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.
20
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
X
Amendment No. 21
SMITH BARNEY NATURAL RESOURCES 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 Natural Resources 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:
__X_ immediately upon filing pursuant to Rule 485(b)
____ on December 19, 1995 pursuant to Rule 485(b)
____ 60 days after filing pursuant to Rule 485(a)
___ on ____________ 1996 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, 1995 was filed on December
29, 1995.
SMITH BARNEY NATURAL RESOURCES 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
SMITH BARNEY NATURAL RESOURCES FUND INC.
PART A
<PAGE>
P R O S P E C T U S
SMITH BARNEY
Natural
Resources
Fund
Inc.
JANUARY 5, 1996
Prospectus begins on page one
LOGO Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PROSPECTUS JANUARY
5, 1996
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 January 5, 1996, as amended or
supplemented from time
to time, that is available upon request and without charge
by calling or writ-
ing the Fund at the telephone number or address set forth
above or by contact-
ing a Smith Barney Financial Consultant. The Statement of
Additional Informa-
tion 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 14
- -------------------------------------------------
VALUATION OF SHARES 24
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 24
- -------------------------------------------------
PURCHASE OF SHARES 26
- -------------------------------------------------
EXCHANGE PRIVILEGE 36
- -------------------------------------------------
REDEMPTION OF SHARES 40
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 43
- -------------------------------------------------
PERFORMANCE 44
- -------------------------------------------------
MANAGEMENT OF THE FUND 44
- -------------------------------------------------
ADDITIONAL INFORMATION 46
- -------------------------------------------------
</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, First Data Investor
Services Group, Inc.
(the "Transfer Agent"). 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 0.75%
0.75% 0.75% 0.75%
12b-1 fees** 0.25%
1.00% 1.00% None
Other expenses*** 0.99%
0.87% 0.94% 0.99%
- ------------------------------------------------------------
- ------------------
TOTAL FUND OPERATING EXPENSES 1.99%
2.62% 2.69% 1.74%
- ------------------------------------------------------------
- ------------------
</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 $69 $109
$152 $270
Class B $77 $111
$149 $280
Class C $37 $ 84
$142 $302
Class Y $18 $ 55
$ 94 $205
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A $69 $109
$152 $270
Class B $27 $ 81
$139 $280
Class C $27 $ 84
$142 $302
Class Y $18 $ 55
$ 94 $205
- ------------------------------------------------------------
- ------------------
</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 for the fiscal year October 31,
1995 has been audited
by KPMG Peat Marwick LLP, independent auditors, whose report
thereon appears in
the Fund's Annual Report dated October 31, 1995. The
following information for
the fiscal years ending October 31, 1987 through October 31,
1994 has been
audited by Coopers & Lybrand L.L.P. The information set out
below should be
read in conjunction with the financial statements and
related notes that also
appear in the Fund's Annual Report, which is incorporated by
reference into the
Statement of Additional Information. No information is
presented for Class Y
Shares since no Class Y Shares were outstanding for the
periods shown.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CLASS A SHARES 1995 1994 1993#
1992 1991
- ------------------------------------------------------------
- -------------------
<S> <C> <C> <C>
<C> <C>
Net Asset Value,
Beginning of Year $ 21.44 $ 18.89 $ 13.27
$ 13.93 $ 13.63
- ------------------------------------------------------------
- -------------------
Income (Loss) From
Operations:
Net investment
income/(loss)(1) (0.23) (0.06) (0.02)**
(0.10) 0.16
Net realized and
unrealized gains (loss) (4.71) 2.61 5.64
(0.47) 0.14
- ------------------------------------------------------------
- -------------------
Total Income From
Operations (4.94) 2.55 5.62
(0.57) 0.30
- ------------------------------------------------------------
- -------------------
Less Distributions From:
Net investment income -- -- --
(0.06) --
Capital -- -- --
(0.03) --
Net realized gains -- -- --
- -- --
- ------------------------------------------------------------
- -------------------
Total Distributions -- 0.00 0.00
(0.09) 0.00
- ------------------------------------------------------------
- -------------------
Net Asset Value, End of
Year $ 16.50 $ 21.44 $ 18.89
$ 13.27 $ 13.93
- ------------------------------------------------------------
- -------------------
Total return (23.04)% 13.50% 42.35%
(4.09)% 2.20%
- ------------------------------------------------------------
- ------------------
Net Assets, End of Year
(in $000's) $ 27,884 $41,370 $20,097
$14,138 $17,167
- ------------------------------------------------------------
- -------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.99% 1.81% 2.17%++***
2.85% 2.24%
Net investment
income/(loss) (1.46)% (0.34)% (0.14)%
(0.76)% 0.97%
- ------------------------------------------------------------
- -------------------
Portfolio turnover rate 40% 50% 108%
58% 63%
- ------------------------------------------------------------
- -------------------
Average Commissions paid
on equity security
transactions(2) $ 0.02 -- --
- -- --
- ------------------------------------------------------------
- -------------------
</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.
(1) Includes realized gains and losses from foreign
currency transactions.
(2) Due to new SEC disclosure guidelines, average
commissions per share are
calculated only for the current year and not for the
prior periods.
