shareholder's Portfolio
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or First Data. The Systematic
Investment Plan also authorizes Smith Barney to apply cash held in the share-
holder's 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 Smith Barney Financial Consultant.
    
 INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
 
  The sales charges applicable to purchases of Class A shares of the Portfolio
are as follows:
 
<TABLE>
<CAPTION>
                                  SALES CHARGE
                         ------------------------------      DEALERS'
                              % OF           % OF       REALLOWANCE AS % OF
  AMOUNT OF INVESTMENT   OFFERING PRICE AMOUNT INVESTED   OFFERING PRICE
---------------------------------------------------------------------------
  <S>                    <C>            <C>             <C>
  Less than $25,000           5.00%          5.26%             4.50%
  $ 25,000 - 49,999           4.00           4.17              3.60
    50,000 - 99,999           3.50           3.63              3.15
   100,000 - 249,999          3.00           3.09              2.70
   250,000 - 499,999          2.00           2.04              1.80
   500,000 and over            *               *                 *
---------------------------------------------------------------------------
</TABLE>
 
* Purchases of Class A shares, which when combined with current holdings of
  Class A shares offered with a sales charge equal or exceed $500,000 in the
  aggregate, will be made at net asset value without any initial sales charge,
  but will be subject to a CDSC of 1.00% on redemptions made within 12 months
  of purchase. The CDSC on Class A shares is payable to Smith Barney, which
  compensates Smith Barney Financial Consultants and other dealers whose cli-
  ents make purchases of $500,000 or more. The CDSC is waived in the same cir-
  cumstances in which the CDSC applicable to Class B and Class C shares is
  waived. See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
 
  Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of 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 Portfolio made at one time by "any person," which
 
26
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PURCHASE OF SHARES (CONTINUED)                                  
 
includes an individual, his or her spouse and children, or a trustee or other
fiduciary of a single trust estate or single fiduciary account. The reduced
sales charge minimums may also be met by aggregating the purchase with the net
asset value of all Class A shares offered with a sales charge held in funds
sponsored by Smith Barney listed under "Exchange Privilege."
 
 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 of Class A shares to Directors
and employees of Travelers and its subsidiaries, Directors, Trustees or
employees of any of the Smith Barney Mutual Funds and the members of the 
immediate families of such persons 
(including the surviving spouse of a deceased Director, Trustee or employee,
and retired Directors, Trustees or employees), or pension, profit-sharing or
other benefit plan for such persons 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 or to
members of the National Association of Securities Dealers, Inc.; (b) offers
of Class A shares to any other investment company in connection with the combi-
nation of such company with the Portfolio by merger, acquisition of assets or
otherwise; (c) purchases of Class A shares by any client of a newly employed
Smith Barney Financial Consultant (for a period up to 90 days from the com-
mencement of the Financial Consultant's employment with 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 Con-
sultant and (iii) was subject to a sales charge; (d) shareholders who have
redeemed Class A shares in the Portfolio (or Class A shares of another fund of
the Smith Barney Mutual Funds that are sold with a maximum 5.00% sales charge)
and who wish to reinvest their redemption proceeds in the Portfolio, provided
the reinvestment is made within 60 calendar days of the redemption; and (e)
accounts managed by registered investment advisory subsidiaries of Travelers.
In order to obtain such discounts, the purchaser must provide sufficient infor-
mation 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 Portfolio may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by
 
                                                                              27
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PURCHASE OF SHARES (CONTINUED)                                  
   
aggregating the dollar amount of the new purchase and the total net asset value
of all Class A shares of the Portfolio and of funds sponsored by Smith Barney,
which are offered with a sales charge, listed under "Exchange Privilege" then
held by such person and applying the sales charge applicable to such aggregate.
In order to obtain such discount, the purchaser must provide sufficient infor-
mation at the time of purchase to permit verification that the purchase quali-
fies for the reduced sales charge. The right of accumulation is subject to mod-
ification or discontinuance at any time with respect to all shares purchased
thereafter.     
 
 GROUP PURCHASES
 
  Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan meet-
ing certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A
shares at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of Class A shares offered
with a sales charge that have been previously purchased and are still owned by
the group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring Portfolio shares at a discount and (c) satisfies uniform
criteria which enable Smith Barney to realize economies of scale in its costs
of distributing shares. A qualified group must have more than 10 members, must
be available to arrange for group meetings between representatives of the
Portfo-
 
28
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PURCHASE OF SHARES (CONTINUED)                                  
 
lio and the members, and must agree to include sales and other materials
related to the Portfolio in its publications and mailings to members at no cost
to Smith Barney. In order to obtain such reduced sales charge or to purchase at
net asset value, the purchaser must provide sufficient information at the time
of purchase to permit verification that the purchase qualifies for the reduced
sales charge. Approval of group purchase reduced sales charge plans is subject
to the discretion of Smith Barney.
 
  LETTER OF INTENT
   
  Class A Shares. A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes pur-
chases of all Class A shares of the Portfolio and other funds of the Smith Bar-
ney Mutual Funds offered with a sales charge over the 13 month period based on
the total amount of intended purchases plus the value of all Class A shares
previously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales
charge applicable to the total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay the difference between
the sales charges applicable to the purchases made and the charges previously
paid, or an appropriate number of escrowed shares will be redeemed. Please con-
tact a Smith Barney Financial Consultant or First Data to obtain a Letter of
Intent application.     
   
  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. Such investors must
make an initial minimum purchase of $1,000,000 in Class Y shares of the Portfo-
lio and agree to purchase a total of $5,000,000 of Class Y shares of the same
Portfolio within six months from the date of the Letter. If a total investment
of $5,000,000 is not made within the six-month period, all Class Y shares pur-
chased to date will be transferred to Class A shares, where they will be sub-
ject to all fees (including a service fee of 0.25%) and expenses applicable to
the Portfolio's Class A shares, which may include a CDSC of 1.00%. Please con-
tact a Smith Barney Financial Consultant or First Data for further information.
    
                                                                              29
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PURCHASE OF SHARES (CONTINUED)                                  
 
 
 DEFERRED SALES CHARGE ALTERNATIVES
 
  CDSC Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Portfolio. A CDSC, however, may be imposed on cer-
tain redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares which when combined with Class A shares
offered with a sales charge currently held by an investor equal or exceed
$500,000 in the aggregate.
   
  Any applicable CDSC will be assessed on an amount equal to the lesser of the
original cost of the shares being redeemed or their net asset value at the time
of redemption. CDSC Shares that are redeemed will not be subject to a CDSC to
the extent that the value of such shares represents: (a) capital appreciation
of Portfolio assets; (b) reinvestment of dividends or capital gain distribu-
tions; (c) with respect to Class B shares, shares redeemed more than five years
after their purchase; or (d) with respect to Class C shares and Class A shares
that are CDSC Shares, shares redeemed more than 12 months after their purchase.
    
  Class C shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which the
CDSC is imposed on Class B shares, the amount of the charge will depend on the
number of years since the shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
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
purchases by Participating Plans, as described below. See "Purchase of Shares--
Smith Barney 401(k) Program."
 
<TABLE>
<CAPTION>
      YEAR SINCE PURCHASE
      PAYMENT WAS MADE      CDSC
    -----------------------------
      <S>                   <C>
      First                 5.00%
      Second                4.00
      Third                 3.00
      Fourth                2.00
      Fifth                 1.00
      Sixth                 0.00
      Seventh               0.00
      Eighth                0.00
    -----------------------------
</TABLE>
 
30
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PURCHASE OF SHARES (CONTINUED)                                  
 
 
  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 pro-
portion of Class B Dividend Shares owned by the shareholder as the total number
of his or her Class B shares converting at the time bears to the total number
of outstanding Class B shares (other than Class B Dividend Shares) owned by the
shareholder. Shareholders who held Class B shares of Smith Barney Shearson
Short-Term World Income Fund (the "Short-Term World Income Fund") on July 15,
1994 and who subsequently exchange those shares for Class B shares of the Port-
folio will be offered the opportunity to exchange all such Class B shares for
Class A shares of the Portfolio four years after the date on which those shares
were deemed to have been purchased. Holders of such Class B shares will be
notified of the pending exchange in writing approximately 30 days before the
fourth anniversary of the purchase date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the fourth anniversary
date. See "Prospectus Summary--Alternative Purchase Arrangements--Class B
Shares Conversion Feature."
 
  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 distribu-
tions and finally of other shares held by the shareholder for the longest
period of time. The length of time that CDSC Shares acquired through an
exchange have been held will be calculated from the date that the shares
exchanged were initially acquired in one of the other Smith Barney Mutual
Funds, and Portfolio shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain distribution
reinvestments in such other funds. For Federal income tax purposes, the amount
of the CDSC will reduce the gain or increase the loss, as the case may be, on
the amount realized on redemption. The amount of any CDSC will be paid to Smith
Barney.
 
  To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
 
                                                                              31
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PURCHASE OF SHARES (CONTINUED)                                  
 
 
 WAIVERS OF CDSC
 
  The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the value of
the shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within twelve
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of shares in connection with a combination of the Portfolio with
any investment company by merger, acquisition of assets or otherwise. In addi-
tion, a shareholder who has redeemed shares from other funds of the Smith Bar-
ney Mutual Funds may, under certain circumstances, reinvest all or part of the
redemption proceeds within 60 days and receive pro rata credit for any CDSC
imposed on the prior redemption.
   
  CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by First Data in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.     
 
 SMITH BARNEY 401(K) PROGRAM
 
  Investors may be eligible to participate in the Smith Barney 401(k) Program,
which is generally designed to assist plan sponsors in the creation and opera-
tion of retirement plans under Section 401(a) of the Code. To the extent appli-
cable, the same terms and conditions are offered to all Participating Plans in
the Smith Barney 401(k) Program.
 
  The Portfolio offers to Participating Plans Class A, Class B, Class C and
Class Y shares as investment alternatives under the Smith Barney 401(k) Pro-
gram. Class A, Class B and Class C shares acquired through the Smith Barney
401(k) Program are subject to the same service and/or distribution fees as, but
different sales charge and CDSC schedules than, the Class A, Class B and Class
C shares acquired by other investors. Similar to those shares available to
other investors, Class Y shares acquired through the Smith Barney 401(k) Pro-
gram are not subject to any service or distribution fees or any initial sales
charge or CDSC. Once a Participating Plan has made an initial investment in the
Portfolio, all of its subsequent investments in the Portfolio must be in the
same Class of shares, except as otherwise described below.
 
32
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PURCHASE OF SHARES (CONTINUED)                                  
 
 
  Class A Shares. Class A shares of the Portfolio are offered without any ini-
tial sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds, if the
Participating Plan terminates within four years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.
 
  Class B Shares. Class B shares of the Portfolio are offered to any Partici-
pating Plan that purchases less than $250,000 of one or more funds of the Smith
Barney Mutual Funds. Class B shares acquired through the Smith Barney 401(k)
Program are subject to a CDSC of 3.00% of redemption proceeds, if the Partici-
pating Plan terminates within eight years of the date the Participating Plan
first enrolled in the Smith Barney 401(k) Program.
 
  Eight years after the date the Participating Plan enrolled in the Smith Bar-
ney 401(k) Program, it will be offered the opportunity to exchange all of its
Class B shares for Class A shares of the Portfolio. 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 the exchange has occurred, a Participating Plan will not be eligible to
acquire additional Class B shares of the Portfolio but instead may acquire
Class A shares of the Portfolio. If the Participating Plan elects not to
exchange all of its Class B shares at that time, each Class B share held by the
Participating Plan will have the same conversion feature as Class B shares held
by other investors. See "Purchase of Shares--Deferred Sales Charge Alterna-
tives."
 
  Class C Shares. Class C shares of the Portfolio are offered to any Partici-
pating Plan that purchases from $250,000 to $499,999 of one or more funds of
the Smith Barney Mutual Funds. Class C shares acquired through the Smith Barney
401(k) Program after November 7, 1994 are subject to a CDSC of 1.00% of redemp-
tion proceeds, if the Participating Plan terminates within four years of the
date the Participating Plan first enrolled in the Smith Barney 401(k) Program.
Each year after the date a Participating Plan enrolled in the Smith Barney
401(k) Program, if its total Class C holdings 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 C shares for Class A shares of the Portfolio. 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
 
                                                                              33
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PURCHASE OF SHARES (CONTINUED)                                  
 
in writing, the exchange will occur on or about the last business day of the
following March. Once the exchange has occurred, a Participating Plan will not
be eligible to acquire Class C shares of the Portfolio but instead may acquire
Class A shares of the Portfolio. Any Class C shares not converted will continue
to be subject to the distribution fee.
 
  Class Y Shares. Class Y shares of the Portfolio are offered without any serv-
ice or distribution fees, sales charge or CDSC to any Participating Plan that
purchases $5,000,000 or more of Class Y shares of one or more funds of the
Smith Barney Mutual Funds.
   
  Whether or not the CDSC applies to a Participating Plan depends on the number
of years since the Participating Plan first became enrolled in the Smith Barney
401(k) Program, unlike the applicability of the CDSC to other shareholders,
which depends on the number of years since those shareholders made the purchase
payment for the shares which are being redeemed. Where applicable, the CDSC
will be assessed on shares held through the Smith Barney 401(k) Program 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; provided, however, that shares
will not be subject to a CDSC to the extent that the value of such shares rep-
resents capital appreciation of Fund assets and/or reinvestments of dividends
or capital gain distributions. In addition, the CDSC will be waived on 
redemptions of Class A, Class B and Class C shares
in connection with lump-sum or other distributions made by a Participating Plan
as a result of: (a) the retirement of an employee in the Participating Plan;
(b) the termination of employment of an employee in the Participating Plan; (c)
the death or disability of an employee in the Participating Plan; (d) the
attainment of age 59 1/2 by an employee in the Participating Plan; (e) hardship
of an employee in the Participating Plan to the extent permitted under Section
401(k) of the Code; or (f) redemptions of shares in connection with a loan made
by the Participating Plan to an employee.
     
 
 
34
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PURCHASE OF SHARES (CONTINUED)                                  
   
  Participating Plans wishing to acquire shares of the Portfolio through the
Smith Barney 401(k) Program must purchase such shares directly from First Data.
For further information regarding the Smith Barney 401(k) Program, investors
should contact a Smith Barney Financial Consultant.     
 
EXCHANGE PRIVILEGE
 
 
  Except as otherwise noted below, shares of each Class may be exchanged for
shares of the same Class in the following funds of the 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 C shares are subject to min-
imum investment requirements and all shares are subject to the other require-
ments of the fund into which exchanges are made and a sales charge differential
may apply.
 
  FUND NAME
 
  Growth Funds
 
  Smith Barney Aggressive Growth Fund Inc.
  Smith Barney Appreciation Fund Inc.
  Smith Barney Fundamental Value Fund Inc.
     
  Smith Barney Growth Opportunity Fund     
     
  Smith Barney Managed Growth Fund     
     
  Smith Barney Natural Resources Fund Inc.     
  Smith Barney Special Equities Fund
  Smith Barney Telecommunications Growth Fund
 
  Growth and Income Funds
 
  Smith Barney Convertible Fund
     
  Smith Barney Funds, Inc.--Equity Income Portfolio     
       
  Smith Barney Growth and Income Fund
  Smith Barney Premium Total Return Fund
  Smith Barney Strategic Investors Fund
  Smith Barney Utilities Fund
 
                                                                              35
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
EXCHANGE PRIVILEGE (CONTINUED)                                  
 
 
  Taxable Fixed-Income Funds
 
  ** Smith Barney Adjustable Rate Government Income Fund
  Smith Barney Diversified Strategic Income Fund
  * Smith Barney Funds, Inc.--Income Return Account Portfolio
       
  +++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Portfolio
  Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
  Smith Barney Government Securities Fund
  Smith Barney High Income Fund
  Smith Barney Investment Grade Bond Fund
  Smith Barney Managed Governments Fund Inc.
 
  Tax-Exempt Funds
 
  Smith Barney Arizona Municipals Fund Inc.
  Smith Barney California Municipals Fund Inc.
       
  * Smith Barney Intermediate Maturity California Municipals Fund
  * Smith Barney Intermediate Maturity New York Municipals Fund
       
  Smith Barney Managed Municipals Fund Inc.
  Smith Barney Massachusetts Municipals Fund
       
  * Smith Barney Muni Funds--Florida Limited Term Portfolio
  Smith Barney Muni Funds--Florida Portfolio
  Smith Barney Muni Funds--Georgia Portfolio
  * Smith Barney Muni Funds--Limited Term Portfolio
  Smith Barney Muni Funds--National Portfolio
       
  Smith Barney Muni Funds--New York Portfolio
  Smith Barney Muni Funds--Ohio Portfolio
  Smith Barney Muni Funds--Pennsylvania Portfolio
  Smith Barney New Jersey Municipals Fund Inc.
       
  Smith Barney Oregon Municipals Fund
  Smith Barney Tax-Exempt Income Fund
 
  International Funds
     
  Smith Barney World Funds, Inc.--Emerging Markets Portfolio     
  Smith Barney World Funds, Inc.--European Portfolio
  Smith Barney World Funds, Inc.--Global Government Bond Portfolio
  Smith Barney World Funds, Inc.--International Balanced Portfolio
  Smith Barney World Funds, Inc.--International Equity Portfolio
       
36
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
EXCHANGE PRIVILEGE (CONTINUED)                                  
     
  Smith Barney Concert Series Inc.     
     
  Smith Barney Concert Series Inc.--High Growth Portfolio     
     
  Smith Barney Concert Series Inc.--Growth Portfolio     
     
  Smith Barney Concert Series Inc.--Balanced Portfolio     
     
  Smith Barney Concert Series Inc.--Conservative Portfolio     
     
  Smith Barney Concert Series Inc.--Income Portfolio     
 
  Money Market Funds
 
  +   Smith Barney Exchange Reserve Fund
  ++  Smith Barney Money Funds, Inc.--Cash Portfolio
  ++  Smith Barney Money Funds, Inc.--Government Portfolio
  *** Smith Barney Money Funds, Inc.--Retirement Portfolio
  +++ Smith Barney Municipal Money Market Fund, Inc.
  +++ Smith Barney Muni Funds--California Money Market Portfolio
  +++ Smith Barney Muni Funds--New York Money Market Portfolio
--------------------------------------------------------------------------------
 
  * Available for exchange with Class A, Class C and Class Y shares of the
    Portfolio.
 
 ** Available for exchange with Class A, Class B and Class Y shares of the
    Portfolio. In addition, shareholders who own Class C shares of the Portfo-
    lio through the Smith Barney 401(k) Program may exchange those shares for
    Class C shares of this fund.
 
*** Available for exchange with Class A shares of the Portfolio.
 
  + Available for exchange with Class B and Class C shares of the Portfolio.
 
 ++ Available for exchange with Class A and Class Y shares of the Portfolio. In
    addition, shareholders who own Class C shares of the Portfolio through the
    Smith Barney 401(k) Program may exchange those shares for Class C shares of
    this fund.
 
+++ Available for exchange with Class A and Class Y shares of the Portfolio.
 
  Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold without a
sales charge or with a maximum sales charge of less than the maximum charged by
other Smith Barney Mutual Funds will be subject to the appropriate "sales
charge differential" upon the exchange of such shares for Class A shares of a
fund sold with a higher sales charge. The "sales charge differential" is lim-
ited to a percentage rate no greater than the excess of the sales charge rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For pur-
poses of the exchange privilege, shares obtained through automatic reinvestment
of
 
                                                                              37
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
EXCHANGE PRIVILEGE (CONTINUED)                                  
 
dividends and capital gain distributions are treated as having paid the same
sales charges applicable to the shares on which the dividends or distributions
were paid; however, except in the case of the Smith Barney 401(k) Program, if
no sales charge was imposed upon the initial purchase of the shares, any shares
obtained through automatic reinvestment will be subject to a sales charge dif-
ferential upon exchange. Class A shares held in the Portfolio prior to November
7, 1994 that are subsequently exchanged for shares of other funds of the Smith
Barney Mutual Funds will not be subject to a sales charge differential.
 
  Class B Exchanges. In the event a Class B shareholder (unless such share-
holder was a Class B shareholder of the Short-Term World Income Fund on July
15, 1994) wishes to exchange all or a portion of his or her shares in any of
the funds imposing a higher CDSC than that imposed by the Portfolio, the
exchanged Class B shares will be subject to the higher applicable CDSC. Upon an
exchange, the new Class B shares will be deemed to have been purchased on the
same date as the Class B shares of the Portfolio that have been exchanged.
 
  Class C Exchanges. Upon an exchange, the new Class C shares will be deemed to
have been purchased on the same date as the Class C shares of the Portfolio
that have been exchanged.
 
  Class Y Exchanges. Class Y shareholders of the Portfolio who wish to exchange
all or a portion of their Class Y shares for Class Y shares 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 Portfolio's performance and its shareholders. The invest-
ment manager may determine that a pattern of frequent exchanges is excessive
and contrary to the best interests of the Portfolio's other shareholders. In
this event, the Fund may, at its discretion, decide to limit additional pur-
chases 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 Portfo-
lio or (b) remain invested in the Portfolio 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.     
 
