Registration No. 33-7339
811-4757
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No.
Post-Effective Amendment No. 16
X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 17
X
SMITH BARNEY PRECIOUS METALS AND MINERALS FUND INC.
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York, 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code
(212) 723-9218
Christina T. Sydor
Secretary
Smith Barney Precious Metals and Minerals Fund Inc.
388 Greenwich Street, New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to Rule 485(b)
X on March 1, 1995 pursuant to Rule 485(b)
_____ 60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
___________________________________________________________________________
_________
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for the
fiscal year ended October 31, 1994 was filed on December 29, 1994.
SMITH BARNEY PRECIOUS METALS AND MINERALS FUND INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A
Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Prospectus Summary
3. Financial Highlights
Financial Highlights
4. General Description of
Registrant
Cover Page; Prospectus Summary;
Investment Objective and
Management Policies; Additional
Information
5. Management of the Fund
Management of the Fund; The Fund's
Expenses; Additional Information;
Annual Report
6. Capital Stock and Other
Securities
Investment Objective and
Management Policies; Dividends,
Distributions and Taxes;
Additional Information
7. Purchase of Securities Being
Offered
Purchase of Shares; Valuation of
Shares; Redemption of Shares;
Exchange Privilege; Distributor;
Additional Information; Minimum
Account Size
8 Redemption or Repurchase
Purchase of Shares; Redemption of
Shares; Exchange Privilege
9. Legal Proceedings
Not Applicable
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover page
11. Table of Contents
Contents
12. General Information and
History
Distributor; Additional
Information
13. Investment Objectives and
Policies
Investment Objective and
Management Policies
14. Management of the Fund
Management of the Fund;
Distributor
15. Control Persons and Principal
Holders of Securities
Management of the Fund
16. Investment Advisory and Other
Services
Management of the Fund;
Distributor
17. Brokerage Allocation
Investment Objective and
Management Policies; Distributor
18. Capital Stock and Other
Securities
Purchase of Shares; Redemption of
Shares; Taxes
19. Purchase, Redemption and
Pricing of Securities Being
Offered
Purchase of Shares; Redemption of
Shares; Valuation of Shares;
Exchange Privilege; Distributor
20. Tax Status
Taxes
21. Underwriters
Distributor
22. Calculation of Performance
Data
Performance Data
23. Financial Statements
Financial Statements
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- ---------------------------------------------------------------------------
PROSPECTUS MARCH 1, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Precious Metals and Minerals Fund Inc. (the "Fund") is a mutual
fund that seeks long-term capital appreciation by investing primarily in
"Metals-Related Investments." Metals-Related Investments are defined as (a)
equity and debt securities of (i) companies principally engaged in businesses
relating to the exploration, mining, processing or distribution of gold, silver,
platinum, diamonds or other precious metals and minerals and (ii) companies
principally engaged in financing, managing, controlling or operating companies
that are so engaged and (b) gold bullion and gold coins. A company will be
considered to be "principally engaged" in a business or an activity if it
derives at least 50% of its total revenue from that business or activity.
This Prospectus sets forth concisely certain information about the Fund,
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 Fund is contained in a Statement of
Additional Information dated March 1, 1995, 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 STRATEGY ADVISERS INC.
Investment Adviser
LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT LIMITED
Sub-Investment Adviser
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
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
PRECIOUS METALS AND MINERALS FUND INC.
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
-------------------------------------------------------------
FINANCIAL HIGHLIGHTS 11
-------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 14
-------------------------------------------------------------
VALUATION OF SHARES 25
-------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 26
-------------------------------------------------------------
PURCHASE OF SHARES 29
-------------------------------------------------------------
EXCHANGE PRIVILEGE 40
-------------------------------------------------------------
REDEMPTION OF SHARES 44
-------------------------------------------------------------
MINIMUM ACCOUNT SIZE 46
-------------------------------------------------------------
PERFORMANCE 46
-------------------------------------------------------------
MANAGEMENT OF THE FUND 47
-------------------------------------------------------------
DISTRIBUTOR 49
-------------------------------------------------------------
ADDITIONAL INFORMATION 50
-------------------------------------------------------------
</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 OR 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
PRECIOUS METALS AND MINERALS FUND INC.
- ---------------------------------------------------------------------------
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 Fund is an open-end, diversified management investment
company that seeks long-term capital appreciation by investing primarily in
Metals-Related Investments. Although the Fund invests primarily in
Metals-Related Investments, it may invest in equity and in debt securities that
are not Metals-Related Investments including debt securities, preferred stocks
or convertible securities, the principal amount or redemption or conversion
terms of which are related to the market price of gold or other precious metals.
See "Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund 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 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
3
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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 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, 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 Class C shares, which when combined
with current holdings of Class C shares of the Fund 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 Fund 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 holding period 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
4
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
any initial sales charge so the entire purchase price is immediately invested in
the Fund. Any investment return on these additional invested amounts may
partially or wholly offset the higher annual expenses of these Classes. Because
the Fund'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,
which are not subject to an initial sales charge, CDSC or service or
distribution fee. 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 purchases, and the entire purchase price will
be immediately invested in the Fund. 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 may also 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 the different Classes 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
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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 employers or
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 the Fund's distributor, Smith
Barney, 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. Direct purchases by certain retirement plans may be made through
the Fund's transfer agent, The Shareholder Services Group, Inc. ("TSSG"), a
subsidiary of First Data Corporation. 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 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."
6
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund 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 FUND Smith Barney Strategy Advisers Inc. ("SBSA") serves as
the Fund's investment adviser. SBSA is a wholly owned subsidiary of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The
Travelers 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.
Lehman Brothers Global Asset Management Limited ("LBGAM") serves as the Fund's
sub-investment adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers
Holdings Inc. ("Lehman Holdings"), a publicly-owned corporation. Nippon Life
Insurance Company owns approximately 11.2% of the outstanding voting stock of
Lehman Holdings.
Smith Barney Mutual Funds Management Inc. ("SBMFM") serves as the Fund's
administrator. SBMFM is a wholly owned subsidiary of Holdings. The Boston
Company Advisors, Inc. ("Boston Advisors") serves as the Fund's
sub-administrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC") which in turn is an indirect wholly owned subsidiary of
Mellon Bank Corporation ("Mellon"). 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 Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
7
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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 No assurance can be given that the Fund
will achieve its investment objective. The Fund's investments may be subject to
greater risk and market fluctuation than a fund that invests in securities
representing a broader range of investment alternatives. Historically, stock
prices of companies involved in precious metals-related industries have been
volatile. The Fund's policy of investing in securities of foreign issuers also
presents certain risks not present in domestic investments. The Fund may invest
in medium- or low-rated securities and unrated securities of comparable quality.
Generally, these securities offer a higher current yield than the yield offered
by higher-rated securities but involve greater volatility of prices and risk of
loss of income and principal, including the probability of default by or
bankruptcy of the issuers of such securities. Therefore, an investment in the
Fund should not be considered as a complete investment program and may not be
appropriate for all investors. See "Investment Objective and Management
Policies."
8
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES THE FOLLOWING EXPENSE TABLE LISTS THE COSTS AND EXPENSES AN
INVESTOR WILL INCUR EITHER DIRECTLY OR INDIRECTLY AS A SHAREHOLDER OF THE FUND,
BASED ON THE MAXIMUM SALES CHARGE OR MAXIMUM CDSC THAT MAY BE INCURRED AT THE
TIME OF PURCHASE OR REDEMPTION AND, UNLESS OTHERWISE NOTED, THE FUND'S CURRENT
OPERATING EXPENSES FOR ITS MOST RECENT FISCAL YEAR:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
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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 FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.95% 0.95% 0.95% 0.95%
12b-1 fees** 0.25% 1.00% 1.00% None
Other expenses*** 0.61% 0.59% 0.62% 0.62%
-------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.81% 2.54% 2.57% 1.57%
-------------------------------------------------------------------------------------
<FN>
*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.
***For Class C and Class Y shares, "Other expenses" have been estimated based on expenses incurred
by the Class A shares because Class C and Class Y shares were not available for purchase prior
to November 7, 1994.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum charges
imposed on purchases or redemptions of Fund 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
9
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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 that respective Class,
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 FUND WILL BEAR DIRECTLY OR INDIRECTLY.
THE EXAMPLE ASSUMES PAYMENT BY THE FUND 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 $67 $104 $143 $252
Class B 76 109 145 270
Class C 36 80 137 290
Class Y 16 50 86 187
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A $67 $104 $143 $252
Class B 26 79 135 270
Class C 26 80 137 290
Class Y 16 50 86 187
--------------------------------------------------------------------------------
<FN>
*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.
</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 Fund'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.
10
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING INFORMATION HAS BEEN AUDITED BY COOPERS & LYBRAND L.L.P.,
INDEPENDENT ACCOUNTANTS, WHOSE REPORT THEREON APPEARS IN THE FUND'S ANNUAL
REPORT DATED OCTOBER 31, 1994. THE INFORMATION SET OUT BELOW SHOULD BE READ IN
CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES THAT ALSO APPEAR IN
THE FUND'S ANNUAL REPORT, WHICH IS INCORPORATED BY REFERENCE INTO THE STATEMENT
OF ADDITIONAL INFORMATION.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
10/31/94 10/31/93# 10/31/92 10/31/91
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 18.89 $ 13.27 $ 13.93 $ 13.63
-------------------------------------------------------------------------------------
Income from investment operations:
Net investment income/(loss) (0.06) (0.02)** (0.10) 0.16
Net realized and unrealized gains and
losses on investments 2.61 5.64 (0.47) 0.14
-------------------------------------------------------------------------------------
Total from investment operations 2.55 5.62 (0.57) 0.30
Less distributions:
Distributions from net investment income -- -- (0.06) --
Distributions from capital -- -- (0.03) --
Distributions from net realized capital
gains -- -- -- --
-------------------------------------------------------------------------------------
Total distributions 0.00 0.00 (0.09) 0.00
-------------------------------------------------------------------------------------
Net asset value, end of year $ 21.44 $ 18.89 $ 13.27 $ 13.93
-------------------------------------------------------------------------------------
Total return+++ 13.50% 42.35% (4.09)% 2.20%
-------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of year (in $000's) $41,370 $20,097 $14,138 $17,167
Ratios of expenses to average net assets 1.81% 2.17%++*** 2.85% 2.24%
Ratios of net investment income/
(loss) to average net assets (0.34)% (0.14)% (0.76)% 0.97%
Portfolio turnover rate 50% 108% 58% 63%
-------------------------------------------------------------------------------------
<FN>
**Net investment loss before waiver of fees by investment adviser and sub-investment
adviser for the year ended October 31, 1993 and for the period ended October 31,
1987 was $(0.04) and $(0.10), respectively.
***Annualized expense ratio before waiver of fees by investment adviser and
administrator was 2.28% and 1.86% for the year ended October 31, 1993 and for the
period ended October 31, 1987, respectively.
#The per share amounts have been calculated using the monthly average shares method,
which more appropriately presents per share data for this year since use of the
undistributed method did not accord with results of operations.
++The operating expense ratio excludes interest expense. The operating expense ratio
including interest expense was 2.18% for the year ended October 31, 1993.
+++Total return represents aggregate total return for the periods indicated and does
not reflect any applicable sales charge.
</TABLE>
11
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
10/31/90 10/31/89 10/31/88 10/31/87*
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 16.96 $ 16.43 $ 18.58 $ 15.20
-------------------------------------------------------------------------------------
Income from investment operations:
Net investment income/(loss) 0.11 0.15 0.03 (0.09)**
Net realized and unrealized gains and
losses on investments (3.12) 0.38 (1.28) 3.47
-------------------------------------------------------------------------------------
Total from investment operations (3.01) 0.53 (1.25) 3.38
Less distributions:
Distributions from net investment income (0.21) -- -- --
Distributions from capital (0.11) -- -- --
Distributions from net realized capital
gains -- -- (0.90) --
-------------------------------------------------------------------------------------
Total distributions (0.32) 0.00 (0.90) 0.00
-------------------------------------------------------------------------------------
Net asset value, end of year $ 13.63 $ 16.96 $ 16.43 $ 18.58
-------------------------------------------------------------------------------------
Total return+++ (18.18)% 3.23% (7.56)% 22.24%
-------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of year (in $000's) $22,350 $34,590 $49,029 $69,195
Ratios of expenses to average net assets 2.44% 2.35% 1.78% 1.76%+***
Ratios of net investment income/
(loss) to average net assets 0.69% 0.88% 0.27% (0.60)%+
Portfolio turnover rate 61% 25% 30% 22%
-------------------------------------------------------------------------------------
<FN>
*The Fund commenced operations on November 24, 1986. On November 6, 1992, the Fund
commenced selling Class B shares. Those shares in existence prior to November 6,
1992 were designated as Class A shares.
**Net investment loss before waiver of fees by investment adviser and sub-investment
adviser for the year ended October 31, 1993 and for the period ended October 31,
1987 was $(0.04) and $(0.10), respectively.
***Annualized expense ratio before waiver of fees by investment adviser and
administrator was 2.28% and 1.86% for the year ended October 31, 1993 and for the
period ended October 31, 1987, respectively.
+Annualized.
+++Total return represents aggregate total return for the periods indicated and does
not reflect any applicable sales charge.
</TABLE>
12
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
10/31/94 10/31/93*#
<S> <C> <C>
Net asset value, beginning of period $ 18.75 $ 13.35
-------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.33) (0.15)**
Net realized and unrealized gain on investments 2.72 5.55
-------------------------------------------------------------------------------------
Total from investment operations 2.39 5.40
-------------------------------------------------------------------------------------
Net asset value, end of period $ 21.14 $ 18.75
-------------------------------------------------------------------------------------
Total return+++ 12.75% 40.45%
-------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $37,704 $46,895
Ratio of expenses to average net assets++ 2.54% 2.98%+
Ratio of net loss to average net assets (1.06)% (0.96)%+
Portfolio turnover rate 50% 108%
-------------------------------------------------------------------------------------
<FN>
*The Fund commenced selling Class B shares on November 6, 1992.
**Net investment loss before waiver of fees by investment adviser and administrator was $(0.17)
for the period ended October 31, 1993.
#The per share amounts have been calculated using the monthly average shares method, which
more appropriately presents per share data for this period since use of the undistributed
method did not accord with results of operations.
+Annualized.
++The annualized operating expense ratio excludes interest expense. The annualized operating
expense ratio including interest expense was 3.00%. Annualized expense ratio before waiver of
fees by investment adviser and administrator was 3.09% for the period ended October 31, 1993.
+++Total return represents aggregate total return for the periods indicated and does not reflect
any applicable sales charge.
</TABLE>
AS OF OCTOBER 31, 1994, NO CLASS C (FORMERLY CLASS D SHARES) OR CLASS Y SHARES
HAD BEEN SOLD AND, ACCORDINGLY, NO COMPARABLE FINANCIAL INFORMATION IS AVAILABLE
AT THIS TIME FOR THESE CLASSES.
13
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is long-term capital appreciation.
Generating current income is not a part of the Fund's investment objective. The
Fund's objective may not be changed without approval of a majority of the Fund's
outstanding shares. Because the securities in which the Fund invests may involve
risks not associated with more traditional investments, an investment in the
Fund, by itself, should not be considered a balanced investment program. There
is no guarantee that the Fund will achieve its investment objective.
Under normal market conditions, the Fund will invest at least 65% of its
assets in Metals-Related Investments. Up to 10% of the Fund's assets may be
invested in gold bullion and gold coins, which, unlike investments in many
securities, earn no investment income. In addition, the Fund may invest up to
35% of its assets in equity and debt securities that are not Metals-Related
Investments including, subject to applicable laws, debt securities, preferred
stocks or convertible securities, the principal amount or redemption or
conversion terms of which are related to the market price of gold or other
precious metals. The Fund may, for hedging purposes, utilize up to 5% of its
assets as initial margin on futures contracts for the purchase and sale of gold
and as premiums for options on such futures contracts. As described in the
Statement of Additional Information, the Fund also has the authority to purchase
and sell options on gold.
The composition of the Fund's portfolio will vary depending on the
determination of SBSA or LBGAM of how best to achieve long-term capital
appreciation. Equity securities in which the Fund may invest include common
stocks, preferred stocks, convertible securities and warrants. Debt securities
the Fund may acquire include bonds, notes and debentures of companies and
governments. The Fund may invest in debt securities when SBSA or LBGAM believes
they will enhance the Fund's ability to achieve long-term capital appreciation.
The Fund may invest in fixed-income securities that are rated as low as B by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P") or, if unrated, are deemed by SBSA or LBGAM to be of comparable quality.
The medium- and lower-rated securities in which the Fund may invest, some of
which have speculative characteristics, may be subject to greater market
fluctuation and greater risk of loss of income or principal than higher-rated
securities. See "Risk Factors and Special Considerations" below. A description
of the corporate bond and commercial paper rating systems of Moody's and S&P is
contained in the Statement of Additional Information.