10
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
1990 1989
1988 1987*
<S> <C> <C> <C>
<C>
Net Asset Value, Beginning of Year $ 16.96 $ 16.43 $
18.58 $ 15.20
- ------------------------------------------------------------
- ------------------
Income (Loss) From Operations:
Net investment income/(loss)(1) 0.11 0.15
0.03 (0.09)**
Net realized and unrealized gains
(loss) (3.12) 0.38
(1.28) 3.47
- ------------------------------------------------------------
- ------------------
Total Income (Loss) From Operations (3.01) 0.53
(1.25) 3.38
Less Distributions From:
Net investment income (0.21) --
- -- --
Capital (0.11) --
- -- --
Net Realized 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%
- ------------------------------------------------------------
- ------------------
Net Assets, End of Year (in $000's) $22,350 $34,590
$49,029 $69,195
- ------------------------------------------------------------
- ------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Expenses 2.44% 2.35%
1.78% 1.76%+***
Net investment income/(loss) 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.
(1) Includes realized gains and losses from foreign currency
transactions.
11
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CLASS B SHARES 1995 1994
1993(1)
- ------------------------------------------------------------
- -----------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $ 21.14 $ 18.75
$ 13.35
- ------------------------------------------------------------
- -----------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(2) (0.22) (0.33)
(0.15)
Net realized and unrealized gain (loss) (4.77) 2.72
5.55
- ------------------------------------------------------------
- -----------
Total Income (Loss) From Operations (4.99) 2.39
5.40
- ------------------------------------------------------------
- -----------
LESS DISTRIBUTIONS FROM:
Net investment income -- --
- --
- ------------------------------------------------------------
- -----------
Total Distributions -- --
- --
- ------------------------------------------------------------
- -----------
NET ASSET VALUE, END OF YEAR $ 16.15 $ 21.14
$ 18.75
- ------------------------------------------------------------
- -----------
TOTAL RETURN (23.60)% 12.75%
40.45%++
- ------------------------------------------------------------
- -----------
NET ASSETS, END OF YEAR (000'S) $25,747 $37,704
$40,895
- ------------------------------------------------------------
- -----------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.62% 2.54%
2.98%+
Net investment loss (2.11) (1.06)
(0.96)+
- ------------------------------------------------------------
- -----------
PORTFOLIO TURNOVER RATE 40% 50%
108%
- ------------------------------------------------------------
- -----------
AVERAGE COMMISSIONS PAID ON
EQUITY SECURITY TRANSACTIONS(3) $0.02 --
- --
- ------------------------------------------------------------
- -----------
</TABLE>
(1) For the period from November 6, 1992 (inception date) to
October 31, 1993.
(2) Includes realized gains and losses from foreign currency
transactions.
(3) Due to new SEC disclosure guidelines, average
commissions per share are
calculated only for the current year and not for the
prior periods.
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
12
<PAGE>
SMITH BARNEY
Precious Metals and Minerals Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CLASS C SHARES 1995(1)
- ----------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF YEAR $20.63
- ----------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(2) (0.29)
Net realized and unrealized loss (4.18)
- ----------------------------------------------
Total Loss From Operations (4.47)
- ----------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
- ----------------------------------------------
Total Distributions --
- ----------------------------------------------
NET ASSETS VALUE, END OF YEAR $16.16
- ----------------------------------------------
TOTAL RETURN (21.67)%++
- ----------------------------------------------
NET ASSETS, END OF YEAR (000S) $572
- ----------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.69%+
Net investment loss (1.97)+
- ----------------------------------------------
PORTFOLIO TURNOVER RATE 40%
- ----------------------------------------------
AVERAGE COMMISSIONS PAID ON
EQUITY SECURITY TRANSACTIONS(3) $0.02
- ----------------------------------------------
</TABLE>
(1) For the period from November 7, 1994 (inception date) to
October 31, 1995.
(2) Includes realized gains and losses from foreign currency
transactions.
(3) Due to new SEC disclosure guidelines, average
commissions per share are
calculated only for the current year and not for the
prior periods.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
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 manager, 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 than 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. Short-
term instruments
in which the Fund may invest include: (a) obligations issued
or guaranteed as
to principal and interest by the United States government,
its agencies or
instrumentalities ("U.S. government securities") (including
repurchase 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 A-
2 by S&P or Prime-
2 by Moody's or the equivalent from another major rating
service or, if
unrated, of an issuer having an outstanding, unsecured debt
issue then rated
within the three highest rating categories.
U.S. Government Securities. U.S. government securities in
which the Fund may
invest include: direct obligations of the United States
Treasury, obligations
issued by U.S. government agencies and instrumentalities,
including 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 the value of the collateral and the creditworthiness
of those banks
and dealers with which the Fund enters into repurchase
agreements in order to
evaluate potential risks.
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
mean between the bid and ask price. Portfolio securities
that are primarily
traded on foreign exchanges are generally valued at the
preceding closing val-
ues of such securities on their respective exchanges, except
that when an
occurrence subsequent to the time a value was so established
is likely to have
changed the value, then the fair value of those securities
will be determined
by consideration of other factors by or under the direction
of the Board of
Directors or its delegates. Over-the-counter securities and
securities listed
or traded on certain foreign exchanges whose operations are
similar to the
United States over-the-counter market for which no sale was
reported on that
date are valued at the mean between the bid and ask price.
An option is gener-
ally valued at the last sale price or, in the absence of a
last sale price, the
last offer price. Investments in U.S. government securities
(other than short-
term securities) are valued at the average of the quoted bid
and asked prices
in the over-the-counter market. Short-term investments that
mature in 60 days
or less are valued at amortized cost whenever the Board of
Directors determines
that amortized cost reflects fair value of those
investments. Amortized cost
valuation involves valuing an instrument at its cost
initially and thereafter
assuming a constant amortization to maturity of any discount
or premium,
regardless of the effect of fluctuating interest rates on
the market value of
the instrument. Further information regarding the Fund's
valuation policies is
contained in the Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute its investment income
(that is, its income
other than its net realized capital gains) and net realized
capital gains, if
any, once a year, normally at the end of the year in which
earned or at the
beginning of the next year.
