File No. 33-7339
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.
17
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
X
Amendment No. 18
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)
_____ on ____________ 1995 pursuant to Rule 485(b)
__X__ 60 days after filing pursuant to Rule 485(a)
_____ on _____________ 1995 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 Cover Page; Prospectus
Registrant Summary; Investment
Objective
and Management Policies;
Additional Information
5. Management of the Fund Management of the Fund; The
Fund's Expenses; Additional
Information
6. Capital Stock and Other Investment Objective and
Securities Management Policies;
Dividends, Distributions
and Taxes; Additional
Information
7. Purchase of Securities Purchase of Shares;
Valuation
Being Offered of Shares; Redemption of
Shares; Exchange Privilege;
Distributor; Minimum
Account Size; Additional
Information
8. Redemption or Repurchase Redemption of Shares;
Purchase 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 Distributor; Additional
History Information
13. Investment Objectives Investment Objective and
and Policies Management Policies
14. Management of the Fund Management of the Fund;
Distributor
15. Control Persons and Management of the Fund
Principal Holders of
Securities
16. Investment Advisory and Management of the Fund;
Other Services Distributor
17. Brokerage Allocation Investment Objective and
Management Policies;
Distributor
18. Capital Stock and other Purchase of Shares;
Securities Redemption of Shares;
Taxes
19. Purchase, Redemption and Purchase of Shares;
Pricing of Securities Being Redemption of Shares;
Offered Valuation of Shares;
Exchange
Privilege; Distributor
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Data
Performance Data
23. Financial Statement Financial Statements
<PAGE>
P R O S P E C T U S
SMITH BARNEY
Natural
Resources
Fund
OCTOBER , 1995
PROSPECTUS
BEGINS ON PAGE ONE
LOGO Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERYDAY.
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PROSPECTUS
, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Natural Resources Fund Inc. (the "Fund") is a
mutual fund that
seeks long-term capital appreciation by investing
primarily in "Natural
Resource Investments." Natural Resource Investments are
defined as equity and
debt securities of issuers which: (1) own or process
natural resources, such as
precious metals, other minerals, water, timberland,
agricultural commodities
and forest products; (2) own or produce sources of energy
such as oil, natural
gas, coal, uranium, geothermal, oil shale and biomass; (3)
participate in the
exploration and development, transportation, distribution
and/or processing of
natural resources; (4) own or control oil, gas, or other
mineral leases, rights
or royalties; (5) provide related services or supplies,
such as drilling, well
servicing, chemicals, parts and equipment; (6) develop or
participate in ener-
gy-efficient technologies; and (7) are involved in the
upgrading or processing
of raw commodities into intermediate products. The Fund
may also invest in gold
bullion and gold coins. A company is considered a Natural
Resource Investment
when it derives at least 50% of its total revenue from a
business or activity
described above.
This Prospectus sets forth concisely certain information
about the Fund,
including sales charges, distribution and service fees and
expenses, that pro-
spective investors will find helpful in making an
investment decision. Invest-
ors are encouraged to read this Prospectus carefully and
retain it for future
reference.
Additional information about the Fund is contained in a
Statement of Addi-
tional Information dated , 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 MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- ------------------------------------------------FINANCIAL
HIGHLIGHTS 10
- ------------------------------------------------INVESTMENT
OBJECTIVE AND MANAGEMENT POLICIES 13
- ------------------------------------------------VALUATION
OF SHARES 23
- ------------------------------------------------DIVIDENDS,
DISTRIBUTIONS AND TAXES 23
- -------------------------------------------------
PURCHASE OF SHARES 25
- -------------------------------------------------
EXCHANGE PRIVILEGE 35
- ------------------------------------------------REDEMPTION
OF SHARES 39
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 41
- ------------------------------------------------
PERFORMANCE 41
- ------------------------------------------------MANAGEMENT
OF THE FUND 42
- ------------------------------------------------
DISTRIBUTOR 44
- ------------------------------------------------ADDITIONAL
INFORMATION 45
- ------------------------------------------------
</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
Natural Resources 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 Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, diversified
management invest-
ment company that seeks long-term capital appreciation by
investing primarily
in Natural Resource Investments. Although the Fund invests
primarily in Natu-
ral Resource Investments, it may invest in companies not
in the natural
resource area, gold bullion and gold coins, investment
grade corporate debt
securities, U.S. Government securities and, for cash
management purposes,
money market instruments. 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 initial sales charge, but will be subject to
a contingent
deferred sales charge ("CDSC") of 1.00% on redemptions
made within 12 months
of purchase. See "Prospectus Summary--Reduced or No
Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset
value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by
1.00% each year
after the date of purchase to zero. This CDSC may be
waived for certain
redemptions. Class B shares are subject to an annual
service fee of 0.25% and
an annual distribution fee of 0.75% of the average daily
net assets of the
Class. The Class B shares' distribution fee may cause that
Class to have
higher expenses and pay lower dividends than Class A
shares.
3
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
Class B Shares Conversion Feature. Class B shares will
convert automatically
to Class A shares, based on relative net asset value,
eight years after the
date of the original purchase. Upon conversion, these
shares will no longer be
subject to an annual distribution fee. In addition, a
certain portion of Class
B shares that have been acquired through the reinvestment
of
dividends and dis-
tributions ("Class B Dividend Shares") will be converted
at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value
with no initial
sales charge. They are subject to an annual service fee of
0.25% and an annual
distribution fee of 0.75% of the average daily net assets
of the Class, 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 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
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.
4
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
Finally, investors should consider the effect of the CDSC
period and any con-
version rights of the Classes in the context of their own
investment time
frame. For example, while Class C shares have a shorter
CDSC period than Class
B shares, they do not have a conversion feature, and
therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be
more attractive than
Class C shares to investors with longer term investment
outlooks.
Investors investing a minimum of $5,000,000 must purchase
Class Y shares,
which are not subject to an initial sales charge, CDSC or
service or distribu-
tion fees. The maximum purchase amount for Class A shares
is $4,999,999, Class
B shares is $249,999 and Class C shares is $499,999. There
is no maximum pur-
chase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales
charge on Class A
shares may be waived for certain eligible purchasers, and
the entire purchase
price will be immediately invested in the Fund. In
addition, Class A share pur-
chases, 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 pur-
chase 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.
See "Purchase of Shares" and "Management of the Fund" for
a complete descrip-
tion of the sales charges and service and distribution
fees for each Class of
shares and "Valuation of Shares," "Dividends,
Distributions and Taxes" and "Ex-
change Privilege" for other differences between the
Classes of shares.
SMITH BARNEY 401(K) PROGRAM Investors may be eligible to
participate in the
Smith Barney 401(k) Program, which is generally designed
to assist employ-
5
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
ers 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 Retire-
ment Plan. Investors in Class Y shares may open an account
for an initial
investment of $5,000,000. Subsequent investments of at
least $50 may be made
for all Classes. For participants in retirement plans
qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum
initial investment
requirement for Class A, Class B and Class C shares and
the subsequent invest-
ment requirement for all Classes is $25. The minimum
initial investment
requirement for Class A, Class B and Class C shares and
the subsequent invest-
ment requirement for all Classes through the Systematic
Investment Plan
described below is $50. See "Purchase of Shares."
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 "Pur-
chase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day
the New York Stock
Exchange, Inc. ("NYSE") is open for business. See
"Purchase of Shares" and "Re-
demption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds
Management Inc. ("SBMFM"), a
wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings"), serves as
the Fund's investment manager. Holdings is a wholly owned
subsidiary of Travel-
ers Group Inc. ("Travelers"), a diversified financial
services holding company
engaged, through its subsidiaries, principally in four
business
6
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
segments: Investment Services, Consumer Finance Services,
Life Insurance Serv-
ices and Property & Casualty Insurance Services.
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for
shares of the same
Class of certain other Smith Barney Mutual Funds at the
respective net asset
values next determined, plus any applicable sales charge
differential. See "Ex-
change 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."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment
income and distribu-
tions of net realized capital gains, if any, are declared
and paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid
on shares of a Class
will be reinvested automatically, unless otherwise
specified by an investor, in
additional shares of the same Class at current net asset
value. Shares acquired
by dividend and distribution reinvestments will not be
subject to any sales
charge or CDSC. Class B shares acquired through dividend
and distribution rein-
vestments will become eligible for conversion to Class A
shares on a pro rata
basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS 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 rep-
resenting a broader range of investment alternatives.
Historically, stock
prices of companies involved in natural resources
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 quali-
ty. 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 Pol-
icies."
7
<PAGE>
SMITH BARNEY
Natural Resources 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>
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*** %
% % %
- ----------------------------------------------------------
- -------------------
TOTAL FUND OPERATING EXPENSES ___% ___%
___7% ___% ---------------------------------------------
- --------------------------------
</TABLE>
* Purchases of Class A shares, which when combined with
current holdings of
Class A shares offered with a sales charge equal or
exceed $500,000 in the
aggregate, will be made at net asset value with no
sales charge, but will
be subject to a CDSC of 1.00% on redemptions made
within 12 months.
** Upon conversion of Class B shares to Class A shares,
such shares will no
longer be subject to a distribution fee. Class C shares
do not have a
conversion feature and, therefore, are subject to an
ongoing distribution
fee. As a result, long-term shareholders of Class C
shares may pay more
than the economic equivalent of the maximum front-end
sales charge
permitted by the National Association of Securities
Dealers, Inc.
*** For Class Y shares, "Other expenses" have been
estimated based on expenses
incurred by the Class A shares because no Class Y
shares had been acquired
as of October 31, 1995.
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 receives, with
respect to Class B
and Class C shares, an annual 12b-1 fee of 1.00% of the
value of average daily
net assets of the respective Class, consisting of a 0.75%
distribution fee and
a 0.25% service fee. "Other expenses" in the above table
include fees
8
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
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 $ $
$ $
Class B $ $
$ $
Class C $ $
$ $
Class Y $ $
$ $
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A $ $
$ $
Class B $ $
$ $
Class C $ $
$ $
Class Y $ $
$ $
- ----------------------------------------------------------
- -------------------
</TABLE>
* Ten-year figures assume conversion of Class B shares to
Class A shares at
the end of the eighth year following the date of
purchase.
The example also provides a means for the investor to
compare expense levels
of funds with different fee structures over varying
investment periods. To
facilitate such comparison, all funds are required to
utilize a 5.00% annual
return assumption. However, the Fund's actual return will
vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN
THOSE SHOWN.
9
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers &
Lybrand L.L.P., inde-
pendent accountants, whose report thereon appears in the
Fund's Annual Report
dated October 31, 1995. The information set out below
should be read in con-
junction 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 YEAR
ENDED ENDED ENDED
ENDED ENDED
10/31/95 10/31/94 10/31/93#
10/31/92 10/31/91
<S> <C> <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
Ratio of expenses to
average net assets 1.81%
2.17%++***
2.85% 2.24%
Ratio of net investment
income/(loss) to
average net assets (0.34)% (0.14)%
(0.76)% 0.97%
Portfolio turnover rate 50% 108%
58% 63%
- ----------------------------------------------------------
- --------------------
</TABLE>
** 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 net investment income
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 charges.
10
<PAGE>
SMITH BARNEY
Natural Resources 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:
Dividends 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%
- ----------------------------------------------------------
- --------------------
</TABLE>
* 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 charges.
11
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR
PERIOD
ENDED ENDED
ENDED
10/31/95
10/31/94 10/31/93*#
<S> <C> <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% -------------------------------------------------
- ------------------------
</TABLE>
* 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 share
method, which more appropriately presents per share data
for this period
since use of the undistributed net investment income
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 charges.
12
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
PERIOD
ENDED
10/31/95 <S>
<C>
Net asset value, beginning of period --------------------
- -------------------------------------Income from
investment operations:
Net investment loss
Net realized and unrealized gain on investments ---------
- ------------------------------------------------Total
from investment operations ------------------------------
- ---------------------------Net asset value, end of period
$
- ---------------------------------------------------------
Total return+++ %
- ---------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in $000's) $
Ratio of expenses to average net assets++ %
Ratio of net loss to average net assets %+
Portfolio turnover rate %
- ---------------------------------------------------------
</TABLE>
* The Fund commenced selling Class C shares on November
7,
1994.
+ 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
period indicated
and does not reflect any applicable sales charges.
As of October 31, 1995, Class Y shares had been sold and,
accordingly, no
comparable financial information is available at this time
for this Class.
13
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is to seek long-term
capital apprecia-
tion by investing primarily in Natural Resource
Investments.
Generating current
income is not a primary part of the Fund's investment
objective. The Fund's
objective may not be changed without approval of a
majority of the Fund's out-
standing 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 Natural Resource Investments. Up to 35% of the
Fund's assets may be
invested in companies not in the natural resources area,
investment grade cor-
porate debt securities, U.S. Government securities and,
for cash management
purposes, money market instruments. For temporary
defensive purposes, the Fund
may invest in excess of 35% in money market instruments.
The Fund may utilize up to 10% of its assets to purchase
put options on secu-
rities owned by the Fund and up to an additional 10% of
its assets to purchase
call options on securities the Fund may acquire in the
future. The Fund may
purchase only put options that are traded on a regulated
exchange. The Fund may
purchase and write put and call options on domestic and
foreign stock indexes
to hedge against risks of market-wide movements affecting
that portion of its
assets invested in the country whose stocks are subject to
the hedges.
The composition of the Fund's portfolio will vary
depending on the determina-
tion of SBMFM 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 SBMFM 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 SBMFM to be of comparable quality.
The medium- and low-
er-rated securities in which the Fund may invest, some of
which have specula-
tive 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
Natural Resources Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Because issuers of Natural Resource 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 partic-
ular countries or regions will change from time to time
in accordance with the
judgment of the Fund's investment adviser, which may be
based on, among other
things, consideration of the political stability and
economic outlook of these
countries or regions.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The Fund intends to invest at least 65% of its assets in
Natural Resource
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 that a fund that invests in securities
representing a
broader range of investment alternatives. Historically,
stock prices of compa-
nies involved in natural resource-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 possi-
ble 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 uni-
form accounting, auditing and financial reporting
standards or to other regu-
latory practices and requirements comparable to those
applicable to domestic
companies. Economic, political and social conditions
prevailing in these coun-
tries 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 that those of securities of comparable domestic
companies. In addi-
tion, 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 for-
eign 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 may invest in securities denominated or
quoted in curren-
cies other than the U.S. dollar, changes in foreign
currency exchange rates
will
15
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 transac-
tions. 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 secu-
rities (a) will likely have some quality and protective
characteristics that,
in the judgment of the rating organization, are outweighed
by large uncertain-
ties 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 con-
sidered as a complete investment program and may not be
appropriate for all
investors.
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 devel-
opments 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 low-
er-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 eco-
nomic 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 pay-
ment of principal or interest on its portfolio holdings.
In addition, the mar-
kets in which medium- and lower-rated or comparable
unrated securities are
traded generally are more limited than those in which
16
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
higher-rated securities are traded. The existence of
limited markets for these
securities may restrict the availability of securities for
the Fund to pur-
chase 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 cal-
culating 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 finan-
cial markets. The market for some medium- and lower-rated
and comparable
unrated securities is relatively new and has not fully
weathered a major eco-
nomic 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 yield-
ing security, resulting in a decreased return to the Fund.
Securities which are rated Ba by Moody's or BB by S&P have
speculative char-
acteristics 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, SBMFM, in evaluating the
creditworthiness of an
issuer, whether rated or unrated, will take various factors
into considera-
tion, 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.
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 SBMFM
determines that it is
appropriate to maintain a temporary defensive posture.