14
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Because issuers of securities that are Metals-Related Investments often are
located outside the United States, a significant portion of the Fund's
investments may consist of securities of foreign issuers. The percentage of
assets invested in particular countries or regions will change from time to time
in accordance with the judgment of SBSA or LBGAM, which may be based on, among
other things, consideration of the political stability and economic outlook of
these countries or regions. The Fund expects, however, that its assets will be
principally invested in the securities of issuers located in Australia, Canada,
Europe and the United States. Most of the purchases and sales of securities by
the Fund will be effected in the primary trading market for the securities. The
primary trading market for a given security generally is located in the country
in which the issuer has its principal office. The Fund expects to invest in
foreign securities by buying the foreign securities themselves, but the Fund may
invest in depositary receipts that evidence ownership of the underlying foreign
security when it is deemed in the best interest of the Fund to do so. These
receipts may include American Depositary Receipts ("ADRs"), which are
dollar-denominated receipts generally issued by domestic banks or trust
companies and which represent the deposit with the bank or trust company of a
security of a foreign issuer. ADRs are publicly traded on exchanges or
over-the-counter markets in the United States.
RISK FACTORS AND SPECIAL CONSIDERATIONS.
The Fund intends to invest at least 65% of its assets in Metals-Related
Investments. As a result of this concentration policy, which is a fundamental
policy of the Fund, the Fund's investments may be subject to greater risk and
market fluctuation than a fund that invests in securities representing a broader
range of investment alternatives. Historically, stock prices of companies
involved in precious metals-related industries have been volatile.
FOREIGN SECURITIES. The Fund's policy of investing in securities of foreign
issuers also presents certain risks not present in domestic investments. These
risks include those resulting from fluctuations in currency exchange rates,
revaluation of currencies, 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 fact that foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards or
15
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
to other regulatory practices and requirements comparable to those applicable to
domestic companies. Economic, political and social conditions prevailing in
these countries may have a significant effect on the success of the Fund.
Moreover, securities of many foreign companies may be less liquid and their
prices more volatile than those of securities of comparable domestic companies.
In addition, the possibility exists in certain foreign countries of
expropriation, nationalization, confiscatory taxation and limitations on the use
or removal of funds or other assets of the Fund, including the withholding of
dividends. Investment in foreign securities also may result in higher expenses
due to the cost of converting foreign currency to U.S. dollars, expenses
relating to foreign custody, the payment of fixed brokerage commissions on
foreign exchanges, which generally are higher than commissions on domestic
exchanges, and the imposition of transfer taxes or transaction charges
associated with foreign exchanges.
Because the Fund will invest in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign currency exchange rates will
affect the value of securities in the Fund and the unrealized appreciation or
depreciation of investments. To protect against uncertainty concerning changes
in exchange rates, the Fund may enter into forward currency exchange
transactions. Foreign securities may be subject to foreign government taxes that
could reduce the yield on such securities.
LOWER-RATED SECURITIES. The Fund may invest in medium- or low-rated securities
and unrated securities of comparable quality. Generally, these securities offer
a higher current yield than the yield offered by higher-rated securities but
involve greater volatility of price and risk of loss of income and principal,
including the probability of default by or bankruptcy of the issuers of such
securities. Medium- and low-rated and comparable unrated securities (a) will
likely have some quality and protective characteristics that, in the judgment of
the rating organization, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (b) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. Accordingly, it is possible that
these types of factors could, in certain instances, reduce the value of
securities held by the Fund, with a commensurate effect on the value of the
Fund's shares. Therefore, an investment in the Fund should not be considered as
a complete investment program and may not be appropriate for all investors.
16
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
While the market values of medium- and lower-rated securities and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than do those of higher-rated securities, the market values of certain of these
securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher-rated securities. In addition,
medium- and lower-rated securities and comparable unrated securities generally
present a higher degree of credit risk. Issuers of medium- and lower-rated
securities and comparable unrated securities are often highly leveraged and may
not have more traditional methods of financing available to them so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. The risk of loss due
to default by such issuers is significantly greater because medium- and
lower-rated securities and comparable unrated securities generally are unsecured
and frequently are subordinated to the prior payment of senior indebtedness. The
Fund may incur additional expenses to the extent that it is required to seek
recovery upon a default in the payment of principal or interest on its portfolio
holdings. In addition, the markets in which medium- and lower-rated or
comparable unrated securities are traded generally are more limited than those
in which higher-rated securities are traded. The existence of limited markets
for these securities may restrict the availability of securities for the Fund to
purchase and also may have the effect of limiting the ability of the Fund to (a)
obtain accurate market quotations for purposes of valuing securities and
calculating net asset value and (b) sell securities at their fair value either
to meet redemption requests or to respond to changes in the economy or the
financial markets. The market for some medium- and lower-rated and comparable
unrated securities is relatively new and has not fully weathered a major
economic recession. Any such economic downturn could adversely affect the
ability of the issuers of such securities to repay principal and pay interest
thereon.
Fixed-income securities, including medium- and lower-rated and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as the
Fund. If an issuer exercises these rights during periods of declining interest
rates, the Fund may have to replace the security with a lower yielding security,
resulting in a decreased return to the Fund.
17
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Securities which are rated Ba by Moody's or BB by S&P have speculative
characteristics with respect to capacity to pay interest and repay principal.
Securities which are rated B generally lack characteristics of the desirable
investment and assurance of interest and principal payments over any long period
of time may be small.
In light of these risks, SBSA or LBGAM, in evaluating the creditworthiness of
an issue, whether rated or unrated, will take various factors into
consideration, which may include, as applicable, the issuer's financial
resources, its sensitivity to economic conditions and trends, the operating
history of and the community support for the facility financed by the issue, the
ability of the issuer's management and regulatory matters.
CANADIAN AND AUSTRALIAN INVESTMENTS. From time to time, the Fund may invest a
significant portion of its assets -- perhaps 25% or more -- in Canadian
securities or Australian securities. Investing in Canadian or Australian
securities may involve the considerations described above associated with
investing in foreign securities. In addition, like any investor in Canada or
Australia, the Fund will be subject to general economic and political conditions
in those countries. Moreover, the value of the Fund's assets as measured in U.S.
dollars may be affected favorably or unfavorably by fluctuations in the value of
Canadian or Australian dollars relative to the U.S. dollar. The average exchange
rates of these currencies for U.S. dollars were as follows for the years shown:
<TABLE>
<CAPTION>
PER U.S. DOLLAR*
CANADIAN AUSTRALIAN
YEAR DOLLARS DOLLARS
<S> <C> <C>
- ----------------------------------------------------------------------------------
1994 $ 1.3573 $ .7137
1993 .7780 .6810
1992 1.2090 .7360
1991 1.1460 .7800
1990 1.1460 .77872
1989 1.1842 .79186
1988 1.2306 .78409
1987 1.3259 .70137
1986 1.3896 .67095
1985 1.3658 .70026
- ----------------------------------------------------------------------------------
<FN>
*Weekly Average of Exchange Rates of the Federal Reserve Bank of New York
</TABLE>
18
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ADDITIONAL INVESTMENTS
MONEY MARKET INSTRUMENTS. The Fund may hold up to 20% of the value of its
assets in cash and invest in short-term instruments, and it may hold cash and
short-term instruments without limitation when SBSA or LBGAM determines that it
is appropriate to maintain a temporary defensive posture. Short-term instruments
in which the Fund may invest include: (a) obligations issued or guaranteed as to
principal and interest by the United States government, its agencies or
instrumentalities ("U.S. government securities") (including repurchase
agreements with respect to such securities); (b) bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loan associations and similar institutions);
(c) floating rate securities and other instruments denominated in U.S. dollars
issued by international development agencies, banks and other financial
institutions, governments and their agencies or instrumentalities and
corporations located in countries that are members of the Organization for
Foreign Cooperation and Development; and (d) commercial paper rated no lower
than A-2 by S&P or Prime-2 by Moody's or the equivalent from another major
rating service or, if unrated, of an issuer having an outstanding, unsecured
debt issue then rated within the three highest rating categories.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the United States Treasury, obligations
issued by U.S. government agencies and instrumentalities, including instruments
that are supported by the full faith and credit of the United States;
instruments that are supported by the right of the issuer to borrow from the
United States Treasury; and instruments that are supported solely by the credit
of the instrumentality.
CERTAIN INVESTMENT GUIDELINES
Up to 15% of the assets of the Fund may be invested in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable, including (a) repurchase agreements with maturities greater
than seven days, (b) time deposits maturing in more than seven calendar days and
(c) new and early stage companies whose securities are not publicly traded. In
addition, the Fund may invest up to 5% of its assets in warrants and up to 5% of
its assets in the securities of issuers which
19
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
directly or through a parent or affiliated company have been in continuous
operation for less than three years. The Fund also may borrow for temporary or
emergency purposes, but not for leveraging purposes, in an amount up to 10% of
its total assets, and may pledge its assets to the same extent in connection
with such borrowings. Whenever these borrowings exceed 5% of the value of the
Fund's total assets the Fund will not make any additional investments. Except
for the limitations on borrowing, the investment guidelines set forth in this
paragraph may be changed at any time without shareholder consent by vote of the
Board of Directors. A complete list of investment restrictions that the Fund has
adopted identifying restrictions that cannot be changed without the approval of
the majority of the Fund's outstanding shares is contained in the Statement of
Additional Information.
CERTAIN PORTFOLIO STRATEGIES
In attempting to achieve its investment objective, the Fund may employ, among
others, the following portfolio strategies:
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions on U.S. government securities with banks which are the issuers of
instruments acceptable for purchase by the Fund and with certain dealers on the
Federal Reserve Bank of New York's list of reporting dealers. Under the terms of
a typical repurchase agreement, the Fund 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 Fund to resell,
the obligation at an agreed-upon price and time, thereby determining the yield
during the Fund's holding period. This arrangement results in a fixed rate of
return that is not subject to market fluctuations during the Fund's holding
period. The value of the underlying securities will be monitored on an ongoing
basis by SBSA or LBGAM to ensure that the value is at least equal at all times
to the total amount of the repurchase obligation, including interest. Repurchase
agreements could involve certain risks in the event of default or insolvency of
the other party, including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities, the risk of a possible decline
in the value of the underlying securities during the period in which the Fund
seeks to assert its rights to them, the risk of incurring expenses associated
with asserting those rights and the risk of losing all or part of the income
from the agreement.
20
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
SBSA, LBGAM, SBMFM or Boston Advisors, acting under the supervision of the Board
of Directors, reviews on an ongoing basis to evaluate potential risks, the value
of the collateral and the creditworthiness of those banks and dealers with which
the Fund enters into repurchase agreements.
LENDING OF PORTFOLIO SECURITIES. The Fund has the ability to lend securities
from its portfolio to unaffiliated brokers, dealers and other financial
organizations. Such loans, if and when made, may not exceed 20% of the Fund's
total assets, taken at value. Loans of portfolio securities by the Fund will be
collateralized 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 (determined by marking to market daily) of the loaned securities.
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 SBSA or
LBGAM to be of good standing and will not be made unless, in the judgment of
SBSA or LBGAM, the consideration to be earned from such loans would justify the
risk.
SHORT SALES AGAINST THE BOX. The Fund may make short sales of common stock if,
at all times when a short position is open, the Fund owns the stock or owns
preferred stock or debt securities convertible or exchangeable, without payment
of further consideration, into the shares of common stock sold short. Short
sales of this kind are referred to as short sales "against the box." The
broker-dealer that executes a short sale generally invests cash proceeds of the
sale until they are paid to the Fund. Arrangements may be made with the
broker-dealer to obtain a portion of the interest earned by the broker on the
investment of short sale proceeds. The Fund will segregate the common stock or
convertible or exchangeable preferred stock or debt securities in a special
account with its custodian; not more than 10% of the Fund's net assets (taken at
current value) may be held as collateral for such sales at any one time. The
extent to which the Fund may make short sales of common stock may be limited by
the requirements contained in the Code, for qualification as a regulated
investment company. See "Dividends, Distributions and Taxes."
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. The Fund may utilize up to 10%
of its assets to purchase put options on securities owned by the
21
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Fund and up to an additional 10% of its assets to purchase call options on
securities which the Fund may acquire in the future. The Fund may purchase only
put options that are traded on a regulated exchange. By buying a put, the Fund
limits its risk of loss from a decline in the market value of the security until
the put expires. Any appreciation in the value of the underlying security,
however, will be partially offset by the amount of the premium paid for the put
option and any related transaction costs. The Fund may purchase call options on
a security it intends to purchase in the future to avoid the additional cost
that would result from a substantial increase in the market price of the
security. Prior to their expiration, put and call options may be sold in closing
sale transactions (sales by the Fund, prior to the exercise of options it has
purchased, of options of the same series), and profit or loss from the sale will
depend on whether the amount received is more or less than the premium paid for
the option plus the related transaction costs.
STOCK INDEX OPTIONS. The Fund may purchase and write put and call options on
domestic and foreign stock indexes to hedge against risks of market-wide price
movements affecting that portion of its assets invested in the country whose
stocks are subject to the hedge. A stock index measures the movement of a
certain group of stocks by assigning relative values to the common stocks
included in the index. Examples of domestic stock indexes are the Standard &
Poor's 500 Stock Index and the New York Stock Exchange Composite Index, and
examples of foreign stock indexes are the Canadian Market Portfolio Index
(Montreal Stock Exchange), the FINANCIAL TIMES--Stock Exchange 100
(International Stock Exchange) and the Toronto Stock Exchange Composite 300
(Toronto Stock Exchange). Options on stock indexes are similar to options on
securities. Because no underlying security can be delivered, however, the option
represents the holder's right to obtain from the writer, in cash, a fixed
multiple of the amount by which the exercise price exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the underlying
index on the exercise date. Options on foreign stock indexes are similar to
options on domestic stock indexes. Like domestic stock index options, foreign
stock index options are subject to position and exercise limits and other
regulations imposed by the exchange on which they are traded. Unlike domestic
stock index options, foreign stock index options carry risks associated with
investing in foreign securities, as described above. The advisability of using
stock index options to hedge against the risk of market-wide movements will
depend on the extent of
22
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
diversification of the Fund's stock investments and the sensitivity of its stock
investments to factors influencing the underlying index. The effectiveness of
purchasing or writing stock index options as a hedging technique will depend
upon the extent to which price movements in the Fund's securities investments
correlate with price movements in the stock index selected. In addition,
successful use by the Fund of options will be subject to the ability of SBSA or
LBGAM to predict correctly movements in the direction of the underlying index.
When the Fund writes an option on a stock index, it will establish a
segregated account with Boston Safe Deposit and Trust Company ("Boston Safe"),
the Fund's custodian, or with a foreign subcustodian in which the Fund will
deposit cash or cash equivalents or a combination of both in an amount equal to
the market value of the option, and will maintain the account while the option
is open.
GOLD FUTURES CONTRACTS AND RELATED OPTIONS. If SBSA or LBGAM determines it
would be advantageous to do so, the Fund may, for hedging purposes, utilize its
assets as initial margin and premiums on futures contracts and options on those
contracts. The Fund may enter into futures contracts for the purchase and sale
of gold, purchase put and call options on those futures contracts and write call
options on those futures contracts. Use of these strategies may provide a
defense against a decline in the value of the Fund's assets in a period of
anticipated gold price weakness. The Fund will only enter into gold futures
contracts that are traded on a regulated domestic or foreign commodities
exchange and will purchase or write options on gold futures only on a regulated
domestic or foreign exchange approved for such purpose by the Commodities
Futures Trading Commission (the "CFTC"). Currently, gold futures and options
thereon are traded primarily on the Commodity Exchange of New York ("COMEX"),
the Chicago Mercantile Exchange and the Chicago Board of Trade; the Fund expects
to trade futures and related options primarily on COMEX. When the Fund enters
into long futures and options positions (futures contracts to purchase gold and
call options purchased or put options written by the Fund), an amount of cash
and cash equivalents equal to the underlying commodities value of the contracts
will be deposited and maintained in a segregated account with the Fund's
custodian to collateralize the positions, thereby insuring that the use of the
contract is unleveraged.
23
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
A gold futures contract provides for the future sale by one party and the
purchase by the other party of a certain amount of gold at a specified price,
date, time and place. The Fund may enter into futures contracts to sell gold
when SBSA or LBGAM believes that the value of its gold and gold-related
securities will decrease. The Fund may enter into futures contracts to purchase
gold when SBSA or LBGAM anticipates purchasing gold or gold-related securities
and believes that prices will rise before the purchases will be made. The use of
gold futures contracts as a hedging device involves several risks. There can be
no assurance that there will be a correlation between price movements in the
gold underlying the futures contracts, on the one hand, and price movements in
the assets that are subject of the hedge, on the other hand. Positions in gold
futures contracts and related options may be closed out only by the exchange on
which the contract or option was entered into and there can be no assurance that
an active market will exist for a particular contract at any particular time.