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, 1995 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 the Transfer
Agent. When pur-
chasing shares of the Fund, investors must specify whether
the purchase is
26
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PURCHASE OF SHARES (CONTINUED)
for Class A, Class B, Class C or Class Y shares. No
maintenance fee will be
charged by the Fund in connection with a brokerage account
through which an
investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open
an account by mak-
ing an initial investment of at least $1,000 for each
account, or $250 for an
IRA or a Self-Employed Retirement Plan in the 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. Share certificates are issued
only upon a share-
holder's written request to the Transfer Agent.
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 the Transfer
Agent is authorized
through preauthorized transfers of $50 or more to charge the
regular bank
account or other financial institution indicated by the
shareholder on a
monthly or quarterly basis to provide systematic additions
to the sharehold-
er's
27
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
PURCHASE OF SHARES (CONTINUED)
Fund account. A shareholder who has insufficient funds to
complete the trans-
fer will be charged a fee of up to $25 by Smith Barney or
the Transfer Agent.
The Systematic Investment Plan also authorizes Smith Barney
to apply cash held
in the shareholder's Smith Barney brokerage account or
redeem the sharehold-
er's shares of a Smith Barney money market fund to make
additions to the
account. Additional information is available from the Fund
or a Smith Barney
Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A
shares of the 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 sufficient information at the time of purchase to
permit verification
that the purchase would qualify for the elimination of the
sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any
person" (as defined
above) at a reduced sales charge or at net asset value
determined by 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 appropriate number of escrowed shares will be
redeemed. The term of the
Letter will commence upon the date the Letter is signed, or
at the option of
the investor, up to 90 days before such date. Please contact
a Smith Barney
Financial Consultant or the Transfer Agent 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
the Transfer Agent or a Smith Barney Financial Consultant
for further informa-
tion.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined
without an initial
sales charge so that the full amount of an investor's
purchase payment may be
immediately invested in the 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
the Transfer Agent
in the case of all other shareholders) of the shareholder's
status or holdings,
as the case may be.
SMITH BARNEY 401(K) 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 the Transfer
Agent. For further information regarding the Smith Barney
401(k) Program,
investors should contact a Smith Barney Financial
Consultant.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may
be exchanged at
the net asset value next determined for shares of the same
Class in the 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 on 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 First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and
number or dollar
amount of shares to be redeemed, (b) identify the
shareholder's account number
and (c) be signed by each registered owner exactly as the
shares are regis-
tered. If the shares to be redeemed were issued in
certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied
by an endorsed
stock power) and must be submitted to the Transfer Agent
together with the
redemption request. Any signature appearing on a written
redemption request in
excess of $2,000 must be guaranteed by an eligible guarantor
institution such
as a domestic bank, savings and loan institution, domestic
credit union, mem-
ber bank of the Federal Reserve System or member firm of a
national securi-
ties. Written redemption request of $2,000 or less do not
require a signature
guarantee unless more than one such redemption request is
made in any 10-day
period. Redemption proceeds will be mailed to an investor's
address of record.
The Transfer Agent
41
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
may require additional supporting documents for redemptions
made by corpora-
tions, executors, administrators, trustees or guardians. A
redemption request
will not be deemed properly received until the Transfer
Agent receives all required docu-
ments in proper form.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM FOR SHAREHOLDERS
WHO DO NOT HAVE A
SMITH BARNEY BROKERAGE ACCOUNT
Certain shareholders may be eligible to redeem and
exchange Fund shares by
telephone. To determine if a shareholder is entitled to
participate in this
program, he or she should contact the Transfer Agent at
(800) 451-2010.
Once eligibility is confirmed, the
shareholder must complete and return a Telephone/Wire
Authorization Form,
including a signature guarantee, that will be provided by
the Transfer Agent
upon request. (Alternatively, an investor may authorize
telephone redemptions
on the new account application with a signature guarantee
when making his/her
initial investment in the Fund.)
Redemptions. Redemption requests of up to $10,000 of any
class or classes of
the Fund's shares may be made by eligible shareholders by
calling the Trans-
fer Agent at (800) 451-2010. Such request may be made
between 9:00 a.m. and
4:00 p.m. (New York City time) on any day the NYSE is open.
Redemptions of shares (i) by retirement plans or (ii) for
which certificates have been issued are not permitted under
this program.
A shareholder will have the option of having the
redemption proceeds mailed
to his/her address of record or wired to a bank account
predesignated by the
shareholder. Generally, redemption proceeds will be mailed
or wired, as the
case may be, on the next business day following the
redemption request. In
order to use the wire procedures, the bank receiving the
proceeds must be a
member of the Federal Reserve System or have a correspondent
with a member
bank. The Fund reserves the right to charge shareholders a
nominal fee for
each wire redemption. Such charges, if any, will be assessed
against the
shareholder's account from which shares were redeemed. In
order to change the
bank account designated to receive redemption proceeds, a
shareholder must
complete a new Telephone/Wire Authorization Form and, for
the protection of
the shareholder's assets, will be required to provide a
signature guarantee
and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by
telephone if the
account registration of the fund being acquired is identical
to the registra-
tion of
42
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
the shares of the fund exchanged. Such exchange requests may
be made by calling
the Transfer Agent at (800) 451-2010 between 9:00 a.m. and
4:00 p.m. (New York
City time) on any day on which the NYSE is open.
Additional Information regarding Telephone Redemption and
Exchange Program.