Shortterm 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 agree-
ments with respect to such securities); (b) bank
obligations (including cer-
tificates of deposit,
17
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 inter-
national development agencies, banks and other financial
institutions, govern-
ments 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
A2 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 instru-
ments 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 con-
tractual 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 calen-
dar days and (c) new and early stage companies whose
securities are not pub-
licly traded. In addition, the Fund may invest up to 5% of
its assets in war-
rants and up to 5% of its assets in the securities of
issuers which 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 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 bor-
rowing, 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.
18
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 transac-
tions on U.S. government securities with banks which are
the issuers of instru-
ments acceptable for purchase by the Fund and with certain
dealers on the Fed-
eral 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 obliga-
tion 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 obliga-
tion 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
SBMFM 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. SBMFM, acting under the supervision of the
Board of Directors,
reviews on an ongoing basis to evaluate potential risks,
the value of the col-
lateral 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 organi-
zations. 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 col-
lateralized 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 mar-
ket 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 SBMFM to
be of good standing and will not be made unless, in the
judgment of SBMFM, the
consideration to be earned from such loans would justify
the risk.
19
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 lim-
ited by the requirements contained in the Code, for
qualification as a regu-
lated 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 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 securi-
ty, 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 addi-
tional 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 cer-
tain 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,
20
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
and examples of foreign stock indexes are the Canadian
Market Portfolio Index
(Montreal Stock Exchange), the Financial Times--Stock
Exchange 100 (Interna-
tional Stock Exchange) and the Toronto Stock Exchange
Composite 300 (Toronto
Stock Exchange). Options on stock indexes are similar to
options on securi-
ties. Because no underlying security can be delivered,
however, the option
represents the holder's right to obtain from the writer,
in cash, a fixed mul-
tiple 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 reg-
ulations 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 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 SBMFM to predict correctly
movements in the direc-
tion of the underlying index.
When the Fund writes an option on a stock index, it will
establish a segre-
gated account with Morgan Guaranty Trust Company of New
York ("Morgan Guaran-
ty"), the Fund's custodian, or with a foreign subcustodian
with 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 SBMFM
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 con-
tracts. 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 price weakness. The Fund will only enter into
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
21
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
exchange approved for such purpose by the Commodities
Futures Trading Commis-
sion (the "CFTC"). Currently, gold futures and options
thereon are traded pri-
marily 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 pur-
chased or put options written by the Fund), an amount of
cash and cash equiva-
lents equal to the underlying commodities value of the
contracts will be depos-
ited 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.
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 SBMFM believes that the value of its gold and gold
related securities will
decrease. The Fund may enter into futures contracts to
purchase gold when SBMFM
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 through an
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 invest-
ment in such a contract, gives the purchaser the right, in
return for the pre-
mium paid, to assume a position in a gold futures contract
at a specified exer-
cise price at any time prior to the expiration date of the
option. Upon exer-
cise 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 accu-
mulated 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),
22
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 purchase or
sell currencies. The Fund's dealings in forward currency
contracts will be
limited to hedging involving either specific transactions
or portfolio posi-
tions. In hedging specific portfolio positions, the Fund
may enter into a for-
ward currency contract with respect to either the currency
in which the posi-
tions are denominated or another currency deemed
appropriate by SBMFM. A for-
ward 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 con-
sidered to be a country that is in the initial stages of
its industrialization
cycle. Investing in the equity and fixed-income markets of
developing coun-
tries involves exposure to economic structures that are
generally less diverse
and mature, and to political systems that can be expected
to have less stabil-
ity, than those of developed countries. Historical
experience indicates that
the markets of developing countries have been more
volatile than the markets
of the more mature economies of developed countries;
however, such markets
often have provided higher rates of return to investors.
23
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
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 num-
ber of shares of the Class outstanding.
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 subse-
quent to the time a value was so established is likely to
have changed the val-
ue, 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 cer-
tain 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 amortiza-
tion to maturity of any discount or premium, regardless of
the effect of fluc-
tuating interest rates on the market value of the
instrument. Further informa-
tion 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.
24
<PAGE>
SMITH BARNEY
Natural Resources 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 ordi-
nary 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 serv-
ice 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 reg-
ulated 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 distri-
butions are received in cash or reinvested in additional
Fund shares. Distribu-
tions 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 corpora-
tions.
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 share-
holders 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
25
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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 considera-
tion such factors as the amount of foreign taxes paid and
the administrative
costs associated with making the election. If the election
is made, sharehold-
ers 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 gener-
ally 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 distribu-
tions 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 Fed-
eral and local tax consequences of investing in the Fund.
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 redemp-
tions. 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 "Pro-
spectus 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,
26
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PURCHASE OF SHARES (CONTINUED)
Class B, Class C or Class Y shares. No maintenance fee
will
be charged by the
Fund in connection with a brokerage account through which
an investor pur-
chases or holds shares.
Investors in Class A, Class B and Class C shares may open
an account by mak-
ing an initial investment of at least $1,000 for each
account, or $250 for an
IRA or a Self-Employed Retirement Plan in the Fund.
Investors in Class Y
shares may open an account by making an initial investment
of $5,000,000. Sub-
sequent investments of at least $50 may be made for all
Classes. For partici-
pants in retirement plans qualified under Section
403(b)(7) or Section 401(a)
of the Code, the minimum initial investment requirement
for Class A, Class B,
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 ini-
tial 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.
Purchase orders received by the Fund or 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 trad-
ing on the NYSE on any day the Fund calculates its net
asset value are priced
according to the net asset value determined on that day,
provided the order is
received by the Fund or Smith Barney prior to Smith
Barney's close of business
(the "trade date"). Payment for Fund shares is due on the
third business day
after the trade date (the "settlement 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 preau-
thorized 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
27
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PURCHASE OF SHARES (CONTINUED)
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 informa-
tion is available from the Fund or a Smith Barney
Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A
shares of the Fund are
as follows:
<TABLE>
<CAPTION>
DEALERS'
AMOUNT OF SALES CHARGE AS % SALES CHARGE AS %
REALLOWANCE AS %
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 * *
* --------------------------------------------------------
- -------------------
</TABLE>
* Purchases of Class A shares, which when combined with
current holdings of
Class A shares offered with a sales charge equal or exceed
$500,000 in the
aggregate, will be made at net asset value without any
initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made
within 12 months
of purchase. The CDSC on Class A shares is payable to
Smith Barney, which
compensates Smith Barney Financial Consultants and other
dealers whose
clients make purchases of $500,000 or more. The CDSC is
waived in the same
circumstances in which the CDSC applicable to Class B and
Class C shares is
waived. See "Deferred Sales Charge Alternatives" and
"Waivers of CDSC."
Members of the selling group may receive up to 90% of the
sales charge and
may be deemed to be underwriters of the Fund as defined in
the Securities Act
of 1933, as amended.
The reduced sales charges shown above apply to the
aggregate of purchases of
Class A shares of the 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 Direc-
tors of the Fund and employees of Travelers and its
subsidiaries and employees
of
28
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PURCHASE OF SHARES (CONTINUED)
members of the National Association of Securities Dealers,
Inc., or the
spouses and children of such persons (including the
surviving spouse of a
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 pur-
chase 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 com-
pany with the Fund by merger, acquisition of assets or
otherwise; (c) pur-
chases of Class A shares by any client of a newly employed
Smith Barney Finan-
cial 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 suf-ficient 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 aggregat-
ing 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 informa-
tion at the time of purchase to permit verification that
the purchase quali-
fies for the reduced sales charge. The right of
accumulation is subject to
modification or discontinuance at any time with respect to
all shares pur-
chased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced
sales charge or pur-
chase at net asset value will also be available to
employees (and partners) of
the
29
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PURCHASE OF SHARES (CONTINUED)
same employer purchasing as a group, provided each
participant makes the mini-
mum initial investment required. The sales charge
applicable to purchases by
each member of such a group will be determined by the
table set forth above
under "Initial Sales Charge Alternative--Class A Shares,"
and will be based
upon the aggregate sales of Class A shares of Smith Barney
Mutual Funds offered
with a sales charge to, and share holdings of, all members
of the group. To be
eligible for such reduced sales charges or to purchase at
net asset value, all
purchases must be pursuant to an employer- or partnership
sanctioned plan meet-
ing certain requirements. One such requirement is that the
plan must be open to
specified partners or employees of the employer and its
subsidiaries, if any.
Such plan may, but is not required to, provide for payroll
deductions, IRAs or
investments pursuant to retirement plans under Sections
401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net
asset value purchase
for aggregating related fiduciary accounts under such
conditions that Smith
Barney will realize economies of sales efforts and sales
related expenses. An
individual who is a member of a qualified group may also
purchase Class A
shares at the reduced sales charge applicable to the group
as a whole. The
sales charge is based upon the aggregate dollar value of
Class A shares offered
with a sales charge that have been previously purchased
and are still owned by
the group, plus the amount of the current purchase. A
"qualified group" is one
which (a) has been in existence for more than six months,
(b) has a purpose
other than acquiring Fund shares at a discount and (c)
satisfies uniform crite-
ria 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 discre-
tion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000
or more provides an
opportunity for an investor to obtain a reduced sales
charge by aggregating
investments over a 13 month period, provided that the
investor refers to such
Letter when placing orders. For purposes of a Letter of
Intent, the "Amount of
Investment" as referred to in the preceding sales charge
table
30
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PURCHASE OF SHARES (CONTINUED)
includes (i) all Class A shares of the Fund and other
Smith Barney Mutual
Funds offered with a sales charge acquired during the term
of the Letter plus
(ii) the value of all Class A shares previously purchased
and still owned. Each
investment made during the period receives the reduced
sales charge applicable
to the total amount of the investment goal. If the goal is
not achieved within
the period, the investor must pay the difference between
the sales charges
applicable to the purchases made and the charges actually
paid, or an appro-
priate number of escrowed shares will be redeemed. The
term of the Letter will
commence upon the date the Letter is signed, or at the
option of the investor,
up to 90 days before such date. Please contact a Smith
Barney Financial Con-
sultant or TSSG to obtain a Letter of Intent application.
Class Y Shares. A Letter of Intent may also be used as a
way for investors
to meet the minimum investment requirement for Class Y
shares. Such investors
must make an initial minimum purchase of $1,000,000 in
Class Y shares of the
Fund and agree to purchase a total of $5,000,000 of Class
Y shares of the Fund
within 6 months from the date of the Letter. If a total
investment of
$5,000,000 is not made within the six month period, all
Class Y shares pur-
chased to date will be transferred to Class A shares,
where they will be sub-
ject to all fees (including a service fee of 0.25%) and
expenses applicable to
the Fund's Class A shares, which may include a CDSC of
1.00%. Please contact
TSSG or a Smith Barney Financial Consultant for further
information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined
without an initial
sales charge so that the full amount of an investor's
purchase payment may be
immediately invested in the Fund. A CDSC, however, may be
imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class
B shares; (b) Class
C shares; and (c) Class A shares, which when combined with
Class A shares
offered with a sales charge currently held by an investor,
equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on an amount equal to
the lesser of the
original cost of the shares being redeemed or their net
asset value at the
time of redemption. CDSC Shares that are redeemed will not
be subject to a
CDSC to the extent that the value of such shares
represents: (a) capital
appreciation of 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.
31
<PAGE>
SMITH BARNEY
Natural Resources 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 exchanged 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 and, unless the
exchange has been
rejected in writing, the exchange will occur on or about
the fourth anniver-
sary date. See "Prospectus Summary--Alternative Purchase
Arrangements--Class B
Shares Conversion Feature."
32
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PURCHASE OF SHARES (CONTINUED)
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 real-
ized on redemption. The amount of any CDSC will be paid to
Smith Barney.
To provide an example, assume an investor purchased 100
Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor
acquired 5 addi-
tional shares through dividend reinvestment. During the
fifteenth month after
the purchase, the investor decided to redeem $500 of his
or her investment.
Assuming at the time of the redemption the net asset value
had appreciated to
$12 per share, the value of the investor's shares would be
$1,260 (105 shares
at $12 per share). The CDSC would not be applied to the
amount which represents
appreciation ($200) and the value of the reinvested
dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class
B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b) au-
tomatic cash withdrawals in amounts equal to or less than
1.00% per month of
the value of the shareholder's shares at the time the
withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however,
that automatic cash
withdrawals in amounts equal to or less than 2.00% per
month of the value of
the shareholder's shares will be permitted for withdrawal
plans that were
established prior to November 7, 1994); (c) redemptions of
shares within 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 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.
33
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PURCHASE OF SHARES (CONTINUED)
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 opera-
tion of retirement plans under Section 401(a) of the Code.
To the extent appli-
cable, the same terms and conditions are offered to all
Participating Plans in
the Smith Barney 401(k) Program.
The 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 Par-
ticipating Plan has made an initial investment in the
Fund, all of its subse-
quent 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.
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.
34
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PURCHASE OF SHARES (CONTINUED)
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 invest-
ors. 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 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 dis-
tribution 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 dis-
tributions, 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
35
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PURCHASE OF SHARES (CONTINUED)
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 pay-
ments 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 termina-
tion 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 Par-
ticipating Plan to an employee.
Participating Plans wishing to acquire shares of the Fund
through the Smith
Barney 401(k) Program must purchase such shares directly
from TSSG. For fur-
ther 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 fol-
lowing 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.
36
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney 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.--Utility Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
*Smith Barney Funds, Inc.--Income Return Account Portfolio
Smith Barney Funds, Inc.--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.
37
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Tax-Exempt Funds
Smith Barney California Municipals Fund Inc.
*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--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--New York Portfolio
Smith Barney Muni Funds--Ohio Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney World Funds, Inc.--Emerging Markets Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--Global Government Bond
Portfolio
Smith Barney World Funds, Inc.--International Balanced
Portfolio
Smith Barney World Funds, Inc.--International Equity
Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.--Cash Portfolio
++Smith Barney Money Funds, Inc.--Government Portfolio
38
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
**Smith Barney Money Funds, Inc.--Retirement Portfolio
++Smith Barney Municipal Money Market Fund, Inc.
++Smith Barney Muni Funds--California Money Market
Portfolio
++Smith Barney Muni Funds--New York Money Market Portfolio
-----------------------------------------------------
- --------------------------
*Available for exchange with Class A, Class C and Class Y
shares of the 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.
Class A Exchanges. Class A shares of the Smith Barney
Mutual Funds sold with-
out 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 pur-
poses 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 distribu-
tions were paid; however, except in the case of the Smith
Barney 401(k) Pro-
gram, 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 share-
holder was a Class B shareholder of the Short-Term World
Income Fund on July
15, 1994) wishes to exchange all or a portion of his or
her shares in any of
the funds imposing a higher CDSC than that imposed by the
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 n the same date as the Class C shares
of the Fund that have
been exchanged.
39
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
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. SBMFM may deter-
mine that a pattern of frequent exchanges is excessive and
contrary to the best
interest of the Fund's other shareholders. In this event,
SBMFM will notify
Smith Barney that the Fund may, at its discretion, decide
to limit additional
purchases and/or exchanges by a shareholder. Upon such a
determination, the
Fund will provide notice in writing or by telephone to the
shareholder at least
15 days prior to suspending the exchange privilege and
during the 15 day period
the shareholder will be required to (a) redeem his or her
shares in the Fund or
(b) remain invested in the Fund or exchange into any of
the funds of the Smith
Barney Mutual Funds ordinary 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
exchanging shares,
investors should read the current prospectus describing
the shares to be
acquired. The Fund reserves the right to modify or
discontinue exchange privi-
leges upon 60 days' prior notice to shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund
tendered to it, as
described below, at a redemption price equal to their net
asset value per share
next determined after receipt of a written request in
proper form at no charge
other than any applicable CDSC. Redemption requests
received after the close of
regular trading on the NYSE are priced at the net asset
value next determined.