38
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
EXCHANGE PRIVILEGE (CONTINUED)                                  
   
  Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemptions and Exchange Program." Exchanges will
be processed at the net asset value next determined, plus any applicable sales
charge differential. Redemption procedures discussed below are also applicable
for exchanging shares, and exchanges will be made upon receipt of all support-
ing 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. A capital gain or loss for tax
purposes will be realized upon the exchange, depending upon the cost or other
basis of shares redeemed. Before exchanging shares, investors should read the
current prospectus describing the shares to be acquired. The Portfolio 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 Portfolio tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
   
  If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until the Fund's transfer agent
receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third 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 Smith Barney brokerage account, these funds will not
be invested for the shareholder's benefit without specific instruction and
Smith Barney will benefit from the use of temporarily uninvested funds. Redemp-
tion proceeds for shares purchased by check, other than a certified or official
bank check, will be remitted upon clearance of the check, which may take up to
ten days or more.     
 
                                                                              39
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
REDEMPTION OF SHARES (CONTINUED)                                
 
 
  Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
 
  Smith Barney World Funds, Inc./Pacific Portfolio Class A, B, C or Y
  (please specify)
     
  c/o First Data Investor Services Group, Inc.     
  P.O. Box 9134
  Boston, Massachusetts 02205-9134
   
  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 regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a written redemption request in excess of
$2,000, share certificate or stock power must be guaranteed by an eligible
guarantor institution, such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal Reserve System or member firm
of a national securities exchange. Written redemption requests of $2,000 or
less do not require a signature guarantee unless more than one such redemption
request is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. First Data may require additional supporting doc-
uments for redemptions made by corporations, executors, administrators, trust-
ees or guardians. A redemption request will not be deemed properly received
until First Data receives all required documents in proper form.     
 
 AUTOMATIC CASH WITHDRAWAL PLAN
 
  The Portfolio 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 share-
holder is eligible to receive qualified distributions and has an account value
of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Portfolio. Any applicable CDSC will not be
waived on
 
40
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
REDEMPTION OF SHARES (CONTINUED)                                
 
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not
exceed 2.00% per month of the value of the shareholder's shares subject to the
CDSC.) For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
    
 TELEPHONE REDEMPTION AND EXCHANGE PROGRAM     
   
  Shareholders who do not have a Smith Barney brokerage account may be eligible
to redeem and exchange Fund shares by telephone. To determine if a shareholder
is entitled to participate in this program, he or she should contact First Data
at 1-800-451-2010. Once eligibility is confirmed, the shareholder must complete
and return a Telephone/Wire Authorization Form, along with a signature guaran-
tee, that will be provided by First Data 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 the Fund.)     
   
  Redemptions. Redemption requests of up to $10,000 of any class or classes of
the Fund's shares, may be made by eligible shareholders by calling First Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day the NYSE is open. Redemptions of shares (i) by
retirement plans or (ii) for which certificates have been issued are not per-
mitted under this program.     
   
  A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent relationship with
a member bank. The 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 com-
plete 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.     
 
 
                                                                              41
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
REDEMPTION OF SHARES (CONTINUED)                                
   
  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 First Data at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (New York City time) on any day on which the NYSE is open.     
   
  Additional Information regarding Telephone Redemption and Exchange Program.
Neither the Fund nor its agents will be liable for following instructions com-
municated 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.     
 
MINIMUM ACCOUNT SIZE
 
 
  The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Portfolio if the aggregate net asset value of the shares held in
the Portfolio account is less than $500. (If a shareholder has more than one
account in this Portfolio, each account must satisfy the minimum account size.)
The Fund, however, will not redeem shares based solely on market reductions in
net asset value. Before the Fund exercises such right, shareholders will
receive written notice and will be permitted 60 days to bring accounts up to
the minimum to avoid automatic liquidation.
 
PERFORMANCE
 
 
  From time to time the Portfolio may include its total return, average annual
total return and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A, Class
B, Class C and Class Y shares of the Portfolio. These figures are based on his-
torical earnings and are not intended to indicate future performance. Total
return is computed for a specified period of time assuming deduction of the
maximum sales charge, if any, from the initial amount invested and reinvestment
of all
 
42
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
PERFORMANCE (CONTINUED)
   
income dividends and capital gain distributions on the reinvestment dates at
prices calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount
invested and subtracting 100%. The standard average annual total return, as
prescribed by the SEC, is derived from this total return, which provides the
ending redeemable value. Such 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. The Portfolio calculates current dividend return
for each Class by dividing the current dividend by the net asset value or the
maximum public offering price (including sales charge) on the last day of the
period for which current dividend return is presented. The current dividend
return for each Class may vary from time to time depending on market condi-
tions, the composition of its investment portfolio and operating expenses.
These factors and possible differences in the methods used in calculating cur-
rent dividend return should be considered when comparing a Class' current
return to yields published for other investment companies and other investment
vehicles. The Portfolio may also include comparative performance information in
advertising or marketing its shares. Such performance information may include
data from Lipper Analytical Services, Inc. and other financial publications.
    
MANAGEMENT OF THE FUND
 
 
  BOARD OF DIRECTORS
 
  Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant agreements
between the Fund and the companies that furnish services to the Fund and the
Portfolio, including agreements with the Fund's distributor, investment manag-
er, custodian and transfer agent. The day-to-day operations of the Portfolio
are delegated to the Portfolio's investment manager. The Statement of Addi-
tional Information contains background information regarding each Director and
executive officer of the Fund.
 
  MANAGER
 
  Smith Barney Mutual Funds Management Inc. (the "Manager") manages the day-to-
day operations of the Portfolio pursuant to a management agreement
 
                                                                              43
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
MANAGEMENT OF THE FUND (CONTINUED)
   
entered into by the Fund on behalf of the Portfolio under which the Manager is
responsible for furnishing or causing to be furnished to the Portfolio advice
and assistance with respect to the acquisition, holding or disposal of securi-
ties and recommendations with respect to other aspects and affairs of the Port-
folio and furnishes the Portfolio with bookkeeping, accounting and administra-
tive services, office space and equipment, and the services of the officers and
employees of the Fund. By written agreement the Research and other departments
and staff of Smith Barney furnish the Manager with information, advice and
assistance and are available for consultation on the Portfolio, thus Smith Bar-
ney may also be considered an investment adviser to the Fund. Smith Barney's
services are paid for by the Manager on the basis of direct and indirect costs
to Smith Barney of performing such services; there is no charge to the Fund for
such services. For the services provided by the Manager, the management agree-
ment provides that the Portfolio will pay the Manager an annual fee calculated
at the rate of 0.85% of the Portfolio's average daily net assets, paid monthly.
Although this fee is higher than that paid by most investment companies, the
Portfolio's management has determined that it is comparable to the fee charged
by other investment advisers of investment companies that have similar invest-
ment objectives and policies. For the Portfolio's last fiscal year, the Manager
waived all of its management fee. Total operating expenses incurred by the
Portfolio for this period were 1.97% for Class A shares 3.39% for Class B
shares and 2.69% for Class C shares.     
 
  The management agreement further provides that all other expenses not specif-
ically assumed by the Manager under the management agreement on behalf of the
Portfolio are borne by the Fund. Expenses payable by the Fund 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 Fund) and shareholder
servicing agents, expenses of preparing, printing and distributing all prospec-
tuses, 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 Fund's shares and the Fund under federal
or state securities laws and maintaining such registrations and qualifications
(including the printing of the Fund's registration statements), fees of audi-
tors 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 1940 Act, interest, taxes and governmental fees, fees and com-
missions of every kind, expenses of issue, repurchase or redemption of shares,
insurance
 
44
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
MANAGEMENT OF THE FUND (CONTINUED)
 
expense, association membership dues, all other costs incident to the Fund's
existence and extraordinary expenses such as litigation and indemnification
expenses. Direct expenses are charged to each of the Fund's Portfolios; general
corporate expenses are allocated on the basis of relative net assets.
   
  The Manager was incorporated on March 12, 1968 under the laws of Delaware. As
of October 31, 1995 the Manager had aggregate assets under management of
approximately $69 billion. The Manager, Smith Barney and Holdings are each
located at 388 Greenwich Street, New York, New York 10013. The term "Smith Bar-
ney" in the title of the Fund has been adopted by permission of Smith Barney
and is subject to the right of Smith Barney to elect that the Fund stop using
the term in any form or combination of its name.     
 
  PORTFOLIO MANAGEMENT
   
  The Portfolio has been managed by Maurits E. Edersheim and a team of seasoned
international equity portfolio managers, who collectively have over 120 years
of experience and who have been responsible for the day to day operations of
the Portfolio, including making all investment decisions since its inception
(February 7, 1994). Mr. Edersheim is Chairman and Advisory Director of the Fund
and is Deputy Chairman of Smith Barney International Incorporated. Mr. James
Conheady and Mr. Jeffrey Russell, both Vice Presidents of the Portfolio and
Managing Directors of Smith Barney are members of the international equity
team. Together, Mr. Conheady and Mr. Russell currently manage in excess of $1.5
billion of global equity assets for other investment companies and managed
accounts.     
   
  Management's discussion and analysis, and additional performance information
regarding the Portfolio during the fiscal year ended October 31, 1995 is
included in the Annual Report dated October 31, 1995. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.     
 
                                                                              45
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
DISTRIBUTOR                                                     
 
 
  Smith Barney distributes shares of the Portfolio as principal underwriter and
as such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Portfolio
under Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a serv-
ice fee with respect to Class A, Class B and Class C shares of the Portfolio at
the annual rate of 0.25% of the average daily net assets attributable to these
Classes. Smith Barney is also paid a distribution fee with respect to Class B
and Class C shares at the annual rate of 0.75% of the average daily net assets
attributable to these Classes. Class B shares that automatically convert to
Class A shares eight years after the date of original purchase will no longer
be subject to a distribution fee. The fees are used by Smith Barney to pay its
Financial Consultants for servicing shareholder accounts and, in the case of
Class B and Class C shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include: advertising expenses; the
cost of printing and mailing prospectuses to potential investors; payments to
and expenses of Smith Barney Financial Consultants and other persons who pro-
vide support services in connection with the distribution of shares; interest
and/or carrying charges; and indirect and overhead costs of Smith Barney asso-
ciated with the sale of Portfolio shares, including lease, utility, communica-
tions and sales promotion expenses.
 
  The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
   
  Payments under the Plan with respect to Class B and Class C shares are not
tied exclusively to the distribution and shareholder services expenses actually
incurred by Smith Barney and the payments may exceed distribution expenses
actually incurred. The Fund's Board of Directors will evaluate the appropriate-
ness of the Plan and its payment terms on a continuing basis and in so doing
will consider all relevant factors, including expenses borne by Smith Barney,
amounts received under the Plan and proceeds of the CDSC.     
 
46
<PAGE>
 
Smith Barney World Funds, Inc. -
Pacific Portfolio
 
ADDITIONAL INFORMATION                                          
 
 
  The Fund, an open-end investment company, was incorporated in Maryland on
March 22, 1991. The Fund 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 issu-
ance of six series of shares, each representing shares in one of six separate
Portfolios and may authorize the issuance of additional series of shares in the
future. The assets of each Portfolio are segregated and separately managed and
a shareholder's interest is in the assets of the Portfolio in which he or she
holds shares. Class A, Class B, Class C and Class Y shares of the Portfolio
represent interests in the assets of the Portfolio 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. As described under "Voting" in the Statement of Addi-
tional Information, the Fund ordinarily will not hold meetings of shareholders
annually; however, shareholders have the right to call a meeting upon a vote of
10% of the Fund's outstanding shares for the purpose of voting to remove direc-
tors, and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. Shares do not have cumulative voting rights or pre-
emptive rights and are fully paid, transferable and nonassessable when issued
for payment as described in this Prospectus.
 
  Morgan Guaranty Trust Company of New York, located at 60 Wall Street, New
York 10260, serves as custodian of the Portfolio's investments.
   
  First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Fund's transfer agent.     
 
  The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund at
the end of the period covered. In an effort to reduce the Fund's printing and
mailing costs, the Fund 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. In addition, the Fund also plans to consolidate the mail-
ing of its Prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not want this consolidation to
apply to their account should contact their Smith Barney Financial Consultant
or the Fund's transfer agent.
 
                                                                              47
<PAGE>
 
 
                                                                    Smith Barney
                                                                    ------------
                                               A Member of TravelersGroup [LOGO]
 
 
 
 
 
 
 
 
                                                                    SMITH BARNEY
                                                               WORLD FUNDS, INC.
                                                               PACIFIC PORTFOLIO
 
 
                                                            388 Greenwich Street
                                                        New York, New York 10013
                                                                  
                                                               FD 0479 2/96     

<PAGE>
 
 
 
                                                  SMITH BARNEY WORLD FUNDS, INC.
                                                      Emerging Markets Portfolio
                                                             
                                                          FEBRUARY 28, 1996     
 
                                                   PROSPECTUS BEGINS ON PAGE ONE




P R O S P E C T U S





[LOGO] Smith Barney Mutual Funds
       Investing For Your Furture.
       Every Day.


<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PROSPECTUS                                                  
                                                         FEBRUARY 28, 1996     
 
  388 Greenwich Street
  New York, New York 10013
  (212) 723-9218
 
  The Emerging Markets Portfolio (the "Portfolio") is one of the investment
portfolios that currently comprise Smith Barney World Funds, Inc. (the "Fund").
The Portfolio seeks long term capital appreciation on its assets through a
portfolio invested primarily in securities of emerging country issuers.
 
  An investment in the Portfolio involves certain risks, particularly in rela-
tion to the Portfolio's investing in emerging countries, such as restrictions
on foreign investment and repatriation of capital, share price volatility, lim-
ited trading liquidity and small market capitalization of the securities mar-
kets, currency devaluations and fluctuations in currency exchange rates, high
inflation, government regulation, government involvement in the economy and
political uncertainty, which are not typically associated with investments in
the United States. IN ADDITION, THE PORTFOLIO MAY INVEST UP TO 10% OF ITS
ASSETS IN HIGH YIELD, HIGH RISK CORPORATE DEBT SECURITIES AND SOVEREIGN DEBT
OBLIGATIONS WHICH ARE CONSIDERED SPECULATIVE AND SUBJECT TO CERTAIN RISKS. See
"Investment Objective and Management Policies." See the Appendix for a further
discussion of the risks associated with an investment in the Portfolio.
       
  This Prospectus sets forth concisely certain information about the Fund and
the Portfolio, including sales charges, distribution and service fees and
expenses, that prospective investors will find helpful in making an investment
decision. Investors are encouraged to read this Prospectus carefully and retain
it for future reference.
   
  Additional information about the Portfolio is contained in a Statement of
Additional Information dated February 28, 1996, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by con-
tacting a Smith Barney Financial Consultant. The Statement of Additional Infor-
mation has been filed with the Securities and Exchange Commission (the "SEC")
and is incorporated by reference into this Prospectus in its entirety.     
 
SMITH BARNEY INC.
Distributor
 
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
 
                                                                               1
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
TABLE OF CONTENTS
 
<TABLE>   
<S>                                           <C>
PROSPECTUS SUMMARY                              3
-------------------------------------------------
FINANCIAL HIGHLIGHTS                           10
-------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES   11
-------------------------------------------------
RISK FACTORS                                   13
-------------------------------------------------
VALUATION OF SHARES                            17
-------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES             19
-------------------------------------------------
PURCHASE OF SHARES                             21
-------------------------------------------------
EXCHANGE PRIVILEGE                             33
-------------------------------------------------
REDEMPTION OF SHARES                           36
-------------------------------------------------
MINIMUM ACCOUNT SIZE                           39
-------------------------------------------------
PERFORMANCE                                    40
-------------------------------------------------
MANAGEMENT OF THE FUND                         40
-------------------------------------------------
DISTRIBUTOR                                    43
-------------------------------------------------
ADDITIONAL INFORMATION                         44
-------------------------------------------------
APPENDIX                                      A-1
-------------------------------------------------
</TABLE>    
 
  No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund
or the Distributor. This Prospectus does not constitute an offer by the Fund or
the Distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
--------------------------------------------------------------------------------
 
2
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PROSPECTUS SUMMARY
 
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
 
INVESTMENT OBJECTIVE The Portfolio is an open-end, management investment com-
pany whose investment objective is to seek long-term capital appreciation on
its assets through a portfolio invested primarily in securities of emerging
country issuers. See "Investment Objective and Management Policies."
 
ALTERNATIVE PURCHASE ARRANGEMENTS The Portfolio offers several classes of
shares ("Classes") to investors designed to provide them with the flexibility
of selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of
expenses to which they are subject. A fourth Class of shares, Class Y shares,
is offered only to investors meeting an initial investment minimum of
$5,000,000. See "Purchase of Shares" and "Redemption of Shares."
 
  Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25%
of the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which
when combined with current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be made at net asset
value with no initial sales charge, but will be subject to a contingent
deferred sales charge ("CDSC") of 1.00% on redemptions made within 12 months
of purchase. See "Prospectus Summary -- Reduced or No Initial Sales Charge."
 
  Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after the date of purchase to zero. This CDSC may be waived for certain
redemptions. Class B shares are subject to an annual service fee of 0.25% and
an annual distribution fee of 0.75% of the average daily net assets of the
Class. The Class B shares' distribution fee may cause that Class to have
higher expenses and pay lower dividends than Class A shares.
 
  Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of
 
                                                                              3
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
the original purchase. Upon conversion, these shares will no longer be subject
to an annual distribution fee. In addition, a certain portion of Class B shares
that have been acquired through the reinvestment of dividends and distributions
("Class B Dividend Shares") will be converted at that time. See "Purchase of
Shares -- Deferred Sales Charge Alternatives."
   
  Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class C
shares, and investors pay a CDSC of 1.00% if they redeem Class C shares within
12 months of purchase. The CDSC may be waived for certain redemptions. The
Class C shares' distribution fee may cause that Class to have higher expenses
and pay lower dividends than Class A shares. Purchases of Portfolio shares,
which when combined with current holdings of Class C shares of the Portfolio
equal or exceed $500,000 in the aggregate, should be made in Class A shares at
net asset value with no sales charge, and will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.     
 
  Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
 
  In deciding which Class of Portfolio shares to purchase, investors should
consider the following factors, as well as any other relevant facts and circum-
stances:
 
  Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject
to lower ongoing expenses over the term of the investment. As an alternative,
Class B and Class C shares are sold without any initial sales charge so the
entire purchase price is immediately invested in the Portfolio. Any investment
return on these additional invested amounts may partially or wholly offset the
higher annual expenses of these Classes. Because the Portfolio's future return
cannot be predicted, however, there can be no assurance that this would be the
case.
 
4
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
  Finally, investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature, and therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
 
  Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or distribu-
tion fees. The maximum purchase amount for Class A shares is $4,999,999, Class
B shares is $249,999 and Class C shares is $499,999. There is no maximum pur-
chase amount for Class Y shares.
 
  Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Portfolio. In addition, Class A share
purchases, which when combined with current holdings of Class A shares offered
with a sales charge equal or exceed $500,000 in the aggregate, will be made at
net asset value with no initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000 aggregate
investment may be met by adding the purchase to the net asset value of all
Class A shares offered with a sales charge held in funds sponsored by Smith
Barney Inc. ("Smith Barney") listed under "Exchange Privilege." Class A share
purchases also may be eligible for a reduced initial sales charge. See "Pur-
chase of Shares." Because the ongoing expenses of Class A shares may be lower
than those for Class B and Class C shares, purchasers eligible to purchase
Class A shares at net asset value or at a reduced sales charge should consider
doing so.
 
  Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.
 
  See "Purchase of Shares" and "Management of the Fund" for a complete descrip-
tion of the sales charges and service and distribution fees for each Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and "Ex-
change Privilege" for other differences between the Classes of shares.
 
                                                                               5
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
SMITH BARNEY 401(K) PROGRAM Investors may be eligible, during the continuous
offering period, to participate in the Smith Barney 401(k) Program, which is
generally designed to assist plan sponsors in the creation and operation of
retirement plans under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as other types of participant directed, tax-
qualified employee benefit plans (collectively, "Participating Plans"). Class
A, Class B, Class C and Class Y shares are available as investment alterna-
tives for Participating Plans. See "Purchase of Shares -- Smith Barney 401(k)
Program."
   
PURCHASE OF SHARES Shares may be purchased through a brokerage account main-
tained with Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
other institutional investors, may purchase shares directly from the Fund
through the Fund's transfer agent, First Data Investor Services Group, Inc.
("First Data"). See "Purchase of Shares."     
          
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a Self-
Employed Retirement Plan. Investors in Class Y shares may open an account for
an initial investment of $5,000,000. Subsequent investments of at least $50
may be made for all Classes. For participants in retirement plans qualified
under Section 403(b)(7) or Section 401(a) of the Code, the minimum initial
investment requirement for Class A, Class B and Class C shares and the subse-
quent investment requirement for all Classes of shares is $25. The minimum
initial investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes through the Systematic
Investment Plan described below is $50. See "Purchase of Shares."     
 
SYSTEMATIC INVESTMENT PLAN During the continuous offering period, the Portfo-
lio offers shareholders a Systematic Investment Plan under which they may
authorize the automatic placement of a purchase order each month or quarter
for Portfolio shares in an amount of at least $50. See "Purchase of Shares."
 
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
 
6
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
   
MANAGEMENT OF THE PORTFOLIO Smith Barney Mutual Funds Management Inc. (the
"Manager") serves as the Portfolio's investment manager. The Manager is a
wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Holdings is
a wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a diversified
financial services holding company engaged, through its subsidiaries, princi-
pally in four business segments: Investment Services, Consumer Finance Servic-
es, Life Insurance Services and Property & Casualty Insurance Services. See
"Management of the Fund."     
 
