Registration No. 33-7339
811-4757
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
X
Pre-Effective Amendment No.
Post-Effective Amendment No.
21
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
X
Amendment No. 22
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 February 20, 1997 pursuant to Rule 485(b)
____ 60 days after filing pursuant to Rule 485(a)
___ on __________1997 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, 1996 was filed on December
27, 1996 as Accession Number 0000091155-96-000569.
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 Distributor; Additional
and Distributor Information
13. Investment Objectives Investment Objective and
and Policies Management Policies
14. Management of the Management of the Fund;
Fund Distributor
15. Control Persons and Management of the Fund
Principal Holders of
Securities
16. Investment Advisory Management of the Fund;
and 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 Purchase of Shares;
and Pricing of Securities Redemption of Shares;
Being 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>
SMITH BARNEY
Natural
Resources
Fund
Inc.
FEBRUARY 20, 1997
PROSPECTUS BEGINS ON PAGE ONE
P R O S P E C T U S
[LOGO OF SMITH BARNEY MUTUAL FUNDS APPEARS HERE]
<PAGE>
PROSPECTUS FEBRUARY 20, 1997
Smith Barney
Natural Resources Fund Inc.
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 commodi-
ties 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 par-
ticipate in energy-efficient technologies; and (7) are involved in the upgrad-
ing 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 February 20, 1997, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by con-
tacting a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
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 25
- -------------------------------------------------
PURCHASE OF SHARES 26
- -------------------------------------------------
EXCHANGE PRIVILEGE 36
- -------------------------------------------------
REDEMPTION OF SHARES 39
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 42
- -------------------------------------------------
PERFORMANCE 42
- -------------------------------------------------
MANAGEMENT OF THE FUND 43
- -------------------------------------------------
ADDITIONAL INFORMATION 44
- -------------------------------------------------
</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>
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 investment
company that seeks long-term capital appreciation by investing primarily in
Natural Resource Investments. Although the Fund invests primarily in Natural
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 redemp-
tions. Class B shares are subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the average daily net assets of the Class.
The Class B shares' distribution fee may cause that Class to have higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and dis-
tributions ("Class B
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 serv-
ice or distribution fees.
In deciding which Class of Fund shares to purchase, investors should con-
sider the following factors, as well as any other relevant facts and circum-
stances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended duration 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.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature, and therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
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
purchases, which when combined with current holdings of Class A shares offered
with a sales charge equal or exceed $500,000 in the aggregate, will be made at
net asset value
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
with no initial sales charge, but will be subject to a CDSC of 1.00% on redemp-
tions made within 12 months of purchase. The $500,000 aggregate investment may
be met by adding the purchase to the net asset value of all Class A shares
offered with a sales charge held in funds sponsored by Smith Barney Inc.
("Smith Barney") listed under "Exchange Privilege." Class A share purchases may
also be eligible for a reduced initial sales charge. See "Purchase of Shares."
Because the ongoing expenses of Class A shares may be lower than those for
Class B and Class C shares, purchasers eligible to purchase Class A shares at
net asset value or at a reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the pur-
pose 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) AND EXECCHOICE(TM) PROGRAMS Investors may be eligible to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without sales
charge as investment alternatives under both of these programs. See "Purchase
of Shares--Smith Barney 401(k) and ExecChoice(TM) Programs."
PURCHASE OF SHARES Shares may be purchased through a brokerage account main-
tained by Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
institutional investors, may purchase shares directly from the Fund 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
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Section 401(a) of the Code, the minimum initial investment requirement for
Class A, Class B and Class C shares and the subsequent investment requirement
for all Classes of shares is $25. The minimum investment requirements for pur-
chases of Fund shares through the Systematic Investment Plan are described
below. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Invest-
ment Plan under which they may authorize the automatic placement of a purchase
order each month or quarter for Fund shares. The minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes for shareholders purchasing shares through
the Systematic Investment Plan on a monthly basis is $25 and on a quarterly
basis is $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney 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 Trav-
elers Group Inc. ("Travelers"), a diversified financial services holding com-
pany engaged, through its subsidiaries, principally in four business segments:
Investment Services, Consumer Finance Services, Life Insurance Services 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. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are declared and paid annually.