40
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
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 redemp-
tion proceeds will be remitted on or before the third day
following receipt of
proper tender, except on any days on which the NYSE is
closed or as permitted
under the Investment Company Act of 1940, as amended
("1940 Act"), in extraor-
dinary circumstances. Generally, if the redemption
proceeds are remitted to a
Smith Barney brokerage account, these funds will not be
invested for the
shareholder's benefit without specific instruction and
Smith Barney will bene-
fit from the use of temporarily uninvested funds.
Redemption proceeds for
shares purchased by check, other than a certified or
official bank check, will
be remitted upon clearance of the check, which may take up
to ten days or
more.
Shares held by Smith Barney as custodian must be redeemed
by submitting a
written request to a Smith Barney Financial Consultant.
Shares other than
those held by Smith Barney as custodian may be redeemed
through an investor's
Financial Consultant, Introducing Broker or dealer in the
selling group or by
submitting a written request for redemption to:
Smith Barney Natural Resources 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 regis-
tered. If the shares to be redeemed were issued in
certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied
by an endorsed
stock power) and must be submitted to 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
41
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
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 share-
holder is eligible to receive qualified distributions and
has an account value
of at least $5,000. The withdrawal plan will be carried
over on exchanges
between funds or Classes of the 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 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
the Fund, each account must satisfy the minimum account
size.) The Fund, howev-
er, will not redeem shares based solely on market
reductions in net asset val-
ue. 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 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 speci-
fied period
42
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PERFORMANCE (CONTINUED)
of time assuming deduction of the maximum sales charge, if
any, from the ini-
tial 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 stan-
dard 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
may also include comparative performance information in
advertising or market-
ing its shares. Such performance information may include
data from Lipper Ana-
lytical Services, Inc. or similar independent services
that monitor the per-
formance of mutual funds or other industry publications.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of
the Fund rests with
the Fund's Board of Directors. The Directors approve all
significant agree-
ments between the Fund and the companies that furnish
services to the Fund,
including agreements with its distributor, investment
manager, custodian and
transfer agent. The day-to-day operations of the Fund are
delegated to the
Fund's investment manager. The Statement of Additional
Information contains
background information regarding each Director and
executive officer of the
Fund.
INVESTMENT MANAGER--SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York
10013, serves as
the Fund's investment manager pursuant to an investment
advisory agreement
dated , 1995. SBMFM (through predecessor entities)
has been in the
investment counseling business since 1968 and is a
registered investment
adviser. SBMFM renders investment advice to investment
companies that had
aggregate assets under management as of , 1995, in
excess of $ billion.
Subject to the supervision and direction of the Fund's
Board of Directors,
SBMFM manages the Fund's portfolio in accordance with the
Fund's stated
investment objective and policies, makes investment
decisions for the Fund,
43
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
MANAGEMENT OF THE FUND (CONTINUED)
places orders to purchase and sell securities, employs
professional portfolio
managers and securities analysts who provide research
services to the Fund and
oversees all aspects of the Fund's administration. For
investment management
services rendered, the Fund pays SBMFM a monthly fee at
the annual rate of
0.75% of the value of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT
John G. Goode, President and Chief Executive Officer of
Davis Skaggs Invest-
ment Management, a division of SBMFM, and David Stadlin,
Investment Officers
of the Fund, manage 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, 1995 is included
in the Annual Report dated October 31, 1995. A copy of the
Annual Report may
be obtained upon request without charge from a Smith
Barney Financial Consul-
tant or by writing or calling the Fund at the address or
phone number listed
on page one of this Prospectus.
44
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
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 longer
be subject to the
distribution fee. The fees are used by Smith Barney to pay
its Financial Con-
sultants 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 print-
ing 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 carry-
ing charges; and indirect and other 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 con-
tinuing fee for servicing shareholder accounts for as long
as a shareholder
remains a holder of that Class. Smith Barney Financial
Consultants may receive
different levels of compensation for selling different
Classes of shares.
Payments under the Plan are not tied exclusively to the
distribution and
shareholder service expenses actually incurred by Smith
Barney and the pay-
ments 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.
45
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
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
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 privi-
lege 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.
Morgan Guaranty, located at 60 Wall Street, New York, New
York, 10260, acts
as the Fund's custodian.
TSSG, located at Exchange Place, Boston, Massachusetts
02109, 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. Gen-
erally, shares of the Fund will be voted on a Fundwide
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 investment securities
held by the Fund at the
end of the period covered. In an effort to reduce the
Fund's printing and mail-
ing costs, the Fund plans to consolidate the mailing of
it's semi-annual and
annual reports by household. This consolidation means that
a household having
multiple accounts with the identical address of record
will receive a single
copy of each report. In addition, the Fund also plans to
consolidate the mail-
ing of its prospectus so that a shareholder having
multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan
accounts) will receive a
single Prospectus annually. Shareholders who do not want
this consolidation to
apply to their accounts should contact their Smith Barney
Financial Consultant
or TSSG.
46
<PAGE>
SMITH BARNEY
- ------------
A Member of
Travelers Group LOGO
SMITH
BARNEY
NATURA
L
RESOURCE
S
FUN
D
388 Greenwich
Street New York, New
York 10013
FD XXXX
XX
Smith Barney
Natural Resources Fund Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information
__________, 1995
This Statement of Additional Information expands upon
and supplements the information contained in the current
Prospectus of Smith Barney Natural Resources Fund
Inc. (the "Fund") dated _________, 1995, as amended or
supplemented from time to time, and should be read in
conjunction 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 incorporated by reference into the
Prospectus in its entirety.
CONTENTS
For ease of reference, the same section headings are used
in both the Prospectus 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 organizations that provide services to the
Fund. These organizations are the following:
<TABLE>
<S> <C>
Name Service
Smith Barney Inc. ("Smith Barney").......................
Distributor
Smith Barney Mutual Funds Management
Inc.("SBMFM").............................................
.. ....... Investment Manager
Morgan Guaranty Trust Company of New York ("Morgan
Guaranty")................................. Custodian
The Shareholder Services Group, Inc. ("TSSG"),a subsidiary
of First Data Corporation.............. Transfer Agent
</TABLE>
These organizations and the functions they perform for the
Fund are discussed 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 information 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 72). Private investor.
His address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004.
*Alfred J. Bianchetti, Director (age 72). Retired;
formerly Senior Consultant to Dean Witter Reynolds Inc.
His address is 19 Circle End Drive, Ramsey, New Jersey
17466.
Martin Brody, Director (age 74). 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
Administration, Boston, Massachusetts 02163.
Burt N. Dorsett, Director (age 65). Managing Partner
of Dorsett McCabe Management, Inc., an investment
counseling firm; Director of Research Corporation
Technologies, Inc., a non-profit patent-
clearing and licensing firm. His address is 201 East 62nd
Street, New York, New York 10021.
Elliot S. Jaffe, Director (age 69). 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 65). 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 62). Managing Director of Smith
Barney, Chairman of Smith Barney Strategy Advisers Inc.
and President of SBMFM; prior to July 1993, Senior
Executive Vice President of Shearson Lehman 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 Mutual Funds.
His address is 388 Greenwich Street, New York, New York
10013.
Cornelius C. Rose, Jr., Director (age 62). President,
Cornelius C. Rose Associates, Inc., Financial Consultants;
and Chairman and Director of Performance Learning Systems,
an educational consultant. His address is P.O. Box 355,
Fair Oaks, Enfield, New Hampshire 03748.
James J. Crisona, Director Emeritus (age 88).
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 Prudential 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 Greenwich Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer
(age 38). Managing Director of Smith Barney; Chief
Financial Officer of the Smith Barney Mutual Funds; and
Director and Senior Vice President of SBMFM; prior to
January, 1990, Senior Vice President and Chief Financial
Officer of Cortland Financial Group, Inc. Mr. Daidone is
also Senior Vice President and Treasurer of 41 other funds
of the Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
John G. Goode, Vice President and Investment Officer
(age 51). President and Chief Executive Officer of Davis
Skaggs Investment Management ("Davis Skaggs"), a division
of SBMFM; Managing Director of Smith Barney. His address
is 1 Sansome Street, Suite 3850, San Francisco, California
94104.
David A. Stadlin, Vice President and Investment
Officer (age 31). Research Analyst of Davis Skaggs; Vice
President of Smith Barney. His address is 1 Sansome
Street, Suite 3850, San Francisco, California 94104.
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 September 1,
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 subsidiary 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
totaled $24,385.
For the calendar year ended December 31, 1994, the
Directors of the Fund were paid the following
compensation: <TABLE>
<S> <C> <C>
Director(*) Aggregate Compensationfrom the Fund
Aggregate Compensationfrom Smith BarneyMutual Funds
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 Heath B. McLendon
(41) ------- -------
Cornelius C. Rose, Jr. (12) 0
33,300 James J. Crisona (10)** 3,250 67,350
</TABLE>
(*) Number of director/trusteeships held with other Smith
Barney Mutual Funds.
** Mr. Crisona became Director emeritus as of January 1,
1995. A Director emeritus may attend meetings but has no
voting rights.
Investment Manager--SBMFM
SBMFM serves as investment manager to the Fund
pursuant to a written agreement (the "Management
Agreement"), which was approved by the Board of Directors,
including a majority of the Directors who are not
"interested persons" of the Fund or SBMFM, on September 26,
1995 and by shareholders on _____________, 1995. SBMFM pays
the salary of any officer and employee who is employed by
both it and the Fund. The services provided by SBMFM under
the Management Agreement are described in the Prospectus
under "Management of the Fund." SBMFM bears all expenses in
connection with the performance of its services. SBMFM is a
wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings"), which in turn, is a wholly owned subsidiary
of Travelers Group Inc. ("Travelers").
As compensation for investment management services
provided pursuant the Management Agreement, the Fund pays
SBMFM 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. Prior to SBMFM, for the period from June 20, 1994
through November 22, 1995, Smith Barney Strategy Advisers
Inc. ("SBSA") and Lehman Brothers Global Assets Management
Limited ("LBGAM") served as the Fund's investment adviser
and sub-investment adviser, respectively. Prior to June 20,
1994, LBGAM served as the Fund's investment adviser. For
the 1993 fiscal year and for the period from November 1,
1993 through June 20, 1994, the Fund paid LBGAM $399,613
and $376,967, respectively, in investment advisory fees.
For the period from June 21, 1994 through October 31, 1994
and the fiscal year ended October 31, 1995, the Fund paid
SBSA $216,106 and $__________, respectively, in investment
advisory fees.
Prior to entering into the Management Agreement, SBMFM
served as administrator to the Fund pursuant to a written
agreement dated April 20, 1994 (the "Administration
Agreement"), which was most recently 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. SBMFM paid the salary of any officer and
employee who was employed by both it and the Fund and bore
all expenses in connection with the performance of its
services. As compensation for administrative services
rendered to the Fund, SBMFM received a fee at the annual
rate of 0.20% of the value of the Fund's average daily net
assets. For the period from April 20, 1994 through October
31, 1994 and for the fiscal year ended October 31, 1995,
the Fund paid SBMFM $158,152 and $________, respectively,
in administration fees.
Prior to April 20, 1994, Boston Company Advisors, Inc.
("Boston Advisors") served as the Fund's administrator 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 period November 1, 1993 to April
19, 1994 and the 1993 fiscal year, Boston Advisors received
$59,580 and $95,808 respectively, in administration fees.
The Fund bears expenses incurred in its operation,
including: taxes, interest, brokerage fees and commissions,
if any; fees of Directors who are not officers, directors,
shareholders or employees of Smith Barney or SBMFM; 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' reports and
shareholder meetings and meetings of the officers or Board
of Directors of the Fund.
SBMFM has agreed that if in any fiscal year the aggregate
expenses of the Fund (including fees paid under the
Management Agreement, but excluding interest, taxes,
brokerage and, with the prior written consent of the
necessary state securities commissions, extraordinary
expenses) exceed the expense limitation of any state having
jurisdiction over the Fund, SBMFM will, to the extent
required by law, reduce its management fees by the amount
of such excess expense. 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 SBMFM to reduce its 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 1993, 1994 and 1995 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 render an opinion on the Fund's financial
statements annually. With respect to the period prior to
November 1, 1994, Coopers & Lybrand L.L.P., independent
accountants, served as auditors of the Fund and rendered an
opinion on the Fund's financial statements 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.
government securities"). Direct obligations of the United
States Treasury include a variety of securities that differ
in their interest rates, maturities 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,
Government National Mortgage Association, General Services
Administration, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal National 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 instrumentality that it sponsors, the Fund
will invest in obligations issued by such an
instrumentality only if SBMFM determines that the
credit risk with respect to the instrumentality does not
make its securities unsuitable 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. government 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
borrower 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 securities, the Fund can increase
its income by continuing to receive interest on the loaned
securities as well as by either investing the cash
collateral in shortterm instruments or obtaining yield in
the form of interest paid by the borrower when U.S.
government securities are used as collateral. Requirements
of the SEC, which may be subject to future modifications,
currently provide that the following conditions must be met
whenever 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 securities. The risks in
lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving
additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made to firms
deemed by SBMFM to be of good standing and will not
be made unless, in the judgment of SBMFM , the
consideration to be gained from such loans would justify
the risk.
Options on Securities. The Fund may purchase put and
call options on securities. 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 overthe-counter market. Although the Fund generally
will purchase only those options for which SBMFM
believes there is an active secondary market so as to
facilitate its closing transactions, there is no assurance
that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for
any particular option 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
anticipated trading activity or order flow, or other
unforeseen event, have at times rendered certain of the
facilities of the Options Clearing Corporation and various
securities exchanges inadequate and resulted in the
institution 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, SBMFM and other of its
clients and affiliates may be considered to be such a
group. A securities exchange may order the liquidation of
positions found to be in violation of these limits and it
may impose certain other sanctions. Dollar amount limits
apply to U.S. government 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 indexes
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
Market 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 settlement 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 closing 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 position 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 hedging 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 SBMFM to predict correctly movements in
the direction of the stock market generally or of a
particular industry. This requires different skills and
techniques than
predicting changes in the prices of individual stocks.
The Fund will engage in stock index options
transactions only when determined by SBMFM 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 Morgan Guaranty , or with a
sub-custodian for the Fund, in an amount equal to the
market value of the option and will maintain the account
while the option is open.
Futures Contracts on Gold and Related Options. The
Fund's purpose in entering 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 anticipation 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 contracts 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. government
securities or high grade debt obligations. This amount,
known as initial 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, assuming that all contractual obligations
have been satisfied. Subsequent payments, known as
maintenance margin, to and from broker, will be made daily
as the price of the gold bullion underlying the futures
contract fluctuates, 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 underlying 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 contracts and related options as hedging
devices. Successful use of gold futures contracts and
related options by the Fund is subject to the ability of
SBMFM 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 contracts 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 involves the
exercise of skill and judgment, and even a well conceived
hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in the price of gold or the
hedged securities.
At any time prior to the expiration of a gold futures
contract or an option 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 options 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
required 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 partially 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 direction 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 options may be materially limited by
the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable to a regulated investment
company. See "Taxes."