Neither the Fund nor its agents will be liable for the
following instructions
communicated by telephone that are reasonably believed to be
genuine. The Fund
and its agents will employ procedures designed to verify the
identity of the
caller and legitimacy of instructions (for example, a
shareholder's name and
account number will be required and phone calls may be
recorded). The Fund
reserves the right to suspend, modify or discontinue the
telephone redemption
and exchange program or to impose a charge for this service
at any time follow-
ing at least seven (7) days prior notice to shareholders.
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.
43
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
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 of time assuming deduction of the maximum sales
charge, if any,
from the initial amount invested and reinvestment of all
income dividends and
capital gain distributions on the reinvestment dates at
prices calculated as
stated in this Prospectus, then dividing the value of the
investment at the
end of the period so calculated by the initial amount
invested and subtracting
100%. The standard average annual total return, as
prescribed by the SEC, is
derived from this total return which provides the ending
redeemable value.
Such standard total return information may also be
accompanied with nonstan-
dard total return information for differing periods computed
in the same man-
ner but without annualizing the total return or taking sales
charges into
account. The Fund may also include comparative performance
information in
advertising or marketing its shares. Such performance
information may include
data from Lipper Analytical Services, Inc. or similar
independent services
that monitor the performance of mutual funds or other
industry publications.
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 as of December 18, 1995. SBMFM (through predecessor
entities) has been
in the investment counseling business since 1968 and is a
regis-
44
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
MANAGEMENT OF THE FUND (CONTINUED)
tered investment adviser. SBMFM renders investment advice to
investment compa-
nies that had aggregate assets under management as of
November 30, 1995, in
excess of $71 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,
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.
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
45
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
MANAGEMENT OF THE FUND (CONTINUED)
cover expenses primarily intended to result in the sale of
those shares. These
expenses include: advertising expenses; the cost of printing
and mailing pro-
spectuses to potential investors; payments to and expenses
of Smith Barney
Financial Consultants and other persons who provide support
services in con-
nection with the distribution of shares; interest and/or
carrying 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.
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 classi-
fied 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 privilege of each Class; and (g) the conversion
feature of the
Class B shares. The Fund's Board of Directors does not
anticipate that there
will be any conflicts among the interests of the holders of
the different
Classes. The Directors, on an ongoing basis, will consider
whether any such
conflict exists and, if so, take appropriate action.
Morgan Guaranty, located at 60 Wall Street, New York, New
York, 10260, acts
as the Fund's custodian.
46
<PAGE>
SMITH BARNEY
Natural Resources Fund Inc.
ADDITIONAL INFORMATION (CONTINUED)
First Data Investor Services Group, Inc., 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 fund-wide
basis on all matters
except matters affecting only the interests of one or more
of the Classes.
The Fund sends its shareholders a semi-annual report and
an audited annual
report, which include listings of 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 the Transfer Agent.
47
<PAGE>
SMITH BARNEY
- ------------
A Member of
TravelersGroup (ART)
SMITH BARNEY
NATURAL
RESOURCES
FUND
INC.
388 Greenwich Street
New
York, New York 10013
FD 0224 01/96
SMITH BARNEY NATURAL RESOURCES FUND INC.
PART B
Smith Barney
Natural Resources Fund Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information
January 5, 1996
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 January 5, 1996 , 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....................................................
.............. 5
Purchase of
Shares......................................................
........................................................
13
Redemption of
Shares......................................................
................................................... 13
Distributor.................................................
............................................................
............. 14
Valuation of
Shares......................................................
.......................................................
15
Exchange
Privilege...................................................
..........................................................
16
Performance Data (See in the Prospectus
"Performance")..............................................
...... 17
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes")................................... 19
Additional
Information.................................................
...................................................... 22
Financial
Statements..................................................
.........................................................
22
Appendix....................................................
............................................................
............ 23
</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
First Data Investor Services Group, Inc. ("First Data")
............................................ 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 73) .
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 58). 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
41 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 36). 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 41 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 January 31, 1995,
Directors and officers of the Fund, as a group, owned less
than 1% of the outstanding common stock of the Fund.
No director, officer or employee of Smith Barney or any
parent or 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 calendar year ended December 31, 1995,
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 (18) $3,350 $ 81,850
Alfred J. Bianchetti (13) 3,350 37,000
Martin Brody (21) 3,250 93,300
Dwight B. Crane (24) 3,350 119,250
Burt N. Dorsett (13) 2,600 51,400
Elliot Jaffe (13) 2,350 50,900
Stephen Kaufman (15) 3,350 57,000
Joseph J. McCann (13) 3,350 37,400
Heath B. McLendon (41) ------- --------
Cornelius C. Rose, Jr. (13) 2,600 51,500
James J. Crisona (12)** 1,300 25,050
</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 December 18, 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 21, 1994
through December 19, 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 $505,253, 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 19, 1995 . 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 $134,734 , 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 auditors, 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
auditors, 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 short-
term 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 over-
the-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 receivables 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 40% , 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 over-
the-counter markets, but the prices of those securities
include undisclosed commissions or mark-ups. The cost of
securities purchased from underwriters includes an
underwriting commission or concession, and the prices at
which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down. For the 1993, 1994
and 1995 fiscal years, the Fund paid $452,311, $287,617 and
$246,842 , 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 Advisory 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. Over-
the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which
better prices and executions may be obtained elsewhere. For
the 1993, 1994 and 1995 fiscal years, the Fund paid $32,625,
$2,800 and $0, respectively, in brokerage commissions to
Smith Barney and/or Shearson Lehman Brothers.