Losses incurred in hedging transactions and the costs of these transactions will
affect the Fund's performance.
An option on a gold futures contract, as contrasted with the direct investment
in such a contract, gives the purchaser the right, in return for the premium
paid, to assume a position in a gold futures contract at a specified exercise
price at any time prior to the expiration date of the option. Upon exercise of
an 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 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. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transactions costs), and there are no daily cash payments to reflect changes in
the value of the underlying contract. The value of the option, however, does
change daily and that change would be reflected in the net asset value of the
Fund.
CURRENCY EXCHANGE TRANSACTIONS. The Fund may engage in currency exchange
transactions in order to protect against uncertainty in the level of future
exchange rates. The Fund 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 forward contracts to
24
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
purchase or sell currencies. The Fund's dealings in forward currency contracts
will be limited to hedging involving either specific transactions or portfolio
positions. In hedging specific portfolio positions, the Fund may enter into a
forward currency contract with respect to either the currency in which the
positions are denominated or another currency deemed appropriate by SBSA or
LBGAM. A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are entered into in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. Although such transactions 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 which might result should the value of such
currency increase. To assure that the Fund's forward currency contracts are not
used to achieve investment leverage, the Fund will segregate with its custodian
or subcustodians cash or readily marketable securities in an amount at all times
equal to or exceeding the Fund's commitment with respect to these contracts.
SECURITIES OF DEVELOPING COUNTRIES. A developing country is generally
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.
- --------------------------------------------------------------------
VALUATION OF SHARES
The Fund'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 for business by dividing
the value of the Fund's net assets attributable to each Class by the total
number of shares of the Class outstanding.
25
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
VALUATION OF SHARES (CONTINUED)
Generally, the Fund'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 Board of Directors. A security that
is primarily traded on a domestic or foreign 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. Portfolio securities that are primarily traded on foreign
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except that when an occurrence
subsequent to the time a value was so established is likely to have changed the
value, then the fair value of those securities will be determined by
consideration of other factors by or under the direction of the Board of
Directors or its delegates. Over-the-counter securities and securities listed or
traded on certain foreign exchanges whose operations are similar to the United
States over-the-counter market are valued on the basis of the bid price at the
close of business on each day. An option is generally valued at the last sale
price or, in the absence of a last sale price, the last offer price. Investments
in U.S. government securities (other than short-term securities) are valued at
the average of the quoted bid and asked prices in the over-the-counter market.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Board of Directors determines that amortized cost reflects
fair value of those investments. Amortized cost valuation involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the effect of fluctuating
interest rates on the market value of the instrument. Further information
regarding the Fund's valuation policies is contained in the Statement of
Additional Information.
- --------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute its investment income (that is, its income
other than its net realized capital gains) and net realized capital gains, if
any, once a year, normally at the end of the year in which earned or at the
beginning of the next year.
26
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 in each year of any undistributed
ordinary income or capital gains and expects to pay any additional dividends and
distributions necessary to avoid the application of this tax.
The per share dividends on Class B and Class C shares of the Fund may be lower
than the per share dividends on Class A and Class Y shares principally as a
result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the service
fee applicable to Class A shares. Distributions of capital gains, if any, will
be in the same amount for Class A, Class B, Class C and Class Y shares.
TAXES
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under Subchapter M of the Code. Dividends paid from
net investment income and distributions of net realized short-term capital gains
are taxable to shareholders as ordinary income, regardless of how long
shareholders have held their Fund shares and whether such dividends and
distributions are received in cash or reinvested in additional Fund shares.
Distributions of net realized long-term capital gains will be taxable to
shareholders as long-term capital gains, regardless of how long shareholders
have held Fund shares and whether such distributions are received in cash or
reinvested in additional Fund shares. Furthermore, as a general rule, a
shareholder's gain or loss on a sale or redemption of Fund shares will be a
long-term capital gain or loss if the shareholder has held the shares for more
than one year and will be a short-term capital gain or loss if the shareholder
has held the shares for one year or less. Some of the Fund's dividends declared
from net investment income may qualify for the Federal dividends-received
deduction for corporations.
27
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Dividends or other income received by the Fund may be subject to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes and
shareholders may be entitled to claim a credit or deduction for foreign taxes
paid in calculating their United States income tax, subject to certain
limitations. If eligible, the Fund will determine whether to make an election to
treat any foreign withholding or other taxes paid by it as paid by its
shareholders. In determining whether to make this election, the Fund will take
into consideration such factors as the amount of foreign taxes paid and the
administrative costs associated with making the election. If the election is
made, shareholders of the Fund would be required to include their respective pro
rata portions of such foreign taxes in computing their taxable income and would
then generally be entitled to credit such amounts against their United States
income taxes due, if any, or to include such amounts in their itemized
deductions, if any. For any year for which it makes such an election, the Fund
will report to its shareholders (shortly after the close of its fiscal year) the
amount per share of such foreign taxes that must be included in the
shareholder's gross income and will be available as a credit or deduction.
Because the foreign taxes incurred by the Fund for the fiscal year ended October
31, 1994 were immaterial, no election was made.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder will also receive, if
appropriate, various written notices after the close of the Fund's prior taxable
year as to the Federal income tax status of his or her dividends and
distributions which were received from the Fund during the Fund's prior taxable
year. Shareholders should consult their tax advisors regarding specific
questions as to the Federal and local tax consequences of investing in the Fund.
28
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- ---------------------------------------------------------------------------
PURCHASE OF SHARES
GENERAL
The Fund 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. See "Prospectus
Summary -- Alternative Purchase Arrangements" for a discussion of factors to
consider in selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney, an Introducing Broker or an investment dealer in the selling
group, except for investors purchasing shares of the Fund through a qualified
retirement plan who may do so directly through TSSG. When purchasing shares of
the Fund, 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 Fund. 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 Fund
is $25. For the Fund'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 for Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Directors of the Fund 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, TSSG. Share certificates are issued only upon a
shareholder's written request to TSSG.
29
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Purchase orders received by Smith Barney prior to the close of regular trading
on the NYSE on any day the Fund calculates its net asset value are priced
according to the net asset value determined on that day. Orders received by
dealers or Introducing Brokers prior to the close of regular trading on the NYSE
on any day the Fund calculates its net asset value are priced according to the
net asset value determined on that day, provided the order is received by Smith
Barney prior to Smith Barney's close of business (the "trade date"). Currently,
payment for Fund shares is due on the fifth business day after the trade date
(the "settlement date"). The Fund anticipates that, in accordance with
regulatory changes, beginning on or about June 1, 1995, the settlement date will
be the third business day after the trade date.
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 TSSG 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 Fund
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or TSSG. 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.
30
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are as
follows:
<TABLE>
<CAPTION>
DEALERS
SALES CHARGE AS % SALES CHARGE AS % REALLOWANCE AS
AMOUNT OF INVESTMENT OF OFFERING PRICE OF AMOUNT INVESTED % OF 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 * * *
- -------------------------------------------------------------------------------------
<FN>
*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."
</TABLE>
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 Fund 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 held in funds sponsored by Smith Barney that are offered with
a sales charge 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
of the Fund and employees of Travelers and its subsidiaries, or the spouses and
children of such persons (including the surviving spouse of a
31
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
deceased Director or employee, and retired Directors or employees), or sales to
any trust, 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
re-sold except through redemption or repurchase; (b) offers of Class A shares to
any other investment company in connection with the combination of such company
with the Fund by merger, acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed 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 Fund (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
Fund) and who wish to reinvest their redemption proceeds in the Fund, 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 Fund may be purchased by "any person" (as defined above)
at a reduced sales charge or at net asset value determined by aggregating the
dollar amount of the new purchase and the total net asset value of all Class A
shares of the Fund and of funds sponsored by 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.
32
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
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 Fund 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 Fund and the members,
and must agree to include sales and other materials related to the Fund 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.
33
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity for
an investor to obtain a reduced sales charge by aggregating investments over a
13 month period, provided that the investor refers to such Letter when placing
orders. For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes purchases of all Class
A shares of the Fund 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 TSSG to obtain a Letter of Intent application.
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
cost of the shares being redeemed or their net asset value at the time of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gains 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.
34
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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>
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 fee. There also will 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 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 Fund
will be offered the opportunity to exchange all such Class B shares for Class A
shares of the Fund 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
35
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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."
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 applicable Smith Barney Mutual Funds, and Fund
shares being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gains 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 below) (provided, however, that automatic cash withdrawals in amounts equal
to or less than 2.00% per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to November 7, 1994);
(c) redemptions of shares within 12 months following the death or disability of
the shareholder; (d) 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 Fund
36
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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 TSSG 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 Fund 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 available to other investors, Class Y
shares acquired through the Smith Barney 401(k) Program are not subject to any
initial sales charge, CDSC or service or distribution fee. Once a Participating
Plan has made an initial investment in the Fund, all of its subsequent
investments in the Fund must be in the same Class of shares, except as otherwise
described below.
CLASS A SHARES. Class A shares of the Fund are offered without any 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.
37
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
CLASS B SHARES. Class B shares of the Fund 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 Fund. 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 Fund but instead may acquire Class A shares of
the Fund. If the Participating Plan elects not to exchange all of its Class B
shares at that time, each Class B share held by the Participating Plan will have
the same conversion feature as Class B shares held by other investors. See
"Purchase of Shares -- Deferred Sales Charge Alternatives."
CLASS C SHARES. Class C shares of the Fund 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 will be 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. In any
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 Fund. Such Plans
will be notified in writing within 30 days after the last business day of the
calendar year, and unless the exchange offer has been rejected in writing, the
exchange will occur on or about the last business day of the following March.
Once the exchange has occurred, a Participating Plan will not be eligible to
acquire
38
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Class C shares of the Fund but instead may acquire Class A shares of the Fund.
Class C shares not converted will continue to be subject to the distribution
fee.
CLASS Y SHARES. Class Y shares of the Fund are offered without any service or
distribution fee, 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 gains
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
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
applicability of the CDSC to other shareholders, which depends on the number of
years since those shareholders made the purchase payment from which the amount
is being redeemed.
The CDSC will be waived on redemptions of CDSC 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.
39
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program must purchase such shares directly from TSSG. 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 at the
net asset value next determined 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.
<TABLE>
<C> <S>
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 Special Equities Fund
Smith Barney Telecommunications Growth Fund
GROWTH AND INCOME FUNDS
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth Portfolio
Smith Barney Funds, Inc. --Utilities 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
</TABLE>
40
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
Smith Barney Funds, Inc. -- Monthly Payment Government 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 Florida Municipals Fund
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
* Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds -- California Portfolio
* 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 Jersey 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 New York 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
</TABLE>
41
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
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 Muni Funds -- California Money Market Portfolio
+++ Smith Barney Muni Funds -- New York Money Market Portfolio.
+++ Smith Barney Municipal Money Market Fund, Inc.
<FN>
------------------------
*Available for exchange with Class A, Class C and Class Y shares of the Fund.
**Available for exchange with Class A, Class B and Class Class Y shares of the
Fund. In addition, shareholders who own Class C shares of the Fund through a
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 Fund.
+Available for exchange with Class B and Class C shares of the Fund.
++Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class C shares of the Fund 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 Fund.
</TABLE>
CLASS A EXCHANGES. Class A shares of the 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 gains 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 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 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
42
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
the Fund, the exchanged Class B shares will be subject to the higher applicable
CDSC. Upon an exchange, the new Class B shares will be deemed to have been
purchased on the same date as the Class B shares of the Fund that have been
exchanged.
CLASS 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 Fund that have
been exchanged.
CLASS Y EXCHANGES. Class Y shareholders of the Fund 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 Fund's performance and its shareholders. SBSA may determine
that a pattern of frequent exchanges is excessive and contrary to the best
interests of the Fund's other shareholders. In this event, SBSA will notify
Smith Barney and Smith Barney may, at its discretion, decide to limit additional
purchases and/or exchanges by a shareholder. Upon such a determination, Smith
Barney 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
Funds or (b) remain invested in the Fund or exchange into any of the funds of
the Smith Barney Mutual Funds ordinarily available, which position the
shareholder would be expected to maintain for a significant period of time. All
relevant factors will be considered in determining what constitutes an abusive
pattern of exchanges.
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
43
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to shareholders.
- --------------------------------------------------------------------
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to the 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 seventh day following receipt of
proper tender, except on any days on which the NYSE is closed or as permitted
under the Investment Company Act of 1940, as amended (the "1940 Act"), in
extraordinary circumstances. The Fund anticipates that, in accordance with
regulatory changes, beginning on or about June 1, 1995, payment will be made on
the third business day after receipt of proper tender. 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
44
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
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 Precious Metals and Minerals Fund Inc.
Class A, B, C or Y (please specify)
c/o The Shareholder 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 TSSG together with the redemption request. Any signature
appearing on a redemption request, 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. TSSG 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 TSSG receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not exceed
2.00% per month
45
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- ---------------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
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.
- --------------------------------------------------------------------
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size.) The 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 redemption.
- --------------------------------------------------------------------
PERFORMANCE
TOTAL RETURN
From time to time, the Fund 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 Fund. 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 Fund calculates current dividend return for each Class by
annualizing the most
46
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
PERFORMANCE (CONTINUED)
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' current return to yields published for other
investment companies and other investment vehicles. The Fund may also include
comparative performance information in advertising or marketing its shares. Such
performance information may include data from Lipper Analytical Services, Inc.
or similar independent services that monitor the performance of mutual funds or
other industry publications. The Fund will include performance data for Class A,
Class B, Class C and Class Y shares in any advertisement or information
including performance data of the Fund.
- --------------------------------------------------------------------
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, including
agreements with its distributor, investment adviser, sub-investment adviser,
administrator, sub-administrator, custodian and transfer agent. The day-to-day
operations of the Fund are delegated to the Fund's investment adviser,
sub-investment adviser, administrator and sub-administrator. The Statement of
Additional Information contains background information regarding each Director
and executive officer of the Fund.
INVESTMENT ADVISER -- SBSA
SBSA, located at 388 Greenwich Street, New York, New York 10013, serves as the
Fund's investment adviser pursuant to an investment advisory agreement dated
June 20, 1994. SBSA (through predecessor entities) has been in the investment
counseling business since 1968 and is a registered
47
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
investment adviser. SBSA renders investment advice to investment companies that
had aggregate assets under management as of January 31, 1995, in excess of $2.9
billion.
Subject to the supervision and direction of the Company's Board of Directors,
SBSA manages the Fund's portfolio in accordance with the Fund's stated
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities and employs professional portfolio
managers and securities analysts who provide research services to the Fund. For
investment advisory services rendered, the Fund pays SBSA a monthly fee at the
annual rate of 0.75% of the value of the Fund's average daily net assets.
SUB-INVESTMENT ADVISER -- LBGAM
LBGAM, located at Two Broadgate, London EC2M 7HA, United Kingdom, serves as
the Fund's sub-investment adviser pursuant to a sub-investment advisory
agreement dated June 20, 1994. For sub-investment advisory services rendered,
LBGAM receives a fee from SBSA, paid monthly at the annual rate of 0.375% of the
value of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT
Aisling O'Duffy, an Investment Officer of the Fund since 1991, manages the
day-to-day operations of the Fund, including making all investment decisions.
Management's discussion and analysis and additional performance information
regarding the Fund during the fiscal year ended October 31, 1994 is included in
the Annual Report dated October 31, 1994. A copy of the Annual Report may be
obtained upon request 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.
ADMINISTRATOR -- SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's administrator and oversees all aspects of the Fund's
48
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
administration. SBMFM provides investment management, investment advisory and/or
administrative services to investment companies that had aggregate assets under
management as of January 31, 1995, in excess of $51.9 billion. For
administration services rendered, the Fund pays SBMFM a monthly fee at the
annual rate of 0.20% of the value of the Fund's average daily net assets.
SUB-ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's sub-administrator. Boston Advisors provides investment
management, investment advisory, administrative and/or sub-administrative
services to investment companies that had aggregate assets under management as
of January 31, 1995, in excess of $69.7 billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists SBMFM in all aspects of the Fund's administration and
operation. Under a Sub-Administration agreement dated April 20, 1994, Boston
Advisors is paid a portion of the administrative fee paid by the Fund to SBMFM
at a rate agreed upon from time to time between Boston Advisors and SBMFM. Prior
to April 20, 1994, Boston Advisors served as the Fund's administrator.