Currency Transactions. The Fund may engage in currency
exchange transactions 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
positions. Transaction hedging is the purchase or sale of
forward currency with respect to specific receivable or
payables of the Fund generally arising in connection with
the purchase or sale of its portfolio securities. 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 securities held in its
portfolio denominated or quoted in or currently convertible
(such as through exercise of an option or consummation of a
forward contract) into that particular currency. If the
Fund
enters into a transaction hedging or position hedging
transaction, it will cover the transaction 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 currency 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 sub-
custodian of the Fund cash or readily marketable securities
in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward contract and
not otherwise covered. In the case of transaction hedging,
any securities placed in the account must be liquid 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 security 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 deliver. If the Fund retains
the portfolio security and engages in an offsetting
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 contract 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 increase, the Fund will suffer a loss to the
extent the price of the currency 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 factors 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 commissions are involved. The use of
forward currency contracts does not eliminate fluctuations
in the underlying prices of the securities, but it does
establish a rate of exchange that can be achieved in the
future. In addition, 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
increase.
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
transaction if, as a result, it will fail to qualify as a
regulated investment company under the Code for a given
year.
Investment Restrictions
The Fund has adopted the following investment
restrictions for the protection of shareholders.
Restrictions 1 through 8 below are fundamental policies
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, except 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 contracts and
other similar instruments; and (c) issuing separate classes
of shares.
3. Investing more than 25% of its total assets in
securities, the issuers of which are in the same industry
(other than in Natural Resource Investments as defined in
the Prospectus). For purposes of this limitation, 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 meeting 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 investments.
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 commodities or commodity
contracts, but this shall not prevent the Fund from: (a)
trading in futures contracts and options on futures
contracts, or (b) 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 considered 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, reorganization or acquisition of assets.
10. Purchasing restricted securities, illiquid securities
or other securities 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 considered 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 management.
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 SBMFM
individually owns more than 1/2 of 1% of the outstanding
securities of such company and together they own
beneficially more than 5% of the securities.
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 extent 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 options, (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 transactions involving futures contracts
and related options, including gold futures contracts.
Certain restrictions listed above permit the Fund
without shareholder approval to engage in investment
practices that the Fund does not currently pursue. The Fund
has no present intention of altering its current investment
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 partnerships. 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 commitment 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 profits, 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); however, it is
anticipated that the annual turnover rate generally will
not exceed 100%. Under certain market conditions, the Fund
may experience increased portfolio turnover as a result of
its options activities. For instance, 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 portfolio turnover rate
of 100% would occur, for example, if all the securities 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 1994
and 1995 fiscal years were 50% and ____%, respectively.
Portfolio Transactions
Most of the purchases and sales of securities for the
Fund, whether transacted 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
issuer has its principal office. Decisions to buy and sell
securities for the Fund are made by SBMFM , which
also is responsible for placing these transactions, subject
to the overall review of the Board of Directors. Although
investment decisions for the Fund are made independently
from those of the other accounts managed by SBMFM ,
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 SBMFM are prepared to
invest in, or desire to dispose of, the same security,
available
investments or opportunities for sales will be allocated in
a manner believed by SBMFM to be equitable to each.
In some cases, this procedure 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
overthe-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 1993,
1994 and 1995 fiscal years, the Fund paid $452,311,
$287,617 and $_______, respectively, in brokerage
commissions. During the 1993 fiscal year another 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 or 1995.
In selecting brokers or dealers to execute portfolio
transactions on behalf of the Fund, SBMFM seeks the
best overall terms available. In assessing the best overall
terms available for any transaction, SBMFM 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 reasonableness of the
commission, if any, for the specific transaction and on a
continuing basis. In addition, the Management Agreement
authorizes SBMFM 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 SBMFM or
its 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
SBMFM or its affiliates exercise investment
discretion. Conversely, the Fund may be the primary
beneficiary of services received as a result of portfolio
transactions effected for other accounts. The fee under the
Management Agreement is not reduced by reason of the
receipt by SBMFM of such brokerage and research
services.
The Fund's Board of Directors has determined that any
portfolio transactions for the Fund may be executed through
Smith Barney or an affiliate of Smith Barney if, in the
judgment of SBMFM , the use of Smith Barney 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. Similarly,
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 favored 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
Directors has expressly authorized Smith Barney to effect
such transactions and (b) Smith Barney annually advises
the Fund of the aggregate compensation 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 therefrom. Overthe-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 1993,
1994 and 1995 fiscal years, the Fund paid $32,625, $2,800
and $_____, respectively, in brokerage commissions to
Smith Barney and/or Shearson Lehman Brothers. For the 1995
fiscal year, Smith Barney received ___% of the brokerage
commissions paid by the Fund and effected ____% of the
total dollar amount of transactions for the Fund involving
the payment of brokerage commissions.
The Fund will not purchase any security, including
U.S. government securities, 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 Prospectus applies to purchases made by
any "purchaser," which is defined to include 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 employee benefit plans of employers who are
"affiliated persons" of each other within the meaning of
the 1940 Act; (e) taxexempt 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 Consultant.
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 combined 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, equaling or
exceeding $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 contingent deferred
sales charge ("CDSC"), however, is imposed on certain
redemptions of Class B shares and Class C shares, and of
Class A shares when purchased in amounts equaling or
exceeding $500,000. The method of computation 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 detrimental 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 portfolio 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 shareholder's shares at the time the Withdrawal Plan
commences.) To the extent that withdrawals exceed
dividends, distributions and appreciation of a
shareholder'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
distributions 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
purchases 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 beginning with
that month's withdrawal. For additional information,
shareholders should contact a Smith Barney Financial
Consultant.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a
best efforts basis pursuant to a distribution agreement
(the "Distribution Agreement") which was most recently
approved by the Fund's Board of Directors on July 19,
1995. For the 1993, 1994 and 1995 fiscal years, Smith
Barney or its predecessor, Shearson Lehman Brothers,
received $95,564, $93,066 and $______, respectively, in
sales charges from the sale of Class A shares, and did not
reallow any portion thereof to dealers. For the period
from November 6, 1992 through October 31, 1993 and the
fiscal years ended October 31, 1994 and 1995, Smith Barney
or its predecessor received from shareholders $66,095,
$94,391 and $_____, respectively, in CDSC on the
redemption of Class B shares.
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 Barney
Exchange Reserve Fund). If the investor instructs Smith
Barney to invest the funds in a Smith Barney money market
fund, the amount of the investment 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
administrative 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 settlement procedures and will take
such benefits into consideration when reviewing the
Management and Distribution Agreements for continuance.
For the fiscal year ended October 31, 1995, Smith
Barney incurred distribution expenses totaling
approximately $________, consisting of approximately
$______ for advertising, $______ for printing and mailing
of prospectuses, $_______ for support services, $_______
to Smith Barney Financial Consultants, and $_______ 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 distribution fee with respect to Class B
and Class C shares primarily intended to compensate Smith
Barney for its initial expense of paying Financial
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 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. For the fiscal year
ended October 31, 1995, the Fund incurred $______ and
$_______ in service fees for Class A and Class B shares.
In addition, Class B and Class C shares pay a distribution
fee primarily intended to compensate Smith Barney for its
initial expense of paying its Financial Consultants a
commission upon the sale of its Class B and Class C
shares. These distribution fees are calculated at the
annual rate of 0.75% of the value of the average daily net
assets attributable to the respective Class. For the
fiscal year ended October 31, 1994 and 1995, the Fund
incurred $404,995 and $_______ for Class B shares,
respectively, in distribution fees. As of October 31,
1995, there were no service or distribution fees incurred
for Class C shares.
Under its terms, the Plan continues from year to
year, provided such continuance 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 increase 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 on days on
which the NYSE is closed. The NYSE currently is scheduled
to be closed on New Year's Day, President's 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 description 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-thecounter 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. Amortized
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
exchanged 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 account 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 obtained from a Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary
supporting documents, 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
acquired. 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 advertisements or in reports and other
communications to shareholders. The Fund may include
comparative performance information in advertising or
marketing 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 expenses 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 portion thereof), assuming
reinvestment of all dividends and distributions.
Class A's average annual total return was as
follows for the periods indicated:
___% for the one-year period beginning on November
1, 1994 through October 31, 1995.
___% per annum during the five-year period from
November 1, 1990 through October 31, 1995.
___% per annum for the period from commencement of
operations (November 24, 1986) through
October 31, 1995.
Class B's average annual total return was as
follows for the periods indicated:
___% for the one-year period beginning on November 1,
1993 through October 31, 1995; and
___% per annum from November 6, 1992 through October
31, 1995.
Average annual total return figures calculated in
accordance with the above formula assume that the maximum
5.00% sales charge or maximum applicable 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 periods would have been ___%,
____% and ____%, respectively. If the maximum CDSC had not
been deducted at the time of purchase, Class B's average
annual total return for the same periods would have been
____% and ____%, 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 computed 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:
_____% for the one-year period beginning on November
1, 1994 through October 31, 1995.
_____% for the five-year period from November 1, 1990
through October 31, 1995.
_____% for the period from commencement of operations
(November 24, 1986) through October 31, 1995.
Class B's aggregate total return was as follows
for the periods indicated:
_____% for the one-year period beginning on November
1, 1994 through October 31, 1995; and
_____% per annum from November 6, 1992 through October
31, 1995.
Class C's aggregate total return was as follows
for the period indicated:
____% for the period beginning November 7, 1994
through October 31, 1995.
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 purchase,
Class A's aggregate total return for the same periods would
have been ____%, _____% and ____%, 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
____% and ____%, respectively.
Class C aggregate total return figure assumes that the
maximum applicable CDSC has been deducted from the
investment at the time of purchase. If the maximum 1% CDSC
had not been deducted at the time of purchase, Class C's
aggregate total return for the same period would have been
____%.
Performance will vary from time to time depending upon
market conditions, the composition of the Fund's portfolio
and operating expenses and the expenses exclusively
attributable to the Class. Consequently, any given
performance 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' performance 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 performance.
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
consult 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 currencies held for less than three months.
If the Fund purchases a put option for the purpose of
hedging an underlying portfolio security, the acquisition
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 discussed 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 investments") 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 security 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 (depending 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 securities (including U.S.
government securities), options on certain stock indexes,
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 exercise,
by taking delivery or by other termination). In addition,
any section 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. Provided
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%
longterm 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 represents 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 determination, 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 investment
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 circumstances 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 acquired 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 into short-term
gains.
If the Fund chooses 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, straddles 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 recognition 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 include 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 reduced if the Fund diminishes its
risk of loss by holding one or more positions in
substantially similar or related properties. Dividends
received deductions will be allowed only with respect to
shares a corporate shareholder has held for at least 46
days within the meaning of the same holding 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
requirements, 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 applicable
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 shareholder'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 purchased
reflects the amount of the forthcoming dividend or
distribution payment, any such payment will be a taxable
dividend or distribution payment.
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
recognize shortterm 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 identification
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 substitute 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, October 14, 1994
and November ___, 1995, 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., Smith Barney Precious Metals and Minerals Fund Inc.
and Smith Barney Natural Resources Fund Inc.,
respectively.
Morgan Guaranty, located at 60 Wall Street, New York,
New York 10260, serves as the Fund's custodian. Under its
agreement with the Fund, Morgan Guaranty holds the Fund's
portfolio securities and keeps all necessary accounts and
records. For its services, Morgan Guaranty receives a
monthly fee based upon the month-end market value of
securities held in custody and also receives securities
transaction charges. The assets of the Fund are held under
bank custodianship in compliance with the 1940 Act. Morgan
Guaranty 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 depositories.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, 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 dividends and distributions payable by the
Fund. For these services, TSSG receives 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.
APPENDIX
Description of S&P and Moody's ratings:
S&P Ratings for Municipal Bonds
S&P's Municipal Bond ratings cover obligations of states
and political subdivisions. Ratings are assigned to
general obligation and revenue bonds. General obligation
bonds are usually secured by all resources available to
the municipality and the factors outlined in the rating
definitions below are weighed in determining the rating.
Because revenue bonds in general are payable from
specifically pledged revenues, the essential element in
the security for a revenue bond is the quantity and
quality of the pledged revenues available to pay debt
service.
Although an appraisal of most of the same factors that
bear on the quality of general obligation bond credit is
usually appropriate in the rating analysis of a revenue
bond, other factors are important, including particularly
the competitive position of the municipal enterprise under
review and the basic security covenants. Although a rating
reflects S&P's judgment as to the issuer's capacity for
the timely payment of debt service, in certain instances
it may also reflect a mechanism or procedure for an
assured and prompt cure of a default, should one occur,
i.e., an insurance program, Federal or state guarantee or
the automatic withholding and use of state aid to pay the
defaulted debt service.
AAA
Prime -- These are obligations of the highest quality.
They have the strongest capacity for timely payment of
debt service.
General Obligation Bonds -- In a period of economic
stress, the issuers will suffer the smallest declines in
income and will be least susceptible to autonomous
decline. Debt burden is moderate. A strong revenue
structure appears more than adequate to meet future
expenditure requirements. Quality of management appears
superior.
Revenue Bonds -- Debt service coverage has been, and is
expected to remain, substantial. Stability of the pledged
revenues is also exceptionally strong, due to the
competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions
(including rate covenant, earnings test for issuance of
additional bonds, and debt service reserve requirements)
are rigorous. There is evidence of superior management.
AA
High Grade -- The investment characteristics of general
obligation and revenue bonds in this group are only
slightly less marked than those of the prime quality
issues. Bonds rated AA have the second strongest capacity
for payment of debt service.
A
Good Grade -- Principal and interest payments on bonds in
this category are regarded as safe. This rating describes
the third strongest capacity for payment of debt service.
It differs from the two higher ratings because:
General Obligation Bonds -- There is some weakness, either
in the local economic base, in debt burden, in the balance
between revenues and expenditures, or in quality of
management. Under certain adverse circumstances, any one
such weakness might impair the ability of the issuer to
meet debt obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not
exceptional. Stability of the pledged revenues could show
some variations because of increased competition or
economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent.
Management performance appears adequate.
BBB
Medium Grade -- Of the investment grade ratings, this is
the lowest.
General Obligation Bonds -- Under certain adverse
conditions, several of the above factors could contribute
to a lesser capacity for payment of debt service. The
difference between ``A'' and ``BBB'' ratings is that the
latter shows more than one fundamental weakness, or one
very substantial fundamental weakness, whereas the former
shows only one deficiency among the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of
the pledged revenues could show substantial variations,
with the revenue flow possibly being subject to erosion
over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
BB, B, CCC and CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to capacity to pay
interest and repay principal in accordance with the terms
of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation.
While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
C
The rating C is reserved for income bonds on which no
interest is being paid.
D
Bonds rated D are in default, and payment of interest
and/or repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a
plus or a minus sign, which is used to show relative
standing within the major rating categories, except in the
AAA-Prime Grade category.
S&P Ratings for Municipal Notes
Municipal notes with maturities of three years or less are
usually given note ratings (designated SP-1, -2 or -3) by
S&P to distinguish more clearly the credit quality of
notes as compared to bonds. Notes rated SP-1 have a very
strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics are given the designation of SP-1+. Notes
rated SP-2 have a satisfactory capacity to pay principal
and interest.
Moody's Ratings for Municipal Bonds
Aaa
Bonds that are Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable
margin and principal is secure. While the various
protective
elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa
Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they
comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in
Aaa securities.
A
Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment
sometime in the future.
Baa
Bonds that are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba
Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate and thereby not well
safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in
this class.
B
Bonds that are rated B generally lack characteristics of
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 security ranks in the higher
end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its
generic rating category.
Caa
Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may
exist with respect to principal or interest.
Ca
Bonds that are rated Ca represent obligations that are
speculative in a high degree. These issues are often in
default or have other marked short comings.