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined, plus any applicable sales charge differen-
tial. See "Exchange Privilege."
   
VALUATION OF SHARES Net asset value of the Portfolio for the prior day may be
quoted daily in the financial section of many newspapers and is also available
from a Smith Barney Financial Consultant. See "Valuation of Shares."     
 
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are declared and paid annually.
See "Dividends, Distributions and Taxes."
 
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution rein-
vestments will become eligible for conversion to Class A shares on a pro rata
basis. See "Dividends, Distributions and Taxes."
 
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Portfolio's investment objective will be achieved. The value of the Portfolio's
investments, and thus the net asset value of the Portfolio's shares, will fluc-
tuate in response to changes in market and economic conditions, as well as the
financial condition and prospects of issuers in which the Portfolio invests.
The Portfolio will invest in foreign securities. Investments in foreign securi-
ties incur higher costs than investments in U.S. securities, including higher
costs in making securities transactions as well as foreign government taxes
which may reduce the investment return of the Portfolio. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about individual companies, less
market liquidity
 
                                                                               7
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
and political instability. See "Investment Objective and Management Policies."
See the Appendix for a further discussion of the risks associated with an
investment in the Portfolio.
 
THE PORTFOLIO'S EXPENSES The following expense table lists the costs and
expenses an investor will incur either directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales charge or maximum CDSC that may
be incurred at the time of purchase or redemption:
 
<TABLE>   
<CAPTION>
                                                CLASS A CLASS B CLASS C CLASS Y
-------------------------------------------------------------------------------
<S>                                             <C>     <C>     <C>     <C>
SHAREHOLDER TRANSACTION EXPENSES
 Maximum sales charge imposed on purchases
 (as a percentage of offering price)             5.00%   None    None    None
 Maximum CDSC (as a percentage of original cost
 or redemption proceeds, whichever is lower)     None*   5.00%   1.00%   None
-------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES**
 (as a percentage of average net assets)
 Management fees (after fee waiver)    0.33%   0.33%   0.33%   0.33%
 12b-1 fees***                                     0.25      1.00      1.00      --
 Other expenses                                   0.87      0.67      0.62    0.87
-------------------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES               1.45%   2.00%    1.95%  1.20%
-------------------------------------------------------------------------------
</TABLE>    
  * Purchases of Class A shares, which when combined with current holdings of
    Class A shares offered with a sales charge equal or exceed $500,000 in the
    aggregate, will be made at net asset value with no sales charge, but will
    be subject to a CDSC of 1.00% on redemptions made within 12 months.
   
 ** These expenses reflect the management fee waiver currently in effect for
    the Portfolio. Absent the fee waiver, the management fee would be incurred
    at the rate of 1.00% of each Class' average daily net assets for the cur-
    rent fiscal period. Absent the fee waiver, total expenses would be at the
    rate of 2.12%, 2.68% and 2.61%  for Class A, Class B and Class C shares, 
    respectively. For Class Y shares, "Other expenses" have
    been estimated because no Class Y shares were outstanding for the period
    ended October 31, 1995. In addition, during the period ended October 31,
    1995, the Portfolio earned credits from the custodian which reduce service
    fees incurred. If the credits are taken into consideration, the ratios of
    expenses to average net assets for Class A, B, C and Y would be 1.20%,
    1.74%, 1.70% and 0.95%, respectfully.     
   
*** Upon conversion of Class B shares to Class A Shares, such shares will no
    longer be subject to a distribution fee. Class C shares do not have a con-
    version feature and, therefore, are subject to an ongoing distribution
    fee. As a result, long-term shareholders of Class C shares may pay more
    than the economic equivalent of the maximum front-end sales charge permit-
    ted by the National Association of Securities Dealers, Inc.     
       
  The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Portfolio shares and investors
may actually pay lower or no charges, depending on the amount purchased and,
in the case of Class B, Class C and certain Class A shares, the length
 
8
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PROSPECTUS SUMMARY (CONTINUED)
 
of time the shares are held and whether the shares are held through the
Smith Barney 401(k) Program. See "Purchase of Shares" and "Redemption of
Shares." Smith Barney receives an annual 12b-1 service fee of 0.25% of the
value of average daily net assets of Class A shares. Smith Barney also receives
with respect to Class B and Class C shares an annual 12b-1 fee of 1.00% of the
value of average daily net assets of the respective Classes, consisting of a
0.75% distribution fee and a 0.25% service fee. "Other expenses" in the above
table include fees for shareholder services, custodial fees, legal and account-
ing fees, printing costs and registration fees.
 
 EXAMPLE
 
  The following example is intended to assist an investor in understanding the
various costs that an investor in the Portfolio will bear directly or indirect-
ly. The example assumes payment by the Portfolio of operating expenses at the
levels set forth in the table above. See "Purchase of Shares," "Redemption of
Shares" and "Management of the Fund."
 
<TABLE>   
<CAPTION>
                                        1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
<S>                                     <C>    <C>     <C>     <C>
 An investor would pay the following
 expenses on a $1,000 investment,
 assuming (1) 5.00% annual return and
 (2) redemption at the end of each
 time period:
  Class A                                $64    $ 94    $125     $215
  Class B                                 70      93     118      219
  Class C                                 30      61     105      227
  Class Y                                 12      38      66      145
 An investor would pay the following
 expenses on the same investment,
 assuming the same annual return and
 no redemption:
  Class A                                $64    $ 94    $125     $215
  Class B                                 20      63     108      219
  Class C                                 20      61     105      227
  Class Y                                 12      38      66      145
-----------------------------------------------------------------------
</TABLE>    
 
  The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Portfolio's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
 
                                                                               9
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
   
FINANCIAL HIGHLIGHTS     
   
  The following information for the period from May 12, 1995 (commencement of
operations) to October 31, 1995 has been audited in conjunction with the
annual audits of the financial statements of Smith Barney World Funds, Inc. by
KPMG Peat Marwick LLP, independent auditors. The 1995 financial statements and
the independent auditors' report thereon appear in the October 31, 1995 Annual
Report to Shareholders. No information is presented for Class Y shares since
there were no Class Y shares purchased during the period presented.     
     
  FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERI-
  OD:     
 
<TABLE>   
<CAPTION>
CLASS                                         A(A)       B(A)       C(A)
-----------------------------------------------------------------------------
<S>                                          <C>        <C>        <C>
NET ASSET VALUE,BEGINNING OF PERIOD          $12.00     $12.00     $12.00
-----------------------------------------------------------------------------
LOSS FROM INVESTMENT OPERATIONS:
 Net Investment Loss(1)++                     (0.05)     (0.09)     (0.08)
 Net Realized and Unrealized Loss on
   Investments                                (0.89)     (0.89)     (0.90)
-----------------------------------------------------------------------------
TOTAL LOSS FROM INVESTMENT OPERATIONS         (0.94)     (0.98)     (0.98)
-----------------------------------------------------------------------------
LESS DISTRIBUTIONS:
 Dividends from Net Investment Income            --         --         --
 Distribution from Net Realized Gains            --         --         --
-----------------------------------------------------------------------------
TOTAL DISTRIBUTIONS                              --         --         --
-----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD               $11.06     $11.02     $11.02
-----------------------------------------------------------------------------
TOTAL RETURN(++)(P)                           (7.83)%    (8.17)%    (8.17)%
-----------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S)             $7,069     $7,630     $1,604
-----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
 Expenses(1)                                   1.45%      2.00%      1.95%
 Net Investment loss                          (0.63)     (1.17)     (1.08)
-----------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE                       16.87%     16.87%     16.87%
-----------------------------------------------------------------------------
 AVERAGE COMMISSIONS PAID ON EQUITY SECURITY
   TRANSACTIONS                              $ 0.00++++ $ 0.00++++ $ 0.00++++
-----------------------------------------------------------------------------
</TABLE>    
   
(a) For the period May 12, 1995 (commencement of operations) to October 31,
    1995.     
   
(1) The Manager has agreed to waive part of its management fees for the
    Emerging Markets Portfolio. If the Manager had not agreed to the fee
    waiver, the per share increases in net investment loss and the ratio of
    expenses would have been:     
<TABLE>    
<CAPTION>
             Per Share Increases     Expense Ratios
            in Net Investment Loss Without Fee Waivers
            ---------------------- -------------------
                     1995                 1995
                    ------               ------
   <S>      <C>                    <C>
   Class A          $0.05                 2.12%+
   Class B           0.05                 2.68+
   Class C           0.05                 2.61+
</TABLE>    
      
   In addition, during the period ended October 31,1995, the Portfolio earned
   credits from the custodian which reduce service fees incurred. If the
   credits are taken into consideration, the ratios of expenses to average net
   assets for Class A, B and C would be 1.20%+, 1.74%+ and 1.70%+,
   respectively.     
          
++ Includes realized gains and losses on foreign currency transactions.     
   
 ++Total return is not annualized, as it may not be representative of the
   total return for the year.     
   
 + Annualized.     
   
+++Per+share amounts are less than $0.01.     
   
 (PTotal)return does not reflect  any applicable sales  loads or contingent 
deferred sales charges.     
       
10
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
 
  The investment objective of the Portfolio is to provide long term capital
appreciation on its assets through a portfolio invested primarily in securi-
ties of emerging country issuers. The Portfolio's investment objective may be
changed only with the approval of a majority of the Portfolio's outstanding
shares. There can be no assurance that the investment objective of the Portfo-
lio will be achieved.
 
  The 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 Portfolio will 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 Portfolio's
assets will be invested in equity securities.
 
  For purposes of its investment objective, the Portfolio considers as "emerg-
ing" all countries other than the United States, Canada, Ireland, the United
Kingdom, Sweden, Norway, Finland, Denmark, Holland, Germany, Switzerland,
Belgium, France, Italy, Spain and Japan. The Portfolio is organized as a non-
diversified series, but will generally invest its assets broadly among coun-
tries and will normally have at least 65% of its assets invested in issuers in
not less than three different countries.
 
  In selecting securities for investment by the Portfolio, the Manager
assesses the general attractiveness of specific countries based on an analysis
of internal conditions, including political stability, market practices, eco-
nomic growth prospects, general market valuations and potential changes in
currency relationships. The Manager then performs an analysis, using many of
these same factors, of each issuer being considered for investment.
 
  The Portfolio also may invest in 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 Portfolio will not seek to bene-
fit from anticipated short-term fluctuations in currency exchange rates. The
Portfolio may, from time to time, invest in debt securities with relatively
high yields (as compared to other debt securities meeting the Portfolio's
investment criteria), notwithstanding that the Portfolio may not anticipate
that such securities will experience substantial
 
                                                                             11
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
capital appreciation. Such income can be used, however, to offset the operat-
ing expenses of the Portfolio.
 
  The Portfolio 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 governmen-
tal 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.
 
  The Portfolio reserves the right, as a temporary defensive measure or to
provide for redemptions or in anticipation of investment in countries having
smaller capital markets, to hold cash or cash equivalents (in U.S. dollars or
foreign currencies) and short-term securities, including money market securi-
ties ("Temporary Investments"). The Portfolio may invest in the securities of
foreign issuers in the form of American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other securi-
ties convertible into securities of foreign issuers. The Portfolio may invest
in unsponsored ADRs. The issuers of unsponsored ADRs are not obligated to dis-
close 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 Portfolio may invest in U.S. over-the-counter securities of issuers whose
business interests are in emerging countries.
 
  Refer to the Appendix or the Statement of Additional Information for further
information on the Portfolio's investments, including options and futures con-
tracts, swap agreements, structured notes and indexed securities (sometimes
referred to as "derivatives"); loans and other direct debt instruments, float-
ing
 
12
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
and variable rate income securities, zero coupon, discount and payment-in-kind
securities, premium securities, yankee bonds, borrowings, repurchase agree-
ments, reverse repurchase agreements and securities loans, foreign repurchase
agreements, illiquid investments, restricted securities, and delayed-delivery
transactions.
 
 RISK FACTORS
 
  General. The Portfolio's net asset value will fluctuate, reflecting fluctua-
tions in the market value of its portfolio positions. The Portfolio normally
will invest in a substantial number of issuers; however, the Portfolio has
registered under the Investment Company Act of 1940 (the "1940 Act") as a
"non-diversified" fund so that it will be able to invest more than 5% of its
assets in the securities of an issuer. Since, as a "non-diversified" fund, the
Portfolio is permitted to invest a greater proportion of its assets in the
securities of a smaller number of issuers, the Portfolio may be subject to
greater credit risk with respect to its individual portfolio than a fund that
is more broadly diversified.
 
  Securities of Non-U.S. Issuers. Investments in securities of non-U.S.
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 restric-
tions. Since the Portfolio 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 Portfolio 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, repatriation, confiscatory tax-
ation, 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 com-
parable to or as uniform as those of U.S. companies. Non-U.S. securities mar-
kets, 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 prices more volatile than securities of comparable U.S. com-
panies. Transac-
 
                                                                             13
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
tion costs on non-U.S. 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. The Portfolio might
have greater difficulty taking appropriate legal action in non-U.S. courts.
 
  Dividend and interest income from non-U.S. securities will generally be sub-
ject to withholding taxes by the country in which the issuer is located and
may not be recoverable by the Portfolio or the investors.
 
  Securities of Emerging Market Countries. An emerging market country gener-
ally is considered to be a country that is in the initial stages of its indus-
trialization cycle. Investing in the equity and fixed-income markets of emerg-
ing market countries involves exposure to economic structures that are gener-
ally 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.
 
  Up to 10% of the Portfolio's assets may be invested in debt securities of
emerging markets, which may be unrated or rated below investment grade. Secu-
rities 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.
 
  One or more of the risks discussed above could affect adversely the economy
of a developing market or the Portfolio's investments in such market. In East-
ern Europe, for example, upon the accession to power of Communist regimes in
the past, the governments of a number of Eastern European countries expropri-
ated a large amount of property. The claims of many property owners against
those governments were never finally settled. There can be no assurance that
any investments that the Portfolio 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 Portfolio 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
 
14
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
policies now occurring in certain of these markets and adversely affect exist-
ing investment opportunities.
 
  Restrictions On Foreign Investment. Some countries prohibit or impose sub-
stantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Portfolio. As illustra-
tions, certain countries require governmental approval prior to investments by
foreign persons, or limit the amount of investment by foreign persons in a par-
ticular 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 autho-
rized the formation of closed-end investment companies to facilitate indirect
foreign investment in their capital markets. In accordance with the 1940 Act,
the Portfolio 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 the Portfolio to
invest indirectly in certain smaller capital markets. Shares of certain closed-
end investment companies may at times be acquired only at market prices repre-
senting premiums to their net asset values. If the Portfolio acquires shares in
closed-end investment companies, shareholders would bear both their proportion-
ate share of expenses in the Portfolio (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 the Portfolio's
investments in any equity security of an issuer which, in its most recent fis-
cal year, derived more than 15% of its revenues from "securities related activ-
ities," as defined by the rules thereunder. These provisions may also restrict
the Portfolio's investments in certain foreign banks and other financial insti-
tutions.
 
  Smaller capital markets, while often growing in trading volume, have substan-
tially 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 expen-
 
                                                                              15
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
sive than in the United States. Such markets have different clearance and set-
tlement procedures, and in certain markets there have been times when settle-
ments have been unable to keep pace with the volume of securities transac-
tions, 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 Portfolio
incurring additional costs and delays in transporting and custodying such
securities outside such countries. Delays in settlement could result in tempo-
rary periods when assets of the Portfolio are uninvested and no return is
earned thereon. The inability of the Portfolio to make intended security pur-
chases due to settlement problems could cause the Portfolio to miss attractive
investment opportunities. Inability to dispose of a portfolio security due to
settlement problems could result either in losses to the Portfolio due to sub-
sequent declines in value of the portfolio security or, if the Portfolio has
entered into a contract to sell the security, could result in possible liabil-
ity to the purchaser. There is generally less government supervision and regu-
lation of exchanges, brokers and issuers in countries having smaller capital
markets than there is in the United States.
 
  Hedging Strategies. The Portfolio may engage in various portfolio strategies
to seek to hedge its portfolio against movements in the equity markets, inter-
est rates and exchange rates between currencies by the use of options, futures
and options on futures. Utilization of options and futures transactions
involves the risk of imperfect correlation in movements in the price of
options and futures and movements in the price of the securities, interest
rates or currencies which are the subject of the hedge. Options and futures
transactions in foreign markets are also subject to the risk factors associ-
ated with foreign investments generally, as discussed above. There can be no
assurance that a liquid secondary market for options and futures contracts
will exist at any specific time.
 
  See the Appendix for a further discussion of the risks associated with an
investment in the Portfolio.
 
 PORTFOLIO TRANSACTIONS AND TURNOVER
 
  All orders for transaction in securities and options on behalf of the Port-
folio are placed by the Manager with broker/dealers that the Manager selects,
including Smith Barney and other affiliated brokers. Brokerage will be allo-
cated to Smith Barney, to the extent and in the manner permitted by applicable
law, provided that, in the judgment of the Board of Directors of the Fund, the
commis-
 
16
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
sion, fee or other remuneration received or to be received by Smith Barney (or
any broker/dealer affiliate of Smith Barney that is also a member of a securi-
ties exchange) is reasonable and fair compared to the commission, fee or other
remuneration received by other brokers in connection with comparable transac-
tions involving similar securities being purchased or sold on a securities
exchange during the same or comparable period of time. In all trades directed
to Smith Barney, the Fund has been assured that its orders will be accorded
priority over those received from Smith Barney for its own account or for
any of its directors, officers or employees. The Fund will not deal with
Smith Barney in any transaction in which Smith Barney acts as principal.
 
  Under certain market conditions, the Portfolio may experience high portfolio
turnover as a result of its investment strategies. For example, the exercise
of a substantial number of options written by the Portfolio and the purchase
or sale of securities by the Portfolio in anticipation of a rise or decline in
interest rates could result in high portfolio turnover. Short-term gains real-
ized from portfolio transactions are taxable to shareholders as ordinary
income. In addition, higher portfolio turnover rates can result in correspond-
ing increases in brokerage commissions for the Portfolio. The annual portfolio
turnover rate for the Portfolio may vary significantly from year to year, but
it is generally not expected to exceed 75%. The Portfolio will not consider
portfolio turnover rate a limiting factor in making investment decisions con-
sistent with its respective objectives and policies.
 
VALUATION OF SHARES
 
 
  The Portfolio's net asset value per share 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 Portfolio's net assets attributable to each Class by the
total number of shares of the Class outstanding.
 
  Securities owned by the Portfolio 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 val-
ued at the mean of
 
                                                                             17
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
VALUATION OF SHARES (CONTINUED)
 
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 valu-
ation, 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
Portfolio's net assets, and current market value of such options sold by the
Portfolio will be subtracted from the Portfolio's net assets. Any other invest-
ments of the Portfolio, 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 deter-
mined by the Board of Directors in good faith. This value generally is deter-
mined as the amount that the Portfolio 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 denomi-
nated in a currency other than U.S. dollars will be converted into U.S. dollars
at the prevailing market rate as determined by the investment adviser.
 
  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 Portfolio may not take place contemporaneously with the determina-
tion of the prices of investments held by such Portfolio. 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
Portfolio's net asset value unless the investment adviser, under the supervi-
sion of the Fund's Board of Directors, determines that the particular event
would materially affect net asset value. As a result, the Portfolio's net asset
value may be significantly affected by such trading on days when a shareholder
has no access to the Portfolio.
 
18
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
DIVIDENDS, DISTRIBUTIONS AND TAXES
 
 
 DIVIDENDS AND DISTRIBUTIONS
 
  The Fund declares and pays income dividends at least annually on shares of
the Portfolio and makes annual distributions of capital gains, if any, on such
shares.
 
  If a shareholder does not otherwise instruct, dividends and capital gain dis-
tributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC.
   
  Income dividends and capital gain distributions that are invested are cred-
ited 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 Smith Barney Financial Consultant.
Accounts held directly by First Data should notify First Data 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 C shares of the Portfolio 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 C
shares. The per share dividends on Class A shares of the Portfolio 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 C and Class Y
shares.
 
 TAXES
 
  The Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Code to be relieved of Federal income tax on that part of
its net investment income and realized capital gains which it pays out to its
shareholders. To qualify, the Portfolio must meet certain tests, including dis-
tributing at least 90% of its investment company taxable income, and deriving
less than 30% of its gross income from the sale or other disposition of certain
investments held for less than three months.
 
  Dividends from net investment income and distributions of realized short-term
capital gains on the sale of securities, whether paid in cash or automatically
invested in additional shares of the Portfolio, are taxable to shareholders as
ordinary income. The Portfolio's dividends will not qualify for the dividends
 
                                                                              19
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
 
received deduction for corporations. Dividends and distributions declared by
the Portfolio may also be subject to state and local taxes. Distributions out
of net long-term capital gains (i.e., net long-term capital gains in excess of
net short-term capital losses) are taxable to shareholders as long-term capi-
tal 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 suc-
ceeding year as practical but not later than January 31.
 
  Income received by the Portfolio from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. Tax con-
ventions between certain countries and the United States may reduce or elimi-
nate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of the Portfolio's assets to be invested in various
countries is not known. Such foreign taxes would reduce the income of the
Portfolio distributed to shareholders.
 