Dividends from net investment income are generally paid on the last Friday of
each calendar month to shareholders of record as of three business days prior
thereto. Distributions of net realized capital gains, if any, are paid annual-
ly. 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 dis-
tribution reinvestments
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 sub-
ject to greater risk and market fluctuation than a fund that invests in secu-
rities representing 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
quality. Generally, these securities offer a higher current yield than the
yield offered by higher-rated securities but involve greater volatility of
prices and risk of loss of income and principal, including the probability of
default by or bankruptcy of the issuers of such securities. Therefore, an
investment in the Fund should not be considered as a complete investment pro-
gram and may not be appropriate for all investors. See "Investment Objective
and Management Policies."
7
<PAGE>
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 the Fund's 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*** 0.62 0.54 0.50 0.62
- ------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.62% 2.29% 2.25% 1.37%
- ------------------------------------------------------------------------------
</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, 1996.
Class A shares of the Fund purchased through the Smith Barney AssetOne Pro-
gram will be subject to an annual asset-based fee, payable quarterly, in lieu
of the initial sales charge. The fee will vary to a maximum of 1.50%, depending
on the amount of assets held through the Program. For more information, please
contact a Smith Barney Financial Consultant.
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)
and ExecChoice(TM) Programs. 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
8
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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
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 $66 $99 $134 $233
Class B 73 102 133 246
Class C 33 70 120 258
Class Y 14 43 75 165
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A $66 $99 $134 $233
Class B 23 72 123 246
Class C 23 70 120 258
Class Y 14 43 75 165
- ------------------------------------------------------------------------------
</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>
FINANCIAL HIGHLIGHTS
The following information for the two year period ended October 31, 1996 has
been audited by KPMG Peat Marwick LLP, independent auditors, whose report
thereon appears in the Fund's Annual Report dated October 31, 1996. The follow-
ing information for the fiscal years ending October 31, 1987 through October
31, 1994 has been audited by other auditors. 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 refer-
ence 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 SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED OCTOBER 31,
--------------------------------------------
CLASS A SHARES 1996(1) 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $16.50 $21.44 $18.89 $13.27 $13.93
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss) 0.08 (0.23)* (0.06) (0.02) (0.10)
Net realized and unrealized
gains (loss) 6.37 (4.71) 2.61 5.64 (0.47)
- -------------------------------------------------------------------------------
Total Income From Operations 6.45 (4.94) 2.55 5.62 (0.57)
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- -- -- -- (0.06)
Capital -- -- -- -- (0.03)
Net realized gains -- -- -- -- --
- -------------------------------------------------------------------------------
Total Distributions -- -- -- -- (0.09)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $22.95 $16.50 $21.44 $18.89 $13.27
- -------------------------------------------------------------------------------
TOTAL RETURN 39.09% (23.04)% 13.50% 42.35% (4.09)%
- -------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $50,521 $27,884 $41,370 $20,097 $14,138
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3) 1.62% 1.99% 1.81% 2.17% 2.85%
Net investment income (loss) 0.15 (1.46) (0.34) (0.14) (0.76)
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 120% 40% 50% 108% 58%
- -------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY TRANSACTIONS(2) $0.02 $0.02 -- -- --
- -------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for the period
since the use of the undistributed net investment income method does not
accord with results of operations.