C
Bonds that are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Moody's Ratings for Municipal Notes
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade
("MIG") and for variable rate demand obligations are
designated Variable Moody's Investment Grade ("VMIG").
This distinction is in recognition of the differences
between short-term credit risk and long-term credit risk.
Loans bearing the designation MIG 1 or VMIG 1 are of the
best quality, enjoying strong protection by established
cash flows of funds for their servicing or from
established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG 2
or VMIG 2 are of high quality, with ample margins of
protection although not as large as the preceding group.
Loans bearing the designation MIG 3 or VMIG 3 are of
favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding
grades. Liquidity and cash flow may be tight and market
access for refinancing, in particular, is likely to be
less well established.
Description of S&P A-1+ and A-1 Commercial Paper Rating
The rating A-1+ is the highest, and A-1 the second
highest, commercial paper rating assigned by S&P. Paper
rated A-1+ must have either the direct credit support of
an issuer or guarantor that possesses excellent long-term
operating and financial strengths combined with strong
liquidity characteristics (typically, such issuers or
guarantors would display credit quality characteristics
which would warrant a senior bond rating of AA- or
higher), or the direct credit support of an issuer or
guarantor that possesses above average long-term
fundamental operating and financing capabilities combined
with ongoing excellent liquidity characteristics. Paper
rated A-1 by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated A or better; the issuer has
access to at least two additional channels of borrowing;
basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances; typically, the
issuer's industry is well established and the issuer has a
strong position within the industry; and the reliability
and quality of management are unquestioned.
Description of Moody's Prime-1 Commercial Paper Rating
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Among the factors considered by
Moody's
in assigning ratings are the following: (a) evaluation of
the management of the issuer; (b) economic evaluation of
the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain
areas; (c) evaluation of the issuer's products in relation
to competition and customer acceptance; (d) liquidity; (e)
amount and quality of long-term debt; (f) trend of
earnings over a period of ten years; (g) financial
strength of a parent company and the relationships which
exist with the issuer; and (h) recognition by the
management of obligations which may be present or may
arise as a result of public interest questions and
preparations to meet such obligations.
Smith Barney
Natural Resources Fund Inc.
388 Greenwich Street
New York, New York 10013
Fund 31, 204, 256, 450
Smith Barney
Natural Resources
Fund Inc.
Statement of
Additional Information
____________, 1995
SMITH BARNEY PRECIOUS METAL AND MINERALS FUND
INC. PART C
OTHER INFORMATION
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.
(g) 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.
(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 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) Form of Custodian Agreement between the Registrant
and Morgan
Guaranty Trust Company of New York is filed herein.
(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) 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
incorporated by reference to
Post-Effective Amendment No. 16 to the Registration
Statement filed on
February 28, 1995.
(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-7067
par value $.001 per Class
B-4161
share Class
C-29
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 Travelers Group 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., 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), Smith Barney
Institutional Cash Management
Fund, Inc. 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).
10/4/95
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) Morgan Guaranty Trust Company of New
York 60 Wall Street
New York, New York 10260
(5) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
None.
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 6th day of October,
1995.
Smith Barney
Precious Metals
and Minerals Fund
Inc.
/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 as of the dates indicated.
/s/ Heath B. McLendon Director and Chairman of
the
Board 10/5/95
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President and
Treasurer
Lewis E. Daidone (Chief Financial and Accounting
Officer) 10/5/95
/s/ Alfred Bianchetti
Alfred Bianchetti Director
10/5/95
/s/ Martin Brody
Martin Brody Director
10/5/95
/s/ Dwight B. Crane
Dwight B. Crane Director
10/5/95
/s/Burt N. Dorsett
Burt N. Dorsett Director
10/5/95
/s/Elliot S. Jaffe
Elliot S. Jaffe Director
10/5/95
/s/ Stephen E. Kaufman
Stephen E. Kaufman Director
10/5/95
/s/ Joseph J. McCann
Joseph J. McCann Director
10/5/95
/s/Cornelius C. Rose, Jr.
Cornelius C. Rose, Jr. Director
10/5/95
Rev. 2/94 2.CUS
1022.cc
Securities, Trust & Information Services
(GCIC -
Brussels)
Global Custody Agreement
0
Global Custody Agreement
Agreement dated as of _______, 1995 between Morgan Guaranty Trust
Company of New York (the "Custodian"), acting through its office
at 35 avenue des Arts, Brussels, Belgium, and Smith Barney
Precious Metals and Minerals Fund (the "Client").
Whereas, the Client desires to arrange for the custody of certain
of its assets and the provision of related services by the
Custodian;
Now, Therefore, in consideration of the mutual agreements
contained herein, the Custodian and the Client agree as follows:
1. Definitions. The following terms, as used herein, shall have
the following meanings:
"Authorized Instruction" means (i) a written, oral or electronic
communication accepted by the Custodian in good faith that has
been transmitted subject to the Security Procedures agreed upon
in writing by the Custodian and the Client or (ii) any other
written, oral or electronic communication that the Custodian
believes in good faith to have been given by an Authorized
Person.
"Authorized Persons" means those individuals who have been
designated by or duly authorized by the Client pursuant to
necessary corporate or other action (which shall be evidenced by
appropriate documentation delivered to the Custodian) to act on
behalf of the Client in connection with this Agreement. Such
persons shall continue to be Authorized Persons until such time
as the Client has delivered to the Custodian appropriate
documents revoking the authority of such persons.
"Cash" has the meaning set forth in Section 5.
"Cash Account" means a current account (which may be divided into
a number of subaccounts, denominated in U.S. dollars, Belgian
francs or any other currency or Composite Currency Unit
acceptable to the Custodian) opened by the Custodian on its books
in the name of the Client.
"Communication Products" has the meaning set forth in Section 28.
"Composite Currency Units" means the European Currency Unit
("ECU"), the Special Drawing Right ("SDR") or another composite
unit consisting of the aggregate of specified amounts of
specified currencies, as such ECU, SDR or other unit may be
constituted from time to time.
"Morgan Affiliate" means any office or branch of Morgan Guaranty
Trust Company of New York ("Morgan") and any other entity that
directly, or indirectly through one or more intermediaries,
controls Morgan or that is controlled by or is under common
control with Morgan.
"Securities Account" means any securities account opened by the
Custodian on its books in the name of the Client.
"Securities Depository" means any securities depository, book-
entry system or clearing system used by the Custodian from time
to time in accordance with Section 4(e) hereof.
"Security" means any share, stock, bond, debenture, note,
certificate of indebtedness, warrant or other security or
financial instrument acceptable to the Custodian (whether
represented by a certificate or by a book-entry on the records of
the issuer or other entity responsible for recording such book-
entries) that is from time to time held for the account of the
Client directly, or indirectly through a Subcustodian or
Securities Depository, by the Custodian pursuant to this
Agreement.
"Security Procedure" means, for any specified method of
communication, a procedure agreed upon in writing by the
Custodian and the Client for the purpose of verifying that an
Authorized Instruction given pursuant to such method of
communication is that of the Client or detecting error in the
transmission or the content of such Authorized Instruction. A
Security Procedure may require the use of algorithms or other
codes, identifying words or numbers, encryption, callback
procedures, or similar security devices.
"Subcustodian" means any bank or other institution (other than a
Securities Depository) used by the Custodian to hold Securities
from time to time in accordance with Section 4(e) hereof.
2 (a). Representations, Warranties and Covenants of the Client.
The Client represents and warrants that the execution, delivery
and performance by the Client of this Agreement (i) are within
the Client's corporate, trust or other constitutive powers; (ii)
have been duly authorized by all necessary corporate, trust or
other appropriate action under its organizational documents;
(iii) require no action by or in respect of, or filing with, any
governmental body, agency or official (including without
limitation any exchange control approvals) other than those set
forth in Appendix B under "Consents and Filings", which have been
duly taken or made or will be duly taken or made as and when
required; and (iv) do not contravene, or constitute a default
under, any provision of applicable law or regulation or of the
organizational documents of the Client or of any agreement,
judgment, injunction, order, decree or other instrument binding
upon the Client. In addition, the Client represents and warrants
that each of the statements set forth in Appendix B under
"Additional Information" is true and correct. The Client
represents, warrants and covenants that the Custodian shall be
entitled to deal with all Securities free of any proprietary or
equitable interest of any person or entity (other than interests
of the Client and interests of the Custodian, Subcustodians and
Securities Depositories that are created by this Agreement). The
Client agrees to inform the Custodian immediately if any
statement set forth in this Section 2 or in Appendix B ceases to
be true and correct as of any date after the date hereof.
2(b). Massachusetts Business Trust - Limitation of Liability.
The Client and the Custodian agree that the obligations of the
Client under this Agreement shall not be binding upon any of the
Trustees, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Client, individually, but
are binding only upon the assets and property of the Client, as
provided in the Declaration and Agreement of Trust. The
execution and delivery of this Agreement have been authorized by
the Trustees of the Client, and signed by an authorized officer
of the Client, acting as such, and neither such authorizationby
such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them or any
shareholder of the Client pesonally, but shall bind only the
assets and property of the Client as provided in the Master Trust
Agreement.
3. Securities Accounts. The Client hereby establishes with the
Custodian one or more Securities Accounts, which shall contain,
in the manner and on the terms specified herein, the Client's
Securities.
4. Terms of Custody.
(a) Authority to Hold Securities. Subject to the terms and
conditions of this Agreement, the Client hereby authorizes the
Custodian to hold any Securities received from time to time for
the account of the Client. The Custodian may, at its sole
discretion, hold the Securities directly or indirectly through
one or more Subcustodians or Securities Depositories. Securities
held indirectly through any Subcustodian shall be held subject to
the terms and conditions of the Custodian's agreement with such
Subcustodian. Securities held indirectly through any Securities
Depository shall be held subject to the terms of any agreement
between the Custodian or Subcustodian and such Securities
Depository and to the rules and terms and conditions of such
Securities Depository.
(b) Fungibility. The Client agrees that all Securities held by
the Custodian directly, or indirectly through any Subcustodian or
Securities Depository, shall be subject to the provisions of the
Belgian Royal Decree No. 62 of November 10, 1967, as amended. In
accordance with the Royal Decree, all Securities of any issue
shall be treated as fungible with all other securities of the
same issue held by the Custodian directly, or indirectly through
any Subcustodian or Securities Depository. Therefore, the Client
shall have no right to any specific securities of an issue but
shall instead be entitled, subject to applicable laws and
regulations and to the terms of this Agreement, to transfer,
deliver or repossess from the Custodian an amount of securities
of such issue that is equivalent to the amount of such securities
credited to a Securities Account, without regard to the
certificate numbers (or other identifying information) of the
securities originally deposited, and the Custodian's obligation
to the Client with respect to such Securities shall be limited to
effecting such transfer, delivery or repossession.
(c) Identification of Client's Interests. The Custodian shall
cause the Client's interest in any Securities held by the
Custodian directly, or indirectly through any Subcustodian or
Securities Depository, to be evidenced by a credit to a
Securities Account on the books of the Custodian. The Custodian
shall instruct each Subcustodian to credit all Securities held by
such Subcustodian directly, or indirectly through a Securities
Depository, to an account of the Custodian on the books of such
Subcustodian. The Custodian shall instruct, or direct the
relevant Subcustodian to instruct, each Securities Depository to
credit all Securities held by such Securities Depository to an
account of the Custodian or the relevant Subcustodian on the
books of such Securities Depository. Securities may be
registered in the name of the Custodian's nominee or, as to any
Securities held by an entity other than the Custodian, in the
name of such entity's nominee. The Client agrees to hold any
such nominee harmless from any liability as a holder of record of
such Securities.
(d) Liens of Subcustodians and Securities Depositories. Unless
the Custodian has received Authorized Instructions to the
contrary, the Custodian shall hold Securities indirectly through
a Subcustodian or Securities Depository only if (i) the
Securities are not subject to any right, charge, security
interest, lien or claim of any kind in favor of such Subcustodian
or Securities Depository or the creditors or operators of any of
them, including a receiver or trustee in bankruptcy or similar
authority, except for a claim of payment for the safe custody or
administration of the Securities or for funds advanced on behalf
of the Client by such Subcustodian or Securities Depository and
(ii) beneficial ownership of the Securities is freely
transferable without the payment of money or value other than for
safe custody or administration.
(e) Selection of Subcustodians and Securities Depositories. The
list of Subcustodians and Securities Depositories used by the
Custodian as of the date hereof is listed on Appendix A hereto.
The Custodian reserves the right to add and delete subcustodians
and securities depositories to and from such list from time to
time by notice to the Client. The Custodian agrees that, if it
replaces the subcustodian or securities depository used in any
country with another subcustodian or securities depository, it
will not transfer any of the Client's securities from the former
subcustodian or securities depository for such country to the
replacement subcustodian or securities depository for such
country without giving the Client at least 30 days' prior written
notice, during which time the Client may make arrangements to
have the Securities transferred to another Custodian if it does
not approve of the replacement.
5. Cash Account.
(a) The Client hereby establishes and shall maintain with the
Custodian a Cash Account to be used in connection with
transactions relating to the Securities. The collected balance
from time to time in the Cash Account shall constitute "Cash".
Any credit made to the Cash Account shall be provisional and may
be reversed if such payment is not actually collected or
received.
(b) Except as otherwise provided by law, the Cash Account
(including subdivisions maintained in different currencies,
including Composite Currency Units) shall constitute one single
and indivisible current account. Consequently, the Custodian has
the right, among others, of transferring the balance of any
subaccount of the Cash Account to any other subaccount at any
time and without prior notice.
(c) The Custodian may in accordance with customary practice hold
any currency (other than Belgian Francs) or Composite Currency
Unit in which any subdivision of the Cash Account is denominated
on deposit in, and effect transactions relating thereto through,
an account (a "Foreign Account") with a Morgan Affiliate or
another bank in the country where such currency is the lawful
currency or in other countries where such currency or Composite
Currency Unit may be lawfully held on deposit.
(d) The Custodian shall have no liability for any loss or damage
arising from the applicability of any law or regulation now or
hereafter in effect, or from the occurrence of any event, which
may affect the transferability, convertibility, or availability
of any currency (other than Belgian Francs) or Composite Currency
Unit in the countries where such Foreign Accounts are maintained
and in no event shall the Custodian be obligated to substitute
another currency for a currency (including a currency that is a
component of a Composite Currency Unit) whose transferability,
convertibility or availability has been affected by such law,
regulation or event. To the extent that any such law, regulation
or event imposes a cost or charge upon the Custodian in relation
to the transferability, convertibility, or availability of any
such currency or Composite Currency Unit, such cost or charge
shall be for the account of the Client. If pursuant to any such
law or regulation, or as a result of any such event, the
Custodian cannot deal in any component currency of a Composite
Currency Unit or effect a particular transaction in a Composite
Currency Unit on behalf of the Client, the Custodian may
thereafter treat any account denominated in an affected Composite
Currency Unit as a group of separate accounts denominated in the
relevant component currencies.
(e) Transactions in a currency or Composite Currency Unit shall
be subject to the regulations laid down by the exchange control
authorities of Belgium and of the country where such currency (or
component currency) is the lawful currency or where such currency
or Composite Currency Unit is held on deposit.
6. Instructions by the Client.
(a) Generally. The Client shall give an Authorized Instruction
with respect to Cash and Securities only to the Custodian or to
the Custodian's designee. The Client agrees to be bound by all
Authorized Instructions, whether or not such instructions were
duly authorized in accordance with the Client's own procedures.