  If, at the end of the Portfolio's taxable year, more than 50% of the value
of the Portfolio's total assets consist of stock or securities of foreign cor-
porations, the Portfolio may make an election pursuant to which foreign income
taxes paid by it will be treated as paid directly by its shareholders. The
Portfolio 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 the Portfolio makes such an election, the amount
of such 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 or, provided the shareholder itemizes deductions,
a deduction for U.S. federal income tax purposes for such foreign taxes.
Shareholders who choose to utilize a credit (rather than a deduction) for for-
eign 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 Portfolio
from its foreign source income will be treated as foreign source income. The
Portfolio's gains and losses from the sale of securities and from certain for-
eign 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 Portfolio that qualifies as foreign source income. In addition, the
foreign tax credit is allowed to offset only 90% of the alternative minimum
 
20
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
 
tax imposed on corporations and individuals. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their pro-
portionate share of the foreign income taxes paid by the Portfolio.
 
  In determining gain or loss, a shareholder who redeems or exchanges shares
in the Portfolio 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 for invest-
ing in the Portfolio or a different Portfolio of the Fund, such as pursuant to
the rights discussed in "Exchange Privilege."
 
  The Fund is required to withhold and remit to the U.S. Treasury 31% of divi-
dends, distributions and redemption proceeds to shareholders who fail to pro-
vide 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.
 
  Prior to investing in shares of the Portfolio, investors should consult with
their tax advisors concerning the federal, state and local tax consequences of
such an investment.
 
PURCHASE OF SHARES
 
 
 GENERAL
   
  The Portfolio offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without an initial sales charge or CDSC
and are available only to investors investing a minimum of $5,000,000 (except
for purchases of Class Y shares by Smith Barney Concert Series Inc., for which
there is no minimum purchase amount). See "Prospectus Summary--Alternative
Purchase Arrangements" for a discussion of factors to consider in selecting
which Class of shares to purchase.     
          
  Purchases of Portfolio shares must be made through a brokerage account main-
tained with Smith Barney, an Introducing Broker or an investment dealer     
 
                                                                             21
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PURCHASE OF SHARES (CONTINUED)
   
in the selling group. In addition, certain investors, including qualified
retirement plans and certain other institutional investors, may purchase
shares directly from the Fund through First Data. When purchasing shares of
the Portfolio, investors must specify whether the purchase is for Class A,
Class B, Class C or Class Y shares. No maintenance fee will be charged by the
Fund in connection with a brokerage account through which an investor pur-
chases or holds shares.     
   
  Investors in Class A, Class B and Class C shares may open an account by mak-
ing an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan in the Portfolio. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000. Sub-
sequent investments of at least $50 may be made for all Classes. For partici-
pants in retirement plans qualified under Section 403(b)(7) or Section 401(a)
of the Code, the minimum initial investment requirement for Class A, Class B
and Class C shares and the subsequent investment requirement for all Classes
in the Portfolio is $25. For the Portfolio's Systematic Investment Plan, the
minimum initial investment requirement for Class A, Class B and Class C shares
and the subsequent investment requirement for all Classes is $50. There are no
minimum investment requirements in Class A shares for employees of Travelers
and its subsidiaries, including Smith Barney, Directors or 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 pur-
chase 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 Fund's
transfer agent, First Data. Share certificates are issued only upon a share-
holder's written request to First Data.     
   
  Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Portfolio calculates its net asset
value, are priced according to the net asset value determined on that day (the
"trade date"). Orders received by dealers or Introducing Brokers prior to the
close of regular trading on the NYSE on any day the Portfolio 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 Smith Barney prior to
Smith Barney's close of business. For shares purchased through Smith Barney or
Introducing Brokers purchasing through Smith Barney, payment for Portfolio
shares is due on the third business day (the "settlement date") after the
trade date. In all other cases, payment must be made with the purchase order.
    
22
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
 
 SYSTEMATIC INVESTMENT PLAN
   
  During the continuous offering period, 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,
Smith Barney or First Data is authorized through preauthorized transfers of $50
or more to charge the regular bank account or other financial institution indi-
cated by the shareholder on a monthly or quarterly basis to provide systematic
additions to the shareholder's Portfolio account. A shareholder who has insuf-
ficient funds to complete the transfer will be charged a fee of up to $25 by
Smith Barney or First Data. The Systematic Investment Plan also authorizes
Smith Barney to apply cash held in the shareholder's 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 Smith Barney Financial Consultant.     
 
 INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
 
  The sales charges applicable to purchases of Class A shares of the Portfolio
are as follows:
 
<TABLE>
<CAPTION>
                                  SALES CHARGE
                         ------------------------------
                                                             DEALERS'
                              % OF           % OF       REALLOWANCE AS % OF
  AMOUNT OF INVESTMENT   OFFERING PRICE AMOUNT INVESTED   OFFERING PRICE
---------------------------------------------------------------------------
  <S>                    <C>            <C>             <C>
  Less than $25,000           5.00%          5.26%             4.50%
  $ 25,000 - 49,999           4.00           4.17              3.60
    50,000 - 99,999           3.50           3.63              3.15
   100,000 - 249,999          3.00           3.09              2.70
   250,000 - 499,999          2.00           2.04              1.80
   500,000 and over            *               *                 *
---------------------------------------------------------------------------
</TABLE>
 
* Purchases of Class A shares, which when combined with current holdings of
 Class A shares offered with a sales charge equal or exceed $500,000 in the
 aggregate, will be made at net asset value without any initial sales charge,
 but will be subject to a CDSC of 1.00% on redemptions made within 12 months of
 purchase. The CDSC on Class A shares is payable to Smith Barney, which
 compensates Smith Barney Financial Consultants and other dealers whose clients
 make purchases of $500,000 or more. The CDSC is waived in the same
 circumstances in which the CDSC applicable to Class B and Class C shares is
 waived. See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
 
                                                                              23
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
 
  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 Securities Act
of 1933, as amended.
 
  The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Portfolio made at one time by "any person," which
includes an individual, his or her spouse and children, or a trustee or other
fiduciary of a single trust estate or single fiduciary account. The reduced
sales charge minimums may also be met by aggregating the purchase with the net
asset value of all Class A shares offered with a sales charge held in funds
sponsored by Smith Barney listed under "Exchange Privilege."
 
 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 of Class A shares to Directors
and employees of Travelers and its subsidiaries, Directors, Trustees or 
employees of any of the Smith Barney Mutual Funds and the members of the 
immediate families of such persons 
(including the surviving spouse of a deceased Director, Trustee or employee,
and retired Directors, Trustees or employees), or pension, profit-sharing or
other benefit plan for such persons 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 or to members of the National Association of Securities Dealers,
Inc.; (b) offers
of Class A shares to any other investment company in connection with the combi-
nation of such company with the Portfolio by merger, acquisition of assets or
otherwise; (c) purchases of Class A shares by any client of a newly employed
Smith Barney Financial Consultant (for a period up to 90 days from the com-
mencement of the Financial Consultant's employment with 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 Con-
sultant and (iii) was subject to a sales charge; (d) shareholders who have
redeemed Class A shares in the Portfolio (or Class A shares of another fund of
the Smith Barney Mutual Funds that are sold with a maximum 5.00% sales charge)
and who wish to reinvest their redemption proceeds in the Portfolio, provided
the reinvestment is made within 60 calendar days of the redemption; and (e)
accounts managed by registered investment advisory subsidiaries of Travelers.
In order to obtain such discounts, the purchaser must provide sufficient
informa     
 
24
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
tion 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 Portfolio may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Portfolio and of funds sponsored by Smith Barney which
are offered with a sales charge listed under "Exchange Privilege" then held by
such person and applying the sales charge applicable to such aggregate. In
order to obtain such discount, the purchaser must provide sufficient informa-
tion at the time of purchase to permit verification that the purchase quali-
fies for the reduced sales charge. The right of accumulation is subject to
modification or discontinuance at any time with respect to all shares pur-
chased thereafter.     
 
 GROUP PURCHASES
 
  Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares", and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds
offered with a sales charge to, and share holdings of, all members of the
group. To be eligible for such reduced sales charges or to purchase at net
asset value, all purchases must be pursuant to an employer- or partnership-
sanctioned plan meeting certain requirements. One such requirement is that the
plan must be open to specified partners or employees of the employer and its
subsidiaries, if any. Such plan may, but is not required to, provide for pay-
roll deductions, IRAs or investments pursuant to retirement plans under Sec-
tions 401 or 408 of the Code. Smith Barney may also offer a reduced sales
charge or net asset value purchase for aggregating related fiduciary accounts
under such conditions that Smith Barney will realize economies of sales
efforts and sales related expenses. An individual who is a member of a quali-
fied group may also purchase Class A shares at the reduced sales charge appli-
cable to the group as a whole. The sales charge is based upon the aggregate
dollar value of Class A shares offered with a sales charge that have been pre-
viously purchased and are still owned by the
 
                                                                             25
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring Portfolio shares at a discount and (c) satisfies uniform
criteria which enable Smith Barney to realize economies of scale in its costs
of distributing shares. A qualified group must have more than 10 members, must
be available to arrange for group meetings between representatives of the Port-
folio and the members, and must agree to include sales and other materials
related to the Portfolio in its publications and mailings to members at no cost
to Smith Barney. In order to obtain such reduced sales charge or to purchase at
net asset value, the purchaser must provide sufficient information at the time
of purchase to permit verification that the purchase qualifies for the reduced
sales charge. Approval of group purchase reduced sales charge plans is subject
to the discretion of Smith Barney.
 
 LETTER OF INTENT
   
  Class A Shares. A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes pur-
chases of all Class A shares of the Portfolio and other funds of the Smith Bar-
ney Mutual Funds offered with a sales charge over the 13 month period based on
the total amount of intended purchases plus the value of all Class A shares
previously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales
charge applicable to the total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay the difference between
the sales charges applicable to the purchases made and the charges previously
paid, or an appropriate number of escrowed shares will be redeemed. Please con-
tact a Smith Barney Financial Consultant or First Data to obtain a Letter of
Intent application.     
   
  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. Such investors must
make an initial minimum purchase of $1,000,000 in Class Y shares of the Portfo-
lio and agree to purchase a total of $5,000,000 of Class Y shares of the same
Portfolio within six months from the date of the Letter. If a total invest     
 
26
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PURCHASE OF SHARES (CONTINUED)
   
ment of $5,000,000 is not made within the six-month period, all Class Y shares
purchased to date will be transferred to Class A shares, where they will be
subject to all fees (including a service fee of 0.25%) and expenses applicable
to the Portfolio's Class A shares, which may include a CDSC of 1.00%. Please
contact a Smith Barney Financial Consultant or First Data for further informa-
tion.     
 
 DEFERRED SALES CHARGE ALTERNATIVES
 
  CDSC Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Portfolio. A CDSC, however, may be imposed on cer-
tain redemptions of these shares. "CDSC Shares" are: (a) Class B shares;
(b) Class C shares; and (c) Class A shares which when combined with Class A
shares offered with a sales charge currently held by an investor equal or
exceed $500,000 in the aggregate.
 
  Any applicable CDSC will be assessed on an amount equal to the lesser of the
original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a
CDSC to the extent that the value of such shares represents: (a) capital
appreciation of Portfolio 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 C shares
and Class A shares that are CDSC Shares, shares redeemed more than 12 months
after their purchase.
 
  Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
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 purchases by Participating Plans, as described below. See "Purchase of
Shares--Smith Barney 401(k) Program."
 
                                                                             27
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
 
<TABLE>
<CAPTION>
    YEAR SINCE PURCHASE
    PAYMENT WAS MADE      CDSC
   ----------------------------
    <S>                   <C>
    First                 5.00%
    Second                4.00
    Third                 3.00
    Fourth                2.00
    Fifth                 1.00
    Sixth                 0.00
    Seventh               0.00
    Eighth                0.00
   ----------------------------
</TABLE>
 
  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
propor-tion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B Shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. Shareholders who held Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the "Short-Term World Income Fund") on
July 15, 1994 and who subsequently exchange those shares for Class B shares of
the Portfolio will be offered the opportunity to exchange all such Class B
shares for Class A shares of the Portfolio four years after the date on which
those shares were deemed to have been purchased. Holders of such Class B shares
will be notified of the pending exchange in writing approximately 30 days
before the fourth anniversary of the purchase date and, unless the exchange has
been rejected in writing, the exchange will occur on or about the fourth anni-
versary date. See "Prospectus Summary--Alternative Purchase Arrangements--Class
B Shares Conversion Feature."
 
  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 distribu-
tions and finally of other shares held by the shareholder for the longest
period of time. The length of time that CDSC Shares acquired through an
exchange have been held will be calculated from the date that the shares
exchanged were initially acquired in one of the other Smith Barney Mutual
Funds, and Portfolio shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain distribution
reinvestments in such
 
28
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
other funds. For Federal income tax purposes, the amount of the CDSC will
reduce the gain or increase the loss, as the case may be, on the amount real-
ized on redemption. The amount of any CDSC will be paid to Smith Barney.
 
  To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her invest-
ment. Assuming at the time of the redemption the net asset value had appreci-
ated to $12 per share, the value of the investor's shares would be $1,260 (105
shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for Class B shares) for a
total deferred sales charge of $9.60.
 
 WAIVERS OF CDSC
 
  The CDSC will be waived on: (a) exchanges (see "Exchange Privilege");
(b) automatic cash withdrawals in amounts equal to or less than 1.00% per
month of the value of the shareholder's shares at the time the withdrawal plan
commences (see "Automatic Cash Withdrawal Plan"); (c) redemptions of shares
within twelve months following the death or disability of the shareholder;
(d) redemption of shares made in connection with qualified distributions from
retirement plans or IRAs upon the attainment of age 59 1/2; (e) involuntary
redemptions; and (f) redemptions of shares in connection with a combination of
the Portfolio with any investment company by merger, acquisition of assets or
otherwise. In addition, a shareholder who has redeemed shares from other funds
of the Smith Barney Mutual Funds may, under certain circumstances, reinvest
all or part of the redemption proceeds within 60 days and receive pro rata
credit for any CDSC imposed on the prior redemption.
   
  CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by First Data in the
case of all other shareholders) of the shareholder's status or holdings, as
the case may be.     
 
                                                                             29
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
 
 SMITH BARNEY 401(K) PROGRAM
 
  During the continuous offering period, investors may be eligible to partici-
pate in the Smith Barney 401(k) Program, which is generally designed to assist
plan sponsors in the creation and operation of retirement plans under Section
401(a) of the Code. To the extent applicable, the same terms and conditions are
offered to all Participating Plans in the Smith Barney 401(k) Program.
 
  The Portfolio offers to Participating Plans Class A, Class B, Class C and
Class Y shares as investment alternatives under the Smith Barney 401(k) Pro-
gram. Class A, Class B and Class C shares acquired through the Smith Barney
401(k) Program are subject to the same service and/or distribution fees as, but
different sales charge and CDSC schedules than, the Class A, Class B and
Class C shares acquired by other investors. Similar to those shares available
to other investors, Class Y shares acquired through the Smith Barney 401(k)
Program are not subject to any service or distribution fees or any initial
sales charge or CDSC. Once a Participating Plan has made an initial investment
in the Portfolio, all of its subsequent investments in the Portfolio must be in
the same Class of shares, except as otherwise described below.
 
  Class A Shares. Class A shares of the Portfolio are offered without any
initial sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program are
subject to a CDSC of 1.00% of redemption proceeds, if the Participating Plan
terminates within four years of the date the Participating Plan first enrolled
in the Smith Barney 401(k) Program.
 
  Class B Shares. Class B shares of the Portfolio are offered to any Partici-
pating Plan that purchases less than $250,000 of one or more funds of the
Smith Barney Mutual Funds. Class B shares acquired through the Smith Barney
401(k) Program are subject to a CDSC of 3.00% of redemption proceeds, if the
Participating Plan terminates within eight years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.
 
  Eight years after the date the Participating Plan enrolled in the Smith Bar-
ney 401(k) Program, it will be offered the opportunity to exchange all of its
Class B shares for Class A shares of the Portfolio. 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 writ-
 
30
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PURCHASE OF SHARES (CONTINUED)
 
ing, the exchange will occur on or about the eighth anniversary date. Once the
exchange has occurred, a Participating Plan will not be eligible to acquire
additional Class B shares of the Portfolio but instead may acquire Class A
shares of the Portfolio. If the Participating Plan elects not to exchange all
of its Class B shares at that time, each Class B share held by the Participat-
ing Plan will have the same conversion feature as Class B shares held by other
investors. See "Purchase of Shares -- Deferred Sales Charge Alternatives."
 
  Class C Shares. Class C shares of the Portfolio are offered to any Partici-
pating Plan that purchases from $250,000 to $499,999 of one or more funds
of the Smith Barney Mutual Funds. Class C shares acquired through the
Smith Barney 401(k) Program are subject to a CDSC of 1.00% of redemption pro-
ceeds, if the Participating Plan terminates within four years of the date the
Participating Plan first enrolled in the Smith Barney 401(k) Program. Each year
after the date a Participating Plan enrolled in the Smith Barney 401(k) Pro-
gram, if its total Class C holdings 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 C shares for Class A shares of the Portfolio. Such Plans will
be notified in writing within 30 days after the last business day of the calen-
dar 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.
Once the exchange has occurred, a Participating Plan will not be eligible to
acquire Class C shares of the Portfolio but instead may acquire Class A shares
of the Portfolio. Any Class C shares not converted will continue to be subject
to the distribution fee.
 
  Class Y Shares. Class Y shares of the Portfolio are offered without any serv-
ice or distribution fees, sales charge or CDSC to any Participating Plan that
purchases $5,000,000 or more of Class Y shares of one or more funds of the
Smith Barney Mutual Funds.
          
  Whether or not the CDSC applies to a Participating Plan depends on the number
of years since the Participating Plan first became enrolled in the Smith Barney
401(k) Program, unlike the applicability of the CDSC to other shareholders,
which depends on the number of years since those shareholders made the purchase
payment for the shares which are being redeemed. Where applicable, the CDSC
will be assessed on shares held through the Smith Barney 401(k) Program 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; provided, however, that shares
will not be subject to a CDSC to the extent that the value of such     
 
                                                                              31
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PURCHASE OF SHARES (CONTINUED)
   
shares represents capital appreciation of Fund assets and/or reinvestments of
dividends or capital gain distributions.   In addition, the CDSC will be waived
on redemptions of Class A, Class B and Class C
shares in connection with lump-sum or other distributions made by a Partici-
pating Plan as a result of: (a) the retirement of an employee in the Partici-
pating Plan; (b) the termination of employment of an employee in the Partici-
pating Plan; (c) the death or disability of an employee in the Participating
Plan; (d) the attainment of age 59 1/2 by an employee in the Participating
Plan; (e) hardship of an employee in the Participating Plan to the extent per-
mitted under Section 401(k) of the Code; or (f) redemptions of shares in con-
nection with a loan made by the Participating Plan to an employee.     

 
   
  Participating Plans wishing to acquire shares of the Portfolio through the
Smith Barney 401(k) Program must purchase such shares directly from First
Data. For further information regarding the Smith Barney 401(k) Program,
investors should contact a Smith Barney Financial Consultant.     
 
32
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
EXCHANGE PRIVILEGE
 
  Except as otherwise noted below, shares of each Class may be exchanged for
shares of the same Class in the following funds of the 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 C shares are subject to min-
imum investment requirements and all shares are subject to the other require-
ments of the fund into which exchanges are made and a sales charge differential
may apply.
 
  FUND NAME
 
  Growth Funds
 
    Smith Barney Aggressive Growth Fund Inc.
    Smith Barney Appreciation Fund Inc.
    Smith Barney Fundamental Value Fund Inc.
       
    Smith Barney Growth Opportunity Fund     
       
    Smith Barney Managed Growth Fund     
       
    Smith Barney Natural Resources Fund Inc.     
    Smith Barney Special Equities Fund
    Smith Barney Telecommunications Growth Fund
 
  Growth and Income Funds
 
    Smith Barney Convertible Fund
       
    Smith Barney Funds, Inc.--Equity Income Portfolio     
       
    Smith Barney Growth and Income Fund
    Smith Barney Premium Total Return Fund
    Smith Barney Strategic Investors Fund
    Smith Barney Utilities Fund
 
  Taxable Fixed-Income Funds
 
 ** Smith Barney Adjustable Rate Government Income Fund
    Smith Barney Diversified Strategic Income Fund
  * Smith Barney Funds, Inc.--Income Return Account Portfolio
       
+++ Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Portfolio
    Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
    Smith Barney Government Securities Fund
    Smith Barney High Income Fund
    Smith Barney Investment Grade Bond Fund
    Smith Barney Managed Governments Fund Inc.
 
  Tax-Exempt Funds
 
    Smith Barney Arizona Municipals Fund Inc.
    Smith Barney California Municipals Fund Inc.
       
  * Smith Barney Intermediate Maturity California Municipals Fund
  * Smith Barney Intermediate Maturity New York Municipals Fund
       
    Smith Barney Managed Municipals Fund Inc.
 
                                                                              33
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
EXCHANGE PRIVILEGE (CONTINUED)
 
    Smith Barney Massachusetts Municipals Fund
       
  * Smith Barney Muni Funds--Florida Limited Term Portfolio
    Smith Barney Muni Funds--Florida Portfolio
    Smith Barney Muni Funds--Georgia Portfolio
  * Smith Barney Muni Funds--Limited Term Portfolio
    Smith Barney Muni Funds--National Portfolio
       
    Smith Barney Muni Funds--New York Portfolio
    Smith Barney Muni Funds--Ohio Portfolio
    Smith Barney Muni Funds--Pennsylvania Portfolio
    Smith Barney New Jersey Municipals Fund Inc.
       