- --------------------------------------------------------------------
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund 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 Fund 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 at the annual rate of 0.25% of
the average daily net assets of the respective Class. 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 those Classes. Class B
shares that automatically convert to Class A shares eight years after the date
of original purchase will no
49
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
longer be subject to the 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 Fund 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 share-
holder remains a holder of that Class. The service fee is credited at the annual
rate of up to 0.25% of the value of the average daily net assets of the Class
that remain invested in the Fund. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service 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 was incorporated on July 16, 1986, under the laws of the State of
Maryland, and is registered with the SEC as a diversified, open-end management
investment company. The Fund offers shares of common stock currently classified
into four Classes, A, B, C and Y, with a par value of $.001 per share. Each
Class of shares has the same rights, privileges and preferences, except with
respect to: (a) the designation of each Class; (b) the
50
<PAGE>
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
effect of the respective sales charges for each Class; (c) the distribution
and/or service fees borne by each Class; (d) the expenses allocable exclusively
to each Class; (e) voting rights on matters exclusively affecting a single
Class; (f) the exchange privilege of each Class; and (g) the conversion feature
of the Class B shares. The Fund's Board of Directors does not anticipate that
there will be any conflicts among the interests of the holders of the different
Classes. The Directors, on an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.
Boston Safe, an indirect wholly owned subsidiary of Mellon, is located at One
Boston Place, Boston, Massachusetts 02108, and serves as custodian of the Fund's
investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves as
the Fund's transfer agent.
The Fund does not hold annual shareholder meetings. There normally will be no
meeting 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. The Directors will call a meeting for any purpose upon
written request of shareholders holding at least 10% of the Fund's outstanding
shares and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full share owned and a
proportionate fractional vote for any fractional share held of that Class.
Generally, shares of the Fund will be voted on a Fund-wide basis on all matters
except matters affecting only the interests of one or more of the Classes.
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 accounts should contact their Smith Barney Financial Consultant
or TSSG.
51
Smith Barney
PRECIOUS METALS AND MINERALS FUND INC.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 1995
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney Precious
Metals and Minerals Funds Inc. (the "Fund") dated March 1, 1995, as
amended or supplemented from time to time, and should be read in conjunc-
tion with the Fund's Prospectus. The Fund's Prospectus may be obtained
from any Smith Barney Financial Consultant, or by writing or calling the
Fund at the address or telephone number set forth above. This Statement of
Additional Information, although not in itself a prospectus, is incorpo-
rated by reference into the Prospectus in its entirety.
CONTENTS
For ease of reference, the same section headings are used in both the Pro-
spectus and this Statement of Additional Information, except where shown
below:
<TABLE>
<S> <C>
Management of the Fund 1
Investment Objective and Management Policies 6
Purchase of Shares 15
Redemption of Shares 16
Distributor 17
Valuation of Shares 18
Exchange Privilege 19
Performance Data (See in the Prospectus "Performance") 20
Taxes (See in the Prospectus "Dividends, Distributions and Taxes") 22
Additional Information 25
Financial Statements 26
Appendix A-1
</TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the organi-
zations that provide services to the Fund. These organizations are the
following:
<TABLE>
<CAPTION>
NAME SERVICE
<S> <C>
Smith Barney Inc. ("Smith Barney") Distributor
Smith Barney Strategy Advisers Inc. Investment Adviser
("SBSA")
Lehman Brothers Global Asset Management Limited Sub-Investment Adviser
("LBGAM")
Smith Barney Mutual Funds Management Inc. Administrator
("SBMFM")
The Boston Company Advisors, Inc.
("Boston Advisors") Sub-Administrator
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc. ("TSSG"), a subsidiary of Transfer Agent
First Data Corporation
</TABLE>
These organizations and the functions they perform for the Fund are dis-
cussed in the Prospectus and in this Statement of Additional Information.
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The Directors and executive officers of the Fund, together with informa-
tion as to their principal business occupations during the past five
years, are shown below. Each Director who is an "interested person" of the
Fund, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), is indicated by an asterisk.
Herbert Barg, Director (age 71). Private investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Director (age 72). Retired; formerly Senior Con-
sultant to Dean Witter Reynolds Inc. His address is 19 Circle End Drive,
Ramsey, New Jersey 17466.
Martin Brody, Director (age 73). Vice Chairman of the Board of Restaurant
Associates Industries, Corp.; a Director of Jaclyn, Inc. His address is
HMK Associates, Three ADP Boulevard, Roseland, New Jersey 07068.
Dwight B. Crane, Director (age 57). Professor, Graduate School of Business
Administration, Harvard University; a Director of Peer Review Analysis,
Inc. His address is Harvard University Graduate School of Business Admin-
istration, Boston, Massachusetts 02163.
Burt N. Dorsett, Director (age 64). Managing Partner of Dorsett McCabe
Management, Inc., an investment counselling firm; Director of Research
Corporation Technologies, Inc., a non-profit patent- clearing and licens-
ing firm. His address is 201 East 62nd Street, New York, New York 10021.
Elliot S. Jaffe, Director (age 68). Chairman of the Board and President of
The Dress Barn, Inc. His address is 30 Dunnigan Drive, Suffern, New York
10901.
Stephen E. Kaufman, Director (age 63). Attorney. His address is 277 Park
Avenue, New York, New York 10017.
Joseph J. McCann, Director (age 64). Financial Consultant; formerly Vice
President of Ryan Homes, Inc., Pittsburgh, Pennsylvania. His address is
200 Oak Park Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer (age 61).
Managing Director of Smith Barney, Chairman of SBSA and President of
SBMFM; prior to July 1993, Senior Executive Vice President of Shearson Le-
hman Brothers Inc. ("Shearson Lehman Brothers"); Vice Chairman of Asset
Management Division of Shearson Lehman Brothers; Director of PanAgora
Asset Management, Inc. and PanAgora Asset Management Limited. Mr. McLendon
is also Chairman of the Board for 29 other funds of the Smith Barney Mu-
tual Funds. His address is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr., Director (age 61). President, Cornelius C. Rose
Associates, Inc., Financial Consultants; and Chairman and Director of Per-
formance Learning Systems, an educational consultant. His address is P.O.
Box 355, Fair Oaks, Enfield, New Hampshire 03748.
James J. Crisona, Director Emeritus (age 87). Attorney; formerly Justice
of the Supreme Court of the State of New York. His address is 118 East
60th Street, New York, New York 10022.
Jessica M. Bibliowicz, President (age 35). Executive Vice President of
Smith Barney; prior to 1994, Director of Sales and Marketing for Pruden-
tial Mutual Funds; prior to 1990, First Vice President, Asset Management
Division of Shearson Lehman Brothers. Ms. Bibliowicz is also President of
25 other funds of the Smith Barney Mutual Funds. Her address is 388 Green-
wich Street, New York, New York 10013.
Pauline A.M. Barrett, Vice President and Investment Officer (age 42). Man-
aging Director -- Fixed Income Securities with LBGAM. Her address is Two
Broadgate, London, EC2M 7HA, United Kingdom.
Robert Pennells, Investment Officer (age 42). Managing Director of Equi-
ties with LBGAM. His address is Two Broadgate, London, EC2M 7HA, United
Kingdom.
Aisling O'Duffy, Investment Officer (age 33). Investment Manager with
LBGAM. Her address is Two Broadgate, London, EC2M 7HA, United Kingdom.
Lewis E. Daidone, Senior Vice President and Treasurer (age 37). Managing
Director of Smith Barney; Chief Financial Officer of the Smith Barney Mu-
tual Funds; and Director and Senior Vice President of SBMFM; prior to Jan-
uary, 1990, Senior Vice President and Chief Financial Officer of Cortland
Financial Group, Inc. Mr. Daidone is also Senior Vice President and Trea-
surer of 41 other funds of the Smith Barney Mutual Funds. His address is
388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (age 44). Managing Director of Smith Barney
and Secretary of SBMFM. Ms. Sydor is also Secretary of 41 other funds of
the Smith Barney Mutual Funds. Her address is 388 Greenwich Street, New
York, New York 10013.
Each Director also serves as a director, trustee and/or general partner of
certain other mutual funds for which Smith Barney serves as distributor.
As of January 31, 1995, Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.
No director, officer or employee of Smith Barney or any parent or subsid-
iary receives any compensation from the Fund for serving as an officer or
Director of the Fund. The Fund pays each Director who is not a director,
officer or employee of Smith Barney or any of its affiliates a fee of
$2,000 per annum plus $250 per meeting attended and each Director Emeritus
who is not a director, officer or employee of Smith Barney or any of its
affiliates a fee of $1,000 per annum plus $125 per meeting attended. All
Directors are reimbursed for travel and out-of-pocket expenses to attend
meetings of the Board. For the fiscal year ended October 31, 1994 fees and
expenses totalled $24,385.
For the calendar year ended December 31, 1994, the Directors of the Fund
were paid the following compensation:
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
AGGREGATE COMPENSATION FROM THE SMITH BARNEY
DIRECTOR(*) FROM THE FUND MUTUAL FUNDS
<S> <C> <C>
Herbert Barg(13) $ 0 $77,850
Alfred J. Bianchetti(8) 3,250 38,850
Martin Brody(15) 2,500 111,675
Dwight B. Crane(18) 3,250 125,975
Burt N. Dorsett(12) 0 34,300
Elliot Jaffe(12) 0 33,300
Stephen Kaufman(10) 3,250 83,600
Joseph J. McCann(8) 3,250 51,100
Cornelius C. Rose, Jr.(12) 0 33,300
James J. Crisona(10)** 3,250 67,350
<FN>
(*) Number of director/trusteeships held with other mutual funds of the
Smith Barney Mutual Funds.
** Mr. Crisona became a Director Emeritus as of January 1, 1995. A Direc-
tor Emeritus may attend meetings of the Fund's Board of Directors but
has no voting rights at such meetings.
</TABLE>
INVESTMENT ADVISER -- SBSA
SBSA serves as investment adviser to the Fund pursuant to a written agree-
ment (the "Advisory Agreement"), which was most recently approved by the
Board of Directors, including a majority of the Directors who are not "in-
terested persons" of the Fund or SBSA, on April 20, 1994 and by sharehold-
ers on June 20, 1994. SBSA pays the salary of any officer and employee who
is employed by both it and the Fund. The services provided by SBSA under
the Advisory Agreement are described in the Prospectus under "Management
of the Fund." SBSA bears all expenses in connection with the performance
of its services. SBSA is a wholly owned subsidiary of Smith Barney Hold-
ings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The Trav-
elers Inc. ("Travelers").
As compensation for investment advisory services, the Fund pays SBSA a fee
computed daily and paid monthly at the annual rate of 0.75% of the value
of the Fund's average daily net assets. For the 1992 and 1993 fiscal years
and for the period from November 1, 1993 through June 20, 1994, the Fund
paid LBGAM, the Fund's previous investment adviser, $113,128, $399,613 and
$376,967, respectively, in investment advisory fees. For the period from
June 21, 1994 through October 31, 1994, the Fund paid SBSA $216,106 in in-
vestment advisory fees.
SUB-INVESTMENT ADVISER -- LBGAM
LBGAM serves as sub-investment adviser to the Fund pursuant to a written
agreement (the "Sub- Investment Advisory Agreement"), which was most re-
cently approved by the Fund's Board of Directors, including a majority of
the Directors who are not "interested persons" of the Fund or LBGAM, on
April 20, 1994 and by shareholders on June 20, 1994. LBGAM is a wholly
owned subsidiary of Lehman Brothers Holdings Inc., a publicly owned corpo-
ration. Nippon Life Insurance Company owns approximately 11.2% of the out-
standing voting stock of Lehman Brothers Holdings Inc. Prior to June 20,
1994, LBGAM acted in the capacity as the Fund's investment adviser.
ADMINISTRATOR -- SBMFM
SBMFM serves as administrator to the Fund pursuant to a written agreement
dated April 20, 1994 (the "Administration Agreement"), which was most re-
cently approved by the Fund's Board of Directors including a majority of
the Directors who are not "interested persons" of the Fund or SBMFM, on
July 20, 1994. The services provided by SBMFM under the Administration
Agreement are described in the Prospectus under "Management of the Fund."
SBMFM pays the salary of any officer and employee who is employed by both
it and the Fund and bears all expenses in connection with the performance
of its services.
As compensation for administrative services rendered to the Fund, SBMFM
receives a fee at the annual rate of 0.20% of the value of the Fund's av-
erage daily net assets. For the period from April 20, 1994 through October
31, 1994, the Fund paid SBMFM $158,152 in administration fees.
SUB-ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors serves as sub-administrator to the Fund pursuant to a
written agreement (the "Sub- Administration Agreement") dated April 20,
1994, which was most recently approved by the Fund's Board of Directors,
including a majority of Directors who are not "interested persons" of the
Fund or Boston Advisors on July 20, 1994. As compensation for Boston Advi-
sors' services rendered to the Fund, Boston Advisors is paid a portion of
the administration fee paid by the Fund to SBMFM at a rate agreed upon
from time to time between Boston Advisors and SBMFM. Boston Advisors is a
wholly owned subsidiary of The Boston Company, Inc. ("TBC"), a financial
services holding company, which is in turn a wholly owned subsidiary of
Mellon Bank Corporation ("Mellon").
Prior to April 20, 1994, Boston Advisors served as the Fund's administra-
tor and received a fee computed daily and paid monthly at the annual rate
of 0.20% of the value of the Fund's average daily net assets. For the pe-
riod November 1, 1993 to April 19, 1994 and the 1993 and 1992 fiscal
years, Boston Advisors received $59,580, $95,808 and $30,167, respec-
tively, in administration fees.
Certain of the services provided to the Fund by Boston Advisors are de-
scribed in the Prospectus under "Management of the Fund." In addition to
those services, Boston Advisors pays the salaries of all officers and em-
ployees who are employed by both it and the Fund, maintains office facili-
ties for the Fund, furnishes the Fund with statistical and research data,
clerical help and accounting, data processing, bookkeeping, internal au-
diting and legal services and certain other services required by the Fund,
prepares reports to the Fund's shareholders and prepares tax returns and
reports to and filings with the Securities and Exchange Commission (the
"SEC") and state Blue Sky authorities. Boston Advisors bears all expenses
in connection with the performance of its services.
The Fund bears expenses incurred in its operation, including: taxes, in-
terest, brokerage fees and commissions, if any; fees of Directors who are
not officers, directors, shareholders or employees of Smith Barney, SBSA,
LBGAM, SBMFM or Boston Advisors; SEC fees and state Blue Sky qualification
fees; charges of custodians; transfer and dividend disbursing agent's
fees; certain insurance premiums; outside auditing and legal expenses; and
costs of preparation and printing of prospectuses for regulatory purposes
and for distribution to existing shareholders, cost of shareholders' re-
ports and shareholder meetings and meetings of the officers or Board of
Directors of the Fund.
SBSA, LBGAM, SBMFM and Boston Advisors have agreed that if in any fiscal
year the aggregate expenses of the Fund (including fees paid under the Ad-
visory, Sub-Investment Advisory, Administration and Sub-Administration
Agreements, but excluding interest, taxes, brokerage and, with the prior
written consent of the necessary state securities commissions, extraordi-
nary expenses) exceed the expense limitation of any state having jurisdic-
tion over the Fund, SBSA, LBGAM, SBMFM and Boston Advisors will, to the
extent required by law, reduce their management fees by the amount of such
excess expense, such amount to be allocated between them in the proportion
that their respective fees bear to the aggregate of such fees paid by the
Fund. Such a fee reduction, if any, will be estimated and reconciled on a
monthly basis. The most restrictive state expense limitation applicable to
the Fund would require SBSA, LBGAM, SBMFM and Boston Advisors to reduce
their fees in any year that such expenses exceed 2.5% of the first $30
million of average net assets, 2.0% of the next $70 million of average net
assets and 1.5% of the remaining average net assets. No fee reductions
were required for 1992, 1993 and 1994 fiscal years.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as counsel to the Fund. The Directors who
are not "interested persons" of the Fund have selected Stroock & Stroock &
Lavan as their counsel.
KPMG Peat Marwick LLP, independent accountants, 345 Park Avenue, New York,
New York 10154, serve as auditors of the Fund and will render an opinion
on the Fund's financial statements annually beginning with the fiscal year
ending October 31, 1995. With respect to the period prior to November 1,
1994, Coopers & Lybrand L.L.P., independent accountants, served as audi-
tors of the Fund and rendered an opinion on the Fund's financial state-
ments for the fiscal year ended October 31, 1994.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the policies
it employs to achieve its objective. The following discussion supplements
the description of the Fund's investment objective and management policies
in the Prospectus.
United States Government Securities. United States government securities
include debt obligations of varying maturities issued or guaranteed by the
United States government or its agencies or instrumentalities ("U.S. gov-
ernment securities"). Direct obligations of the United States Treasury in-
clude a variety of securities that differ in their interest rates, maturi-
ties and dates of issuance.