The Custodian shall not be required to follow any Authorized
Instruction that would violate any applicable law, decree,
regulation or order of any government or governmental body
(including any court or tribunal) or that would be contrary to
any provision of this Agreement.
(b) Payments. Payments shall be made by the Custodian, or a
Subcustodian at the direction of the Custodian, only to the
extent that sufficient Cash in the applicable currency is
available in the Cash Account or otherwise available therefor and
only (i) as specified by an Authorized Instruction, (ii) as
permitted by Sections 14 and 15 or (iii) upon the termination of
this Agreement as set forth in Section 17 hereof. The Custodian
may make payments, or direct a Subcustodian to make payments,
from time to time on behalf of the Client when sufficient Cash in
the applicable currency is not available in the Cash Account or
otherwise available therefor, but neither the Custodian nor any
Subcustodian shall have any obligation to make such payments. If
any payments are made that result in an overdraft in a particular
currency, then such overdraft shall be payable on demand by the
Custodian and shall bear interest for each day outstanding at the
rate customarily charged by the Custodian for overdrafts in such
currency.
(c) Delivery of Securities. Any Securities held by a
Subcustodian shall be subject only to the instructions of the
Custodian and any Securities held by a Securities Depository
shall be subject only to the instructions of the Custodian or the
Subcustodian for which such Securities Depository is acting.
Securities shall be transferred, exchanged, or delivered by the
Custodian, or a Subcustodian at the direction of the Custodian,
only to the extent that sufficient Securities are actually in the
Securities Account and available for delivery and only:
(i) as specified by an Authorized Instruction;
(ii) in exchange for or upon conversion into other Securities or
Cash pursuant to a plan of merger, consolidation, reorganization,
recapitalization or readjustment;
(iii) upon the conversion of Securities pursuant to their terms
into other Securities;
(iv) as permitted by Sections 14 and 15; or
(v) upon the termination of this Agreement as set forth in
Section 17 hereof.
7. Corporate Events.
(a) Collections. Unless the Custodian has received an
Authorized Instruction to the contrary, the Custodian shall, or
shall instruct the appropriate Subcustodian to, collect
dividends, interest and other payments made and stock dividends,
rights and similar distributions made or issued with respect to
Securities and present for payment maturing Securities and those
called for redemption, in each case net of any applicable taxes
or other charges withheld by the maker of such payment or
distribution. Neither the Custodian nor any Subcustodian shall
have any obligation to commence legal proceedings or to take
other extraordinary actions to collect any of the foregoing
payments or distributions.
(b) Rights Offerings. Promptly after the Custodian becomes
aware thereof, the Custodian shall notify the Client of any
rights offering by an issuer of Securities. If the Client does
not send an Authorized Instruction to the Custodian regarding the
exercise of rights under such offering by the deadline set by the
Custodian in such notice, then to the extent permitted by
applicable law and consistent with local market practice, the
Custodian or the applicable Subcustodian shall sell such rights
in the principal market for such rights and deposit the proceeds
of such sale in the Cash Account.
(c) Partial Redemptions. Promptly after the Custodian becomes
aware thereof, the Custodian shall notify the Client of the
partial redemption of any Securities. If the Custodian or any
Subcustodian or Securities Depository holds any Securities in
which the Client has an interest as part of a fungible mass, the
Custodian or such Subcustodian or Securities Depository may
select the securities to participate in partial redemptions,
partial payments or other actions affecting less than all
securities of the relevant class in any non-discriminatory manner
that it customarily uses to make such selection.
(d) Authority of Custodian. Unless the Custodian has received
an Authorized Instruction to the contrary, the Custodian shall,
or shall instruct the appropriate Subcustodian to: (i) execute
in the name of the Client such ownership and other certificates
as may be required to obtain payment or exercise any rights in
respect of any Securities; (ii) accept and open all mail directed
to the Client in care of the Custodian or such Subcustodian; and
(iii) retain or dispose of fractional interests received by the
Custodian or such Subcustodian as a result of stock dividends in
accordance with local law and practice. With respect to any
corporate events not listed above, the Custodian shall (in the
absence of an Authorized Instruction from the Client within any
prescribed deadline) take any action that it considers
appropriate in the circumstances; provided that the Custodian
shall not be liable for the consequences of any such action.
8. Reporting.
(a) Statements. The Custodian shall mail, or cause to be
mailed, or transmit electronically to the Client (or, with prior
written consent of the Client, make available electronically)
monthly statements of the Securities Accounts and Cash Account.
Such statements shall list all Securities and Cash and specify
(i) whether the Securities are held directly by the Custodian or
indirectly through a Subcustodian or Securities Depository and
(ii) the amount of Cash held on deposit in each currency. The
Client agrees that each such statement shall be binding on the
Client 60 days after (a) in the case of any statement sent by
mail, it has been mailed by first class mail, postage prepaid or
(b) in the case of any statement transmitted or made available
electronically, it has been transmitted or made available
electronically to the Client, unless the Client has theretofore
notified the Custodian in writing of any inaccuracy in such
statement.
(b) Access to Records. The Custodian shall allow the Client and
its independent public accountants reasonable access to the
records of the Custodian relating to the Securities and Cash as
is required by the Client or its accountants in connection with
their examination of the books and records pertaining to the
affairs of the Client and shall require each Subcustodian and
Securities Depository to grant such access to the Client and its
independent public accountants to the extent consistent with
applicable law and regulations. The Custodian has no obligation
to maintain any records for a period of more than 10 years. The
Custodian shall have no obligation to require any Subcustodian or
Securities Depository to maintain records for any specified
period of time.
(c) Other Information. From time to time the Custodian may
provide additional reporting information to the Client on terms
and conditions agreed upon by the parties hereto in writing. The
additional information may include data obtained from third
parties, such as pricing valuation information relating to the
Securities. The Client agrees that it shall not redistribute or
resell data obtained by the Custodian from third parties, except
that it may provide such data to the beneficial owners of the
Securities as recorded on the Client's books and records.
9. Taxes. The respective responsibilities of the Client and the
Custodian with respect to tax matters are set forth in Appendix C
hereto and incorporated by reference herein.
10. Responsibilities; Indemnification by the Custodian.
(a) Standard of Care. The Custodian shall use reasonable care
in the performance of its duties hereunder and shall exercise the
same degree of care with respect to the Securities as it would
with respect to its own securities. The Custodian shall require
each Subcustodian to use reasonable care in the performance of
its duties and to exercise the same degree of care with respect
to the Securities as it would with respect to its own securities.
The Custodian shall be responsible to ensure that each
Subcustodian that is a Morgan Affiliate performs in accordance
with the foregoing standard. The Custodian's responsibility with
respect to any Securities held by a Subcustodian (other than a
Morgan Affiliate) or any carrier of Securities acting for the
Custodian or any Subcustodian is limited to the failure on the
part of the Custodian (or a Subcustodian that is a Morgan
Affiliate) to exercise reasonable care in the selection or
retention of such Subcustodian or carrier. The Custodian shall
have no responsibility for the selection or retention of any
Securities Depository or for the performance of any Securities
Depository.
(b) Insurance. The Custodian shall, and shall require each
Subcustodian to, maintain insurance coverage with respect to the
Securities covering such risks and in such amounts as the
Custodian or such Subcustodian maintains with respect to
securities which the Custodian or such Subcustodian holds for its
own account and for the account of other customers.
(c) Indemnification by the Custodian and Subcustodians. The
Custodian shall indemnify the Client against, and hold the Client
harmless from, any loss or liability (including, without
limitation, the reasonable fees and disbursements of counsel and
other legal advisors, but excluding all losses and liabilities of
the types described in Section 11 hereof) incurred by the Client
by reason of the negligence (whether through action or inaction)
or willful misconduct of the Custodian or any Subcustodian that
is a Morgan Affiliate in connection with the services provided
pursuant to this Agreement or the applicable subcustodian
agreement. The Custodian shall require each Subcustodian that is
not a Morgan Affiliate to indemnify the Custodian and the Client
against, and hold the Custodian and the Client harmless from, any
loss or liability (including, without limitation, the reasonable
fees and disbursements of counsel, but excluding all losses and
liabilities of the types specified in Section 11) incurred by the
Custodian or the Client by reason of the negligence (whether
through action or inaction) or willful misconduct of such
Subcustodian in connection with the services provided by such
Subcustodian pursuant to the applicable subcustodian agreement.
11. Limitations on Responsibilities and Liabilities.
(a) Generally. The Custodian shall be responsible for the
performance of only those duties as are set forth herein or
contained in an Authorized Instruction that is not contrary to
the provisions of this Agreement.
(b) Consequential Damages. Under no circumstances shall the
Custodian or any Subcustodian be liable to the Client or any
other person for indirect, special or consequential damages, even
if the Custodian or such Subcustodian is apprised of the
likelihood of such damages.
(c) Corporate Actions. The Custodian shall not be liable for
any loss occasioned by the failure of the Custodian to notify the
Client of any payment of dividends or interest or any redemption,
rights offering or other distribution made with respect to any
Security or any other corporate action taken or to be taken with
respect to any Security if the Custodian or a Subcustodian has
not received notice of such transaction directly from or on
behalf of the issuer of such Security or if such distribution or
action was not included in the reports of an internationally-
recognized investment data service selected by the Custodian.
(d) Authorized Instructions. Neither the Custodian nor any
Subcustodian shall be liable for any action taken upon an
Authorized Instruction.
(e) Payment and Delivery Instructions. In some securities
markets, securities deliveries and payments therefor may not be
or are not customarily made simultaneously. Accordingly, the
Client agrees that, notwithstanding the Client's instruction to
deliver Securities against payment or to pay for Securities
against delivery, the Custodian or a Subcustodian may make or
accept payment for or delivery of Securities at such time and in
such form and manner as shall be in accordance with relevant
local law and practice or with the customs prevailing in the
relevant market among securities dealers. The Client shall bear
the risk that (i) the recipient of Securities may fail to make
payment, return such Securities or hold such Securities or the
proceeds of their sale in trust for the Client and (ii) the
recipient of payment for Securities may fail to deliver the
Securities (such failure to include, without limitation, delivery
of forged or stolen Securities) or to return such payment, in
each case whether such failure is total or partial or merely a
failure to perform on a timely basis. Neither the Custodian nor
any Subcustodian shall be liable to the Client for any loss
resulting from any of the foregoing events.
(f) Reversals. In some securities markets and cash clearing
systems, deliveries of securities and cash may be reversed under
certain circumstances. Accordingly, credits of securities to a
Securities Account and cash to the Cash Account are provisional
and subject to reversal if, in accordance with relevant local law
and practice, the delivery of the security or cash giving rise to
the credit is reversed.
(g) Foreign Currency Risks. The Client shall bear all risks of
investing in Securities or holding Cash denominated in a currency
other than that of the Client's home jurisdiction. Without
limiting the foregoing, the Client shall bear the risks that
rules or procedures imposed by Securities Depositories, exchange
controls, asset freezes or other laws or regulations shall
prohibit or impose burdens or costs on the transfer to, by or for
the account of the Client of Securities or Cash held outside the
Client's jurisdiction or denominated in a currency other than the
currency of the Client's home jurisdiction or the conversion of
Cash from one currency into another currency. The Custodian
shall not be obligated to substitute another currency for a
currency (including a currency that is a component of a Composite
Currency Unit) whose transferability, convertibility or
availability has been affected by such law, regulation, rule or
procedure. Neither the Custodian nor any Subcustodian shall be
liable to the Client for any loss resulting from any of the
foregoing events.
(h) Force Majeure. Notwithstanding any other provision
contained herein, neither the Custodian nor any Subcustodian
shall be liable for any action taken, or any failure to take any
action required to be taken, hereunder or otherwise to fulfill
its obligations hereunder (including without limitation the
failure to receive or deliver securities or the failure to
receive or make any payment) in the event and to the extent that
the taking of such action or such failure arises out of or is
caused by war, insurrection, riot, civil commotion, act of God,
accident, fire, water damage, explosion, mechanical breakdown,
computer or system failure or other failure of equipment, or
malfunction or failures caused by computer virus, failure or
malfunctioning of any communications media for whatever reason,
interruption (whether partial or total) of power supplies or
other utility of service, strike or other stoppage (whether
partial or total) of labor, any law, decree, regulation or order
of any government or governmental body (including any court or
tribunal), or any other cause (whether similar or dissimilar to
any of the foregoing) whatsoever beyond its reasonable control.
(i) Delays. Except in the case of a failure by the Custodian or
a Morgan Affiliate to exercise the standard of care required by
Section 10(a), the Custodian shall not be liable for delays in
carrying out payment instructions given by the Client. In the
event that a delay in the carrying out of a payment instruction
is caused by such a failure of the Custodian or a Morgan
Affiliate, the liability of the Custodian shall not exceed an
interest equivalent for the period from the day when the payment
would have been carried out, but for the negligence of the
Custodian or such Morgan Affiliate, until the day when it is
actually carried out (excluding any portion of such period during
which the Custodian cannot carry out such instructions as a
result of any event referred to in Section 11(h)); provided that
if the Client shall fail to report the delay to the Custodian
within 10 days from the date when the payment would, but for the
negligence of the Custodian or a Morgan Affiliate, have been
made, then the Custodian shall not be liable for an interest
equivalent for more than a total of 10 days.
(j) Client's Reporting Obligations. The Client shall be solely
responsible for compliance with any notification, license or
other requirement of any jurisdiction relating to or affecting
the Client's beneficial ownership of the Securities, and neither
the Custodian nor any Subcustodian assumes liability for
noncompliance with such requirements.
(k) No Investment Advice. Neither the Custodian nor any
Subcustodian or Morgan Affiliate is under any duty to provide the
Client with investment advice or to supervise its investments.
(l) Fraudulent Securities. Neither the Custodian nor any
Subcustodian shall have any liability for losses incurred by the
Client or any other person as a result of the receipt or
acceptance of fraudulent, forged or invalid Securities (or
Securities which are otherwise not freely transferable or
deliverable without encumbrance in any relevant market).
(m) Third Party Information. The Custodian shall have no
responsibility for the accuracy of any information provided by
the Custodian to the Client that has been obtained from third
parties pursuant to Section 7 or 8(c) of this Agreement.
12. Use of Morgan Affiliates.
(a) Executing Orders. The Custodian shall, in its sole
discretion and if permitted by applicable law, accept orders from
the Client for the purchase or sale of Securities and either
execute such orders itself or by means of Morgan Affiliates or
brokers or other financial organizations of its choice, subject
to the fees and commissions in effect from time to time. The
Custodian shall not be responsible for any act or omission, or
for the solvency, of any broker or other financial organization
so selected to effect any transaction for the account of the
Client. When instructed to buy or sell Securities for which the
Custodian or a Morgan Affiliate acts as a dealer, the Custodian
may buy or sell such Securities from or to either itself, as
principal, or such Morgan Affiliate.
(b) Disclosure to Morgan Affiliates. Notwithstanding the
provisions of Section 26 hereof, the Custodian may disclose to
any Morgan Affiliate details with respect to the Securities and
the transactions effected hereunder. Such disclosure shall be
for the purpose of identifying banking, securities and financial
services that Morgan Affiliates may be able to provide to the
Client.
(c) Sub-Contracting. The Client hereby agrees that the
Custodian may arrange with any Morgan Affiliate to perform on
behalf of the Custodian any act required to be performed by the
Custodian hereunder.
13. Fees. The Client agrees to pay the Custodian as
compensation for the services provided hereunder a fee computed
at rates determined by the Custodian from time to time and
communicated to the Client in advance, as well as all
assessments, charges and expenses (including legal expenses and
attorney's fees associated with enforcing the Custodian's rights
hereunder) incurred by the Custodian in connection with this
Agreement.