    Smith Barney Oregon Municipals Fund
    Smith Barney Tax-Exempt Income Fund
 
  International Funds
 
    Smith Barney World Funds, Inc.--European Portfolio
    Smith Barney World Funds, Inc.--Global Government Bond Portfolio
    Smith Barney World Funds, Inc.--International Balanced Portfolio
    Smith Barney World Funds, Inc.--International Equity Portfolio
    Smith Barney World Funds, Inc.--Pacific Portfolio
     
  Smith Barney Concert Series Inc.     
       
    Smith Barney Concert Series Inc.--High Growth Portfolio     
       
    Smith Barney Concert Series Inc.--Growth Portfolio     
       
    Smith Barney Concert Series Inc.--Balanced Portfolio     
       
    Smith Barney Concert Series Inc.--Conservative Portfolio     
       
    Smith Barney Concert Series Inc.--Income Portfolio     
       
  Money Market Funds
 
  + Smith Barney Exchange Reserve Fund
 ++ Smith Barney Money Funds, Inc.--Cash Portfolio
 ++ Smith Barney Money Funds, Inc.--Government Portfolio
*** Smith Barney Money Funds, Inc.--Retirement Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
+++ Smith Barney Muni Funds--California Money Market Portfolio
+++ Smith Barney Muni Funds--New York Money Market Portfolio
--------------------------------------------------------------------------------
 
  * Available for exchange with Class A, Class C and Class Y shares of the
    Portfolio.
 ** Available for exchange with Class A, Class B and Class Y shares of the
    Portfolio. In addition, shareholders who own Class C shares of the
    Portfolio through the Smith Barney 401(k) Program may exchange those shares
    for Class C shares of this fund.
*** Available for exchange with Class A shares of the Portfolio.
  + Available for exchange with Class B and Class C shares of the Portfolio.
 ++ Available for exchange with Class A and Class Y shares of the Portfolio. In
    addition, shareholders who own Class C shares of the Portfolio through the
    Smith Barney 401(k) Program may exchange those shares for Class C shares of
    this fund.
+++ Available for exchange with Class A and Class Y shares of the Portfolio.
 
34
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
EXCHANGE PRIVILEGE (CONTINUED)
 
 
  Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge of less than the maximum charged
by other Smith Barney Mutual Funds will be subject to the appropriate "sales
charge differential" upon the exchange of such shares for Class A shares of a
fund sold with a higher sales charge. The "sales charge differential" is lim-
ited to a percentage rate no greater than the excess of the sales charge rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For pur-
poses of the exchange privilege, shares obtained through automatic reinvest-
ment of dividends and capital gain distributions are treated as having paid
the same sales charges applicable to the shares on which the dividends or dis-
tributions were paid; however, except in the case of the Smith Barney 401(k)
Program, if no sales charge was imposed upon the initial purchase of the
shares, any shares obtained through automatic reinvestment will be subject to
a sales charge differential upon exchange.
 
  Class B Exchanges. In the event a Class B shareholder (unless such share-
holder was a Class B shareholder of the Short-Term World Income Fund on July
15, 1994) wishes to exchange all or a portion of his or her shares in any of
the funds imposing a higher CDSC than that imposed by the Portfolio, the
exchanged Class B shares will be subject to the higher applicable CDSC. Upon
an exchange, the new Class B shares will be deemed to have been purchased on
the same date as the Class B shares of the Portfolio that have been exchanged.
 
  Class C Exchanges. Upon an exchange, the new Class C shares will be deemed
to have been purchased on the same date as the Class C shares of the Portfolio
that have been exchanged.
 
  Class Y Exchanges. Class Y shareholders of the Portfolio who wish to
exchange all or a portion of their Class Y shares for Class Y shares 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 Portfolio'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 Portfolio's other shareholders. In this
event the Fund may, at its discretion, decide to limit additional purchases
and/or     
 
                                                                             35
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
EXCHANGE PRIVILEGE (CONTINUED)
   
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 Portfolio or (b) remain
invested in the Portfolio 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 Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined, plus any applicable
sales charge differential. 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. A capital
gain or loss for tax purposes will be realized upon the exchange, depending
upon the cost or other basis of shares redeemed. Before exchanging shares,
investors should read the current prospectus describing the shares to be
acquired. The Portfolio     
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 Portfolio tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until the Fund's transfer agent
receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third day following receipt of
proper     
 
36
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
REDEMPTION OF SHARES (CONTINUED)
   
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 pro-
ceeds are remitted to a Smith Barney brokerage account, these funds will not be
invested for the shareholder's benefit without specific instruction and Smith
Barney will benefit from the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a certified or official bank
check, will be remitted upon clearance of the check, which may take up to ten
days or more.     
 
  Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as Custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
 
  Smith Barney World Funds, Inc./Emerging Markets Portfolio
  Class A, B, C or Y (please specify)
     
  c/o First Data Investor Services Group, Inc.     
  P.O. Box 9134
  Boston, Massachusetts 02205-9134
   
  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 regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a written redemption request in excess of
$2,000, share certificate or stock power must be guaranteed by an eligible
guarantor institution, such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal Reserve System or member firm
of a national securities exchange. Written redemption requests of $2,000 or
less do not require a signature guarantee unless more than one such redemption
request is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. First Data may require additional supporting doc-
uments for redemptions made by corporations, executors, administrators, trust-
ees or guardians. A redemption request will not be deemed properly received
until First Data receives all required documents in proper form.     
 
                                                                              37
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
REDEMPTION OF SHARES (CONTINUED)
 
 
 AUTOMATIC CASH WITHDRAWAL PLAN
 
  The Portfolio 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 share-
holder is eligible to receive qualified distributions and has an account value
of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Portfolio. Any applicable CDSC will not be
waived on amounts withdrawn by a shareholder that exceed 1.00% per month of the
value of the shareholder's shares subject to the CDSC at the time the with-
drawal plan commences. For further information regarding the automatic cash
withdrawal plan, shareholders should contact a Smith Barney Financial Consul-
tant.
    
 TELEPHONE REDEMPTION AND EXCHANGE PROGRAM     
   
  Shareholders who do not have a Smith Barney brokerage account may be eligible
to redeem and exchange Fund shares by telephone. To determine if a shareholder
is entitled to participate in this program, he or she should contact First Data
at 1-800-451-2010. Once eligibility is confirmed, the shareholder must complete
and return a Telephone/Wire Authorization Form, along with a signature guaran-
tee, that will be provided by First Data 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 the Fund.)     
   
  Redemptions. Redemption requests of up to $10,000 of any class or classes of
the Fund's shares, may be made by eligible shareholders by calling First Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day the NYSE is open. Redemptions of shares (i) by
retirement plans or (ii) for which certificates have been issued are not per-
mitted under this program.     
   
  A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
    
38
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
   
REDEMPTION OF SHARES (CONTINUED)     
   
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 com-
plete 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 First Data at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (New York City time) on any day on which the NYSE is open.     
   
  Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions 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 follow-
ing at least seven (7) days prior notice to shareholders.     
 
MINIMUM ACCOUNT SIZE
 
 
  The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Portfolio if the aggregate net asset value of the shares held in
the Portfolio account is less than $500. (If a shareholder has more than one
account in this Portfolio, each account must satisfy the minimum account size.)
The Fund, however, will not redeem shares based solely on market reductions in
net asset value. Before the Fund exercises such right, shareholders will
receive written notice and will be permitted 60 days to bring accounts up to
the minimum to avoid automatic liquidation.
 
                                                                              39
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
PERFORMANCE
   
  From time to time the Portfolio may include its total return, average annual
total return and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A, Class
B, Class C and Class Y shares of the Portfolio. These figures are based on his-
torical earnings and are not intended to indicate future performance. Total
return is computed for a specified period of time assuming deduction of the
maximum sales charge, if any, from the initial amount invested and reinvestment
of all income dividends and capital gain distributions on the reinvestment
dates at prices calculated as stated in this Prospectus, then dividing the
value of the investment at the end of the period so calculated by the initial
amount invested and subtracting 100%. The standard average annual total return,
as prescribed by the SEC is derived from this total return, which provides the
ending redeemable value. Such 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. The Portfolio calculates current dividend return
for each Class by dividing the current dividend by the net asset value or the
maximum public offering price (including sales charge) on the last day of the
period for which current dividend return is presented. The current dividend
return for each Class may vary from time to time depending on market condi-
tions, the composition of its investment portfolio and operating expenses.
These factors and possible differences in the methods used in calculating cur-
rent dividend return should be considered when comparing a Class' current
return to yields published for other investment companies and other investment
vehicles. The Portfolio may also include comparative performance information in
advertising or marketing its shares. Such performance information may include
data from Lipper Analytical Services, Inc. and other financial publications.
    
MANAGEMENT OF THE FUND
 
 
 BOARD OF DIRECTORS
 
  Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant agreements
between the Fund and the companies that furnish services to the Fund and the
Portfolio, including agreements with the Fund's distributor, investment manag-
er, custodian and transfer agent. The day-to-day operations of the Portfolio
are delegated to the Portfolio's investment manager. The Statement of Addi-
tional
 
40
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
MANAGEMENT OF THE FUND (CONTINUED)
 
Information contains background information regarding each Director and execu-
tive officer of the Fund.
 
 MANAGER
   
  Smith Barney Mutual Funds Management Inc. (the "Manager") manages the day-to-
day operations of the Portfolio pursuant to a management agreement entered into
by the Fund on behalf of the Portfolio under which the Manager is responsible
for furnishing or causing to be furnished to the Portfolio advice and assis-
tance with respect to the acquisition, holding or disposal of securities and
recommendations with respect to other aspects and affairs of the Portfolio and
furnishes the Portfolio with bookkeeping, accounting and administrative servic-
es, office space and equipment, and the services of the officers and employees
of the Fund. By written agreement the Research and other departments and staff
of Smith Barney furnish the Manager with information, advice and assistance and
are available for consultation on the Portfolio, thus Smith Barney may also be
considered an investment adviser to the Fund. Smith Barney services are paid
for by the Manager on the basis of direct and indirect costs to Smith Barney of
performing such services; there is no charge to the Fund for such services. For
the investment advisory services provided by the Manager, the Portfolio pays
the Manager an investment advisory fee calculated at the rate of 1.00% of the
Portfolio's average daily net assets, paid monthly. Although this fee is higher
than that paid by most investment companies, the Portfolio's management has
determined that it is comparable to the fee charged by other investment advis-
ers of investment companies that have similar investment objectives and poli-
cies.     
   
  For the Portfolio's fiscal period ended October 31, 1995, the Manager waived
a portion of its management fee; the management fee was 0.33% of the Portfolio's
average net assets. Total operating expenses incurred by the Portfolio for this
period were 1.45% for Class A shares; 2.00% for Class B shares and 1.95% for
Class C shares.     
 
  The management agreement further provides that all other expenses not specif-
ically assumed by the Manager under the management agreement on behalf of the
Portfolio are borne by the Fund. Expenses payable by the Fund 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 Fund) and shareholder
servicing agents, expenses of preparing, printing and distributing all prospec-
tuses, proxy material, reports and notices to shareholders, all expenses of
shareholders' and directors' meetings, filing fees and expenses relating to the
 
                                                                              41
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
MANAGEMENT OF THE FUND (CONTINUED)
 
registration and qualification of the Fund's shares and the Fund under federal
or state securities laws and maintaining such registrations and qualifications
(including the printing of the Fund's registration statements), fees of audi-
tors 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 1940 Act, interest, taxes and governmental fees, fees and com-
missions of every kind, expenses of issue, repurchase or redemption of shares,
insurance expense, association membership dues, all other costs incident to the
Fund's existence and extraordinary expenses such as litigation and indemnifica-
tion expenses. Direct expenses are charged to each of the Fund's Portfolios;
general corporate expenses are allocated on the basis of relative net assets.
   
  The Manager was incorporated on March 12, 1968 under the laws of Delaware. As
of October 31, 1995 the Manager had aggregate assets under management of
approximately $69 billion. The Manager, Smith Barney and Holdings are each
located at 388 Greenwich Street, New York, New York 10013. The term "Smith Bar-
ney" in the title of the Fund has been adopted by permission of Smith Barney
and is subject to the right of Smith Barney to elect that the Fund stop using
the term in any form or combination of its name.     
 
 PORTFOLIO MANAGEMENT
 
  The Portfolio is managed by Donald Elefson. Mr. Elefson joined the Smith Bar-
ney international equity team in the spring of 1994 and is a Vice President of
the Fund and of Smith Barney. Previously, he assisted in the management of the
emerging markets mutual funds at Merrill Lynch Asset Management. Prior to Mer-
rill Lynch, Mr. Elefson held a position in equity analysis and equity sales
with Cazenove Inc. and BHF Securities in New York, and with Georg Hauck and
Sohn in Frankfurt, Germany.
   
  Management's discussion and analysis, and additional performance information
regarding the Portfolio during the fiscal period ended October 31, 1995 is
included in the Annual Report dated October 31, 1995. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.     
 
42
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
DISTRIBUTOR
 
  Smith Barney distributes shares of the Portfolio as principal underwriter
and as such conducts a continuous offering pursuant to a "best efforts"
arrangement requiring Smith Barney to take and pay for only such securities as
may be sold to the public. Pursuant to a plan of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is
paid a service fee with respect to Class A, Class B and Class C shares of the
Portfolio at the annual rate of 0.25% of the average daily net assets
attributable to these Classes. Smith Barney is also paid a distribution fee
with respect to Class B and Class C shares at the annual rate of 0.75% of the
average daily net assets attributable to these Classes. Class B shares that
automatically convert to Class A shares eight years after the date of original
purchase will no longer be subject to a distribution fee. The fees are used by
Smith Barney to pay its Financial Consultants for servicing shareholder
accounts and, in the case of Class B and Class C shares, to cover expenses
primarily intended to result in the sale of those shares. These expenses
include: advertising expenses; the cost of printing and mailing prospectuses
to potential investors; payments to and expenses of 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 Smith Barney associated with the sale of Portfolio shares,
including lease, utility, communications and sales promotion expenses.
 
  The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C Shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
   
  Payments under the Plan with respect to Class B and Class C shares are not
tied exclusively to the distribution and shareholder services expenses actu-
ally incurred by Smith Barney and the payments may exceed distribution
expenses actually incurred. The Fund's Board of Directors will evaluate the
appropriateness of the Plan and its payment terms on a continuing basis and in
so doing will consider all relevant factors, including expenses borne by Smith
Barney, amounts received under the Plan and proceeds of the CDSC.     
 
                                                                             43
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
ADDITIONAL INFORMATION
 
  The Fund, an open-end investment company, was incorporated in Maryland on
March 22, 1991. The Fund 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 issu-
ance of six series of shares, each representing shares in one of six separate
Portfolios and may authorize the issuance of additional series of shares in the
future. The assets of each Portfolio are segregated and separately managed and
a shareholder's interest is in the assets of the Portfolio in which he or she
holds shares. Class A, Class B, Class C and Class Y shares of the Portfolio
represent interests in the assets of the Portfolio 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. As described under "Voting" in the Statement of Addi-
tional Information, the Fund ordinarily will not hold meetings of shareholders
annually; however, shareholders have the right to call a meeting upon a vote of
10% of the Fund's outstanding shares for the purpose of voting to remove direc-
tors, and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. Shares do not have cumulative voting rights or pre-
emptive rights and are fully paid, transferable and nonassessable when issued
for payment as described in this Prospectus.
 
  Morgan Guaranty Trust Company of New York, located at 60 Wall Street, New
York, New York 10260, serves as custodian of the Portfolio's investments.
   
  First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Fund's transfer agent.     
 
  The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund at
the end of the period covered. In an effort to reduce the Fund's printing and
mailing costs, the Fund 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. In addition, the Fund also plans to consolidate the mail-
ing of its Prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not want this consolidation to
apply to their account should contact their Smith Barney Financial Consultant
or the Fund's transfer agent.
 
44
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
APPENDIX
 
 CERTAIN INVESTMENT STRATEGIES
 
  In attempting to achieve its investment objective, the Portfolio may employ,
among others, one or more of the strategies set forth below. More detailed
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
 
  Foreign Currencies. The value of the Portfolio's investments, and the value
of dividends and interest earned by the Portfolio, may be significantly
affected by changes in currency exchange rates. Some foreign currency values
may be volatile, and there is the possibility of governmental controls on cur-
rency exchange or governmental intervention in currency markets, which could
adversely affect the Portfolio. Although the Manager may attempt to manage
currency exchange rate risks, there is no assurance that the Manager will do
so at an appropriate time or that the investment adviser will be able to pre-
dict exchange rates accurately. For example, if the Manager increases the
Portfolio's exposure to a foreign currency, and that currency's value subse-
quently falls, the Manager's currency management may result in increased
losses to the Portfolio. Similarly, if the Manager hedges the Portfolio's
exposure to a foreign currency, and that currency's value rises, the Portfolio
will lose the opportunity to participate in the currency's appreciation.
 
  Options and Futures Contracts. The Portfolio may buy and sell options and
futures contracts to manage its exposure to changing interest rates, security
prices, and currency exchange rates. Some options and futures strategies,
including selling futures, buying puts, and writing calls, tend to hedge the
Portfolio's investments against price fluctuations. Other strategies, includ-
ing buying futures, writing puts, and buying calls, tend to increase market
exposure. Options and futures may be combined with each other or with forward
contracts in order to adjust the risk and return characteristics of the over-
all strategy. The Portfolio may invest in options and futures based on any
type of security, index, or currency, including options and futures traded on
foreign exchanges and options not traded on exchanges.
 
  Options and futures can be volatile investments, and involve certain risks.
If the Manager applies a hedge at an inappropriate time or judges market con-
ditions incorrectly, options and futures strategies may lower the Portfolio's
return. The Portfolio could also experience losses if the prices of its
 
                                                                            A-1
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
APPENDIX (CONTINUED)
 
options and futures positions were poorly correlated with its other invest-
ments, or if it could not close out its positions because of an illiquid sec-
ondary market.
 
  The Portfolio will not hedge more than 25% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. In addition,
the Portfolio will not buy futures or write puts whose underlying value
exceeds 25% of its total assets, and will not buy calls with a value exceeding
5% of its total assets.
 
  Swap Agreements. As one way of managing its exposure to different types of
investments, the Portfolio may enter into interest rate swaps, currency swaps,
and other types of swap agreements such as caps, collars, and floors. In a
typical interest rate swap, one party agrees to make regular payments equal to
a floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount for a specified period of
time. If a swap agreement provides for payments in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps
may also depend on other prices or rates, such as the value of a index or
mortgage prepayment rates.
 
  Swap agreements are sophisticated hedging instruments that typically involve
a small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Portfolio's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Portfolio may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.
 
  Indexed Securities. The Portfolio may invest in indexed securities, includ-
ing inverse floaters, whose value is linked to currencies, interest rates,
commodities, indices, or other financial indicators. Most indexed securities
are short to intermediate term fixed-income securities whose values at matu-
rity or interest rates rise or fall according to the change in one or more
specified underlying instruments. Indexed securities may be positively or neg-
atively indexed (i.e., their value may increase or decrease if the underlying
instrument appreciates), and may have return characteristics similar to direct
investments in the underlying instrument or to one or more options on the
underlying instrument. Indexed securities may be more volatile than the under-
lying instrument itself. No more than 5% of the Portfolio's assets will be
invested in inverse floaters.
 
A-2
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
APPENDIX (CONTINUED)
 
 
  Sovereign Debt Obligations. The Portfolio 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. Govern-
mental entities responsible for repayment of the debt may be unable or unwill-
ing to repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of princi-
pal 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 are interests in amounts owed by a
corporate, governmental, or other borrower to another party. They may repre-
sent amounts owed to lenders or lending syndicates (loans and loan participa-
tions), 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 Portfolio 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 Portfolio 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 Inter Bank
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
 
                                                                            A-3
<PAGE>
 
Smith Barney World Funds, Inc. -
Emerging Markets Portfolio
 
APPENDIX (CONTINUED)
 
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. The Portfolio 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 securi-
ties. 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 secu-
rities of comparable maturities and credit quality that pay cash interest (or
dividends in the case of preferred stock) on a current basis.
 
  Premium Securities. The Portfolio 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. The Portfolio will not amortize the premium paid for such securi-
ties in calculating its net investment income. As a result, in such cases the
purchase of such securities provides the Portfolio a higher level of invest-
ment income distributable to shareholders on a current basis than if the Port-
folio purchased securities bearing current market rates of interest. If secu-
rities purchased by the Portfolio at a premium are called or sold prior to
maturity, the Portfolio will recognize a capital loss to the extent the call
or sale price is less than the purchase price. Additionally, the Portfolio
will recognize a capital loss if it holds such securities to maturity.
 
  Yankee Bonds. The Portfolio 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.
 
  Borrowings. The Portfolio may borrow from banks up to 25% of the value of
its assets for temporary or emergency purposes, such as to accommodate
requests for the redemption of shares while effecting an orderly liquidation
of portfolio securities or to clear securities transactions and not for
leveraging purposes.
 