U.S. government securities include not only direct obligations of the
United States Treasury, but also include securities issued or guaranteed
by the Federal Housing Administration, Federal Financing Bank, Export-
Import Bank of the United States, Small Business Administration, Govern-
ment National Mortgage Association, General Services Administration, Fed-
eral Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal Na-
tional Mortgage Association, Maritime Administration, Tennessee Valley
Authority, Resolution Trust Corporation, District of Columbia Armory
Board, Student Loan Marketing Association and various institutions that
previously were or currently are part of the Farm Credit System (which has
been undergoing a reorganization since 1987). Because the United States
government is not obligated by law to provide support to an instrumental-
ity that it sponsors, the Fund will invest in obligations issued by such
an instrumentality only if SBSA and LBGAM determine that the credit risk
with respect to the instrumentality does not make its securities unsuit-
able for investment by the Fund.
Lending of Portfolio Securities. As stated in the Prospectus, the Fund
has the ability to lend securities from its portfolio to brokers, dealers
and other financial organizations. Such loans, if and when made, will not
exceed 20% of the Fund's total assets. The Fund may not lend its portfolio
securities to Smith Barney or its affiliates unless it has applied for and
received specific authority from the SEC. Loans of portfolio securities by
the Fund will be collateralized by cash, letters of credit or U.S. govern-
ment securities which will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities.
From time to time, the Fund may return a part of the interest earned from
the investment of collateral received for securities loaned to the bor-
rower and/or a third party, which is unaffiliated with the Fund or with
Smith Barney, and which is acting as a "finder." In lending its securi-
ties, the Fund can increase its income by continuing to receive interest
on the loaned securities as well as by either investing the cash collat-
eral in short-term instruments or obtaining yield in the form of interest
paid by the borrower when U.S. government securities are used as collat-
eral. Requirements of the SEC, which may be subject to future modifica-
tions, currently provide that the following conditions must be met when-
ever the Fund's portfolio securities are loaned: (a) the Fund must receive
at least 100% cash collateral or equivalent securities or letters of
credit from the borrower; (b) the borrower must increase such collateral
whenever the market value of the securities rises above the level of such
collateral; (c) the Fund must be able to terminate the loan at any time;
(d) the Fund must receive reasonable interest on the loan, as well as an
amount equal to any dividends, interest or other distributions on the
loaned securities, and any increase in market value; (e) the Fund may pay
only reasonable custodian fees in connection with the loan; and (f) voting
rights on the loaned securities may pass to the borrower; however, if a
material event adversely affecting the investment occurs, the Fund's Board
of Directors must terminate the loan and regain the right to vote the se-
curities. The risks in lending portfolio securities, as with other exten-
sions 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 be made
to firms deemed by SBSA and LBGAM to be of good standing and will not be
made unless, in the judgment of SBSA and LBGAM, the consideration to be
gained from such loans would justify the risk.
Options on Securities. The Fund may purchase put and call options on se-
curities. An option position may be closed out only where there exists a
secondary market for an option of the same series on a securities exchange
or in the over-the-counter market. Although the Fund generally will pur-
chase only those options for which SBSA and LBGAM believe there is an ac-
tive secondary market so as to facilitate its closing transactions, there
is no assurance that sufficient trading interest to create a liquid sec-
ondary market on a securities exchange will exist for any particular op-
tion or at any particular time, and for some options no such secondary
market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than an-
ticipated trading activity or order flow, or other unforeseen event, have
at times rendered certain of the facilities of the Options Clearing Corpo-
ration and various securities exchanges inadequate and resulted in the in-
stitution of special procedures, such as trading rotations, restrictions
on certain types of orders or trading halts or suspensions in one or more
options. There can be no assurance that similar events, or events that may
otherwise interfere with the timely execution of customers' orders, will
not recur. In such event, it might not be possible to effect closing
transactions in particular options.
Securities exchanges have established limitations governing the maximum
number of calls and puts of each class which may be held or exercised
within certain time periods by an investor or group of investors acting in
concert (regardless of whether the options are held or exercised in one or
more accounts or through one or more brokers). It is possible that the
Fund, SBSA and LBGAM and other of their clients and affiliates may be con-
sidered to be such a group. A securities exchange may order the liquida-
tion of positions found to be in violation of these limits and it may im-
pose certain other sanctions. At the date of this Statement of Additional
Information, the position and exercise limits on domestic stock exchanges
for common stocks were generally 3,000, 5,500 or 8,000 options per stock
(i.e., options representing 300,000, 550,000 or 800,000 shares), depending
on various factors relating to the underlying security and the Fund's com-
bined stock and option position. Dollar amount limits apply to U.S. gov-
ernment securities. These limits may restrict the number of options which
the Fund will be able to purchase on a particular security.
Stock Index Options. The Fund may purchase and write put and call options
on domestic stock indexes listed on domestic securities exchanges and,
subject to applicable state securities regulations, on foreign stock in-
dexes listed on foreign securities exchanges for the purpose of hedging
its portfolio. A stock index fluctuates with changes in the market values
of the stocks included in the index. Some stock index options are based on
a broad market index such as the NYSE Composite Index or the Canadian Mar-
ket Portfolio Index, or a narrower market index such as the Standard &
Poor's 100. Indexes also are based on an industry or market segment such
as the AMEX Oil and Gas Index or the Computer and Business Equipment
Index.
Options on stock indexes are similar to options on securities except that
the delivery requirements are different. Instead of giving the right to
take or make delivery of a security at a specified price, an option on a
stock index gives the holder the right to receive a cash "exercise settle-
ment amount" equal to (a) the amount, if any, by which the fixed exercise
price of the option exceeds (in the case of a put) or is less than (in the
case of a call) the closing value of the underlying index on the date of
exercise, multiplied by (b) a fixed "index multiplier." Receipt of this
cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. The
amount of cash received will be equal to such difference between the clos-
ing price of the index and the exercise price of the option expressed in
U.S. dollars or a foreign currency, as the case may be, times a specified
multiple. The writer of the option is obligated, in return for the payment
received, to make delivery of this amount. The writer may offset its posi-
tion in stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
The effectiveness of purchasing or writing stock index options as a hedg-
ing technique will depend upon the extent to which price movements in the
portion of the Fund's securities portfolio being hedged correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Fund will realize a gain or loss
from the purchase or writing of options on an index depends upon movements
in the level of stock prices in the particular stock market generally or,
in the case of certain indexes, in an industry or market segment, rather
than movements in the price of a particular stock. Accordingly, successful
use by the Fund of options on stock indexes will be subject to the ability
of SBSA and LBGAM to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires differ-
ent skills and techniques than predicting changes in the prices of indi-
vidual stocks.
The Fund will engage in stock index options transactions only when deter-
mined by SBSA and LBGAM to be consistent with the Fund's effort to control
risk. There can be no assurance that the use of these portfolio strategies
will be successful. When the Fund writes an option on a stock index, the
Fund will establish a segregated account with Boston Safe, or with a sub-
custodian for the Fund, in an amount equal to the market value of the op-
tion and will maintain the account while the option is open.
Futures Contracts on Gold and Related Options. The Fund's purpose in en-
tering into a gold futures contract or a related option is to mitigate the
effects of fluctuations in the price of gold without necessarily buying
gold or other portfolio assets. For example, if the Fund expects gold
prices to increase, the Fund might purchase gold futures contracts in an-
ticipation of the future purchase of gold or gold-related securities. Such
a purchase would have much the same effect as the Fund's buying gold. If
gold prices increase as anticipated, the value of the gold futures con-
tracts would increase at approximately the same rate.
No consideration is paid or received by the Fund upon the purchase of a
gold futures contract. Initially, the Fund will be required to deposit
with a broker an amount of cash or cash equivalents, such as U.S. govern-
ment securities or high grade debt obligations. This amount, known as ini-
tial margin, is subject to change by the exchange on which the contract is
traded and brokers may charge a higher amount. Initial margin is in the
nature of a performance bond or good faith deposit on the contract and is
returned to the Fund upon termination of the gold futures contract, assum-
ing that all contractual obligations have been satisfied. Subsequent pay-
ments, known as maintenance margin, to and from broker, will be made daily
as the price of the gold bullion underlying the futures contract fluctu-
ates, making the positions in the futures contract more or less valuable,
a process known as "marking-to-market." Because the value of an option on
a futures contract is fixed at the point of sale, there are no daily cash
payments by the purchaser to reflect changes in the value of the underly-
ing contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of the Fund.
There are several risks in connection with the use of gold futures con-
tracts and related options as hedging devices. Successful use of gold fu-
tures contracts and related options by the Fund is subject to the ability
of SBSA and LBGAM to predict correctly movements in the price of gold and
other factors affecting markets for gold. These predictions involve skills
and techniques that are different from those generally involved in the
management of the Fund. In addition, there can be no assurance that there
will be a correlation between movements in the price of gold futures con-
tracts or an option on a gold futures contract and movements in the price
of the hedged assets. A decision of whether, when and how to hedge in-
volves the exercise of skill and judgment, and even a well-conceived hedge
may be unsuccessful to some degree because of market behavior or unex-
pected trends in the price of gold or the hedged securities.
At any time prior to the expiration of a gold futures contract or an op-
tion on a gold futures contract, the Fund may elect to close the position
by taking an opposite position, which will operate to terminate the Fund's
existing position in the contract. Positions in futures contracts and op-
tions on futures contracts may be closed out only on the exchange on which
they were entered into (or through a linked exchange). Although the Fund
intends to purchase gold futures contracts and related options only if
there is an active market for the contracts, there is no assurance that an
active market will exist for the contracts or options at any particular
time. Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit
has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. It is possible that gold futures contract
prices could move to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of gold
futures positions and subjecting the Fund to substantial losses. In such
event, and in the event of adverse price movements, the Fund would be re-
quired to make daily cash payments of maintenance margin, and an increase,
if any, in the value of the portion of the portfolio being hedged may par-
tially or completely offset losses on the futures contract. As described
above, however, there is no guarantee that the price of the assets being
hedged will, in fact, correlate with the price movements in a gold futures
contract or an option thereon and thus provide an offset to losses on the
futures contract or option.
If the Fund has hedged against the possibility of a change in the price of
gold adversely affecting the value of its assets and prices move in a di-
rection opposite to that which was anticipated, the Fund will probably
lose part or all of the benefit of the increased value of the assets
hedged because of offsetting losses in its futures positions. In addition,
in such a situation, if the Fund has insufficient cash, it might have to
sell assets to meet daily maintenance margin requirements at a time when
it would be disadvantageous to do so. These sales of assets could, but
will not necessarily, be at increased prices which reflect the change in
the value of gold.
The ability of the Fund to trade in gold futures contracts and related op-
tions may be materially limited by the requirements of the Internal Reve-
nue Code of 1986, as amended (the "Code"), applicable to a regulated in-
vestment company. See "Taxes."
Options on Gold. For hedging purposes, the Fund may purchase put and call
options on gold and write covered call options on gold. The Fund will only
enter into gold options that are traded on a regulated domestic commodi-
ties exchange or foreign commodities exchanges approved for this purpose
by the Commodity Futures Trading Commission.
Currency Transactions. The Fund may engage in currency exchange transac-
tions to protect against uncertainty in the level of future exchange
rates. The Fund's dealings in forward currency exchange contracts will be
limited to hedging involving either specific transactions or portfolio po-
sitions. Transaction hedging is the purchase or sale of forward currency
with respect to specific receivables or payables of the Fund generally
arising in connection with the purchase or sale of its portfolio securi-
ties. Position hedging is the sale of forward currency with respect to
portfolio securities positions denominated or quoted in the currency. The
Fund may not position hedge with respect to a particular currency to an
extent greater than the aggregate market value at any time of the securi-
ties held in its portfolio denominated or quoted in or currently convert-
ible (such as through exercise of an option or consummation of a forward
contract) into that particular currency. If the Fund enters into a trans-
action hedging or position hedging transaction, it will cover the transac-
tion through one or more of the following methods: (a) ownership of the
underlying currency or an option to purchase such currency; (b) ownership
of an option to enter into an offsetting forward contract; (c) entering
into a forward contract to purchase currency being sold or to sell cur-
rency being purchased, provided such covering contract is itself covered
by one of these methods unless the covering contract closes out the first
contract; or (d) depositing into a segregated account with the custodian
or a subcustodian of the Fund cash or readily marketable securities in an
amount equal to the value of the Fund's total assets committed to the con-
summation of the forward contract and not otherwise covered. In the case
of transaction hedging, any securities placed in the account must be liq-
uid debt securities. In any case, if the value of the securities placed in
the segregated account declines, additional cash or securities will be
placed in the account so that the value of the account will equal the
above amount. Hedging transactions may be made from any foreign currency
into U.S. dollars or into other appropriate currencies.
At or before the maturity of a forward contract, the Fund may either sell
a portfolio security and make delivery of the currency, or retain the se-
curity and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on
the same maturity date, the amount of the currency it is obligated to de-
liver. If the Fund retains the portfolio security and engages in an off-
setting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices. Should forward prices decline during
the period between the Fund's entering into a forward currency contract
for the sale of a currency and the date it enters into an offsetting con-
tract for the purchase of the currency, the Fund will realize a gain to
the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices in-
crease, the Fund will suffer a loss to the extent the price of the cur-
rency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The cost to the Fund of engaging in currency transactions varies with fac-
tors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because transactions in currency
exchange usually are conducted on a principal basis, no fees or commis-
sions are involved. The use of forward currency contracts does not elimi-
nate fluctuations in the underlying prices of the securities, but it does
establish a rate of exchange that can be achieved in the future. In addi-
tion, although forward currency contracts limit the risk of loss due to a
decline in the value of the hedged currency, at the same time they limit
any potential gain that might result should the value of the currency in-
crease.
If a devaluation of a currency is generally anticipated, the Fund may not
be able to contract to sell the currency at a price above the devaluation
level that it anticipates. The Fund will not enter into a currency trans-
action if, as a result, it will fail to qualify as a regulated investment
company under the Code for a given year.
Canadian and Australian Investments. From time to time the Fund may in-
vest a significant portion of its assets in Canadian securities or Austra-
lian securities. The stock market capitalizations in Australia and Canada
are smaller than the major stock markets in the United States, as shown in
the table below:
<TABLE>
<CAPTION>
STOCK MARKET CAPITALIZATION
NAME OF COUNTRY AS OF OCTOBER 31, 1994
<S> <C>
United States US$285.3 billion
Canada US$177.7 billion
Australia US$128.1 billion
<FN>
SOURCE: Morgan Stanley Capital International Perspective dated October
31, 1994.
</TABLE>
American, European and Continental Depositary Receipts. The assets of the
Fund may be invested in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are re-
ceipts typically issued by a domestic bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs,
which are sometimes referred to as Continental Depositary Receipts
("CDRs"), are receipts issued in Europe typically by non-domestic banks
and trust companies that evidence ownership of either foreign or domestic
securities. Generally, ADRs in registered form are designed for use in do-
mestic securities markets and EDRs and CDRs in bearer form are designed
for use in European securities markets. Many of the risks of investing in
foreign securities also may apply to investing in ADRs, EDRs and CDRs.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the protec-
tion of shareholders. Restrictions 1 through 8 below are fundamental poli-
cies that cannot be changed without approval by the holders of a majority
of the outstanding voting securities of the Fund, defined as the lesser of
(a) 67% of the shares present at a meeting, if the holders of more than
50% of the outstanding shares are present in person or by proxy or (b)
more than 50% of the Fund's outstanding shares. The remaining restrictions
may be changed by a vote of the Board of Directors at any time.
The investment policies adopted by the Fund prohibit it from:
1. With respect to 75% of the value of its total assets, investing
more than 5% of its total assets in securities of any one issuer, ex-
cept securities issued or guaranteed by the United States government,
or purchase more than 10% of the outstanding voting securities of such
issuer.
2. Issuing senior securities as defined in the 1940 Act and any rules
and orders thereunder, except insofar as the Fund may be deemed to
have issued senior securities by reason of: (a) borrowing money or
purchasing securities on a when-issued or delayed-delivery basis; (b)
purchasing or selling futures contracts and options on futures con-
tracts and other similar instruments; and (c) issuing separate classes
of shares.
3. Investing more than 25% of its total assets in securities, the is-
suers of which are in the same industry (other than in Metals-Related
Investments as defined in the Prospectus). For purposes of this limi-
tation, U.S. government securities are not considered to be issued by
members of any industry.
4. Borrowing money, except that the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meet-
ing of redemption requests which might otherwise require the untimely
disposition of securities, in an amount not exceeding 10% of the value
of the Fund's total assets (including the amount borrowed) valued at
market less liabilities (not including the amount borrowed) at the
time the borrowing is made. Whenever borrowings exceed 5% of the value
of the Fund's total assets, the Fund will not make any additional in-
vestments.
5. Making loans. This restriction does not apply to: (a) the purchase
of debt obligations in which the Fund may invest consistent with its
investment objectives and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities.
6. Engaging in the business of underwriting securities issued by other
persons, except to the extent that the Fund may technically be deemed
to be an underwriter under the Securities Act of 1933, as amended, in
disposing of portfolio securities.