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) tax-
exempt organizations enumerated in Sections 501(c)(3) or
(13) of the Code; and (f) a trustee or other professional
fiduciary (including a bank, or an investment adviser
registered with the SEC under the Investment Advisers Act of
1940, as amended), purchasing shares of the Fund for one or
more trust estates or fiduciary accounts. Purchasers who
wish to combine purchase orders to take advantage of volume
discounts should contact a Smith Barney Financial
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 $50
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 First Data 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 First Data may continue to do so.
Applications for participation in the Withdrawal Plan must
be received by First Data 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 $76,401, 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 $136,462,
respectively, in CDSC on the redemption of Class B and Class
C 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
$429,083, consisting of approximately $14,019 for
advertising, $2,351 for printing and mailing of
prospectuses, $315,157 for support services, $96,612 to
Smith Barney Financial Consultants, and $944 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 $90,913, $76,842 and
$663 in service fees for Class A, Class B and Class C
shares, respectively. 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 $230,525 for Class B shares,
respectively, in distribution fees. For the fiscal year
ended October 31, 1995, the Fund incurred $1,989 for Class C
shares in distribution fees.
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-the-
counter securities will be valued on the basis of the bid
price at the close of business on each day, or, if market
quotations for those securities are not readily available,
at fair value, as determined in good faith by the Fund's
Board of Directors. Short-term obligations with maturities
of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Fund's Board of
Directors. 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 of the Smith
Barney Mutual Funds may exchange all or part of their shares
for shares of the same class of other 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 First Data
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:
(26.89) % for the one-year period beginning on November 1,
1994 through October 31, 1995.
2.97 % per annum during the five-year period from November
1, 1990 through October 31, 1995.
1.12 % 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:
(27.42) % for the one-year period beginning on November 1,
1994 through October 31, 1995; and
5.70 % per annum for the period from commencement of
operations (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 (23.04)%, 4.04% and
1.70%, 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 (23.60)%
and 6.59%, 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:
(23.04) % for the one-year period beginning on November 1,
1994 through October 31, 1995.
21.88 % for the five-year period from November 1, 1990
through October 31, 1995.
16.31% 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:
(27.42) % for the one-year period beginning on November 1,
1994 through October 31, 1995.
17.97 % per annum from commencement of operations (November
6, 1992) through
October 31, 1995.
Class C's aggregate total return was as follows
for the period indicated:
(22.45) % for the period from commencement of operations
(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 (26.89) %, 15.76 % and 10.49 %, 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
(23.60) % and 20.97 %, 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
(21.67)%.
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% long-
term and 40% short-term capital gain or loss, regardless of
the period of time particular positions are actually held by
the Fund.
It is not entirely clear whether mark-to-market gain on
instruments held for less than three months at the close of
the Fund's taxable year 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 short-
term capital gain or loss if the shares have been held for
one year or less. However, if a shareholder receives a
distribution taxable as long-term capital gain with respect
to shares of the Fund, and redeems or exchanges the shares
before he or she has held them for more than six months, any
loss on the redemption or exchange that is less than or
equal to the amount of the distribution will be treated as a
long-term capital loss.
Backup Withholding. If a shareholder fails to furnish a
correct taxpayer identification number, fails to fully
report dividend or interest income or fails to certify that
he or she has provided a correct taxpayer 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 December
19, 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.
First Data Investor Services Group, Inc., located at
Exchange Place, Boston, Massachusetts 02109, serves as the
Fund's transfer agent. Under the transfer agency agreement,
First Data 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, First Data 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.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended
October 31, 1995 and Semi-Annual Report for the period ended
April 30, 1995 are incorporated herein by reference in their
entirety.
APPENDIX
Description of Standard & Poor's Corporation ("S&P") and
Moody's Investors Service, Inc. ("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
January 5, 1996
SMITH BARNEY NATURAL RESOURCES 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, 1995 and the Report
of Independent Accountants dated December 29, 1995 are
incorporated by reference to the Rule 30(b)2-1 filed on
January 5, 1996 as
Accession # 911555-96-000006.
Included in Part C:
Consent of Independent Accountants is filed
herein.
(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").
(h) Articles of Amendment dated December 18, 1995 to
the Articles of Incorporation
are filed herein.
(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) Form of Management Agreement between the Registrant
and Smith Barney
Mutual Funds Management Inc. is incorporated by
reference to Post-Effective
Amendment No. 19 to the Registration Statement filed on
December 18, 1995
("Post-Effective Amendment No. 19").
(6) 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 incorporated by
reference to
Post-Effective Amendment No. 17.
(9) Transfer Agency Agreement dated August 2, 1993 between
the Registrant
and The Shareholder Services Group, Inc. is
incorporated by reference to
Post-Effective Amendment No. 14.
(10) Not Applicable.
(11) Consent of Independent Accountants is filed herein.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Amended Service and Distribution Plan pursuant to Rule
12b-1 between
the Registrant and Smith Barney Inc. is incorporated by
reference to
Post-Effective Amendment No. 15.
(16) Performance Data is incorporated by reference to Post-
Effective
Amendment No. 4.
(17) Not applicable.
(18) Form of Rule 18f-3(d) Multiple Class Plan of the
Registrant is filed herein.
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 1,
1995
Common Stock Class A- 6833
par value $.001 per Class B- 4025
share Class C- 62
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 Mutual Funds Management
Inc.
Smith Barney Mutual Funds Management Inc.
("SBMFM") was incorporated in December 1968
under the laws of the State of Delaware.
SBMFM 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 known as Primerica
Corporation) ("Travelers"). SBMFM is
registered as an investment adviser under the
Investment Advisers Act of 1940 (the
"Advisers Act") and has, through its
predecessors, been in the investment
counseling business since 1934.