A-4
<PAGE>
 
Smith Barney World Funds, Inc.-
Emerging Markets Portfolio
 
APPENDIX (CONTINUED)
 
 
  Repurchase Agreements and Securities Loans. The Portfolio may enter into
repurchase agreements on up to 25% of its assets and may lend for a fee portfo-
lio securities amounting up to one-third of its assets. These transactions must
be fully collateralized at all times, and the investment adviser will monitor
the
value of the collateral, which will be marked to the market daily, to determine
that the value is at least 100% of the agreed upon sum to be paid to the Port-
folio. Repurchase agreements and lending of portfolio securities involve some
credit risk to the Portfolio, if the other party defaults on its obligations,
since the Portfolio could be delayed or prevented from recovering the collater-
al. The Portfolio currently does not expect that it will enter into repurchase
agreements on more than 5% of its assets.
 
  Foreign Repurchase Agreements. In addition to repurchase agreements solely in
U.S. markets, the Portfolio may enter into repurchase agreements with respect
to foreign securities and repurchase agreements denominated in foreign curren-
cies. Foreign repurchase agreements may be less well secured than repurchase
agreements in U.S. markets, and may involve greater risks of loss if the
counterparty should default on its obligations. As a result, the creditworthi-
ness of the other party is an especially important concern.
 
  Illiquid Investments. The Portfolio may invest up to 15% of its assets in
illiquid investments. Under the supervision of the Board of Directors, the
investment adviser determines the liquidity of the Portfolio's investments. The
absence of a trading market can make it difficult to ascertain a market value
for illiquid investments. Disposing of illiquid investments may involve time-
consuming negotiation and legal expenses, and it may be difficult or impossible
for a Portfolio to sell them promptly at an acceptable price.
 
  Restricted Securities. The Portfolio may invest no more than 10% of its total
assets in securities which cannot be sold to the public without registration
under the Securities Act of 1933 (restricted securities). Unless registered for
sale, these securities can only be sold in privately negotiated transactions or
pursuant to an exemption from registration. Restricted securities (excluding
securities issued pursuant to Rule 144A of the Securities Act of 1933) are con-
sidered to be illiquid and are subject to the 15% limitation on investments in
illiquid securities.
 
  Delayed-Delivery Transactions. The Portfolio may buy and sell securities on a
when-issued or delayed-delivery basis, with payment and delivery taking
 
                                                                             A-5
<PAGE>
 
Smith Barney World Funds, Inc.
Emerging Markets Portfolio
 
APPENDIX (CONCLUDED)
 
place at a future date. The market value of securities purchased in this way
may change before the delivery date, which could increase fluctuation in the
Portfolio's yield. Although the Portfolio has not established any limit on the
percentage of its assets that may be committed in connection with such trans-
actions, the Portfolio will maintain a segregated account with its custodian
of cash, cash equivalents, U.S. Government securities or other high grade liq-
uid debt or equity securities denominated in U.S. dollars or non-U.S. curren-
cies in an aggregate amount equal to the amount of its commitment in connec-
tion with such purchase transactions.
 
  Structured Notes. The 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 some-
times 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
that puts the deal together) 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 Portfolio would not
be involved in the swap; the issuer of the note would remain obligated even if
its counterparty defaulted.
 
A-6
<PAGE>
 

                                        Smith Barney
                                        ------------
                                              A Member of Travelers Group [LOGO]
 
 
 
 
 
 
 
 
                                                                    SMITH BARNEY
                                                               WORLD FUNDS, INC.
                                                      EMERGING MARKETS PORTFOLIO
 
 
                                   388 Greenwich Street New York, New York 10013
                                                                    
                                                                 FD08752/96     



	SMITH BARNEY WORLD FUNDS, INC.
	388 Greenwich Street
	New York, New York 10013

	STATEMENT OF ADDITIONAL INFORMATION
   
	February 28, 1996
    
	Shares of the Fund are offered with a choice of six Portfolios:

	The Global Government Bond Portfolio 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.

	The International Equity Portfolio seeks a total return on its 
assets from growth of capital and income.  The Portfolio seeks to 
achieve its objective principally through a diversified portfolio 
of equity securities of established non-United States issuers.

	The Pacific Portfolio seeks long-term capital appreciation by 
investing primarily in a diversified portfolio of equity securities 
of companies in the Asian Pacific Countries.

	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 through a portfolio 
invested primarily in securities of established non-United States 
issuers.  
 
	The Emerging Markets Portfolio seeks long term capital appreciation on 
its assets through a portfolio invested primarily in securities of 
emerging country issuers.  The Emerging Markets Portfolio is not 
currently available for investment.

The 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 
shares) or (ii) on a deferred basis (Class B and Class C 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. A fifth class 
of shares of the International Equity Portfolio (the Class Z shares) are 
offered only to tax-exempt retirement plans of Smith Barney Inc.  These 
alternatives permit an investor to choose the method of purchasing shares that 
is most beneficial given the amount of the purchase, the length of time the 
investor expects to hold the shares and other circumstances.
   
This Statement of Additional Information is not a prospectus.  It is intended 
to provide more detailed information about Smith Barney World Funds, Inc. as 
well as matters already discussed in the Prospectus of the applicable 
Portfolio and therefore should be read in conjunction with each Prospectus 
dated February 28, 1996 for the International Equity Portfolio, the Global 
Government Bond Portfolio, the Pacific Portfolio, the European Portfolio, the 
International Balanaced Portfolio and the Emerging Markets Portfolio, which 
may be obtained from the Fund or your Smith Barney Financial Consultant.



    

TABLE OF CONTENTS


					Page

Directors and Officers		    	3	
Investment Policies			5	
Investment Restrictions			14
Additional Tax Information		17	
IRA and Other Prototype Retirement Plans	19	
Performance Information			20	
Determination of Net Asset Value		27	
Redemption of Shares			27	
Investment Management Agreement and Other Services		27
Custodian				31
Independent Auditors			31	
Voting					31	
Financial Statements			34	
Appendix - Ratings of Debt Obligations	35




	DIRECTORS, ADVISORY DIRECTOR AND OFFICERS



VICTOR K. ATKINS, Director
Retired; 120 Montgomery Street, San Francisco, CA. Former President of Lips 
Propellers, Inc.  Director of two investment companies associated with Smith 
Barney; 74.  
       
ALGER B. CHAPMAN, Director
Chairman and Chief Executive Officer, Chicago Board of Options Exchange; 400 
S. LaSalle, Chicago, Il.  Director of seven investment companies associated 
with Smith Barney; 68.

ROBERT A. FRANKEL, Director
Managing Partner of Robert A. Frankel Managing Consultants, 108 Grand Street, 
Croton-on-Hudson, NY.  Director of seven investment companies associated with 
Smith Barney.  Former Vice President of The Readers Digest; 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 Smith Barney; 60.  

SUSAN M. HEILBRON, Director
Attorney; 411 West End Avenue, New York, NY.  Prior to November 1990, Vice 
President and General Counsel of MacMillan, Inc. and Executive Vice President 
of The Trump Organization.  Director of two investment companies associated 
with Smith Barney; 51.

*BRUCE D. SARGENT, Vice President and Director
Managing Director of Smith Barney  Inc. ("Smith Barney ") and Vice President 
and Director of Smith Barney Mutual Fund Management, Inc. (the "Manager"), and 
four investment companies associated with Smith Barney; 52.  

JAMES M. SHUART, Director
President, Hofstra University; 1000 Fulton Avenue, Hempstead, NY.  Director of 
European American Bank; Director of Long Island Tourism and Convention 
Commission; and Director of Association of Colleges and Universities of the 
State of New York.  Director of two investment companies associated with Smith 
Barney; 64.

*HEATH P. McLENDON, Chairman of the Board and Chief Executive Officer 
Managing Director of Smith Barney; Director of thirty-nine investment 
companies associated with Smith Barney; President of the Manager; Chairman of 
Smith Barney Strategy Advisers Inc.; prior to July 1993, Senior Executive Vice 
President of  Shearson Lehman Brothers, Inc.; Vice Chairman of Shearson Asset 
Management; 62.

*JESSICA BIBLIOWICZ, Director and President
Executive Vice President of Smith Barney, Director of eleven investment 
companies and President of  forty investment companies associated with Smith 
Barney; prior to January, 1994, Director of Sales and Marketing of Prudential 
Mutual Funds; prior to September, 1991, Assistant Portfolio Manager to 
Shearson Lehman Brothers; 36.





*MAURITS E. EDERSHEIM, Chairman of the Fund and Advisory  Director
Deputy Chairman of Smith Barney  International Incorporated; Chairman of the 
Board, Chief Executive Officer, Treasurer and Secretary of Fenimore 
International Management Corporation ("FIMC"); Director and President of 
Amstel Hudson Management Corp. (offshore investment management); Director 
Esfinco NV (U.S. subsidiary of Spanish Construction Company); Member of the 
International Capital Markets Advisory Committee--NYSE.  Formerly Deputy 
Chairman and Director of Drexel Burnham Lambert Incorporated, The Drexel 
Burnham Lambert Group Inc., and various of their subsidiaries; 77.


*LEWIS E. DAIDONE, Senior Vice President and Treasurer 
Managing Director of Smith Barney , and Senior Vice President and Treasurer of 
forty-one investment companies associated with Smith Barney , and Director and 
Senior Vice President of the Manager.  Prior to January 1990, Senior Vice 
President and Chief Financial Officer of Cortland Financial Group, Inc. and 
Vice President and Treasurer of its associated investment companies and 
subsidiary broker-dealer; 38.

*JAMES B. CONHEADY, Vice President
Managing Director of Smith Barney ; Vice President of FIMC.  Formerly First 
Vice President of Drexel Burnham Lambert Incorporated; 60.

*JEFFREY RUSSELL, Vice President
Managing Director of Smith Barney ; Vice President and Assistant Secretary of 
FIMC.  Formerly Vice President of Drexel Burnham Lambert Incorporated; 38.

*REIN VAN DER DOES, Vice President
Managing Director of Smith Barney ; Vice President of FIMC.  Formerly Vice 
President of Drexel Burnham Lambert Incorporated; 56.

*VICTOR S. FILATOV, Vice President
Managing Director of Smith Barney , President and Director of Smith Barney 
Global Capital Management Inc.  Formerly Vice President of J.P. Morgan 
Securities Inc; 44.

*SIMON R. HILDRETH, Vice President
Senior Vice President of Smith Barney , Managing Director of Smith Barney 
Global Capital Management Inc.  Formerly Director of Mercury Asset Management 
Ltd; 44.

*DENIS P. MANGAN, Vice President
Vice President of Smith Barney Global Capital Management Inc.  Formerly Vice 
President of J.P. Morgan and Citibank; 45.

*IRVING DAVID, Controller
Vice President of the Manager.  Formerly Assistant Treasurer of First 
Investment Management Company; 35. 

*CHRISTINA T. SYDOR, Secretary
Managing Director of Smith Barney  and Secretary of forty-one investment 
companies associated with Smith Barney; Secretary and General Counsel of the 
Manager; 45.  


                      
*  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 Fund officer or director.
   
     On February 2, 1996 directors and officers owned, in the aggregate, less 
than 1% of the outstanding shares of the International Equity Portfolio, the 
Global Government Bond Portfolio, the International Balanced Portfolio and the 
Emerging Markets Portfolio.  As of February 2, 1996, the directors and 
officers as a group owned, in the aggregate, 1.36% and 1.32% of the 
outstanding Class A shares of the European and Pacific Portfolios, 
respectively.
    
	The following table shows the compensation paid by the Fund to each 
director during the Fund's last fiscal year.  None of the officers of the Fund 
received any compensation from the Fund for such period.  Officers and 
interested directors of the Fund are compensated by Smith Barney.


	
	                                              COMPENSATION TABLE              
                        
                				       Total
				                     Pension or 	    Compensation               Number of
				                    Retirement	        from Fund                Funds for
		Aggregate        Benefits Accrued       and Fund 	              Which Director
		Compensation 	        as part of 	     Complex                Serves Within
	Name of Person  from Fund Fund Expenses  Paid to Directors	     Fund Complex 
	Victor K. Atkins		$23,001.00	 $0           	$26,400.00	            2
	Jessica M. Bibliowicz  		0	    0	                  	0	            12
	Alger B. Chapman	  23,001.00	  0	           69,850.00	             7
	Robert A. Frankel	  23,001.00	 0 	          65,100.00	             7
	Ranier Greeven	  	22,501.00	   0	           24,800.00	             2
	Susan M. Heilbron	  23,001.00	 0	           26,400.00	             2
	Heath B. McLendon	     0   			 0                   0	             42
	Bruce D. Sargent	      0			    0                   0	              4
	James M. Shuart	  	23,001.00	  0	           26,400.00	             2
    
	INVESTMENT POLICIES

	Except as described under "INVESTMENT RESTRICTIONS," the investment 
policies described in the Prospectuses and in this Statement of Additional 
Information are not fundamental and the Board of Directors may change such 
policies without shareholder approval.

	The Fund effects transactions with a view towards attaining each 
Portfolio'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 Portfolio will bear directly, and may result in the 
realization of net capital gains which are taxable when distributed to 
shareholders.  See "Investment Management Agreement and Other Services -
Portfolio Transactions" in this Statement of Additional Information.

	Each of the following investment policies is subject to the limitations 
set forth under "Investment Restrictions."

Repurchase Agreements.  As described in the applicable Prospectus, the 
International Equity Portfolio, the Pacific Portfolio, the European Portfolio, 
the International Balanced Portfolio and the Emerging Markets Portfolio each 
may enter into repurchase agreements.  A repurchase agreement is a contract 
under which a Portfolio 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 Portfolio to resell such security at a fixed time and price 
(representing the Portfolio's cost plus interest).  It is each Portfolio'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 Portfolio which are collateralized primarily by the 
securities subject to repurchase.  A Portfolio bears a risk of loss in the 
event that the other party to a repurchase agreement defaults on its 
obligations and the Portfolio is delayed or prevented from exercising its 
rights to dispose of the collateral securities.  Pursuant to policies 
established by the Board of Directors, the investment adviser monitors the 
creditworthiness of all issuers with which each Portfolio enters into 
repurchase agreements.

Reverse Repurchase Agreements.  The Fund does not currently intend to commit 
more than 5% of a Portfolio's net assets to reverse repurchase agreements.  
The Fund may enter into reverse repurchase agreements with broker/dealers and 
other financial institutions.  Such agreements involve the sale of Portfolio 
securities with an agreement to repurchase the securities at an agreed-upon 
price, date and interest payment and are considered to be borrowings by a 
Portfolio 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 Fund 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 Portfolio 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 Fund intends to use the reverse repurchase 
technique only when the Manager believes it will be advantageous to the 
Portfolio.  The use of reverse repurchase agreements may exaggerate any 
interim increase or decrease in the value of the participating Portfolio's 
assets.  The Fund's custodian bank will maintain a separate account for the 
Portfolio with securities having a value equal to or greater than such 
commitments.

Restricted Securities.  Each Portfolio may invest in securities the 
disposition of which is subject to legal or contractual restrictions.  The 
sale of restricted securities often requires more time and results in higher 
brokerage charges or dealer discounts and other selling expenses than does the 
sale of securities eligible for trading on a national securities exchange that 
are not subject to restrictions on resale.  Restricted securities often sell 
at a price lower than similar securities that are not subject to restrictions 
on resale.

Securities Lending.  Each Portfolio 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 Portfolio 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 Fund 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 Portfolio.  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 Portfolio's investment in the securities loaned.  Apart from lending its 
securities and acquiring debt securities of a type customarily purchased by 
financial institutions, no Portfolio will make loans to other persons.

Commercial Bank Obligations.  For the purposes of each Portfolio'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 non-U.S. 
securities in general, investments in the obligations of foreign branches of 
U.S. banks and of foreign banks may subject the Portfolio to investment risks 
that are different in some respects from those of investments in obligations 
of domestic issuers.  Although a Portfolio 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 Portfolio.  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 non-U.S. branches.

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 Portfolios, 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 Portfolio, 
therefore, may not invest in a master demand note, if as a result more than 
15% of the value of the Portfolio's total assets would be invested in such 
notes and other illiquid securities.

Writing Covered Call Options.  Each Portfolio 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 investment adviser, 
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 Portfolio.

	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 Fund believe 
that writing of covered call options is less risky than writing uncovered or 
"naked" options, which the Portfolios 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 Portfolio's investment objective.  When writing a covered call 
option, the Portfolio, 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 Portfolio 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 Portfolio has written expires, the Portfolio 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 Portfolio 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 Portfolio's custodian.  The Portfolio does not consider a security or 
currency covered by a call option to be "pledged" as that term is used in the 
Portfolio's policy which limits the pledging or mortgaging of its assets.

	The premium the Portfolio receives for writing a call option is deemed to 
constitute the market value of an option.  The premium the Portfolio 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 Portfolio for writing 
covered call options will be recorded as a liability in the Portfolio'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" in the Prospectus.  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 Portfolio to write another call option on the underlying security 
or currency with either a different exercise price, expiration date or both.  
If the Portfolio 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 Portfolio 
will be able to effect such closing transactions at a favorable price.  If the 
Portfolio 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 a market risk with respect to the security or currency.

	Each Portfolio 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 Portfolio, 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 
Portfolio 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 Portfolio 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 Portfolio.

	See "Additional Tax Information" for a discussion of federal income tax 
treatment of covered call options.

Purchasing Put Options.  Each Portfolio may purchase put options.  As the 
holder of a put option, the Portfolio has the right to sell the underlying 
security or currency at the exercise price at any time during the option 
period.  The Portfolio may enter into closing sale transactions with respect 
to such options, exercise them or permit them to expire.

	Each Portfolio may purchase a put option on an underlying security or 
currency (a "protective put") owned by the Portfolio 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 Portfolio, 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 
would reduce any capital gain otherwise available for distribution when the 
security or currency is eventually sold.

	Each Portfolio may also purchase put options at a time when the Portfolio 
does not own the underlying security or currency.  By purchasing put options 
on a security or currency it does not own, the Portfolio 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 Portfolio 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 Portfolio when purchasing a put option will be 
recorded as an asset in the Portfolio's statement of assets and liabilities.  
This asset will be adjusted daily to the option's current market value, which 
will be calculated as described in "Determination of Net Asset Value" in the 
Prospectus.  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.  Each Portfolio may purchase call options.  As the 
holder of a call option, a Portfolio has the right to purchase the underlying 
security or currency at the exercise price at any time during the option 
period.  The Portfolio 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 Portfolio for the purpose of acquiring the underlying 
security or currency for its portfolio.  Utilized in this fashion, the 
purchase of call options enables the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio's 
current return.

Interest Rate and Currency Futures Contracts.  Each Portfolio 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 Portfolio.  A 
Portfolio's hedging may include holding Futures as an offset against 
anticipated changes in interest or currency exchange rates.  A Portfolio 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.  The International Equity Portfolio and the Pacific 
Portfolio and the International Balanced Portfolio may also enter into Futures 
Contracts for non-hedging purposes, subject to applicable law.

	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 Portfolio's exposure to interest rate and currency 
exchange rate fluctuations, the Portfolio 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 Portfolio 
realizes a gain; if it is more, the Portfolio realizes a loss.  Conversely, if 
the offsetting sale price is more than the original purchase price, the 
Portfolio realizes a gain; if it is less, the Portfolio realizes a loss.  The 
transaction costs must also be included in these calculations.  There can be 
no assurance, however, that the Portfolio will be able to enter into an 
offsetting transaction with respect to a particular Futures Contract at a 
particular time.  If the Portfolio is not able to enter into an offsetting 
transaction, the Portfolio will continue to be required to maintain the margin 
deposits of the underlying financial instrument or currency on the relevant 
delivery date.  The Fund 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 Portfolio.

	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 
obligers 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 Portfolio'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 Portfolio owns, or 
Futures Contracts will be purchased to protect a Portfolio 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 and the International Balanced 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 Portfolio with a broker in order to initiate Futures 
trading and to maintain the Portfolio's open positions in Futures Contracts.  
A margin deposit made when the Futures Contract is entered into ("initial 
margin") is intended to assure the Portfolio'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 Portfolio.  In computing daily net asset values, the 
Portfolio will mark to market the current value of its open Futures Contracts. 
 Each Portfolio expects to earn interest income on its margin deposits.

Risks of Using Futures Contracts.  The prices of Futures Contracts are 
volatile and are influenced, among other things, by 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 Portfolio, 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 Portfolio enters into Futures transactions for 
non-hedging purposes, it will be subject to greater risks and could sustain 
losses which are net offset by gains on other portfolio assets.

	Furthermore, in the case of a Futures Contract purchase, in order to be 
certain that each Portfolio has sufficient assets to satisfy its obligations 
under a Futures Contract, the Portfolio segregates and commits to back the 
Futures Contract an amount of cash, U.S. Government securities and other 
liquid, high-grade debt securities equal in value to the current value of the 
underlying instrument less the margin deposit.

	Most United States 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.

	See "Additional Tax Information" for a discussion of federal tax treatment 
of Futures Contracts.

Options on Futures Contracts.  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 
Portfolio 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 Portfolio or to 
reduce or eliminate the hedge position then currently held by the Portfolio, 
the Portfolio 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 Portfolios 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 Portfolio 
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 Portfolio's assets.  The Global Government Bond Portfolio and the 
European Portfolio will enter into transactions in Futures Contracts and 
options on Futures Contracts only for hedging purposes.