7. Purchasing or selling real estate, real estate mortgages, real es-
tate investment trust securities, commodities or commodity contracts,
but this shall not prevent the Fund from: (a) investing in securities
of issuers engaged in the real estate business and securities which
are secured by real estate or interests therein; (b) holding or sell-
ing real estate received in connection with securities it holds; (c)
trading in futures contracts and options on futures contracts; or (d)
investing in gold bullion and coins or receipts for gold.
8. Purchasing any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales of
portfolio securities) or selling any securities short (except against
the box). For purposes of this restriction, the deposit or payment by
the Fund of initial or maintenance margin in connection with futures
contracts and related options and options on securities is not consid-
ered to be the purchase of a security on margin.
9. Investing in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation, reorganiza-
tion or acquisition of assets.
10. Purchasing restricted securities, illiquid securities or other se-
curities which are not readily marketable if more than 15% of the
total assets of the Fund would be invested in such securities. For
purposes of this limitation, (a) repurchase agreements providing for
settlement in more than seven days after notice by the Fund and (b)
time deposits maturing in more than seven calendar days shall be con-
sidered illiquid securities.
11. Purchasing any security if as a result the Fund would then have
more than 5% of its total assets (taken at current value) invested in
securities of issuers which directly or through a parent or affiliated
company have had ongoing operations for fewer than three years. For
purposes of this restriction, issuers include predecessors, sponsors,
controlling persons, general partners, guarantors and originators of
underlying assets.
12. Making investments for the purpose of exercising control or man-
agement.
13. Purchasing or retaining securities of any company if, to the
knowledge of the Fund, any of the Fund's officers and Directors or any
officer or director of SBSA, LBGAM, SBMFM or Boston Advisors individu-
ally owns more than 1/2 of 1% of the outstanding securities of such
company and together they own beneficially more than 5% of the securi-
ties.
14. Investing in warrants (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase) if,
as a result, the investments (valued at the lower of cost or market)
would exceed 5% of the value of the Fund's net assets, of which not
more than 2% of the Fund's net assets may be invested in warrants not
listed on a recognized domestic or foreign stock exchange to the ex-
tent permitted by applicable state securities laws.
15. Engaging in the purchase or sale of put, call, straddle or spread
options or in the writing of such options other than (a) purchasing
and writing put and call options on securities and stock indexes, (b)
entering into closing purchase transactions with respect to such op-
tions, (c) purchasing put and call options on gold, purchasing gold
futures contracts and writing covered call options on gold, or (d)
upon 60 days' notice given to its shareholders, (i) writing put and
other call options on gold or (ii) entering into other hedging trans-
actions involving futures contracts and related options, including
gold futures contracts.
Certain restrictions listed above permit the Fund without shareholder ap-
proval to engage in investment practices that the Fund does not currently
pursue. The Fund has no present intention of altering its current invest-
ment practices as otherwise described in the Prospectus and this Statement
of Additional Information and any future change in those practices would
require Board approval and appropriate disclosure to investors. If any
percentage limitation is complied with at the time of an investment, a
later increase or decrease resulting from a change in values or assets
will not constitute a violation of that limitation. In order to permit the
sale of the Fund's shares in certain states, the Fund may make commitments
more restrictive than the investment restrictions described above such as
those regarding oil and mineral leases and real estate limited partner-
ships. For example, the Board of Directors has adopted a policy, which may
be changed without shareholder approval, that the Fund may not purchase
the security of any issuer (other than U.S. government securities) if, as
a result, with respect to 100% of the Fund's total assets, more than 5% of
the Fund's assets would be invested in the securities of such issuer.
Should the Fund determine that any such commitment is no longer in the
best interests of the Fund and its shareholders, it will revoke the com-
mitment by terminating sales of its shares in the state involved.
PORTFOLIO TURNOVER
While the Fund does not intend to trade in securities for short-term prof-
its, securities may be sold without regard to the length of time they have
been held by the Fund when warranted by the circumstances. The Fund cannot
accurately predict its annual rate of portfolio turnover (that is, the
lesser of purchases or sales of portfolio securities for the year divided
by the monthly average value of portfolio securities for the year); how-
ever, it is anticipated that the annual turnover rate generally will not
exceed 100%. Under certain market conditions, the Fund may experience in-
creased portfolio turnover as a result of its options activities. For in-
stance, the exercise of a substantial number of options on stock indexes
written by the Fund (due to appreciation of the underlying index in the
case of call options or depreciation of the underlying index in the case
of put options) could result in a turnover rate in excess of 100%. A port-
folio turnover rate of 100% would occur, for example, if all of the secu-
rities in the Fund's portfolio were replaced once during a period of one
year. Securities with remaining maturities of one year or less on the date
of acquisition are excluded from the calculation. The portfolio turnover
rates for the 1993 and 1994 fiscal years were 108% and 50%, respectively.
During the 1993 fiscal year another fund was acquired by the Fund, causing
duplication in the Fund's portfolio. These securities were then sold caus-
ing a higher portfolio turnover rate than the 1994 portfolio turnover
rate.
PORTFOLIO TRANSACTIONS
Most of the purchases and sales of securities for the Fund, whether trans-
acted on a securities exchange or over-the-counter, will be effected in
the primary trading market for the securities. The primary trading market
for a given security generally is located in the country in which the is-
suer has its principal office. Decisions to buy and sell securities for
the Fund are made by SBSA and LBGAM, which also are responsible for plac-
ing these transactions, subject to the overall review of the Board of Di-
rectors. Although investment decisions for the Fund are made independently
from those of the other accounts managed by SBSA and LBGAM, investments of
the type the Fund may make also may be made by those other accounts. When
the Fund and one or more other accounts managed by SBSA and LBGAM are pre-
pared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner be-
lieved by SBSA and LBGAM to be equitable to each. In some cases, this pro-
cedure may adversely affect the price paid or received by the Fund or the
size of the position obtained or disposed of by the Fund.
Transactions on domestic stock exchanges and some foreign stock exchanges
involve the payment of negotiated brokerage commissions. On exchanges on
which commissions are negotiated, the cost of transactions may vary among
different brokers. On many foreign exchanges, commissions generally are
fixed. There is generally no stated commission in the case of securities
traded on domestic or foreign over-the-counter markets, but the prices of
those securities include undisclosed commissions or mark-ups. The cost of
securities purchased from underwriters includes an underwriting commission
or concession, and the prices at which securities are purchased from and
sold to dealers include a dealer's mark-up or mark-down. For the 1992,
1993 and 1994 fiscal years, the Fund paid $82,124, $452,311 and $287,617,
respectively, in brokerage commissions. During the 1993 fiscal year an-
other fund was acquired by the Fund, causing duplication in the Fund's
portfolio. These securities were then sold resulting in higher brokerage
commissions in 1993 than in 1994.
In selecting brokers or dealers to execute portfolio transactions on be-
half of the Fund, SBSA and LBGAM seek the best overall terms available. In
assessing the best overall terms available for any transaction, SBSA and
LBGAM will consider the factors it deems relevant, including the breadth
of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer and the reason-
ableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, the Advisory and Sub-Investment Advisory
Agreements authorize SBSA and LBGAM, respectively, in selecting brokers or
dealers to execute a particular transaction and in evaluating the best
overall terms available, to consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934) provided to the Fund and/or other accounts over which SBSA,
LBGAM or their affiliates exercise investment discretion.
The Fund's Board of Directors periodically will review the commissions
paid by the Fund to determine if the commissions paid over representative
periods of time were reasonable in relation to the benefits inuring to the
Fund. It is possible that certain of the services received will primarily
benefit one or more accounts for which SBSA, LBGAM or their affiliates ex-
ercise investment discretion. Conversely, the Fund may be the primary ben-
eficiary of services received as a result of portfolio transactions ef-
fected for other accounts. The fees under the Advisory and Sub-Investment
Advisory Agreements are not reduced by reason of the receipt by SBSA and
LBGAM of such brokerage and research services.
The Fund's Board of Directors has determined that any portfolio transac-
tions for the Fund may be executed through Smith Barney or an affiliate of
Smith Barney if, in the judgment of SBSA and LBGAM, the use of Smith Bar-
ney is likely to result in price and execution at least as favorable as
those of other qualified brokers, and if, in the transaction, Smith Barney
charges the Fund a commission rate consistent with those charged by Smith
Barney to comparable unaffiliated customers in similar transactions. Simi-
larly, the Fund may execute portfolio transactions in gold futures through
an affiliated broker if comparable conditions are satisfied, including
that the Fund is charged commissions consistent with those charged for
comparable transactions in comparable accounts of the broker's most fa-
vored unaffiliated clients. In addition, under rules adopted by the SEC,
Smith Barney may directly execute such transactions for the Fund on the
floor of any national securities exchange, provided (a) the Board of Di-
rectors has expressly authorized Smith Barney to effect such transactions
and (b) Smith Barney annually advises the Fund of the aggregate compensa-
tion it earned on such transactions. Smith Barney will not participate in
commissions from brokerage given by the Fund to other brokers or dealers
and will not receive any reciprocal brokerage business resulting there-
from. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere. For the 1992, 1993 and 1994 fiscal
years, the Fund paid $5,255, $32,625 and $2,800, respectively, in broker-
age commissions to Smith Barney and/or Shearson Lehman Brothers. For the
1994 fiscal year, Smith Barney received 1.0% of the brokerage commissions
paid by the Fund and effected .004% of the total dollar amount of transac-
tions for the Fund involving the payment of brokerage commissions.
The Fund will not purchase any security, including U.S. government securi-
ties, during the existence of any underwriting or selling group relating
thereto of which Smith Barney is a member, except to the extent permitted
by regulations adopted by the SEC.
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the Prospec-
tus applies to purchases made by any "purchaser," which is defined to in-
clude the following: (a) an individual; (b) an individual's spouse and his
or her children purchasing shares for his or her own account; (c) a
trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account; (d) a pension, profit-sharing or other employee
benefit plan qualified under Section 401(a) of the Code and qualified em-
ployee benefit plans of employers who are "affiliated persons" of each
other within the meaning of the 1940 Act; (e) tax-exempt organizations
enumerated in Sections 501(c)(3) or (13) of the Code; and (f) a trustee or
other professional fiduciary (including a bank, or an investment adviser
registered with the SEC under the Investment Advisers Act of 1940, as
amended), purchasing shares of the Fund for one or more trust estates or
fiduciary accounts. Purchasers who wish to combine purchase orders to take
advantage of volume discounts should contact a Smith Barney Financial Con-
sultant.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in
Class A shares of the Fund and in Class A shares of other funds of the
Smith Barney Mutual Funds that are offered with a sales charge, including
the purchase being made, of any purchaser, is $25,000 or more. The reduced
sales charge is subject to confirmation of the shareholder's holdings
through a check of appropriate records. The Fund reserves the right to
terminate or amend the combined right of accumulation at any time after
written notice to shareholders. For further information regarding the com-
bined right of accumulation, shareholders should contact a Smith Barney
Financial Consultant.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The public
offering price for a Class A and Class Y share of the Fund is equal to the
net asset value per share at the time of purchase plus for Class A shares
an initial sales charge based on the aggregate amount of the investment.
The public offering price for a Class B or Class C share (or Class A share
purchases, including applicable right of accumulation, equalling or ex-
ceeding $500,000), is equal to the net asset value per share at the time
of purchase and no sales charge is imposed at the time of purchase. A con-
tingent deferred sales charge ("CDSC"), however, is imposed on certain re-
demptions of Class B shares and Class C shares, and of Class A shares when
purchased in amounts equalling or exceeding $500,000. The method of compu-
tation of the public offering price is shown in the Fund's financial
statements incorporated by reference in their entirety into this Statement
of Additional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed:
(a) for any period during which the New York Stock Exchange Inc. (the
"NYSE") is closed (other than for customary weekend and holiday closings);
(b) when trading in the markets the Fund normally utilizes is restricted,
or an emergency exists, as determined by the SEC, so that disposal of the
Fund's investments or determination of net asset value is not reasonably
practicable; or (c) for such other periods as the SEC by order may permit
for protection of the Fund's shareholders.
DISTRIBUTIONS IN KIND
If the Board of Directors of the Fund determines that it would be detri-
mental to the best interests of the remaining shareholders of the Fund to
make a redemption payment wholly in cash, the Fund may pay, in accordance
with SEC rules, any portion of a redemption in excess of the lesser of
$250,000 or 1% of the Fund's net assets by distribution in kind of portfo-
lio securities in lieu of cash. Securities issued as a distribution in
kind may incur brokerage commissions when shareholders subsequently sell
those securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 ($5,000 for
retirement plan accounts) and who wish to receive specific amounts of cash
monthly or quarterly. Withdrawals of at least $100 monthly may be made
under the Withdrawal Plan by redeeming as many shares of the Fund as may
be necessary to cover the stipulated withdrawal payment. Any applicable
CDSC will not be waived on amounts withdrawn by shareholders that exceed
1.00% per month of the value of a shareholder's shares 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 a sharehold-
er's shares at the time the Withdrawal Plan commences.) To the extent that
withdrawals exceed dividends, distributions and appreciation of a share-
holder's investment in the Fund, there will be a reduction in the value of
the shareholder's investment and continued withdrawal payments will reduce
the shareholder's investment and may ultimately exhaust it. Withdrawal
payments should not be considered income from an investment in the Fund.
Furthermore, as it generally would not be advantageous to a shareholder to
make additional investments in the Fund at the same time that he or she is
participating in the Withdrawal Plan, purchases by such shareholders in
amounts of less than $5,000 ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates
with TSSG as agent for Withdrawal Plan members. All dividends and distri-
butions on shares in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Fund. Withdrawal Plans should
be set up with a Smith Barney Financial Consultant. A shareholder who pur-
chases shares directly through TSSG may continue to do so. Applications
for participation in the Withdrawal Plan must be received by TSSG no later
than the eighth day of the month to be eligible for participation begin-
ning with that month's withdrawal. For additional information, sharehold-
ers should contact a Smith Barney Financial Consultant.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best efforts basis pur-
suant to a distribution agreement (the "Distribution Agreement") which was
most recently approved by the Fund's Board of Directors on July 20, 1994.
For the 1992, 1993 and 1994 fiscal years, Smith Barney or its predecessor,
Shearson Lehman Brothers, received $62,810, $95,564 and $93,066, respec-
tively, in sales charges from the sale of Class A shares, and did not re-
allow any portion thereof to dealers. For the period from November 6, 1992
through October 31, 1993 and the fiscal year ended October 31, 1994, Smith
Barney or its predecessor received from shareholders $66,095 and $94,391,
respectively, in CDSC on the redemption of Class B shares. No comparable
information is available for 1992 because that was the year the variable
pricing system was implemented.
When payment is made by the investor before the settlement date, unless
otherwise noted by the investor, the funds will be held as a free credit
balance in the investor's brokerage account and Smith Barney may benefit
from the temporary use of the funds. The investor may designate another
use for the funds prior to settlement date, such as an investment in a
money market fund of the Smith Barney Mutual Funds (other than Smith Bar-
ney Exchange Reserve Fund). If the investor instructs Smith Barney to in-
vest the funds in a Smith Barney money market fund, the amount of the in-
vestment will be included as part of the average daily net assets of both
the Fund and the Smith Barney money market fund, and affiliates of Smith
Barney that serve the funds in an investment advisory capacity or adminis-
trative capacity will benefit from the fact that they are receiving fees
from both such investment companies for managing these assets computed on
the basis of their average daily net assets. The Fund's Board of Directors
has been advised of the benefits to Smith Barney resulting from these set-
tlement procedures and will take such benefits into consideration when re-
viewing the Advisory, Administration and Distribution Agreements for con-
tinuance.
For the fiscal year ended October 31, 1994, Smith Barney incurred distri-
bution expenses totaling approximately $521,900, consisting of approxi-
mately $3,000 for advertising, $3,000 for printing and mailing of prospec-
tuses, $223,900 for support services, $285,000 to Smith Barney Financial
Consultants, and $7,000 in accruals for interest on the excess of Smith
Barney expenses incurred in distributing the Fund's shares over the sum of
the distribution fees and CDSC received by Smith Barney from the Fund.
DISTRIBUTION ARRANGEMENTS
To compensate Smith Barney for the service it provides and for the expense
it bears under the Distribution Agreement, the Fund has adopted a services
and distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940
Act. Under the Plan, the Fund pays Smith Barney a service fee, accrued
daily and paid monthly, calculated at the annual rate of 0.25% of the
value of the Fund's average daily net assets attributable to the Class A,
Class B and Class C shares. In addition, the Fund pays Smith Barney a dis-
tribution fee with respect to Class B and Class C shares primarily in-
tended to compensate Smith Barney for its initial expense of paying Finan-
cial Consultants a commission upon sales of those shares. The Class B and
Class C distribution fee is calculated at the annual rate of 0.75% of the
value of the Fund's average net assets attributable to the shares of the
respective Class.