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(3) 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
* Includes realized gains and losses from foreign currency transactions.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED OCTOBER 31,
---------------------------------------------
1991 1990 1989 1988 1987(1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $13.63 $16.96 $16.43 $18.58 $15.20
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income
(loss)(2) 0.16 0.11 0.15 0.03 (0.09)**
Net realized and unrealized
gains (loss) 0.14 (3.12) 0.38 (1.28) 3.47
- -------------------------------------------------------------------------------
Total Income (Loss) From
Operations 0.30 (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 $13.93 $13.63 $16.96 $16.43 $18.58
- -------------------------------------------------------------------------------
TOTAL RETURN 2.20% (18.18)% 3.23% (7.56)% 22.24%++
- -------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $17,167 $22,350 $34,590 $49,029 $69,195
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(3) 2.24% 2.44% 2.35% 1.78% 1.76%+
Net investment income (loss) 0.97 0.69 0.88 0.27 (0.60)+
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 63% 61% 25% 30% 22%
- -------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY
TRANSACTIONS(4) -- -- -- -- --
- -------------------------------------------------------------------------------
</TABLE>
(1) 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.
(2) 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.
(3) 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.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
+ Annualized.
++Total return is not annualized, as it may not be representative of the
total return for the year.
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED OCTOBER 31,
---------------------------------------------
CLASS B SHARES 1996(1) 1995 1994 1993(2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $16.15 $ 21.14 $ 18.75 $ 13.35
- ------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.09) (0.22)* (0.33) (0.15)
Net realized and unrealized
gain (loss) 6.26 (4.77) 2.72 5.55
- ------------------------------------------------------------------------------
Total Income (Loss) From
Operations 6.17 (4.99) 2.39 5.40
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- -- -- --
- ------------------------------------------------------------------------------
Total Distributions -- -- -- --
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $22.32 $ 16.15 $ 21.14 $ 18.75
- ------------------------------------------------------------------------------
TOTAL RETURN 38.20% (23.60)% 12.75% 40.45%++
- ------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $73,969 $ 25,747 $ 37,704 $ 40,895
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.29% 2.62% 2.54% 2.98%+
Net investment loss (0.83) (2.11) (1.06) (0.96)+
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 120% 40% 50% 108%
- ------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY
TRANSACTIONS(3) $0.02 $0.02 -- --
- ------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the
period since the use of the undistributed net investment income method
does not accord with results of operations.
(2) For the period from November 6, 1992 (inception date) to October 31, 1993.
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
12
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEARS ENDED
OCTOBER 31,
----------------
CLASS C SHARES 1996(1) 1995(2)
- ------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $16.16 $20.63
- ------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss) (0.05) (0.29)*
Net realized and unrealized gain (loss) 6.21 (4.18)
- ------------------------------------------------------------
Total Income (Loss) From Operations 6.16 (4.47)
- ------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- --
- ------------------------------------------------------------
Total Distributions -- --
- ------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $22.32 $16.16
- ------------------------------------------------------------
TOTAL RETURN 38.12% (21.67)%++
- ------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $7,602 $572
- ------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.25% 2.69%+
Net investment loss (0.21) (1.97)+
- ------------------------------------------------------------
PORTFOLIO TURNOVER RATE 120% 40%
- ------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS(3) $0.02 $0.02
- ------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the
period since the use of the undistributed net investment income method
does not accord with results of operations.
(2) For the period from November 7, 1994 (inception date) to October 31, 1995.
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
13
<PAGE>
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 cur-
rent 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 outstanding shares. Because the securities in which the Fund invests
may involve risks not associated with more traditional investments, an invest-
ment 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, corporate debt secu-
rities, 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
securities owned by the Fund and up to an additional 10% of its assets to pur-
chase 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 determi-
nation 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 Ratings Group ("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.
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
14
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Fund's investment manager, which may be based on, among other things, consid-
eration 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
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, and the fact that foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards or
to other regulatory practices and requirements comparable to those applicable
to domestic companies. Economic, political and social conditions prevailing in
these countries may have a significant effect on the success of the Fund.
Moreover, securities of many foreign companies may be less liquid and their
prices more volatile that those of securities of comparable domestic
companies. In addition, the possibility exists in certain foreign countries of
expropriation, nationalization, confiscatory taxation and limitations on the
use or removal of funds or other assets of the Fund, including the withholding
of dividends. Investment in foreign securities also may result in higher
expenses due to the cost of converting foreign currency to U.S. dollars,
expenses relating to foreign custody, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions
on domestic exchanges, and the imposition of transfer taxes or transaction
charges associated with foreign exchanges.