Forward Currency Contracts and Options on Currency.  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 
Portfolio 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 
Portfolio engages in forward currency transactions in anticipation of, or to 
protect itself against, fluctuations in exchange rates.  A Portfolio might 
sell a particular foreign currency forward, for example, when it holds bonds 
denominated in that currency but anticipates, and seeks to be protected 
against,  decline in the currency against the U.S. dollar.  Similarly, a 
Portfolio 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 Portfolio 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 Portfolio may not always be able to enter into 
foreign currency forward contracts at attractive prices and this will limit 
the Portfolio's ability to use such contract to hedge or cross-hedge its 
assets.  Also, with regard to a Portfolio'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 Portfolio's cross-hedges and the movements 
in the exchange rates of the foreign currencies in which the Portfolio'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 Portfolio, however, may enter into 
forward contracts with deposit requirements or commissions.

	A put option gives a Portfolio, 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 Portfolio, as purchaser, 
the right (but not the obligation) to purchase a specified amount of currency 
at the exercise price until its expiration.  A Portfolio 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 Portfolio 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 Portfolio anticipates purchasing securities.

	Each Portfolio'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 
Portfolio 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 Portfolio would have to exercise 
those options which it has purchased in order to realize any profit.  The 
staff of the Securities and Exchange Commission 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 Portfolio 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 
Portfolio 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.

Swap Agreements. Among the hedging transactions into which the Portfolios may 
enter are interest rate swaps and the purchase or sale of interest rate caps 
and floors.  Each Portfolio 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 
Portfolio anticipates purchasing at a later date.  Each Portfolio intends to 
use these transactions as a hedge and not as a speculative investment.  Each 
Portfolio will not sell interest rate caps or floors that it does not own.  
Interest rate swaps involve the exchange by a Portfolio 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 Portfolio 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 but, with the 
Portfolio 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 investment adviser and the Portfolios believe 
such obligations do not constitute senior securities and, accordingly will not 
treat them as being subject to its borrowing restrictions.  The net amount of 
the excess, if any, of a Portfolio's obligations over its entitlement 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 Investment Company Act 
of 1940.  The Portfolios 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 Portfolio 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 Portfolios may invest in any such options and 
contracts as may be developed to the extent consistent with its investment 
objective and regulatory requirements applicable to investment companies.

	The Articles of Incorporation of the Fund permit the Board of Directors to 
establish additional Portfolios of the Fund from time to time.  The investment 
objectives, policies and restrictions applicable to additional Portfolios 
would be established by the Board of Directors at the time such Portfolios 
were established and may differ from those set forth in the Prospectus and 
this Statement of Additional Information.

	INVESTMENT RESTRICTIONS

	The Fund 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 Portfolio affected by the change as 
defined in the Investment Company Act of 1940 (the "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 a particular industry, except that this limitation shall not 
apply to securities issued or guaranteed as to principal and interest by the 
U.S. Government or any of its agencies or instrumentalities; 4. Purchase any 
securities on margin, provided that the Portfolio may obtain such short-term 
credits as may be necessary for the clearance of purchases and sales of 
securities; except that it may make margin deposits in connection with futures 
contracts subject to Investment Restriction 14. below; 5. Make short sales of 
securities or maintain a short position in securities unless at all times when 
a short position in securities is open, the Portfolio owns or has the right to 
obtain, at no added cost, securities identical to those sold short; 6. Buy or 
sell real estate (including real estate limited partnerships) and real estate 
mortgage loans, commodities or commodity contracts, or issue senior 
securities; however, the Portfolio may invest in debt securities secured by 
real estate or interests therein or issued by companies that invest in real 
estate or interest therein, including real estate investment trusts, provided 
such securities are readily marketable and may purchase or sell currencies 
(including forward currency contracts), futures contracts and related options 
generally as described in the Prospectus and this Statement of Additional 
Information and subject to Investment Restriction 14. below; 7. Invest in 
securities of another investment company except as permitted by Section 12(d) 
(1) of the Investment Company Act of 1940 or as part of a merger, 
consolidation, or acquisition; 8. Have more than 15% of its total assets at 
any time invested in or subject to puts, calls or combinations thereof; 9. 
Borrow money, except from banks for temporary or emergency purposes not in 
excess of 33 1/3% of the value of the Portfolio's total assets.  Whenever such 
borrowings exceed 5% of the value of the Portfolio's total assets, the 
Portfolio will not make any additional investments.  This restriction shall 
not prevent the Portfolio from entering into reverse repurchase agreements, 
provided that reverse repurchase agreements and any other transactions 
constituting borrowing by the Portfolio may not exceed one-third of the 
Portfolio's total assets.  In the event that the asset coverage for the 
Portfolio's borrowings falls below 300%, the Portfolio would reduce, within 
three days (excluding Saturdays, Sundays and holidays), the amount of its 
borrowings in order to provide for 300% asset coverage; 10. Pledge, mortgage 
or hypothecate its assets other than (i) in connection with the investment 
strategies described in Investment Restriction 9. above, (ii) to secure 
letters of credit solely for purposes of participating in a captive insurance 
company sponsored by the Investment Company Institute to provide fidelity and 
directors and officers liability insurance, or (iii) in connection with short 
sales and collateral arrangements with respect to options and Futures 
Contracts including deposits of initial and variation margin; 11. Make loans, 
except the Portfolio may purchase debt obligations, enter into repurchase 
agreements and lend its securities; 12. Acquire securities subject to 
restrictions on disposition or securities for which there is no readily 
available market; enter into repurchase agreements, or purchase time deposits 
or variable amount master demand notes, if any of the foregoing have a term or 
demand feature of more than seven days; or purchase OTC options or set aside 
assets to cover OTC options written by the Portfolio if, immediately after and 
as a result, the value of such securities would exceed, in the aggregate, 10% 
of the Portfolio's total assets; 13. Engage in the business of underwriting 
securities of other issuers, except to the extent that the disposal of an 
investment position may technically cause it to be considered an underwriter 
as that term is defined under the Securities Act of 1933; 14. 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 Portfolio'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 Commodity Futures Trading Commission; and 15. Invest in companies for the 
purpose of exercising control or management.

	In order to comply with certain state statutes and policies, the Global 
Government Bond Portfolio also will not, as a matter of operating policy:

	1.  Purchase oil, gas or other mineral leases, rights or royalty contracts 
or exploration or development programs, except that the Portfolio may invest 
in, or sponsor such programs; 2. 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; 3. Purchase or retain the 
securities of any issuer, if those individual officers and directors of the 
issuer, its investment adviser, or distributor, each owning beneficially more 
than 1/2 of 1% of the securities of such issuer, together own more than 5% of 
the securities of such issuer; and 4. Purchase puts, calls, straddles, 
spreads, and any combination, thereof if by reason, thereof the value of its 
aggregate investment in such classes of securities will exceed 5% of its total 
assets.

	A further investment policy of the Global Government Bond Portfolio, which 
may be changed by action of the Fund's Board of Directors without shareholder 
approval, is that the Portfolio shall not invest in securities of an issuer if 
the investment would cause the Portfolio to own more than 10% of any class of 
securities of any one issuer.

	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.Purchase the securities of issuers conducting their principal business 
activities in the same industry if immediately after a particular purchase the 
value of the Portfolio's investments in such industry would exceed 25% of the 
value of its total assets; 2. (a) With respect to the International Equity 
Portfolio only, purchase the securities of any one issuer, if immediately 
after such purchase (i) more than 5% of the value of the total assets of the 
Portfolio would be invested in securities of such issuer, provided that such 
limitation does not apply to the U.S. Government, its agencies or 
instrumentalities, or (ii) the Portfolio would own more than 10% of the 
outstanding voting securities of such issuer; (b) With respect to 75% of the 
value of the total assets of each of the European Portfolio and the Pacific 
Portfolio, purchase the securities of any one issuer, if immediately after 
such purchase (i) more than 5% of the value of the total assets of the 
Portfolio would be invested in securities of such issuer, provided that such 
limitation does not apply to the U.S. Government, its agencies or 
instrumentalities, or (ii) the Portfolio would own more than 10% of the 
outstanding voting securities of such issuer (under the 1940 Act, each 
Portfolio may not, under any circumstance, own more than 10% of the 
outstanding voting securities of an issuer); (c) With respect to 50% of the 
value of the total assets of the International Balanced Portfolio, purchase 
the securities of any one issuer, if immediately after such purchase more than 
5% of the value of the total assets of the Portfolio would be invested in 
securities of such issuer, provided that such limitation does not apply to the 
U.S. Government, its agencies or instrumentalities, or (ii) the Portfolio 
would own more than 10% of the outstanding voting securities of such issuer 
(under the 1940 Act, the Portfolio may not, under any circumstance, own more 
than 10% of the outstanding voting securities of an issuer); (d) With respect 
to 50% of the value of the total assets of the Emerging Markets Portfolio, 
purchase the securities of any one issuer, if immediately after such purchase 
more than 5% of the value of the total assets of the Portfolio would be 
invested in securities of such issuer, provided that such limitation does not 
apply to the U.S. Government, its agencies or instrumentalities; (e) with 
respect to the Emerging Markets Portfolio, purchase more than 10% of the 
outstanding voting securities of any issuer); 3. Invest in real estate or real 
estate mortgage loans, real estate limited partnerships, commodities or 
commodity contracts, or 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; 4. 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 European, Pacific, International Balanced 
and Emerging Markets Portfolios may also purchase shares of other investment 
companies pursuant to Section 12(d)(1) of the Investment Company Act of 1940; 
5. Make investments in securities for the purpose of exercising control over 
or managing the issuer; 6. Make loans, except, to the extent any of such 
transactions may be deemed to be loans, for (a) the purchase of publicly 
distributed debt securities, (b) entry into repurchase agreements or (c) the 
lending of its securities; 7. 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 Portfolio would be invested in such securities; 8. Sell securities 
short, unless at all times when a short position is open the Portfolio owns an 
equal amount of the securities or of securities convertible into, or 
exchangeable without payment of any further consideration for, securities of 
the same issue as the securities sold short; 9. Issue securities senior to its 
common stock or borrow money, except that the Portfolio may borrow  money from 
banks to provide greater liquidity or to make additional portfolio investments 
so long as the aggregate amount borrowed does not exceed 10% of the value of 
the European Portfolio's total assets (including the proceeds of the 
borrowing) or 25% of the value of each of the International Equity 
Portfolio's, the Pacific Portfolio's or the Emerging Markets Portfolio's total 
assets, or 33-1/3% of the International Balanced Portfolio's total assets, as 
the case may be, (including the proceeds of the borrowing) immediately after 
the borrowing and so long as the Portfolio maintains asset coverage ratios 
specified in the Act.  This restriction shall not prevent a Portfolio from 
entering into reverse repurchase agreements, provided that reverse repurchase 
agreements and any transactions constituting borrowing by the Portfolio may 
not exceed one-third of the Portfolio's total assets.  10. Mortgage or pledge 
any assets except to secure borrowings permitted under the previous 
restriction; 11. Purchase the securities of an issuer if, at the time of such 
purchase, one or more of the directors or officers of the Fund or the 
investment adviser individually own beneficially more than .5% of the 
outstanding securities of such issuer and together such trustees, directors 
and officers owning more than .5% own beneficially more than 5% of such 
securities; 12. Purchase a security which is not readily marketable, which is 
subject to legal or contractual restrictions, including repurchase agreements 
and interest rate swaps having more than seven days remaining to maturity, if, 
as a result, more than 5% of total assets with respect to the International 
Equity Portfolio and more than 15% of total assets with respect to each of the 
Pacific Portfolio, the European Portfolio, the International Balanced 
Portfolio and the Emerging Markets Portfolio would consist of such securities; 
provided that each of the Pacific, European, and International Balanced 
Portfolios will not invest more than 5% of its assets in securities that are 
restricted from sale to the public until they have been registered under the 
Securities Act of 1933; or act as an underwriter, except in connection with 
the resale of portfolio securities; or 13. Purchase any securities on margin, 
provided that the Portfolio may obtain such short-term credits as may be 
necessary for the clearance of purchases and sales of securities and except 
that it may make margin deposits in connection with futures contracts.

	In order to comply with certain state statutes and policies, the 
International Equity Portfolio, the Pacific Portfolio, the European Portfolio, 
the International Balanced Portfolio and the Emerging Markets Portfolio  each 
may not:

	1. Purchase warrants if as a result the Portfolio would then have more than 5% 
of its net assets (determined at the time of investment) invested in warrants. 
 Warrants will be valued at the lower of cost or market and investment in 
warrants which are not listed on the New York Stock Exchange or American Stock 
Exchange will be limited to 2% of the Portfolio's net assets (determined at 
the time of investment). For the purpose of this limitation, warrants acquired 
in units or attached to securities are deemed to be without value.   


	ADDITIONAL TAX INFORMATION

	The following summary addresses the principal United States income tax 
considerations regarding the purchase, ownership and disposition of shares in 
a Portfolio of the Fund.

General

	Each Portfolio intends to qualify and elect to be treated for each taxable 
year as a "regulated investment company" under Sections 851-855 of the Code.  
To so qualify, a Portfolio 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; (ii) derive 
less than 30% of its gross income in each taxable year from the sale or other 
disposition of any of the following which was held for less than three months: 
(a) stocks or securities, (b) options, futures or forward contracts (other 
than options, futures or forward contracts on foreign currency), or (c) 
foreign currency (or options, futures or forward contracts on foreign 
currency), but only if such currency (or options, futures or forward 
contracts) is not directly related to the Portfolio's principal business of 
investing in stock or securities (or options or futures with respect to stock 
or securities); and (iii) 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 Portfolio'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 Portfolio'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 Portfolio's assets is 
invested in securities of any one issuer (other than U.S. Government 
securities or securities of other regulated investment companies).  The 
diversification requirements described above may limit the Portfolio'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 Portfolio'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 Portfolio will not be subject to 
U.S. federal income tax on net investment income and net long-term capital 
gains distributed to shareholders if, as is intended, the Portfolio 
distributes at least 90% of its ordinary income and net short-term capital 
gains to the Portfolio's shareholders each year.

	Each Portfolio, however, will generally be subject to a nondeductible 
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 Portfolio 
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 Portfolio will not be subject to the excise tax.

	For federal income tax purposes, dividends declared by each Portfolio in 
October, November or December as of a record date in such month and which are 
actually paid in January of the following year will be treated as if they were 
paid on December 31.  These dividends will be taxable to shareholders in the 
year declared, and not in the year in which shareholders actually receive the 
dividend.


	Gains or losses that a Portfolio recognizes upon the sale or other 
disposition of stock or securities will be treated as long-term capital gains 
or losses if the securities have been held by it for more than one year, 
except in certain cases where the Portfolio sells the stock or security short 
or acquires a put or writes a call thereon.  Other gains or losses on the sale 
of stock or securities will be short-term capital gains or losses.  Gains and 
losses on the sale, lapse or other termination of options on stock or 
securities will generally be treated as gains and losses from the sale of 
stock or securities.   If an option written for a Portfolio lapses or is 
terminated through a closing transaction the Portfolio may realize a short-
term capital gain or loss, depending on whether the premium income is greater 
or less than the amount paid in the closing transaction.  If a Portfolio sells 
stock or securities pursuant to the exercise of a call option written by it, 
the Portfolio will add the premium received to the sale price of the stock or 
securities delivered in determining the amount of gain or loss on the sale.  
The requirement that a Portfolio derive less than 30% of its gross income from 
gains from the sale of stock or securities held for less than three months may 
limit the Portfolio's ability to acquire put options or make short sales.

	Under the Code, gains or losses attributable to foreign currency 
contracts, or to fluctuations in exchange rates between the time a Portfolio 
accrues income or receivables or expenses or other liabilities denominated in 
a foreign currency and the time the Portfolio actually collects such income or 
pays such liabilities, are treated as ordinary income or ordinary loss.  
Similarly, gains or losses on the disposition of debt securities held by the 
Portfolio denominated in foreign currency, to the extent attributable to 
fluctuations in exchange rates between the acquisition and disposition dates, 
are also treated as ordinary income or loss.

	Forward currency contracts, options and futures contracts entered into by 
a Portfolio may create "straddles" for federal income tax purposes and this 
may affect the character and timing of gains or losses realized by the 
Portfolio on such contracts or options or on the underlying securities.  Under 
regulations yet to be issued, straddles may also result in the loss of the 
holding period of underlying property, and therefore, the Portfolio's ability 
to enter into forward currency contracts, options and futures contracts may be 
limited by the 30% of gross income test described above.

	Certain options, futures and foreign currency contracts held by a 
Portfolio at the end of each fiscal year will be required to be "marked to 
market" for federal income tax purposes; that is, treated as having been sold 
at market value.  Sixty percent of any capital gain or loss recognized on 
these deemed sales and on actual dispositions will be treated as long-term 
capital gain or loss, and the remainder will be treated as short-term capital 
gain or loss regardless of how long the Portfolio has held such options or 
contracts.

	If a Portfolio purchases shares in certain foreign investment entities, 
referred to as "passive foreign investment companies," the Portfolio 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 Portfolio to its shareholders in a manner that satisfies 
the requirements described above.  If the Portfolio were able and elected to 
treat a passive foreign investment company as a "qualified electing fund," in 
lieu of the treatment described above, the Portfolio would be required each 
year to include in income, and distribute to shareholders in accordance with 
the distribution requirements described above, the Portfolio's pro rata share 
of the ordinary earnings and net capital gains of the company, whether or not 
actually received by the Portfolio.

Distributions.

	If the net asset value of shares of a Portfolio is reduced below a 
shareholder's cost as a result of distribution by the Portfolio, such 
distribution will be taxable even though it represents a return of invested 
capital.

Redemption of Shares.

	Any gain or loss realized on the redemption or exchange of Portfolio 
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.

	However, any loss realized by a shareholder upon the redemption or 
exchange of Portfolio 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 Portfolio 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 Portfolio shares.


	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 Fund or 
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 Tax Reform Act of 1986 (the "Tax Reform Act") changed the eligibility 
requirements for participants in Individual Retirement Accounts ("IRAs").  
Under the Tax Reform Act's new provisions, if you or your spouse have earned 
income and neither you nor your spouse is an active participant in an 
employer-sponsored retirement plan, each of you may establish an IRA and make 
maximum annual contributions equal to the lesser of earned income or $2,000.  
If your spouse is not employed, you may contribute and deduct on your joint 
return a total of $2,250 between two IRAs.

	If you or your spouse is an active participant in an employer-sponsored 
retirement plan, a deduction for contributions to an IRA might still be 
allowed in full or in part, depending on your combined adjusted gross income. 
 For married couples filing jointly, a full deduction for contributions to an 
IRA will be allowed where the couples' adjusted gross income is below $40,001 
($25,001 for an unmarried individual); a partial deduction will be allowed 
when adjusted gross income is between $40,001 - $50,000 ($25,001-$35,000 for 
an unmarried individual);  and no deduction when adjusted gross income is 
$50,000 ($35,000 for an unmarried individual).  Shareholders should consult 
their tax advisors concerning the effects of the Tax Reform Act on the 
deductibility of their IRA contributions.



	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 $30,000) of each participant's 
compensation. 

	In addition, certain small employers (those who have 25 or fewer 
employees) can establish a Simplified Employee Pension Plan - Salary Reduction 
Plan ("SEP - Salary Reduction Plan") under which employees can make elective 
pre-tax contributions of up to $9,240 of gross income.  Consult your tax 
advisor for special rules regarding establishing either type of SEP.  An ERISA 
disclosure statement providing additional details is included with each IRA 
application sent to participants.


Paired Defined Contribution Prototype

	Corporations (including Subchapter S corporations) and non-corporate 
entities may purchase shares of the Fund through the Smith Barney Prototype 
Paired Defined Contribution Plan.  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 Fund may advertise a Portfolio's total return, 
average annual total return and yield in advertisements. In addition, in other 
types of sales literature the Fund may include a Portfolio's current dividend 
return. These figures are based on historical earnings and are not intended to 
indicate future performance.  The total return shows what an investment in the 
Portfolio would have earned over a specified period of time (one, five or ten 
years) assuming the payment of the maximum sales load when the investment was 
first made, that all distributions and dividends by the Portfolio 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 Fund may also quote the Portfolio's 
total return for present shareholders that eliminates the sales charge on the 
initial investment.  The following chart reflects the financial performance of 
the Portfolios through the period ended October 31, 1995 for the one and five 
year periods and since inception:

Average Annual Total Returns
SEC Returns
						5 Year	Since Inception
Name of Portfolio	Class	1Year	AnnualizedCumulative	Annualized	Cumulative

International Equity1
  inception: 2-18-86	A	(7.44%)	(12.13)%	90.30%	11.24%	195.79%
  inception: 11-7-94	B	(6.00%)	-	-	(10.70%) (6.00%)
  inception:  1-4-93	C	(8.11%)	-	-	12.41%39.13%
  inception: 6-16-94	Y	(7.11%)	-	-	(0.73%)	-
Global Government Bond
  inception: 7-22-91	A	7.34%	-	-	7.87%	44.83%
  inception: 11-18-94	B	-	-	-	7.86%	12.59%
  inception:  1-4-93	C	10.25%	-	-	8.39%	25.54%
  inception: 2-19-93	Y	11.27%	-	-	8.19%	23.63%
International Balanced
  inception: 8-25-94	A	1.70%	-	-	2.86%	8.83%
  inception: 11-7-94	B	-	-	-	2.33%	7.33%
  inception: 8-25-94	C	5.29%	-	-	6.62%	7.88%
  inception: 11-7-94	Y	-	-	-	-	-
Pacific
  inception:  2-7-94	A	(25.96%)-	-	(14.33%)	(19.44%)
  inception: 11-7-94	B	-	-	-	(24.93%)	(20.97%)
  inception: 2-14-94	C	(23.40%)-	-	(12.44%)	(20.40%)
  inception: 11-7-94	Y	-	-	-	-		-

European
  inception:  2-7-94	A	8.20	-	-	6.49%		17.36%
  inception: 11-7-94	B	-	-	-	10.37%		15.37%
  inception: 2-14-94	C	12.09	-	-	9.22%		16.27%
  inception: 11-7-94	Y	-	-	-	-		-

Emerging Markets
  inception: 5-11-95	A	-	-	-	(12.43%)	(7.83%)
  inception: 5-11-95	B	-	-	-	(12.76%)	(8.17%)
  inception: 5-11-95	C	-	-	-	(9.08%) 		(8.17%)
  inception: 5-11-95	Y	-	-	-	-		-

                                 
    
	1The International Equity Portfolio's performance record includes the 
performance of the Fenimore International Fund through November 22, 1991.  The 
shareholders of Fenimore International Fund approved a reorganization with the 
Portfolio at their October 31, 1991 shareholders meeting.  As a result, all 
shares of Fenimore International Fund were exchanged at the close of business 
on November 22 for shares of the Portfolio.  Prior to November 22 the 
Portfolio had not made an offering of its shares.