For the period from November 6, 1992 through October 31, 1993, the Fund
incurred $42,552 and $89,769 in service fees for Class A and Class B
shares, respectively. For the fiscal year ended October 31, 1994, the Fund
incurred $62,693 and $134,998 in service fees for Class A and Class B
shares, respectively. In addition, Class B and Class C shares pay a dis-
tribution fee primarily intended to compensate Smith Barney for its ini-
tial expense of paying its Financial Consultants a commission upon the
sale of its Class B and Class C shares. These distribution fees are calcu-
lated at the annual rate of 0.75% of the value of the average daily net
assets attributable to the respective Class. For the period from November
6, 1992 through August 31, 1993 and the fiscal year ended October 31,
1994, the Fund incurred $68,520 and $404,995 for Class B shares, respec-
tively, in distribution fees. As of October 31, 1994, there were no ser-
vice or distribution fees incurred for Class C shares.
Under its terms, the Plan continues from year to year, provided such con-
tinuance is approved annually by vote of the Board of Directors, including
a majority of the Directors who are not interested persons of the Fund and
who have no direct or indirect financial interest in the operation of the
Plan (the "Independent Directors"). The Plan may not be amended to in-
crease the amount of the service and distribution fees without shareholder
approval, and all material amendments of the Plan also must be approved by
the Directors and Independent Directors in the manner described above. The
Plan may be terminated with respect to a Class of the Fund at any time,
without penalty, by vote of a majority of the Independent Directors or by
a vote of a majority of the outstanding voting securities of the Class (as
defined in the 1940 Act). Pursuant to the Plan, Smith Barney will provide
the Fund's Board of Directors with periodic reports of amounts expended
under the Plan and the purpose for which such expenditures were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE cur-
rently is scheduled to be closed on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. Because of the
differences in distribution fees and Class-specific expenses, the per
share net asset value of each Class may differ. The following is a de-
scription of the procedures used by the Fund in valuing its assets.
Securities listed on a national securities exchange will be valued on the
basis of the last sale on the date on which the valuation is made or, in
the absence of sales, at the mean between the closing bid and asked
prices. Over-the-counter securities will be valued on the basis of the bid
price at the close of business on each day, or, if market quotations for
those securities are not readily available, at fair value, as determined
in good faith by the Fund's Board of Directors. Short-term obligations
with maturities of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Fund's Board of Directors. Am-
ortized cost involves valuing an instrument at its original cost to the
Fund and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the effect of fluctuating interest
rates on the market value of the instrument. All other securities and
other assets of the Fund will be valued at fair value as determined in
good faith by the Fund's Board of Directors.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith Barney Mutual
Funds may exchange all or part of their shares for shares of the same
class of other funds of the Smith Barney Mutual Funds, to the extent such
shares are offered for sale in the shareholder's state of residence, on
the basis of relative net asset value per share at the time of exchange as
follows:
A. Class A shares of any fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds, and the sales
charge differential, if any, will be applied. Class A shares of any
fund may be exchanged without a sales charge for shares of the funds
that are offered without a sales charge. Class A shares of any fund
purchased without a sales charge may be exchanged for shares sold with
a sales charge, and the appropriate sales charge differential will be
applied.
B. Class A shares of any fund acquired by a previous exchange of
shares purchased with a sales charge may be exchanged for Class A
shares of any of the other funds, and the sales charge differential,
if any, will be applied.
C. Class B shares of any fund may be exchanged without paying a CDSC.
Class B shares of the Fund exchanged for Class B shares of another
fund will be subject to the higher applicable CDSC of the two funds
and, for purposes of calculating CDSC rates and conversion periods,
will be deemed to have been held since the date the shares being ex-
changed were deemed to be purchased.
Dealers other than Smith Barney must notify TSSG of the investor's prior
ownership of Class A shares of Smith Barney High Income Fund and the ac-
count number in order to accomplish an exchange of shares of the Smith
Barney High Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
Class in a fund with different investment objectives when they believe
that a shift between funds is an appropriate investment decision. This
privilege is available to shareholders residing in any state in which the
fund shares being acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current prospectus of
each fund into which an exchange is to be made. Prospectuses may be ob-
tained from a Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting docu-
ments, shares submitted for exchange are redeemed at the then-current net
asset value and, subject to any applicable CDSC, the proceeds immediately
invested, at a price described above, in shares of the fund being ac-
quired. Smith Barney reserves the right to reject any exchange request.
The exchange privilege may be modified or terminated at any time after
written notice to shareholders.
PERFORMANCE DATA
From time to time, the Fund may quote total return of a Class in adver-
tisements or in reports and other communications to shareholders. The Fund
may include comparative performance information in advertising or market-
ing the Fund's shares. Such performance information may include data from
the following industry and financial publications: Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. To the
extent any advertisement or sales literature of the Fund describes the ex-
penses or performance of Class A, Class B, Class C or Class Y, it will
also disclose such information for the other Classes.
AVERAGE ANNUAL TOTAL RETURN
"Average annual total return" figures, as described below, are computed
according to a formula prescribed by the SEC. The formula can be expressed
as follows:
P (1+T)n = ERV
Where: P =a hypothetical initial payment of $1,000.
T =average annual total return.
n =number of years.
ERV =Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of the 1-, 5- or 10-year period at
the end of the 1-, 5- or 10-year period (or fractional por-
tion thereof), assuming reinvestment of all dividends and
distributions.
Class A's average annual total return was as follows for the periods indi-
cated:
7.92% for the one-year period beginning on November 1, 1993 through Octo-
ber 31, 1994.
4.26% per annum during the five-year period from November 1, 1989 through
October 31, 1994.
4.68% per annum for the period from commencement of operations (November
24, 1986) through October 31, 1994.
Class B's average annual total return was as follows for the periods indi-
cated:
7.85% for the one-year period beginning on November 1, 1993 through Octo-
ber 31, 1994; and
24.53% per annum from November 6, 1992 through October 31, 1994.
Average annual total return figures calculated in accordance with the
above formula assume that the maximum 5.00% sales charge or maximum appli-
cable CDSC, as the case may be, has been deducted from the hypothetical
investment. If the maximum 5.00% sales charge had not been deducted at the
time of purchase, Class A's average annual total return for the same peri-
ods would have been 13.61%, 5.34% and 5.36%, respectively. If the maximum
CDSC had not been deducted at the time of purchase, Class B's average an-
nual total return for the same periods would have been 12.85% and 26.14%,
respectively.
AGGREGATE TOTAL RETURN
Aggregate total return figures represent the cumulative change in the
value of an investment in the Fund for the specified period and are com-
puted by the following formula:
ERV-P / P
Where: P =a hypothetical initial payment of $10,000.
ERV =Ending Redeemable Value of a hypothetical $10,000 investment
made at the beginning of the 1-, 5- or 10-year period at
the end of the 1-, 5- or 10- year period (or fractional
portion thereof), assuming reinvestment of all dividends and
distributions.
Class A's aggregate total return was as follows for the periods indicated:
13.61% for the one-year period beginning on November 1, 1993 through Octo-
ber 31, 1994.
29.69% for the five-year period from November 1, 1989 through October 31,
1994.
51.27% for the period from commencement of operations (November 24, 1986)
through October 31, 1994.
Class B's aggregate total return was as follows for the periods indicated:
12.85% for the one-year period beginning on November 1, 1993 through Octo-
ber 31, 1994; and
58.50% per annum from November 6, 1992 through October 31, 1994.
Class A aggregate total return figures assume that the maximum 5.00% sales
charge has not been deducted from the investment at the time of purchase.
If the maximum 5.00% sales charge had been deducted at the time of pur-
chase, Class A's aggregate total return for the same periods would have
been 2.92%, 23.21% and 39.71%, respectively.
Class B aggregate total return figures assume that the maximum applicable
CDSC has been deducted from the investment at the time of purchase. If the
maximum 5% CDSC had not been deducted at the time of purchase, Class B's
aggregate total return for the same periods would have been 7.85% and
54.50%, respectively.
Performance will vary from time to time depending upon market conditions,
the composition of the Fund's portfolio and operating expenses and the ex-
penses exclusively attributable to the Class. Consequently, any given per-
formance quotation should not be considered representative of the Class'
performance for any specified period in the future. Because performance
will vary, it may not provide a basis for comparing an investment in the
Class with certain bank deposits or other investments that pay a fixed
yield for a stated period of time. Investors comparing the Class' perfor-
mance with that of other mutual funds should give consideration to the
quality and maturity of the portfolio securities.
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future per-
formance.
TAXES
TAX STATUS OF THE FUND
The following is a summary of selected Federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended
as a substitute for individual tax advice and investors are urged to con-
sult their own tax advisors as to the tax consequences of an investment in
the Fund.
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. Provided that the Fund (a) is
a regulated investment company and (b) distributes at least 90% of its net
investment income (including for this purpose, net realized short-term
capital gains), the Fund will not be liable for Federal income taxes to
the extent its net investment income and its net realized long- and short-
term capital gains, if any, are distributed to its shareholders. One of
several requirements for qualification is that the Fund receives at least
90% of its gross income each year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
securities or foreign currencies, or other income derived with respect to
the Fund's investments in stock, securities and foreign currencies. Income
from investments in gold bullion and gold coins will not qualify as gross
income from "securities" for purposes of the 90% test. Therefore, the Fund
intends to restrict its investment in gold bullion and gold coins to the
extent necessary to meet the 90% test.
An additional requirement is that the Fund must earn less than 30% of its
gross income from the disposition of securities held for less than three
months (the "30% Test"). The 30% Test limits the extent to which the Fund
may sell stocks, securities, and certain financial instruments or curren-
cies held for less than three months. If the Fund purchases a put option
for the purpose of hedging an underlying portfolio security, the acquisi-
tion of the option is treated as a short sale of the underlying security
unless the option and the security are acquired on the same date. As dis-
cussed below, this requirement may also limit investments by the Fund in
stock index options. For purposes only of the 30% Test, the Fund's gains
or losses from the sale (including open short sales) or other disposition
of stock or securities (with the term "securities" defined to include put
and call options) held for less than three months ("three-month invest-
ments") will be netted against its gain or loss on positions that are part
of a "designated hedge" with respect to such three-month investments.
TAXATION OF THE FUND'S INVESTMENTS
Gain or loss on the sale of securities by the Fund generally will be long-
term capital gain or loss if the Fund has held the securities for more
than one year. Gain or loss on sales of securities held for not more than
one year will be short-term. If the Fund acquires a debt security at a
substantial discount, a portion of any gain upon the sale or redemption
will be taxed as ordinary income, rather than capital gain, to the extent
that it reflects accrued market discount.
Option Transactions. The tax consequences of options transactions entered
into by the Fund will vary depending on the nature of the underlying secu-
rity and whether the "straddle" rules, discussed separately below, apply
to the transaction.
If the Fund purchases a put option on an equity security, convertible debt
security or gold or purchases a call option on gold and such a put or call
option expires unexercised, the Fund will realize a capital loss equal to
the cost of the option. If the Fund enters into a closing sale transaction
with respect to the option, it will realize a capital gain or loss (de-
pending on whether the proceeds from the closing transaction are greater
or less than the cost of the option). The gain or loss will be short-term
or long-term depending on the Fund's holding period for the option. If the
Fund exercises such a put option, it will realize a short-term capital
gain or loss (long-term if the Fund holds the underlying security for more
than one year before it purchases the put) from the sale of the underlying
security measured by the sales proceeds decreased by the premium paid and
the Fund's tax basis in the underlying securities. No gain or loss will be
recognized by the Fund if it exercises a call option.
The Fund may write a covered call option on gold. If the option expires
unexercised, or if the Fund enters into a closing purchase transaction,
the Fund will realize a gain or loss without regard to any unrealized gain
or loss on the underlying gold. Generally, any such gain or loss will be
short-term capital gain or loss. If a call option written by the Fund is
exercised, the Fund will treat the premium received for writing such call
option as additional sales proceeds and will recognize a capital gain or
loss from the sale of the underlying gold. Whether the gain or loss will
be long-term or short-term will depend on the Fund's holding period for
the underlying gold.
The Code imposes a special "mark-to-market" system for taxing "section
1256 contracts" including certain options on nonconvertible debt securi-
ties (including U.S. government securities), options on certain stock in-
dexes, gold futures contracts and certain foreign currency contracts. In
general, gain or loss on section 1256 contracts will be taken into account
for tax purposes when actually realized (by a closing transaction, by ex-
ercise, by taking delivery or by other termination). In addition, any sec-
tion 1256 contracts held at the end of a taxable year will be treated as
sold at their year-end fair market value (that is, marked to the market),
and the resulting gain or loss will be recognized for tax purposes. Pro-
vided that section 1256 contracts are held as capital assets and are not
part of a straddle, both the realized and unrealized year-end gain or loss
from these investment positions (including premiums on options that expire
unexercised) will be treated as 60% long-term and 40% short-term capital
gain or loss, regardless of the period of time particular positions are
actually held by the Fund.
It is not entirely clear whether mark-to-market gain on instruments held
for less than three months at the close of the Fund's taxable year repre-
sents a gain on securities held for less than three months for purposes of
the 30% Test discussed above. Although a favorable ruling by the Internal
Revenue Service on this issue may be forthcoming, pending such a determi-
nation, the Fund may have to restrict its fourth quarter transactions in
section 1256 contracts.
Straddles. While the mark-to-market system is limited to section 1256
contracts, the Code contains other rules applicable to transactions which
create positions which offset positions in section 1256 or other invest-
ment contracts ("straddles"). Straddles are defined to include "offsetting
positions" in actively traded personal property. In general, investment
positions may be "offsetting" if there is a substantial diminution in the
risk of loss from holding one position by reason of holding one or more
other positions. Under current law, it is not clear under what circum-
stances one investment made by the Fund, such as an option contract, would
be treated as offsetting another investment also held by the Fund, and,
therefore, whether the Fund would be treated as having entered into a
straddle. Also, the forward currency contracts entered into by the Fund
may result in the creation of straddles for Federal income tax purposes.
If two (or more) positions constitute a straddle, a realized loss from one
position (including a mark-to-market loss) must be deferred to the extent
of unrecognized gain in an offsetting position. Also, the holding period
rules described above may be modified to recharacterize long-term gain as
short-term gain, or to recharacterize short-term loss as long-term loss,
in connection with certain straddle transactions. Furthermore, interest
and other carrying charges allocable to personal property that is part of
a straddle must be capitalized. In addition, "wash sale" rules apply to
straddle transactions to prevent the recognition of loss from the sale of
a position at a loss where a new offsetting position is or has been ac-
quired within a prescribed period. To the extent that the straddle rules
apply to positions established by the Fund, losses realized by the Fund
may be either deferred or recharacterized as long-term losses, and long-
term gains realized by the Fund may be converted to short-term gains.
If the Fund choses to identify particular offsetting positions as being
components of a straddle, a realized loss will be recognized, but only
upon the liquidation of all of the components of the identified straddle.
Special rules apply to the treatment of "mixed" straddles (that is, strad-
dles consisting of a section 1256 contract and an offsetting position that
is not a section 1256 contract). If the Fund makes certain elections, the
section 1256 contract components of such straddles will not be subject to
the "60%/40%" mark-to-market rules. If any such election is made, the
amount, the nature (as long or short-term) and the timing of the recogni-
tion of the Fund's gains or losses from the affected straddle positions
will be determined under rules that will vary according to the type of
election made.
TAXATION OF SHAREHOLDERS
The portion of the dividends received from the Fund which qualifies for
the dividends-received deduction for corporations will be reduced to the
extent that the Fund holds dividend-paying stock for less than 46 days (91
days for certain preferred stocks). The Fund's holding period will not in-
clude any period during which the Fund has reduced its risk of loss from
holding the stock by purchasing an option to sell or entering into a short
sale of substantially identical stock or securities, such as securities
convertible into the stock. The holding period for stock may also be re-
duced if the Fund diminishes its risk of loss by holding one or more posi-
tions in substantially similar or related properties. Dividends-received
deductions will be allowed only with respect to shares a corporate share-
holder has held for at least 46 days within the meaning of the same hold-
ing period rules applicable to the Fund.
If the Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends must be
included in the Fund's gross income as of the later of (a) the date that
such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date that the Fund acquired
such stock. Accordingly, in order to satisfy its income distribution re-
quirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than
would otherwise be the case.