The list required by this Item 28 of the
officer and directors of SBMFM together with
information as to any other business,
profession, vocation or employment of a
substantial nature engaged in by such officer
and directors during the past two fiscal
years, is incorporated by reference to
Schedules A and D of Form ADV filed by SBMFM
pursuant to the Advisers Act (SEC File No.
801-8314).
01/02/96
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as
distributor for Smith
Barney Managed Municipals Fund Inc., Smith Barney
California Municipals Fund Inc., Smith Barney
Massachusetts Municipals 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 Natural Resources 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 Investment
Trust, Smith Barney Adjustable Rate Government Income 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 Municipal Money Market 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
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 Shearson 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).
01/02/96
Item 30. Location of Accounts and Records
(1) Smith Barney Natural Resources 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) Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
(4) First Data Investor 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
Natural Resources 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 2nd day of January, 1996.
Smith Barney
Natural
Resources 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 1/2/96
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President and
Treasurer
Lewis E. Daidone (Chief Financial and Accounting
Officer) 1/2/96
/s/ Alfred Bianchetti
Alfred Bianchetti Director
1/2/96
/s/ Martin Brody
Martin Brody Director
1/2/96
/s/ Dwight B. Crane
Dwight B. Crane Director
1/2/96
/s/Burt N. Dorsett
Burt N. Dorsett Director
1/2/96
/s/Elliot S. Jaffe
Elliot S. Jaffe Director
1/2/96
/s/ Stephen E. Kaufman
Stephen E. Kaufman Director
1/2/96
/s/ Joseph J. McCann
Joseph J. McCann Director
1/2/96
/s/Cornelius C. Rose, Jr.
Cornelius C. Rose, Jr. Director
1/2/96
SMITH BARNEY PRECIOUS METALS AND MINERALS FUND INC.
ARTICLES OF AMENDMENT
Smith Barney Precious Metals and Minerals Fund Inc., a
Maryland corporation having its principal offices in
Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the
Corporation, as amended, are further amended by changing the
Article containing the name of the Corporation to read:
NAME
The name of the Corporation (hereinafter called
the "Corporation") is Smith
Barney Natural Resources Fund Inc.
SECOND: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940.
THIRD: The foregoing amendment to the Charter of
Incorporation of the Corporation was approved by a majority
of the entire Board of Directors of the Corporation and the
amendment of the Charter of Incorporation is limited to a
change expressly permitted by Section 2-605 of Title 2 of
Subtitle 6 of the Maryland General Corporation Law to be
made without action by the stockholders.
IN WITNESS WHEREOF, the Corporation has caused this
instrument to be signed in its name and on its behalf by its
Chairman, Heath B. McLendon, and witnessed by its Assistant
Secretary, Caren Cunningham, as of the 18th day of December,
1995.
The undersigned acknowledges these Articles of
Amendment to be the corporate act of the Corporation and
states that, to the best of his or her knowledge,
information and belief, the matters and facts set forth
therein with respect to the authorization and approval
thereof are true in all material respects and that this
statement is made under all penalties of perjury.
WITNESS: Smith Barney Precious Metals
and
Minerals Fund Inc.
/s/Caren Cunningham By:/s/Heath B. McLendon
Caren Cunningham Heath B. McLendon
Assistant Secretary Chairman of the
Board
Independent Auditors' Consent
To the Shareholders and Directors of the
Smith Barney Natural Resources Fund (formerly, the Smith Barney
Precious Metals and Minerals Fund Inc.):
We consent to the use of our report dated December 28, 1995
incorporated herein by reference and to the references to our
Firm under the headings "Financial Highlights" in the
Prospectus and "Counsel and Auditors" in the Statement of
Additional Information.
KPMG Peat Marwick LLP
New York, New York
January 5, 1996
EXHIBIT 18
Rule 18f-3 (d) Multiple Class Plan
for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d)
of
the Investment Company Act of 1940, as amended (the "1940
Act").
The purpose of the Plan is to restate the existing
arrangements
previously approved by the Boards of Directors and Trustees
of
certain of the open-end investment companies set forth on
Schedule A (the "Funds" and each a "Fund") distributed by
Smith
Barney Inc. ("Smith Barney") under the Funds' existing order
of
exemption (Investment Company Act Release Nos. 20042
(January 28,
1994) (notice) and 20090 (February 23, 1994)). Shares of
the
Funds are distributed pursuant to a system (the "Multiple
Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent
outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load
structure.
In addition, pursuant to Rule 12b-1 under the 1940 Act (the
"Rule"), the Funds have each adopted a plan (the "Services
and
Distribution Plan") under which shares of the Classes are
subject
to the services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and
under
the Services and Distribution Plan are subject to a service
fee
of up to 0.25% of average daily net assets. In addition,
the
Funds are permitted to asses a contingent deferred sales
charge
("CDSC") on certain redemptions of Class A shares sold
pursuant
to a complete waiver of front-end sales loads applicable to
large
purchases, if the shares are redeemed within one year of the
date
of purchase. This waiver applies to sales of Class A shares
where the amount of purchase is equal to or exceeds $500,000
although this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load,
but
are subject to a five-year declining CDSC and under the
Services
and Distribution Plan are subject to a service fee at an
annual
rate of up to 0.25% of average daily net assets and a
distribution fee at an annual rate of up to 0.75% of average
daily net assets.
3. Class C Shares
Class C shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual
rate
of up to 0.25% of average daily net assets and a
distribution fee
at an annual rate of up to 0.75% of average daily net
assets.