	Note that, prior to November 7, 1994, (i) with respect to each Portfolio, 
Class C shares were designated as Class B shares; and (ii) with respect to 
Global Government Bond Portfolio, Class Y shares 
were designated as 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 Portfolio were 
reclassified as additional Class A shares.  

	The Global Government Bond Portfolio's yield is computed by dividing the 
net investment income per share earned during a specified thirty day period by 
the maximum offering price per share on the last day of such period and 
analyzing the result.  For purposes of the yield calculation, interest income 
is determined based on a yield to maturity percentage for each long-term debt 
obligation in the portfolio; income on short-term obligations is based on 
current payment rate.

	The Fund calculates current dividend return for each Portfolio 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 Fund may include the Portfolio's current 
dividend return in information furnished to present or prospective 
shareholders and in advertisements.

	Each Portfolio'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 Portfolio'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 
Portfolio's shares and to the risks associated with the Portfolio'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. 

	Performance information may be useful in evaluating a Portfolio and for 
providing a basis for comparison with other financial alternatives.  Since the 
performance of the Portfolio changes in response 
to fluctuations in market conditions, interest rates and Portfolio expenses, 
no performance quotation should be considered a representation as to the 
Portfolio's performance for any future period.

	A Portfolio may from time to time compare its investment results with the 
following:

	(1) Various Salomon Brothers 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 Shearson Lehman 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 or BBB by Standard and Poor's Corporation, or, in 
the case of nonrated bonds, BBB by Fitch Investors Service (excluding 
Collateralized Mortgage Obligations).

	(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 Brothers Broad Investment Grade 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.

	(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 Brothers, Inc., Merrill Lynch, Pierce, Fenner & 
Smith, Inc., 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.

   
World Market Capitalization

	In 1970 U.S. securities represented two-thirds of the world's stock market 
capitalization.  Ten years later, the U.S. percentage had dropped to roughly 
50 percent.  As of January 1, 1995, companies outside the U.S. comprised 
approximately 61% of the world's stock market capitalization, according to 
Morgan Stanley Capital International.  
    


Diversification

	A study of world markets showed that diversification into overseas markets 
over the last ten years not only reduced risk but also increased returns.  The 
S&P 500, representing the U.S. stock market, and EAFE Index, representing the 
markets of Europe, Australia and the Far East, were used as measures of U.S. 
and non-U.S. market performance.  Portfolios of the indices were combined in 
varying proportions to determine the optimum risk/return relationship.  This 
showed that the least volatile investment portfolio would have been composed 
of 70% U.S. equities and 30% foreign equities. 
   
(Graph)
  The  graph  displays  the following  approximate  risk/return
relationships  of  various asset combinations of  U.S.,  Non-
U.S. Developed and Emerging Markets for the period from January
1985 to December 1995:
(Source: MSCI) 

Asset Combination               Return      Risk/Volatility
100% U.S./0%  Non-U.S.          16.25%         14.50%
90% U.S./ 10% Non-U.S.          16.50%         14.25%
80% U.S./ 20% Non-U.S.          16.75%         14.00%
70% U.S./ 30% Non-U.S.          17.00%         13.90%
60% U.S./ 40% Non-U.S.          17.10%         14.00%
50% U.S/ 50%  Non-U.S.          17.25%         14.25%
40% U.S./ 60% Non-U.S.          17.50%         14.75%
30% U.S./ 70% Non-U.S.          17.75%         15.50%
20% U.S./ 80% Non-U.S.          18.00%         16.25%
10% U.S./ 90% Non-U.S.          18.25%         17.00%
0%    U.S./100% Non-U.S.        18.40%         18.00%

Top-Performing Markets 1986-1995 (Based on U.S.
Dollars) (Source: MSCI and IFC)

	1st      2nd      3rd      4th      5th

1986  Spain/   Italy/   Japan/   Belgium/  France
      123%     109%     100%           81%        79%
                                 
1987  Japan/   Spain/   UK/      Canada/ Denmark
      43%      38%      35%      15%             14%
1988  Belgium  Denmark  Sweden/  Norway/ France/
  	55%	 54%           49%      43%      39%
      
1989  Austria  Germany  Norway/  Denmark      Singapore
      105%     47%              46%	 45%      42%

1990  UK/      Hong     Austria  Norway/ Denmark
                      Kong           
       10%          9%       7%             1%	   0%

1991  Mexico/  Hong     Singapore    S.          Australia
                        Kong/                       Africa/  
             138%  45%      38%               36%      28%

1992  Jordan/  Philipp  Thailand  Hong   Mexico/
      		ines/                Kong/    
              40%	 38%      35%      32%    31%

1993  Turkey/  Philipp  Hong     Malaysia  Indonesia
                           ines/    Kong/           
               220%  131%     117%     110%     106%

1994  Brazil/  Finland      Peru/    Chile/Norway
          66%        53%	45%      45%      24%
               

1995	Switz.	U.S.	Sweden	Spain	Netherlands
	45%	38%	34%	31%	29%

    

	DETERMINATION OF NET ASSET VALUE

	The net asset value of each Portfolio's shares will be determined on any 
day that the New York Stock Exchange ("NYSE") is open.  The NYSE is closed on 
the following holidays: New Year's Day, President's Day, Good Friday, Memorial 
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.


	REDEMPTION OF SHARES

	In conformity with applicable rules of the Securities and Exchange 
Commission,redemptions may be paid in portfolio securities, in cash or any 
combination of both, as the Board of Directors may deem advisable; however, 
payments shall be made wholly in cash unless the Board of Directors believes 
that economic conditions exist that would make such a practice detrimental to 
the best interests of the Fund and its remaining shareholders.  If a 
redemption is paid in portfolio securities, such securities will be valued in 
accordance with the procedures described under "Determination of Net Asset 
Value" in the Prospectus and a shareholder would incur brokerage expenses if 
these securities were then converted to cash.

	INVESTMENT MANAGEMENT AGREEMENT AND OTHER SERVICES

Manager	

    The Management Agreement for the Global Government Bond Portfolio provides 
for an annual fee calculated at the rate of 0.75% of the Portfolio'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 Portfolio'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 Portfolio's 
average daily net assets, paid monthly.


   
	For the fiscal years 1993, 1994 and 1995, the mangement fees for each 
Portfolio were as follows:

 Portfolio		1993	1994	1995

International Equity	$1,836,933	$5,320,716	$8,452,273
Global Gov't Bond	833,919	615,294	901,693
European	-	34,637	202,500
Pacific		-	58,231	74,052
International Balanced	-	33,036	213,800
Emerging Markets	-	-	69,254

For the fiscal period ending October 31, 1994, the manager waived $34,637, 
$25,439 and $29,801 of management fees for the European, Pacific and 
International Balanced Portfolios, respectively, and reimbursed the European 
Portfolio for expenses in the amount of $10,344. 

For the year ended October 31, 1995, the manager waived $8,684, $74,052, 
$87,233 and $64,107 of management fees for European, Pacific, International 
Balanced and Emerging Markets Portfolios, respectively, and has agreed to 
reimburse the Pacific Portfolio for expenses in the amount of $30,862.
    
     Each Management Agreement further provides that all other expenses not 
specifically assumed by the Manager under the Management Agreement on behalf 
of the Portfolio are borne by the Fund.  Expenses payable by the Fund 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 Fund) 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 Fund's shares and the 
Fund under Federal or state securities laws and maintaining such registrations 
and qualifications (including the printing of the Fund'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 incident to the Fund's existence and extraordinary 
expenses such as litigation and indemnification expenses.  Direct expenses are 
charged to each Portfolio; general corporate expenses are allocated on the 
basis of the relative net assets.   Smith Barney Mutual Funds Management Inc., 
the investment manager of the Fund, also acts as investment adviser to 
numerous other open-end investment companies.  Smith Barney serves as 
investment manager of The Inefficient-Market Fund, Inc., a closed-end 
investment company.  Smith Barney also advises profit-sharing and pension 
accounts.  Smith Barney and its affiliates may in the future act as investment 
advisers for other accounts.

     One of the states in which the shares of the Fund are qualified for sale 
imposes limitations on the expenses of the Fund.   Although there is no 
certainty that the state limitation will be in effect in the future, these 
limitations on an annual basis are currently 2.5% of the first $30 million of 
average daily net assets, 2% of the next $70 million of average daily net 
assets and 1.5% of the average daily net assets in excess of $100 million. 


Distributor

	For the year ended October 31, 1995, the table below represents the fees 
which have been accrued and/or paid to Smith Barney under the Plans of 
Distribution pursuant to Rule 12b-1 for the Fund's Portfolios. The 
distribution expenses for 1995 included compensation of Financial Consultants 
and printing costs of prospectuses and marketing materials.  

      	Pursuant to a Plan of Distribution adopted by the Fund on behalf of each 
Portfolio under Rule 12b-1 under the Act (the "Plan"), Smith Barney  incurs 
the expenses of distributing the Fund's Class A, Class B and Class C shares.  
See "Management of the Fund-- Distributor" in the Prospectus.

   

Portfolio		Class A		Class B		Class C			Total

Int'l Equity	$1,242,420	$725,837	$2,532,126		$4,500,383
Global Gov't	242,291		124,076		33,315			399,682
European	21,781		134,916		14,254			170,951
Pacific		14,078		6,954		23,852			44,884
International Balanced	47,170	19,968		42,859			109,997
Emerging Markets	7,608	32,458		5,967			46,033

	During the fiscal years 1993, 1994 and 1995 aggregate sales commissions of 
$11,212,000, $8,638,000 and $1,929,000 respectively, were paid to Smith Barney 
 by the purchasers of Fund shares. A contingent deferred sales charge ("CDSC") 
may be imposed on certain redemptions of Class A, Class B shares and Class C 
shares. The amount of the CDSC will depend on the number of years since the 
shareholder made the purchase payment from which the amount is being redeemed. 
For Class B shares, for each of the Fund's Portfolios except the Global 
Government Bond Portfolio, the maximum CDSC is 5.00% of redemption proceeds, 
declining by 1.00% each year after the date of purchase to zero. For Class B 
shares of each of the Global Government Bond Portfolio the maximum CDSC is 
4.50% of redemption proceeds, declining by 0.50% the first year after purchase 
and by 1.00% each year thereafter to zero. A CDSC of 1.00% is imposed on 
redemptions of Class A which when combined with Class A shares offered with a 
sales charge currently held by an investor equal or exceed $500,000 in the 
aggregate and Class C shares  if such redemptions occur within 12 months from 
the date such investment was made.  Any sales charge imposed on redemptions is 
paid to the distributor of the Fund shares.  

    
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 Smith Barney  are distribution expenses within the 
meaning of the Plan and may be paid from amounts received by Smith Barney  
from the Fund under the Plan.

Brokerage and Portfolio Transactions

     The Manager is responsible for allocating the Fund's brokerage.  Orders 
may be directed to any broker including, to the extent and in the manner 
permitted by applicable law, Smith Barney .  No Portfolio will deal with Smith 
Barney in any transaction in which Smith Barney acts as principal.

     The Fund 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 Fund 
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 Fund takes into 
consideration the fact that a particular broker may, in addition to execution 
capability, provide other services to the Fund such as research and 
statistical information.  It is not possible to place a dollar value on such 
services nor does their availability reduce the Manager's expenses in a 
determinable amount.  These various services may, however, be useful to the 
Manager or Smith Barney  in connection with its services rendered to other 
advisory clients and not all such services may be used in connection with the 
Fund.

     The Board of Directors of the Fund has adopted certain policies and 
procedures incorporating the standard of Rule 17e-1 issued by the Securities 
and Exchange Commission under the Act which requires that the commissions paid 
to 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 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.  U.S. and foreign 
government securities and money market instruments are generally traded in the 
over-the-counter ("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 Portfolio.  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.
   
	Shown below are the total brokerage fees paid by the Fund on behalf of the 
International Equity Portfolio, European Portfolio, Pacific Portfolio, 
International Balanced Portfolio and the Emerging Markets Portfolio during 
1993, 1994 and 1995. Also shown is the portion paid to 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 1995, the total amount of 
commissionable transactions was $12,139,309  (0.96%) of which was directed to 
Smith Barney and executed by unaffiliated brokers and $1,252,579,355 (99.04%) 
of which was directed to other brokers.



                                                 Commissions                  
                                    
				
				
		           For Execution Only	
				
	Total	To Smith Barney	    To Others	 

1993		$2,291,379            $44,578*	1.95%             	 $2,246,801   98.05%	
1994		3,703,484	  133,558*	3.61	                 3,569,926  96.39		
1995		2,907,454	    38,786*	1.33	                 2,868,668  98.67				
                            
*	Directed to Smith Barney and executed by unaffiliated brokers.

    

	CUSTODIAN

     Portfolio securities and cash owned by the Fund are held in the custody 
of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, NY  
10260. 

	INDEPENDENT AUDITORS
   
     KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, have 
been selected as the Fund's independent auditors for the Fund to examine and 
report on the financial statements and financial highlightsof the Fund for its 
fiscal year ending October 31, 1996.
    


	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 Fund.  At such a 
meeting, a director may be removed after the holders of record of not less 
than a majority of the outstanding shares of the Fund have declared that the 
director be removed either by declaration in writing or by votes cast in 
person or by proxy.  The Fund will assist shareholders in calling such a 
meeting as required by the 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 Fund (or the affected Portfolio or class) or (b) 67% or more of such 
shares present at a meeting if more than 50% of the outstanding shares of the 
Fund (or the affected Portfolio or class) are represented at the meeting in 
person or by proxy.
   
	Following are the names, addresses and percent of ownership of each person 
who owns of record or is known by the Fund to own of record of beneficially 5% 
or more of any Class of the European Portfolio as of February 2, 1996: Dr. 
Juda Jona,  Smith Barney Inc. Rollover Cust., 8648 Hamlin Ave., Skokie, IL, 
60076-2210, beneficially owned 7,799.250 shares (7.18%) and Dr. Juda Jona,  
Susan R. Jona JTWROS., 8648 Hamlin Ave., Skokie, IL, 60076-2210, beneficially 
owned 7,765.237 shares (7.15%) of the outstanding Class C shares.

	Following are the names, addresses and percent of ownership of each person 
who owns of record or is known by the Fund to own of record or beneficially 5% 
or more of any Class of the International Balanced Portfolio as of February 2, 
1996:  Ouzinkie Native Corporation, Attn: William Anderson, Box 89, Ouzinkie, 
AK, 99644-0089, beneficially owned 21,567.913 shares (6.78%) of the 
outstanding Class B shares.

	Following are the names, addresses and percent of ownership of each person 
who owns of record or is known by the Fund to own of record or beneficially 5% 
or more of any Class of the Pacific Portfolio as of February 2, 1996:G.W. 
Stiefvater, TTEE, FBO the G.W. Stiefvater Revocable Trust DTD 8/17/85, 1090 
Valombrosa, Chico, CA 95926-2852  beneficially owned 20,734.274 shares (9.26%) 
of the outstanding Class B shares;  and William M. McCabe, Sally McCabe TTEES 
FBO William McCabe Family Trust U/A/D 8/16/88, 5475 East 4th Street, Long 
Beach, CA 90814-1925 beneficially owned 14,426.257 shares (6.45%) of the 
outstanding Class B shares; and Smith Barney Mutual Fund Management, Inc., 
Attn: Tom Reynolds, 388 Greenwich Street, New York, NY  10013 owned of record 
77,355 shares (14.13%)  and Betty Comer Yoe, 2844 Shook Hill road, Birmingham, 
AL 35223-2617 beneficially owned 37,209.302 shares (6.80%) of the outstanding 
Class A shares.

	Following are the names, addresses and percent of ownership of each person 
who owns of record or is known by the Fund to own of record or beneficially 5% 
or more of any Class of the Global Government Bond Portfolio as of February 2, 
1996: William Roberts IRA, Smith Barney IRA Custodian, 2175 Hudson Terrrace, 
Fort Lee, NJ 07024-7721 beneficially owned 5,188.681 shares (99.70%)  of the 
outstanding Class Y shares; Ricjard J. Horbal & Linda Horbal TTEES FBO Richard 
Horbal MD PC Emp. Reteirement Plan UAD 12/1/82, 4196 Old Pine Trail, Midland, 
MI 48642-8892, beneficially owned 21,670.966 shares (6.53%) of the outstanding 
Class C shares.

	Following are the names, addresses and percent of ownership of each person 
who owns of record or is known by the Fund to own of record or beneficially 5% 
or more of any Class of the International Equity Portfolio as of Februry 2, 
1996:  Wachovia Bank of NC NA TTEE As Trustee, FBO USAA Retirement Plan, 301 
North Main Street, Winston-Salem NC 27150, beneficially owned 1,191556.822 
shares (20.00%) of the outstanding Class Y shares; Grand Lodge of Free & 
Accepted, Masons of Pennsylvania, c/o Smith Barney, Inc., 388 Greenwich 
Street, Attn: Robert Battel, New York, New York, 10013, beneficially owned 
711,137.908 shares (11.97%) of the outstanding Class Y shares; Wachovia Bank 
of North Carolina NA As Successor Trustee, FBO USAA, Savings & Investment Plan 
Trust, Attn: Mutual Funds, 301 North Main Street, Winston-Salem, NC 27150, 
beneficially owned 1,182,884.865 shares (19.90%) of the outstanding Class Y 
shares; The Phoenix Insurance Co., One Tower Square, Hartford, CT 06183-2030, 
beneficially owned 563,742.323 shares (9.49%) of the outstanding Class Y 
shares;; American Bar Endowment, Attn: Tom Rogers, 750 North Lake Shore Drive, 
Chicago, IL, 60611, beneficially owned 397,543.643 shares (6.69%) of the 
outstanding Class Y shares;  Calmont & Company, & Wells Fargo Bank NA, FDS 
ACCTG MAC# 0103-174, 201 Third Street 11th Fl., San Francisco, CA, 94163, 
beneficially owned 575,884.420 shares (9.69%) of the outstanding Class Y 
shares;  California State Automobile Assoc. Inter-Ims Bureau Attn: Carol 
Gibbons, 100 Van Ness Ave., San Francisco, CA 94102-5292 beneficially owned 
763, 127.598 shares (12.85%) of the outstanding Class Y shares; Frost National 
Bank, USAA EBA Post Retired Defra, P.O. Box 2479, San Antonio, TX 78298-2479 
beneficially owned 302, 838. 060 (5.10%) shares of the outstanding Class Y 
shares; and  Citibank NA TTRUSTEE, Smith Banrey Harris Upham & Co. Inc., 401 K 
Savings Plan, 111 Wall Street, 20th Floor, Attn: N. Kronenberg, New York, NY, 
10043, beneficially owned 5,740,071.014 shares (99.99%) of the outstanding 
Class Z shares.	

    
FINANCIAL STATEMENTS

     The following financial information is hereby incorporated by reference 
to the indicated pages of the Fund's 1995 Annual Report to Shareholders, 
copies of which are furnished with this Statement of Additional Information.

   
			Page(s) in	Page(s) in	Page(s) in
			Annual Report	Annual Report	Annual 
							Report			
			(Int'l Equity)	(Global Gov't)	(European,
							Pacific &
							Int'l Bal'd)
Average Annual Total Return	 5 	 4	   	7, 10, 13
Line Graph Showing Growth of 
     $10,000 Investment		7	5		8, 11,14
Statement of Assets and Liabilities	15	8		23-24		
Statement of Operations			16	9	25-26
Statement of Changes in Net Assets	17	10	27-29
Notes to Financial Statements	18-24	 11-16		30-38
Financial Highlights		25-27	17-19		39-41
Independent Auditors' Report	28	20		42


	Page(s) in	
	Annual Report				
	(Emerging Markets)	
			
			
Average Annual Total Return	 4 	 
Line Graph Showing Growth of 
     $10,000 Investment		5	
Statement of Assets and Liabilities	11			
Statement of Operations		12	
Statement of Changes in Net Assets13	
Notes to Financial Statements	14-18	
Financial Highlights		19	
Independent Auditors' Report	20	

    

	APPENDIX - RATINGS OF DEBT OBLIGATIONS


BOND (AND NOTE) RATINGS

Moody's Investors Service, Inc.

     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 Corporation

     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-Prime Grade 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 Corporation

     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.