If a shareholder (a) incurs a sales charge in acquiring or redeeming
shares of the Fund, (b) disposes of those shares within 90 days and (c)
acquires shares in a mutual fund for which the otherwise applicable sales
charge is reduced by reason of a reinvestment right (i.e., an exchange
privilege), the original sales charge increases the shareholder's tax
basis in the original shares only to the extent that the otherwise appli-
cable sales charge for the second acquisition is not reduced. The portion
of the original sales charge that does not increase the shareholder's tax
basis in the original shares would be treated as incurred with respect to
the second acquisition and, as a general rule, would increase the share-
holder's tax basis in the newly acquired shares. Furthermore, the same
rule would apply to a disposition of the newly acquired or redeemed shares
made within 90 days of the second acquisition. This provision prevents a
shareholder from immediately deducting the sales charge by shifting his or
her investment in a family of mutual funds.
Investors considering buying shares of the Fund on or just prior to a
record date for a taxable-dividend or capital gain distribution should be
aware that, regardless of whether the price of the Fund shares to be pur-
chased reflects the amount of the forthcoming dividend or distribution
payment, any such payment will be a taxable dividend or distribution pay-
ment.
Capital Gains Distributions. As a general rule, a shareholder who redeems
or exchanges his or her shares will recognize long-term capital gain or
loss if the shares have been held for more than one year, and will recog-
nize short-term capital gain or loss if the shares have been held for one
year or less. However, if a shareholder receives a distribution taxable as
long-term capital gain with respect to shares of the Fund, and redeems or
exchanges the shares before he or she has held them for more than six
months, any loss on the redemption or exchange that is less than or equal
to the amount of the distribution will be treated as a long-term capital
loss.
Backup Withholding. If a shareholder fails to furnish a correct taxpayer
identification number, fails to fully report dividend or interest income
or fails to certify that he or she has provided a correct taxpayer identi-
fication number and that he or she is not subject to such withholding,
then the shareholder may be subject to a 31% "backup withholding tax" with
respect to (a) taxable dividends and distributions and (b) any proceeds of
any redemption of Fund shares. An individual's taxpayer identification
number is his or her social security number. The backup withholding tax is
not an additional tax and may be credited against a shareholder's Federal
income tax liability.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substi-
tute for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including
their state and local tax liabilities.
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on July
16, 1986 under the name Shearson Lehman Precious Metals and Minerals Fund
Inc. On November 17, 1989, March 31, 1992, July 30, 1993 and October 14,
1994, the Fund changed its name to SLH Precious Metals and Minerals Fund
Inc., Shearson Lehman Brothers Precious Metals and Minerals Fund Inc.,
Smith Barney Shearson Precious Metals and Minerals Fund Inc. and Smith
Barney Precious Metals and Minerals Fund Inc., respectively.
Boston Safe, an indirect wholly owned subsidiary of Mellon, is located at
One Boston Place, Boston, Massachusetts 02108, and serves as the custodian
of the Fund. Under its agreement with the Fund, Boston Safe holds the
Fund's portfolio securities and keeps all necessary accounts and records.
For its services, Boston Safe receives a monthly fee based upon the month-
end market value of securities held in custody and also receives securi-
ties transaction charges. The assets of the Fund are held under bank cus-
todianship in compliance with the 1940 Act. Boston Safe is authorized to
establish separate accounts in foreign securities owned by the Fund to be
held with foreign branches of other domestic banks as well as with certain
foreign banks and securities depositaries.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves
as the Fund's transfer agent. Under the transfer agency agreement, TSSG
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Fund, and distributes divi-
dends and distributions payable by the Fund. For these services, TSSG re-
ceives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for the Fund during the month and is reimbursed for
out-of-pocket expenses.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended October 31, 1994 accom-
panies this Statement of Additional Information and is incorporated herein
by reference in its entirety.
APPENDIX
DESCRIPTION OF S&P CORPORATE BOND RATINGS:
AAA
Bonds rated AAA have the highest rating assigned by S&P to a debt obliga-
tion. Capacity to pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay prin-
cipal and differ from the highest rated issues only to a small degree.
A
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher
rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay inter-
est and repay principal. Whereas they normally exhibit 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 bonds in this category than for bonds in higher rated categories.
BB AND B
Bonds rated BB and B are regarded, on balance, as predominantly specula-
tive with respect to capacity to pay interest and repay principal in ac-
cordance with the terms of the obligation. BB represents a lower degree of
speculation than B. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposure to adverse conditions.
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or ex-
posure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal pay-
ments. The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB- rating.
Bonds rated B have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
The ratings from AA to B may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
AAA
Bonds which 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 excep-
tionally stable margin and principal is secure. While the various protec-
tive 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 which are rated Aa are judged to be of high quality by all stan-
dards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because mar-
gins 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 which make the long-term risks appear somewhat larger
than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving se-
curity to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest pay-
ments 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 which are rated Ba are judged to have speculative elements: their
future cannot be considered as well assured. Often the protection of in-
terest and principal payments may be very moderate and thereby not well
safeguarded during either good or bad times over the future. Uncertainty
of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
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 secu-
rity 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.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P indicates that the degree of safety re-
garding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted
A-1+. Capacity for timely payment on commercial paper rated A-2 is strong,
but the relative degree of safety is not as high as for issues designated
A-1.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promis-
sory obligations. Issuers rated Prime-2 (or related supporting institu-
tions) are considered to have a strong capacity for repayment of short-
term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1 but to a lesser degree. Earn-
ings 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 alternative liquidity is main-
tained.
SMITH BARNEY
PRECIOUS METALS AND MINERALS FUND INC.
388 Greenwich Street
New York, New York 10013 Fund 31, 204, 256, 450
Smith Barney
PRECIOUS METALS AND
MINERALS FUND INC.
STATEMENT OF
ADDITIONAL INFORMATION
MARCH 1, 1995
SMITH BARNEY
A Member of Travelers Group
SMITH BARNEY PRECIOUS METALS AND MINERALS FUND INC.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year
ended October 31, 1994 and the Report of Independent
Accountants dated December 29, 1994 are incorporated by reference to the
Rule 30(b)2-1 filed on January 3, 1995 as Accession
#53798-95-000003.
Included in Part C:
Consent of Independent Accountants.
(b) Exhibits
All references are to the Registrant's registration statement on Form
N-1A (the "Registration Statement") as filed with the Securities and
Exchange Commission on July 18, 1986. File Nos. 33-7339 and 811-4757.
(1)(a) Registrant's Articles of Incorporation are incorporated by
reference to Post-Effective Amendment No. 12 to the Registration Statement
filed on October 27,1993 ("Post-Effective Amendment No. 12").
(b) Articles of Amendment dated October 30, 1986 to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No.
12.
(c) Articles of Amendment dated November 17, 1989 to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No.
12.
(d) Articles Supplementary dated November 5, 1992 to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No.
12.
(e) Articles of Amendment dated November 19, 1992 to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No.
12.
(f) Articles of Amendment dated July 30, 1993 to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No.
12.
Articles of Amendment dated October 14, 1994 and November 7, 1994,
respectively and Articles Supplementary dated November 7, 1994 are
incorporated by reference to Post-Effective Amendment No. 15 ("Post-
Effective Amendment No. 15").
(2)(a) Registrant's By-Laws are incorporated by reference to the
Registration Statement.
(2)(b) Amendment to Registrant's By-Laws is incorporated by reference
to Post-Effective Amendment No. 4 to the Registration Statement filed on
January 3, 1989 ("Post-Effective Amendment No. 4.").
(3) Not Applicable.
(4) Not Applicable.
(5)(a) Investment Advisory Agreement dated June 20, 1994, between the
Registrant and Smith Barney Strategy Advisers Inc. is incorporated by
reference to Post-Effective Amendment No. 15.
(b) Sub-Investment Advisory Agreement dated June 20, 1994, between
the Registrant and Lehman Brothers Global Asset Management Limited is
incorporated by reference to Post-Effective Amendment No. 15.
(6)(a) Distribution Agreement between the Registrant and Smith Barney
Shearson Inc. is incorporated by reference to Post-Effective Amendment No.
12.
(7) Not Applicable.
(8)(a) Custodian Agreement between the Registrant and Boston Safe
Deposit and Trust Company ("Boston Safe") is incorporated by reference to
Pre-Effective Amendment No. 1. ("Pre-Effective Amendment No. 1").
(b) Sub-Custodian Agreement between the Registrant and Boston Safe
is incorporated by reference to Pre-Effective Amendment No. 1.
(9)(a) Administration Agreement dated April 20, 1994, between the
Registrant and Smith, Barney Advisers, Inc. ("SBA") is incorporated by
reference to Post-Effective Amendment No. 15.
(b) Sub-Administration Agreement dated April 20, 1994, between the
Registrant, SBA and The Boston Company Advisors, Inc. is incorporated
by reference to Post-Effective-Amendment No. 15.
(c) Transfer Agency Agreement dated August 2, 1993 between the
Registrant and The Shareholder Services Group, Inc. is incorporated by
reference to Post-Effective Amendment No. 14.
(10) Not Applicable.
(11) Consent of Independent Accountants is filed herein.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Amended Service and Distribution Plan pursuant to Rule 12b-1 between
the Registrant and Smith Barney Inc. is incorporated by reference to
Post-Effective Amendment No. 15.
(16) Performance Data is incorporated by reference to Post-Effective
Amendment No. 4.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Title of Class Holders by Class as of December 16, 1994
Common Stock Class A- 8,214
par value $.001 per Class B- 4,758
share Class C-4
Item 27. Indemnification
The response to this item is incorporated by reference to Post-
Effective Amendment No. 1.
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Strategy Advisers Inc.
Smith Barney Strategy Advisers Inc. ("Strategy Advisers") was incorporated
on October 22, 1986 under the laws of the State of Delaware. On June 1,
1994, Strategy Advisers changed its name from Smith Barney Strategy
Advisers Inc. to its current name. Strategy Advisers is a wholly owned
subsidiary of Smith Barney Mutual Funds Management Inc. ("SBMFM"), which
was incorporated under the laws of the state of Delaware in 1968. SBA is a
wholly owned subsidiary of Smith Barney Holdings Inc. (formerly known as
Smith Barney Shearson Holdings Inc.), which in turn is a wholly owned
subsidiary of The Travelers Inc. (formerly know as Primerica Corporation)
("Travelers"). Strategy Advisers is registered as an investment adviser
under the Investment Adviser Act of 1940 (the "Advisers Act"). Strategy
Advisers is also registered with the Commodity Futures Trading Commission
(the "CFTC") as a commodity pool operator under the Commodity Exchange Act
(the "CEA"), and is a member of the National Futures Association (the
"NFA").
The list required by this Item 28 of officers and directors of SBMFM and
Strategy Advisers, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by
such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of FORM ADV filed by SBMFM on behalf of
Strategy Advisers pursuant to the Advisers Act (SEC File No. 801-8314).
Prior to the close of business on July 30, 1993 (the "Closing"), Shearson
Lehman Investment Strategy Advisors Inc. ("Shearson Lehman Strategy
Advisors"), was a wholly owned subsidiary of Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers"), and served as the Registrant's investment
adviser. On the Closing, Travelers and Smith Barney Inc. (formerly known
as Smith Barney Shearson Inc.)("Smith Barney") acquired the domestic retail
brokerage and asset management business of Shearson Lehman Brothers which
included the business of the Registrant's prior investment adviser.
Shearson Lehman Brothers was a wholly owned subsidiary of Shearson Lehman
Brothers Holdings Inc. ("Shearson Holdings"). All of the issued and
outstanding common stock of Shearson Holdings (representing 92% of the
voting stock) was held by American Express Company. Information as to any
past business vocation or employment of a substantial nature engaged in by
officers and directors of Shearson Lehman Investment Strategy Advisors can
be located in Schedules A and D of FORM ADV filed by Shearson Lehman
Investment Strategy Advisors prior to July 30, 1993. (SEC FILE NO. 801-
28715)
8/30/94
Item 28(b). Business and Other Connections of Investment Adviser
Sub-Investment Adviser - - Lehman Brothers Global Asset
Management Limited
Lehman Brothers Global Asset Management Inc. ("LBGAM"), is a wholly owned
subsidiary of Lehman Brothers Holdings Inc., a publicly-owned corporation.
LBGAM was incorporated in 1993 and is a registered investment adviser under
the Investment Advisers Act of 1940 (the "Advisers Act") and serves as
investment adviser to investment companies and institutional clients.
On July 30, 1993, Shearson Lehman Brothers Holdings Inc. changed its name
to Lehman Brothers Holdings Inc. ("Holdings"). Nippon Life Insurance
Company owns approximately 11.2% of the outstanding voting stock of Lehman
Holdings. The list required by this Item 28 of officers and directors of
LBGAM, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers
and directors during the past two years, is incorporated by reference to
Schedules A and D of FORM ADV filed by LBGAM pursuant to the Advisers Act
(SEC File No. 801-42006).
12/29/94
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as distributor for Smith
Barney Managed Municipals Fund Inc., Smith Barney New York Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Global Opportunities Fund,
Smith Barney Aggressive Growth Fund Inc., Smith Barney Appreciation Fund
Inc., Smith Barney Principal Return Fund, Smith Barney Managed Governments
Fund Inc., Smith Barney Income Funds, Smith Barney Equity Funds, Smith
Barney Investment Funds Inc., Smith Barney Precious Metals and Minerals
Fund Inc., Smith Barney Telecommunications Trust, Smith Barney Arizona
Municipals Fund Inc., Smith Barney New Jersey Municipals Fund Inc., The USA
High Yield Fund N.V., Garzarelli Sector Analysis Portfolio N.V., Smith
Barney Fundamental Value Fund Inc., Smith Barney Series Fund, Consulting
Group Capital Markets Funds, Smith Barney Income Trust, Smith Barney
Adjustable Rate Government Income Fund, Smith Barney Florida Municipals
Fund, Smith Barney Oregon Municipals Fund, Smith Barney Funds, Inc., Smith
Barney Muni Funds, Smith Barney World Funds, Inc., Smith Barney Money
Funds, Inc., Smith Barney Tax Free Money Fund, Inc., Smith Barney Variable
Account Funds, Smith Barney U.S. Dollar Reserve Fund (Cayman), Worldwide
Special Fund, N.V., Worldwide Securities Limited, (Bermuda), Smith Barney
International Fund (Luxembourg) and various series of unit investment
trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney Holdings
Inc. (formerly known as Smith Barney Holdings Inc.), which in turn is a
wholly owned subsidiary of The Travelers Inc. (formerly known as Primerica
Corporation) ("Travelers"). On June 1, 1994, Smith Barney changed its
name from Smith Barney Shearson Inc. to its current name. The information
required by this Item 29 with respect to each director, officer and partner
of Smith Barney is incorporated by reference to Schedule A of FORM BD filed
by Smith Barney pursuant to the Securities Exchange Act of 1934 (SEC File
No. 812-8510).
11/4/94
Item 30. Location of Accounts and Records
(1) Smith Barney Precious Metals and Minerals Fund
Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(3) Lehman Brothers
Global Asset Management
Two Broadgate
London EC2M 7HA United Kingdom
(4) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(5) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
None.
485(b) Certification
The Registrant hereby by certifies that it meets all requirements
for effectiveness pursuant to Rule 485(b) under the Securities Act of 1933,
as amended.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant, Smith Barney Precious
Metals and Minerals Fund Inc., has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, State of New York
on the 28th day of February, 1995.
Smith Barney
Precious Metals and
Minerals Fund Inc.
By: /s/ Heath B. McLendon
Heath B. McLendon
Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Heath B. McLendon
Director and
Chairman of the
Board
2/28/95
Heath B. McLendon
(Chief Executive
Officer)
/s/ Lewis E. Daidone
Lewis E. Daidone
Senior Vice
President and
Treasurer
(Chief Financial
and Accounting
Officer)
2/28/95
/s/ Alfred Bianchetti*
Alfred Bianchetti
Director
2/28/95
/s/ Martin Brody*
Martin Brody
Director
2/28/95
/s/ Dwight B. Crane*
Dwight B. Crane
Director
2/28/95
/s/ Stephen E. Kaufman*
Stephen E. Kaufman
Director
2/28/95
/s/ Joseph J. McCann*
Joseph J. McCann
Director
2/28/95
*Signed by Lee D. Augsburger, their authorized attorney-in-fact,
pursuant to power of attorney dated November 3, 1994.
By: /s/ Lee D. Augsburger
Lee D. Augsburger
Attorney-in-fact
s:\domestic\clients\shearson\funds\gold\pea16.doc
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Smith Barney Precious Metals and Minerals Fund Inc.:
We hereby consent to the following with respect to Post-Effective
Amendment
No. 16 to the Registration Statement on Form N-1A (File No. 33-7339)
under the Securities
Act of 1933, as amended, of Smith Barney Precious Metals and Minerals
Fund Inc.:
1. The incorporation by reference of our report dated
December 29, 1994
accompanying the Annual Report dated October 31, 1994 of Smith
Barney Precious Metals and Minerals Fund Inc., in the
Statement of
Additional Information.
2. The reference to our firm under the heading "Financial
Highlights" in the
Prospectus.
3. The reference to our firm under the heading "Counsel
and Auditors" in
the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 26, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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