Because the Fund may invest in securities denominated or quoted in curren-
cies other than the U.S. dollar, changes in foreign currency exchange rates
will affect the value of securities in the Fund and the unrealized apprecia-
tion or depreciation of investments. To protect against uncertainty concerning
changes in exchange rates, the Fund may enter into forward currency exchange
transactions. Foreign securities may be subject to foreign government taxes
that could reduce the yield on such securities.
Lower-Rated Securities. The Fund may invest in medium- or low-rated
securities and unrated securities of comparable quality. Generally, these
securities offer a higher current yield than the yield offered by higher-rated
securities but
15
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
involve greater volatility of price and risk of loss of income and principal,
including the probability of default by or bankruptcy of the issuers of such
securities. Medium- and low-rated and comparable unrated securities (a) will
likely have some quality and protective characteristics that, in the judgment
of the rating organization, are outweighed by large uncertainties or major
risk exposures to adverse conditions and (b) are predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. Accordingly, it is possible that
these types of factors could, in certain instances, reduce the value of secu-
rities held by the Fund, with a commensurate effect on the value of the Fund's
shares. Therefore, an investment in the Fund should not be considered as a
complete investment program and may not be appropriate for all investors.
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 higher-rated securities
are traded. The existence of limited markets for these securities may restrict
the availability of securities for the Fund to purchase and also may have the
effect of limiting the ability of the Fund to (a) obtain accurate market quo-
tations for purposes of valuing securities and calculating net asset value and
(b) sell securities at their fair value either to meet redemption requests or
to respond to changes in the economy or the financial markets. The market for
some medium- and lower-rated and comparable unrated securities is relatively
new and has not fully weathered a major economic recession. Any such economic
downturn could adversely affect the ability of the issuers of such securities
to repay principal and pay interest thereon.
Fixed-income securities, including medium- and lower-rated and comparable
unrated securities, frequently have call or buy-back features that permit
their issuers
16
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
to call or repurchase the securities from their holders, such as the Fund. If
an issuer exercises these rights during periods of declining interest rates,
the Fund may have to replace the security with a lower yielding security,
resulting in a decreased return to the Fund.
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. Secu-
rities 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 consideration,
which may include, as applicable, the issuer's financial resources, its sensi-
tivity to economic conditions and trends, the operating history of and the com-
munity 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 certif-
icates of deposit, time deposits and bankers' acceptances of domestic or for-
eign banks, domestic savings and loan associations and similar institutions);
(c) floating rate securities and other instruments denominated in U.S. dollars
issued by international development agencies, banks and other financial insti-
tutions, governments and their agencies or instrumentalities and corporations
located in countries that are members of the Organization for Foreign Coopera-
tion and Development; and (d) commercial paper rated no lower than A-2 by S&P
or Prime-2 by Moody's or the equivalent from another major rating service or,
if unrated, of an issuer having an outstanding, unsecured debt issue then rated
within the three highest rating categories.
U.S. Government Securities. U.S. government securities in which the Fund may
invest include: direct obligations of the United States Treasury, obligations
issued by U.S. government agencies and instrumentalities, including instruments
that are supported by the full faith and credit of the United States; instru-
ments 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.
17
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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.
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
instruments acceptable for purchase by the Fund and with certain dealers on
the Federal Reserve Bank of New York's list of reporting dealers. Under the
terms of a typical repurchase agreement, the Fund would acquire an underlying
debt obligation for a relatively short period (usually not more than one
week), subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed-upon price and time, thereby determining
the yield during the Fund's holding period. This arrangement results in a
fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The value of the underlying securities will be moni-
tored 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 dur-
ing 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
18
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
of the collateral and the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements in order to evaluate poten-
tial risks.