14. Right to Debit and Set-Off. The Custodian has the right to
debit any subaccount of the Cash Account for any amount payable
by the Client in connection with any and all obligations of the
Client to the Custodian, whether or not relating to or arising
under this Agreement. In addition to the rights of the Custodian
under applicable law and other agreements, at any time when the
Client shall not have honored any and all of its obligations to
the Custodian, whether or not relating to or arising under this
Agreement, the Custodian shall have the right without notice to
the Client to retain or set-off, against such obligations of the
Client, any assets the Custodian or any Morgan Affiliate may
directly or indirectly hold for the account of the Client, and
any obligations (whether matured or unmatured) that the Custodian
or any Morgan Affiliate may have to the Client in any currency or
Composite Currency Unit, including time deposits and all assets
credited to any Securities Account. Any such asset of, or
obligation to, the Client may be transferred among the Custodian
and any Morgan Affiliates in order to effect the above rights.
15. Security Interests. In order to secure the prompt and
complete payment when due of any and all obligations of the
Client to the Custodian, now outstanding or which may be
outstanding at any time in the future, whether or not relating to
or arising out of this Agreement, the Client hereby pledges and
grants to the Custodian a security interest in (i) all of the
Client's right, title and interest in and to all Cash Accounts,
including any credit or debit balance which now appears or may at
any time in the future appear in any currency or Composite
Currency Unit subaccount of a Cash Account, (ii) all of the
Client's right, title and interest in and to all time deposit
accounts and notice accounts that the Client may open from time
to time with the Custodian, (iii) all of the Client's right,
title and interest in and to all Securities Accounts and the
amount of all securities which are now or at any time in the
future shall be standing to the credit of a Securities Account
(clauses (i), (ii) and (iii) of this Section 15 being referred to
collectively herein as the "Collateral"), (iv) all amounts of
cash, securities or other property or countervalue received or to
be received with respect to or in exchange for any and all of the
then existing Collateral which are, or are intended, to be
credited to a Cash Account or a Securities Account and (v) to the
extent not covered by the foregoing, all proceeds, product,
offspring, rents or profits of any or all of the foregoing
(whether acquired before or after the commencement of any
bankruptcy or liquidation proceeding by or in respect of the
Client) which are, or are intended to be credited to a Cash
Account or a Securities Account. All time deposit accounts and
notice accounts shall be deemed constituted for an indefinite
period, even though the Client and the Custodian may agree from
time to time that interest thereon will be paid on specified
dates rather than only at final maturity. The foregoing security
interests are granted as security only and shall not subject the
Custodian to, or transfer or in any way affect or modify, any
obligation or liability of the Client with respect to any of the
Collateral or any transaction in connection therewith. The
Client authorizes the Custodian to perform all acts which the
Custodian, in its sole discretion, deems necessary or desirable
to perfect and preserve its security interests and rights under
this Section 15. Upon any breach by the Client of its
obligations hereunder, the Custodian shall be entitled to
exercise all of the remedies available to a secured creditor
under applicable law.
16. Indemnification by the Client. The Client agrees to
indemnify the Custodian and each Subcustodian and to hold the
Custodian and each such Subcustodian harmless from any loss or
liability (including, without limitation, the reasonable fees and
disbursements of counsel and other legal advisors) incurred by
the Custodian or such Subcustodian in rendering services
hereunder or in connection with any breach of the terms of this
Agreement by the Client, except such loss or liability which
results from the Custodian's or such Subcustodian's failure to
exercise the standard of care required by Section 10(a) hereof.
17. Termination. This Agreement may be terminated by the
Custodian or the Client following receipt by the other party of
not less than 60 days' prior written notice thereof; provided
that such termination may be immediate if the other party shall
be in breach of its obligations hereunder or shall become the
subject of bankruptcy, insolvency, reorganization, receivership
or other similar proceedings. If notice of termination is given
by the Custodian, then the Client shall, within 60 days following
receipt of such notice, specify in an Authorized Instruction the
names of the persons to whom all Securities and Cash shall be
delivered or paid. In such case, the Custodian shall, subject to
the payment of amounts owed to it pursuant to Sections 6(b) and
13 hereof, deliver such Securities and Cash, and instruct each
Subcustodian to deliver any Securities or Cash held by such
Subcustodian, to the persons so specified. If within 60 days
following the receipt of a notice of termination by the
Custodian, the Custodian does not receive from the Client the
names of the persons to whom such Securities and Cash shall be
delivered, the Custodian, at its election, may deliver such
Securities and Cash, and instruct each Subcustodian holding any
Securities or Cash to deliver such Securities and Cash, to a bank
or a trust company doing business in the state or country where
such Securities and Cash were held. Securities or Cash so
delivered shall be held and disposed of pursuant to the
provisions of this Agreement or an Authorized Instruction or may
be continued to be held until the names of such persons are
delivered to the Custodian. If notice of termination is given by
the Client, the Custodian shall, subject to the payment of all
amounts owed to it pursuant to Sections 6(b) and 13 hereof,
deliver such Securities and Cash, and instruct each Subcustodian
holding any Securities or Cash to deliver such Securities or
Cash, to the persons specified in an Authorized Instruction. If
this Agreement is terminated by the Custodian or the Client, but
the Custodian or a Morgan Affiliate continues to provide other
services to the Client in connection with which the Client uses
Communication Products, then the provisions of Sections 27 and 28
hereof shall survive the termination of this Agreement until the
time that no such other services continue to be provided by the
Custodian or a Morgan Affiliate to the Client or until otherwise
terminated in writing by the Client or the Custodian. The
provisions of Sections 20, 24, 26 and Appendix G hereof and the
indemnity provisions of this Agreement and the provisions
limiting the liabilities of the Custodian and the Subcustodians
shall survive the termination of this Agreement (including any
subsequent termination of Sections 27 and 28 hereof).
18. Notices. Except as otherwise specified herein, any notice
or other communication to the Custodian or Client is to be
addressed to the respective party as set forth in Appendix D
hereto or in such other manner as may be specified by the one
party to the other in writing from time to time. Unless
otherwise specified herein, notices shall be effective when
received. If any Authorized Instruction is given to the
Custodian orally, then the Custodian's record of such instruction
shall constitute conclusive evidence of the contents of such
instruction, notwithstanding any conflicting written confirmation
or record of such instruction provided by the Client.
19. Amendments and Waivers. Any provision of this Agreement
(including Appendices B through G hereto) may be amended or
waived if, but only if, such amendment or waiver is in writing
and is signed by the Client and the Custodian.
20. Claims. Any claim arising out of or related to this
Agreement must be brought no later than one year after such claim
has accrued.
21. Successors and Assigns; Governing Law; Jurisdiction. This
Agreement shall bind the successors and assigns of the Custodian
and the Client. Except as otherwise provided by the terms of
this Agreement, neither the Custodian nor the Client may assign
any of its rights or obligations under this Agreement without the
prior written consent of the other party. This Agreement shall
be governed by and construed in accordance with the law of State
of New York except that the provisions set forth in Sections 4(b)
and 15 shall be governed by the law of Belgium. The Client
hereby submits to the non-exclusive jurisdiction of any any
federal or state court in New York City for purposes of all legal
proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. The Client hereby irrevocably
waives, to the fullest extent permitted by applicable law, any
objection which it may now or hereafter have to the laying of
venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been
brought in an inconvenient forum. The Client and the Custodian
each hereby irrevocably waives any and all rights to trial by
jury in any legal proceeding arising out of or relating to this
Agreement.
22. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto
and hereto were upon the same instrument.
23. Headings. The section headings used herein are for
information only and shall not affect the interpretation of any
provision of this Agreement.
24. Evidence. The Custodian's books and records (whether on
paper, microfilm, microfiche, by electronic or magnetic
recording, or any other mechanically reproducible form or
otherwise) shall be deemed to constitute, in the absence of
manifest error, sufficient evidence of the facts stated therein
and of any obligations of the Client to the Custodian.
25. Integration. This Agreement constitutes the entire
agreement between the parties hereto as it pertains to the
provision of global custody services and supersedes any and all
prior agreements and understanding, oral or written, relating to
the subject matter hereof.
26. Confidentiality. Notwithstanding any other provision
herein, the Custodian may disclose the Client's name, address and
securities position and other information to such persons and to
such an extent as required by law (including, but not limited to,
article 28 of the Belgian Law of December 4, 1990 relating to
securities transactions suspected of constituting market
manipulation, insider trading and other breaches of financial
regulations), the rules of any stock exchange or regulatory or
self-regulatory organization or any order or decree of any court
or administrative body that is binding on the Custodian or any
Subcustodian or Securities Depository or the terms of the
organizational documents of the issuer of any Security or the
term of any Security itself.
27. Security Procedures. The Client acknowledges that it has
been fully informed of the protections and risks associated with
the various methods of communication for transmitting Authorized
Instructions to the Custodian. The Custodian has recommended
that the Client transmit Authorized Instructions to the Custodian
using one or more specified methods of communication and has
recommended a type of Security Procedure for each such method.
The Client hereby agrees that the Security Procedure actually
agreed between the Client and the Custodian shall be deemed
commercially reasonable even if such Security Procedure offers
less protection than the Security Procedure recommended by the
Custodian. If the Client elects to transmit Authorized
Instructions to the Custodian by a method of communication for
which no Security Procedure has been agreed, the Client agrees to
be bound by any such Authorized Instruction that the Custodian
believes in good faith to have been given by an Authorized
Person. The Client shall (i) not disclose, or permit any
Authorized Person to disclose, except on a "need to know" basis,
any aspects of any Security Procedure, (ii) notify the Custodian
immediately if the confidentiality of any Security Procedure is
compromised and (iii) act to prevent the Security Procedures from
being further compromised. The Client shall designate one or
more persons, as identified in Appendix E, to receive Security
Procedure materials from the Custodian. The Client may amend
Appendix E from time to time upon seven days' prior written
notice to the Custodian in accordance with Section 18 of this
Agreement.
28. License. The Custodian hereby grants to the Client a
personal, nontransferable and nonexclusive license to use, for
its internal purposes only, the respective number of copies of
any hardware, firmware, microcode and software set forth in
Appendix F or hereafter identified by the Custodian in writing as
communication products (the "Communication Products"), for the
respective terms set forth in Appendix F and at the respective
locations set forth in Appendix F, solely in connection with
transmitting and receiving electronic communications to and from
the Custodian in connection with this Agreement. The Client
hereby acknowledges and agrees that this license is subject to
the terms and conditions set forth in Appendix G.
29. Severability. In the event any of the terms or provisions
of this Agreement shall be held to be unenforceable, the
remaining terms and provisions shall be unimpaired and the
unenforceable term or provision shall be replaced by such
enforceable term or provision as comes closest to the intention
underlying the unenforceable term or provision.
In Witness Whereof, the parties have caused this Agreement to be
duly executed by their respective authorized representatives as
of the day and year first above written.
Morgan Guaranty Trust Company of Smith Barney
Precious Metals and
New York Minerals Fund Inc
By: ______________________________ By:
______________________________
Title: ______________________________ Title:
______________________________
Appendix A
Global Custody Network
Country Subcustodian
Depository1
Argentina Morgan Guaranty Trust Co.
Caja de Valores
of New York - Buenos Aires
Office
Australia ANZ Banking Group
Austraclear
Austria Creditanstalt-Bankverein
OeKB-WSB (Wertpapiersammelbank bei der Oesterreichischen
Kontrollbank AG)
Belgium Morgan Guaranty Trust Co.
CIK (Caisse Interprofessionnelle
of New York - Brussels Office
de Depots et de Virements de Titres)
Euroclear Clearance System Limited
Brazil Morgan Guaranty Trust Co.
BOVESPA (Bolsa de Valores de Sao Paulo;
of New York - Sao Paulo Office
equities)
BVRJ
(Bolsa de Valores de Rio de Janeiro; equities)
CETIP
(Central de Custodia e Liquidacao Financiera de Titulos;
corporate bonds)
SELIC
(Sistema Especial de Liquidacao e Custodia; government
securities)
Canada Canadian Imperial Bank CDS
(Canadian Depository for
of Commerce
Securities)
Chile Citibank, N.A.
People's Republic of China - Hongkong and Shanghai
Banking
Shanghai and Shenzhen Corporation
Denmark Den Danske Bank VP
(Vaerdipapircentralen; Danish Securities Centre)
Finland Union Bank of Finland
France Morgan Guaranty Trust Co.
SICOVAM (Societe Interprofessionnelle
of New York - Paris Office
Pour La Compensation des Valeurs
Mobilieres)
Germany J.P. Morgan GmbH DKV
(Deutscher Kassenverein)
Greece National Bank of Greece S.A.
Hong Kong Hongkong and Shanghai Banking CCASS
(Central Clearing and Settlement
Corporation
System)
Hungary Citibank Budapest Rt
India Hong Kong and Shanghai Banking
Corporation
Indonesia Hongkong and Shanghai Banking
Corporation
Ireland Allied Irish Banks PLC
Italy Morgan Guaranty Trust Co.
Monte Titoli S.p.A.
of New York - Milan Office
Japan The Fuji Bank, Ltd.
JASDEC (Japanese Securities
Depository Center)
JSA
(Japan Securities Agency)2
Korea Bank of Seoul
KSSC (Korea Securities Settlement Corporation)
Luxembourg Banque Internationale a
CEDEL (Central de Livraison
Luxembourg, S.A.
des Valeurs Mobilieres)
Malaysia Hongkong and Shanghai Banking SCANS
(Securities Clearing Automated
Corporation
Network Services)
Mexico Citibank, N.A.
Indeval
Netherlands Bank Van Haften Labouchere
NECIGEF (Nederlands Centraal Instituut Voor
Giraal Effectenverkeer BV)
New Zealand ANZ Banking Group Ltd.
Austraclear
Norway Den Norske Bank VPS
(Verdipapirsentralen; Norwegian Registry of Securities)
Philippines Hongkong and Shanghai Banking
Corporation
Portugal Banco Espirito Santo
e Comercial de Lisboa
Singapore Development Bank of Singapore (CDP)
Central Depository Pte
Spain Morgan Guaranty Trust Co.
of New York - Madrid Office
Banco de Santander
Sri Lanka Hongkong and Shanghai Banking
Corporation
Sweden Skandinaviska Enskilda Banken
VPC (Vaerdepappercentralen;
Securities Register Centre)
Switzerland Morgan Guaranty Trust Co.
SEGA (Schweizerische
of New York - Zurich Office
Effekten - Giro AG)
Taiwan Hongkong and Shanghai Banking
Corporation
Thailand Hongkong and Shanghai Banking
Corporation
Turkey3 Citibank, N.A.
Ottoman Bank
United Kingdom Morgan Guaranty Trust Co.
TALISMAN (Transfer, Accounting and
of New York - London Office
Lodgement for Investors Stock Management
for
Jobbers) - Sepon Limited
CGO
(Central Gilts Office)
CMO
(Central Money Markets Office)
ESO
(European Settlements Office)
United States Morgan Guaranty Trust Co.
The Depository Trust Co.
of New York
The
Participants Trust Co.
Venezuela Citibank, N.A.
Appendix B
Consents and Filings
Additional Information
Appendix C
Tax Matters
The provisions of this Appendix C shall govern the rights,
responsibilities, duties and liabilities of the Client and the
Custodian with respect to the payment or withholding of all
taxes, assessments, duties or other governmental charges
(including any interest or penalty thereon or with respect
thereto) imposed by any governmental authority upon or with
respect to (i) any Cash, (ii) any Securities, and any
distributions with respect thereto, and (iii) the purchase, sale,
loan or other transfer of any Security by the Custodian, any
Subcustodian or any Securities Depository on behalf of the Client
and any proceeds or other income from such a sale, loan or other
transfer (any such tax, assessment, duty or other governmental
charge being referred to herein as a "Tax"). All capitalized
terms not defined herein shall have the meanings assigned to them
in the Global Custody Agreement.