Unlike Class B shares, Class C shares do not have the
conversion
feature as discussed below and accordingly, these shares are
subject to a distribution fee for an indefinite period of
time.
The Funds reserve the right to impose these fees at such
higher
rates as may be determined.
4. Class Y Shares
Class Y shares are offered without impositions of either a
sales
charge or a service or distribution fee for investments
where the
amount of purchase is equal to or exceeds $5 million.
5. Class Z Shares
Class Z shares are offered without imposition of either a
sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Smith Barney and
its
affiliates, (ii) by certain unit investment trusts sponsored
by
Smith Barney and its affiliates, and (iii) although not
currently
authorized by the governing boards of the Funds, when and if
authorized, (x) by employees of Smith Barney and its
affiliates
and (y) by directors, general partners or trustees of any
investment company for which Smith Barney serves as a
distributor
and, for each of (x) and (y), their spouses and minor
children.
6. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of
the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a
Fund
are allocated among the various Classes of shares based on
the
net assets of the Fund attributable to each Class, except
that
each Class's net assets value and expenses reflect the
expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with
obtaining
shareholder approval of the Services and Distribution Plan
(or an
amendment thereto) and any expenses specific to that Class.
Such
expenses are limited to the following:
(I) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to
preparing and
distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class
of
shares;
(iv) Securities and Exchange Commission registration
fees
incurred by a Class of shares;
(v) the expense of administrative personnel and
services as
required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating
solely to
one Class of shares; and
(vii) fees of members of the governing boards of the
funds
incurred as a result of issues relating to one Class of
shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are
borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert
to
Class A shares after a certain holding period, expected to
be, in
most cases, approximately eight years but may be shorter.
Upon
the expiration of the holding period, Class B shares (except
those purchases through the reinvestment of dividends and
other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will,
as a
result, thereafter be subject to the lower fee under the
Services
and Distribution Plan. For purposes of calculating the
holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple
Class
System are deemed to have been issued on (i) the date on
which
the issuance of the Class B shares occurred or (ii) for
Class B
shares obtained through an exchange, or a series of
exchanges,
the date on which the issuance of the original Class B
shares
occurred.
Shares purchased through the reinvestment of dividends and
other
distributions paid in respect of Class B shares are also
Class B
shares. However, for purposes of conversion to Class A, all
Class B shares in a shareholder's Fund account that were
purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares (and that
have
not converted to Class A shares as provided in the following
sentence) are considered to be held in a separate sub-
account.
Each time any Class B shares in the shareholder's Fund
account
(other than those in the sub-account referred to in the
preceding
sentence) convert to Class A, a pro rata portion of the
Class B
shares then in the sub-account also converts to Class A.
The
portion is determined by the ratio that the shareholder's
Class B
shares converting to Class A bears to the shareholder's
total
Class B shares not acquired through dividends and
distributions.
The conversion of Class B shares to Class A shares is
subject to
the continuing availability of a ruling of the Internal
Revenue
Service that payment of different dividends on Class A and
Class
B shares does not result in the Fund's dividends or
distributions
constituting "preferential dividends" under the Internal
Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event
under
the Code. The conversion of Class B shares to Class A
shares may
be suspended if this opinion is no longer available, In the
event that conversion of Class B shares of not occur, Class
B
shares would continue to be subject to the distribution fee
and
any incrementally higher transfer agency costs attending the
Class B shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net
asset
value for shares of the same Class in certain other of the
Smith
Barney Mutual Funds as set forth in the prospectus for such
Fund.
Class A shareholders who wish to exchange all or part of
their
shares for Class A shares of a Fund sold subject to a sales
charge equal to or lower that that assessed with respect to
the
shares of the Fund being exchanged may do so without paying
a
sales charge. Class A shareholders of a Fund who wish to
exchange all or part of their shares for Class A shares of a
Fund
sold subject to a sales charge higher than that assessed
with
respect to the shares of the Fund being exchanged are
charged the
appropriate "sales charge differential." Funds only permit
exchanges into shares of money market funds having a plan
under
the Rule if, as permitted by paragraph (b) (5) of Rule 11a-3
under the 1940 Act, either (i) the time period during which
the
shares of the money market funds are held is included in the
calculations of the CDSC or (ii) the time period is not
included
but the amount of the CDSC is reduced by the amount of any
payments made under a plan adopted pursuant to the Rule by
the
money market funds with respects to those shares.
Currently, the
Funds include the time period during which shares of the
money
market fund are held in the CDSC period. The exchange
privileges
applicable to all Classes of shares must comply with Rule
11a-3
under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of August 25, 1995)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Equity Funds -
Smith Barney Strategic Investors Fund
Smith Barney Growth and Income Fund
Smith Barney Florida Municipals Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Income and Growth Portfolio
Utilities Portfolio
Income Return Account Portfolio
Monthly Payment Government Portfolio
Short-Term U.S. Treasury Securities Portfolio
U.S. Government Securities Portfolio
Smith Barney Income Funds -
Smith Barney Premium Total Return Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney High Income Fund
Smith Barney Tax-Exempt Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney Utilities Fund
Smith Barney Income Trust -
Smith Barney Limited Maturity Municipals Fund
Smith Barney Limited Maturity Treasury Fund
Smith Barney Intermediate Maturity
California Municipals Fund
Smith Barney Intermediate Maturity
New York Municipals Fund
Smith Barney Investment Funds Inc. -
Smith Barney Special Equities Fund
Smith Barney Government Securities Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Institutional Cash Management Fund Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Portfolio
California Limited Portfolio
California Money Market Portfolio
Florida Portfolio
Florida Limited Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New Jersey Portfolio
New York Portfolio
New York Money Market Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Growth Fund
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
u:\legal\data\18f3plan.txt 08/25/95 1:55 PM
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK>
<NAME> SMITH BARNEY PRECIOUS METALS AND MINERALS FUND INC.