1. As further provided in this Appendix C, the Client shall be
liable for all Taxes and shall indemnify and hold harmless the
Custodian, each Subcustodian and each Securities Depository for
the amount of any Tax that the Custodian or such Subcustodian or
Securities Depository is required under applicable laws (whether
by assessment or otherwise) to pay on behalf of, or in respect of
income earned by or payments or distributions made to or for the
account of, the Client (including any payment of Tax required by
reason of an earlier failure to withhold).
2. The Custodian shall, and shall instruct each Subcustodian and
Securities Depository to, withhold the amount of any Tax which
the Custodian or such Subcustodian or Securities Depository is
required to withhold under applicable law upon collection (on
behalf of the Client pursuant to an Authorized Instruction) of
(i) any dividend, interest or other cash distribution made with
respect to any Security, (ii) any stock dividend or distribution
of rights, warrants or other property with respect to any
Security and (iii) any proceeds or income from the sale, loan or
other transfer of any Security. The Custodian shall, and shall
instruct each Subcustodian and Securities Depository to, timely
remit the amount of any such tax withheld to the appropriate
governmental authority in the manner required by applicable law.
The Custodian has, and is authorized to grant to each
Subcustodian and Securities Depository, complete discretion to
determine the amount of any Tax which the Custodian or such
Subcustodian or Securities Depository is required to withhold
from any distribution, proceeds or income under any applicable
law.
3. In the event that (A) the Custodian or any Subcustodian or
Securities Depository is required under applicable law to pay any
Tax on behalf of the Client (including a payment due by reason of
an earlier failure to withhold such Tax) or (B) the Custodian or
any Subcustodian or Securities Depository is required under
applicable law to withhold or otherwise pay any Tax from or with
respect to any distribution or payment in property other than
cash which is collected by the Custodian or such Subcustodian or
Securities Depository (on behalf of the Client pursuant to an
Authorized Instruction), the Custodian shall be authorized to
withdraw Cash from any subaccount of the Cash Account in the
amount and currency required to pay such Tax and to use such
Cash, or to remit such Cash to the appropriate Subcustodian or
Securities Depository for the timely payment of such Tax in the
manner required by applicable law. If the Cash Account does not
contain sufficient Cash in the appropriate currency to pay such
Tax, the Custodian shall be authorized to withdraw Cash of any
other currency from any subaccount of the Cash Account in an
amount which, when converted to the appropriate currency at the
exchange rate prevailing on the date of withdrawal, is sufficient
to enable the Custodian or such Subcustodian or Securities
Depository to pay such Tax. If the aggregate amount of Cash in
all subaccounts of the Cash Account is not sufficient to pay such
Tax, the Custodian shall promptly notify the Client of the
additional amount of Cash (in the appropriate currency) required,
and the Client shall deposit such additional amount in the Cash
Account promptly after receipt of such notice for use by the
Custodian as specified herein. In the event that the Custodian
or any Subcustodian or Securities Depository is required to pay
any such Tax prior to the deposit by the Client of an additional
amount as required hereunder, the Custodian shall be authorized
to withdraw such additional amount (following deposit thereof)
from any subaccount of the Cash Account for payment to its own
account or the account of such Subcustodian or Securities
Depository in satisfaction of the Client's indemnification
obligation hereunder.
4. The information delivered to the Client each month pursuant
to Section 8(a) of the Global Custody Agreement shall include the
amount of each Tax (i) withheld by the Custodian or any
Subcustodian or Securities Depository from any payment collected
on behalf of the Client, (ii) withheld by the payor of any
payment collected by the Custodian or any Subcustodian or
Securities Depository on behalf of the Client or (iii) paid by
the Custodian or any Subcustodian or Securities Depository on
behalf of the Client with Cash withdrawn from the Cash Account or
otherwise obtained pursuant to paragraph 3 of this Appendix C, in
each case during the period since the date of the immediately
preceding monthly report.
5. In the event that the Client is eligible, pursuant to the
provisions of any tax treaty, for a reduced rate of, or exemption
from, any Tax which the Custodian or any Subcustodian or
Securities Depository is otherwise required to withhold or pay on
behalf of the Client under any applicable law, the Custodian
shall, or shall instruct such Subcustodian or Securities
Depository to, either withhold or pay such Tax at such reduced
rate or refrain from withholding or paying such Tax, as
appropriate; provided that the Custodian has received from the
Client all documentary evidence of residence or other
qualification for such reduced rate or exemption required to be
received under such applicable law. As soon as practicable
following the execution of the Global Custody Agreement, the
Client shall notify the Custodian of the Client's eligibility for
the benefits of any tax treaty between the Client's country of
residence and the countries listed in Appendix A to the Global
Custody Agreement and to the extent possible, furnish to the
Custodian all forms or other documentary evidence required under
applicable law to establish such eligibility. The Custodian
shall, and shall instruct each Subcustodian and Securities
Depository to, withhold or pay any Tax at a reduced rate
hereunder, or refrain from withholding or paying any Tax, only in
reliance upon documentation furnished to the Custodian pursuant
to this paragraph 5. The Custodian and each Subcustodian and
Securities Depository shall have no responsibility for the
accuracy or validity of any forms or documentation provided by
the Client to the Custodian hereunder, and the Client hereby
indemnifies and agrees to hold harmless the Custodian and each
Subcustodian and Securities Depository in respect of any
liability arising from any underwithholding or underpayment of
any Tax which results from the inaccuracy or invalidity of any
such forms or other documentation.
6. In the event that the Custodian becomes aware that any person
is required under applicable law of any country to withhold any
Tax from any payment collected by the Custodian or any
Subcustodian or Securities Depository on behalf of the Client,
and the Client has previously provided to the Custodian pursuant
to paragraph 5 of this Appendix C all forms or other documentary
evidence required under applicable law to establish eligibility
for an exemption from or reduced rate of such withholding
pursuant to any tax treaty between such country and the Client's
country of residence, then the Custodian shall furnish, or shall
instruct such Subcustodian or Securities Depository to furnish,
to the extent permissible and effective to establish such
eligibility under applicable law, such forms or other documentary
evidence on behalf of the Client to the person required to
withhold such Tax. In the event that the Custodian or such
Subcustodian or Securities Depository is not permitted under
applicable law to furnish the necessary forms or other
documentary evidence on behalf of the Client, the Custodian shall
make reasonable efforts to notify the Client, reasonably promptly
after it becomes aware of such requirement, that the Client is
required under such law to furnish such items to the person
required to withhold such Tax. In the event that (i) the Tax
which any such person is required to withhold is imposed under an
applicable law of a country other than those listed in Appendix A
to the Global Custody Agreement or (ii) the Custodian or an
appropriate governmental authority or withholding agent has
determined that any forms or other documentation previously
provided to the Custodian pursuant to paragraph 5 of this
Appendix C are insufficient to establish the eligibility of the
Client for a reduced rate of, or exemption from, withholding of
any Tax imposed under the applicable law of a country listed in
Appendix A to the Global Custody Agreement, the Custodian shall
make reasonable efforts to so notify the Client reasonably
promptly after the Custodian becomes aware that such Tax is
required to be withheld.
7. In the event that (i) the Client is eligible pursuant to the
provisions of any tax treaty for a reduced rate of, or exemption
from, withholding of any Tax, which reduced rate or exemption is
obtainable only by means of application to the appropriate
governmental authority for a refund of tax paid or withheld, or
(ii) the Custodian or any Subcustodian or Securities Depository
withholds from any distribution, proceeds or income collected on
behalf of the Client an amount which is subsequently determined
to be greater than the amount required under applicable law to
have been withheld, the Custodian shall, or shall instruct the
appropriate Subcustodian or Securities Depository to, assist the
Client, to the extent permissible under applicable law, to obtain
a refund of such Tax from the appropriate governmental authority
in the amount for which the Client is eligible.
Appendix D
Notices to the Custodian
Morgan Guaranty Trust Company of New York, Brussels Office
35 avenue des Arts
Brussels 1040, Belgium
Attention: Securities Trust and Information
Services, Global Custody
Facsimile No. 322-512-4977
Telephone No. 322-508-8365
Notices to the Client
388 Greenwich Street
New York, NY 10013
Attention Lewis Daidone
Appendix E
Persons Authorized by the Client to Receive Security Procedure
Materials
[To be provided by Client]
Appendix F
Communication Products
(To be provided)
Appendix G
Communication Products - Terms and Conditions
1. Misuse; Confidentiality; Copies. The Client shall not
transfer, sublicense, rent, lease, convey, translate, convert to
another programming language, decompile, disassemble, modify or
change any Communication Product for any purpose. The Client
shall not use any Communication Product in a manner which would
violate this license or infringe the proprietary rights of the
Custodian or others or violate the laws, tariffs or regulations
of any country. The Client agrees not to disclose to any other
party and to keep confidential all of the Communication Products
and all information contained in or related to the Communication
Products and related documentation. The Client may make only one
copy of each licensed software Communication Product for backup
purposes in support of its authorized use of the software. The
Client shall include any applicable copyright notice on any such
software backup. The Client is permitted to use each licensed
copy of any Communication Product on only one computer or local
area network at a time.
2. Compatible Products. The Client shall be responsible for
obtaining and maintaining hardware, software and other equipment
and products that are compatible with the Communication Products,
as compatibility is defined by the Custodian from time to time.
The Custodian shall give the Client reasonable advance notice of
any changes in such compatibility requirements.
3. Documentation. If available, the Custodian shall give the
Client one copy of a user manual and related documentation (the
"Documentation") for each licensed Communication Product. The
Documentation is intended to be used for training and
informational purposes. The Documentation describes Security
Procedures that the Client must comply with in using the
Communication Products. The Client shall immediately notify the
Custodian in writing if it believes any Security Procedure has
been compromised or if any Communication Product fails to perform
as described in the Documentation.
4. Installation. At its option, the Custodian shall either
install the Communication Products at the locations specified by
the Client or shall furnish the Client with installation
instructions. From time to time, at its option, the Custodian
shall either install new releases of the Communication Products
or furnish the Client with installation instructions and direct
the Client to install such new releases by itself. The Client
agrees to allow the Custodian to install such new releases or to
install such new releases by itself if directed to do so by the
Custodian.
5. Returns, Repairs and Replacements. Upon the termination of
this License with respect to any Communication Product, the
Client agrees to return all copies of such Communication Product
and related documentation to the Custodian. The Client agrees to
pay any shipping charges incurred in connection with the return
of any Communication Product to the Custodian for replacement,
update or upon termination of this License with respect to such
Communication Product. Communication Products that are lost,
damaged or otherwise rendered inoperable due to the Client's
negligent, reckless or intentional misuse, or due to reasons
beyond the Custodian's control, shall be repaired or replaced at
the Client's expense. Communication Product repairs shall only
be performed by the Custodian or a party authorized by the
Custodian to perform such repairs.
6. Fees; Taxes. The Client agrees to pay the Custodian license
fees and such other fees as the parties hereto may agree upon in
writing from time to time in connection with obtaining the
Communication Products. The Client agrees to reimburse the
Custodian for, or shall pay directly to the relevant taxing
authorities, any sales, use, value-added, excise or other taxes,
other than taxes based on the Custodian's net income, incurred by
the Custodian or which may in the future be incurred by the
Custodian as a result of this License or on or measured by the
prices and other charges of the Communication Products furnished
for the Client's use, however designated, levied or based,
whenever the Custodian has paid or shall be liable to pay or
collect any such tax from the Client pursuant to applicable law,
as interpreted by the departmental authorities of the taxing
unit.
7. Warranty. The Custodian warrants that, for a period of 30
days after delivery of a Communication Product to the Client such
Communication Product will perform substantially in accordance
with the then current specifications therefor as set forth in the
Documentation. If a Communication Product fails to meet the
foregoing warranty and the Client gives the Custodian written
notice thereof during the applicable warranty period, the
Custodian's sole obligation shall be to provide technical
services to attempt to correct the failure, provided that (i) the
Client gives the Custodian detailed information regarding such
failure and the Custodian is able to duplicate same and (ii) the
Communication Product has not been used in an unauthorized manner
or otherwise misused or abused. The Client acknowledges that the
Communication Products are complex, may not be error free, and
that all errors, if any, may not be correctable or avoidable.
Except and to the extent expressly provided above, and in lieu of
all other warranties, the Communication Products are provided "as
is", all warranties and representations of any kind with regard
to the Communication Products are hereby disclaimed, including
any implied warranties of merchantability or fitness for a
particular purpose.
8. Infringement. The Custodian shall defend or settle, at its
own expense, any cause of action or proceeding brought against
the Client which is based on a claim that the use of a
Communication Product infringes any patent, copyright, trade
secret or other proprietary right. The Custodian shall indemnify
and hold the Client harmless against any final judgment that may
be awarded by a court of competent jurisdiction against the
Client as a result of the foregoing. The Custodian's obligations
hereunder are conditioned upon its receiving from the Client (i)
prompt written notice of each such claim, (ii) reasonable
cooperation and information in Client's possession and (iii) the
right to control and direct the investigation, defense and
settlement of each such claim. If a claim is made that a
Communication Product infringes any patent, copyright, trade
secret or other proprietary right, the Custodian may, in the
Custodian's sole discretion, either procure for the Client the
right to continue using such Communication Product, modify it to
make its use noninfringing, or replace it with a noninfringing
product; provided that if none of the foregoing is reasonably
available to the Custodian, the Custodian may terminate the
license granted herein and require the Client to return all
copies of the relevant Communication Product. Notwithstanding
the foregoing, the Custodian shall not be liable to the Client
pursuant to this Section if a claim is based on (i) a combination
of a Communication Product with data or other software or devices
not supplied by the Custodian, (ii) modifications to a
Communication Product not made by the Custodian or (iii) use of a
Communication Product in an unauthorized manner.
9. Related Services. These terms and conditions and the
Documentation are intended to define the rights and obligations
of the Client with respect to Communication Products used by the
Client in connection with all services (e.g., custody, funds
transfers, foreign exchange etc.) offered by Morgan Guaranty
Trust Company of New York and its affiliates to the Client. The
provisions of this Agreement and any documents relating to other
services offered by Morgan Guaranty Trust Company of New York and
its affiliates may supplement these terms and conditions but in
the event of any inconsistency between this Agreement or such
other documents and these terms and conditions, these terms and
conditions shall prevail.
10. Intraday Reports. The Client acknowledges that intraday
reports received by the Client by means of any Communication
Product may contain information that is subject to correction,
and that corrections of such information will routinely occur
without notice to the Client. The Client understands that
intraday reports are provided for informational purposes only and
are not to be relied upon for purposes of final reconciliations
or otherwise. Neither Morgan Guaranty Trust Company of New York
nor any affiliate or subsidiary of Morgan Guaranty Trust Company
of New York that provides data with respect to intraday reports
makes any representation or warranty that such reports are
accurate or complete.
_______________________________
1In addition to the central bank, if applicable.
2JSA currently does not meet Rule 17-5 requirements.
3Citibank meets the capital requirements of Rule 17f-5 and
Ottoman bank currently does not.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> SMITH BARNEY PRECIOUS METALS AND MINE
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[/TEXT]
</DOCUMENT>
</SEC-DOCUMENT>
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