<SERIES>
<NUMBER>
<NAME> CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> ANNUAL
<FISCAL-YEAR-END> OCTOBER 31, 1995
<PERIOD-START> NOVEMBER 01, 1994
<PERIOD-END> OCTOBER 31, 1995
<INVESTMENTS-AT COST> 53,856,824
<INVESTMENTS-AT VALUE> 54,663,959
<RECEIVABLES> 5,371,692
<ASSETS-OTHER> 481,373
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,517,024
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,313,587
<TOTAL-LIABILITIES> 6,313,587
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79,447,689
<SHARES-COMMON-STOCK> 1,689,793
<SHARES-COMMON-PRIOR> 1,929,617
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (820,799)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (24,906,318)
<ACCUM-APPREC-OR-DEPREC> 482,865
<NET-ASSETS> 54,203,437
<DIVIDEND-INCOME> 800,167
<INTEREST-INCOME> 279,352
<OTHER-INCOME> 0
<EXPENSES-NET> (1,535,456)
<NET-INVESTMENT-INCOME> (455,937)
<REALIZED-GAINS-CURRENT> 3,103,162
<APPREC-INCREASE-CURRENT> (18,931,243)
<NET-CHANGE-FROM-OPS> (16,284,018)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,611,514
<NUMBER-OF-SHARES-REDEEMED> (20,851,338)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (24,870,826)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (505,253)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1,535,456)
<AVERAGE-NET-ASSETS> 36,365,099
<PER-SHARE-NAV-BEGIN> 21.44
<PER-SHARE-NII> (0.23)
<PER-SHARE-GAIN-APPREC> (4.71)
<PER-SHARE-DIVIDEND> 0
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<PER-SHARE-NAV-END> 16.50
<EXPENSE-RATIO> 1.99
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<AVG-DEBT-PER-SHARE> 0
<ARTICLE> 6
<CIK>
<NAME> SMITH BARNEY PRECIOUS METALS AND MINERALS FUND INC.
<SERIES>
[NUMBER]
<NAME> CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> ANNUAL
<FISCAL-YEAR-END> OCTOBER 31, 1995
<PERIOD-START> NOVEMBER 01, 1994
<PERIOD-END> OCTOBER 31, 1995
<INVESTMENTS-AT COST> 53,856,824
<INVESTMENTS-AT VALUE> 54,663,959
[RECEIVABLES] 5,371,692
[ASSETS-OTHER] 481,373
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 60,517,024
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 6,313,587
[TOTAL-LIABILITIES] 6,313,587
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 79,447,689
[SHARES-COMMON-STOCK] 1,593,919
[SHARES-COMMON-PRIOR] 1,783,566
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (820,799)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (24,906,318)
[ACCUM-APPREC-OR-DEPREC] 482,865
[NET-ASSETS] 54,203,437
[DIVIDEND-INCOME] 800,167
[INTEREST-INCOME] 279,352
[OTHER-INCOME] 0
[EXPENSES-NET] (1,535,456)
[NET-INVESTMENT-INCOME] (455,937)
[REALIZED-GAINS-CURRENT] 3,103,162
[APPREC-INCREASE-CURRENT] (18,931,243)
[NET-CHANGE-FROM-OPS] (16,284,018)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 5,952,309
[NUMBER-OF-SHARES-REDEEMED] (6,141,956)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (24,870,826)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] (505,253)
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] (1,535,456)
[AVERAGE-NET-ASSETS] 30,736,721
[PER-SHARE-NAV-BEGIN] 21.14
[PER-SHARE-NII] (0.22)
[PER-SHARE-GAIN-APPREC] (4.77)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 16.15
[EXPENSE-RATIO] 2.62
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK>
<NAME> SMITH BARNEY PRECIOUS METALS AND MINERALS FUND INC.
<SERIES>
[NUMBER]
<NAME> CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> ANNUAL
<FISCAL-YEAR-END> OCTOBER 31, 1995
<PERIOD-START> NOVEMBER 01, 1994
<PERIOD-END> OCTOBER 31, 1995
<INVESTMENTS-AT COST> 53,856,824
<INVESTMENTS-AT VALUE> 54,663,959
[RECEIVABLES] 5,371,692
[ASSETS-OTHER] 481,373
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 60,517,024
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 6,313,587
[TOTAL-LIABILITIES] 6,313,587
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 79,447,689
[SHARES-COMMON-STOCK] 35,361
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (820,799)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (24,906,318)
[ACCUM-APPREC-OR-DEPREC] 482,865
[NET-ASSETS] 54,203,437
[DIVIDEND-INCOME] 800,167
[INTEREST-INCOME] 279,352
[OTHER-INCOME] 0
[EXPENSES-NET] (1,535,456)
[NET-INVESTMENT-INCOME] (455,937)
[REALIZED-GAINS-CURRENT] 3,103,162
[APPREC-INCREASE-CURRENT] (18,931,243)
[NET-CHANGE-FROM-OPS] (16,284,018)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 179,087
[NUMBER-OF-SHARES-REDEEMED] (143,726)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (24,870,826)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] (505,253)
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] (1,535,456)
[AVERAGE-NET-ASSETS] 265,195
[PER-SHARE-NAV-BEGIN] 20.63
[PER-SHARE-NII] (0.29)
[PER-SHARE-GAIN-APPREC] (4.18)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 16.16
[EXPENSE-RATIO] 2.69
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