Lending of Portfolio Securities. The Fund has the ability to lend securities
from its portfolio to unaffiliated brokers, dealers and other financial orga-
nizations. Such loans, if and when made, may not exceed 20% of the Fund's
total assets, taken at value. Loans of portfolio securities by the Fund will
be collateralized by cash, letters of credit or U.S. government securities
which are maintained at all times in an amount equal to at least 100% of the
current market value (determined by marking to market daily) of the loaned
securities. The risks in lending portfolio securities, as with other exten-
sions 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.
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."
Writing Options. The Fund may from time to time write covered put and call
options on securities in its portfolio. The Fund will realize a fee (referred
to as a "premium") when it writes an option. The Fund will only write covered
put and call options, which means that for so long as the Fund remains obli-
gated as the writer of the option it will, in the case of a call option, con-
tinue to own the underlying security and, in the case of a put option, main-
tain an amount of cash or permissible securities in a segregated account equal
to the exercise price of the option. A put option embodies the right of its
purchaser to compel the writer of the option to purchase from the option
holder an underlying security at a specified price at any time during the
option period. In contrast, a call option embodies the right of its purchaser
to compel the writer of the option to sell the option holder an
19
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
underlying security at a specified price at any time during the option period.
Thus, the purchaser of a put option has the right to compel the Fund to pur-
chase from it the underlying security at the agreed-upon price for a specified
time period, while the purchaser of a call option has the right to purchase
from the Fund the underlying security owned by the Fund at the agreed-upon
price for a specified time period.
Upon the exercise of a put option, the Fund may suffer a loss equal to the
difference between the price at which the Fund is required to purchase the
underlying security and its market value at the time of the option exercise,
less the premium received for writing the option. Upon the exercise of a call
option, the Fund may suffer a loss equal to the excess of the security's market
value at the time of the option exercise over the Fund's acquisition cost of
the security, less the premium received for writing the option. The Fund ordi-
narily will write only covered put and call options for which a secondary mar-
ket exists on a national securities exchange or in the over-the-counter market.
In order to realize a profit, to prevent an underlying security from being
called or to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the option's expiration),
the Fund may engage in a closing purchase transaction. The Fund will incur a
loss if the cost of the closing purchase transaction, plus transaction costs,
exceeds the premium received upon writing the original option. To effect a
closing purchase transaction, the Fund would purchase, prior to the exercise of
an option that it has written, an option of the same series as that on which it
desires to terminate its obligation. There can be no assurance that the Fund
will be able to effect a closing purchase transaction at a time when it wishes
to do so. The obligation of the Fund to purchase or deliver securities, respec-
tively, upon the exercise of a covered put or call option which it has written
terminates upon the effectuation of a closing purchase transaction.
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 security, however,
will be partially offset by the amount of the premium paid for the put option
and any related transaction costs. The Fund may purchase call options on a
security it intends to purchase in the future to avoid the additional cost that
would result from a substantial increase in the market price of the security.
Prior to their expiration, put and call options may be sold in closing sale
transactions (sales by the Fund, prior to the exercise of options it has pur-
chased, of options of the same series), and profit or loss from the sale will
depend
20
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
on whether the amount received is more or less than the premium paid for the
option plus the related transaction costs.
Stock Index Futures. The Fund may enter into futures contracts on domestic
and foreign stock indexes. A stock index measures the movement of a certain
group of stocks by assigning relative values to the stocks included in the
index. Examples of domestic stock indexes are the Standard & Poor's 500 Stock
Index and the New York Stock Exchange Composite Index, and examples of foreign
stock indexes are the Canadian Market Portfolio Index (Montreal Stock
Exchange), the Financial Times--Stock Exchange 100 (International Stock
Exchange) and the Toronto Stock Exchange Composite 300 (Toronto Stock
Exchange). The Fund will not enter into stock index futures contracts for spec-
ulation and will only enter into futures contracts that are traded on exchanges
designated by the Commodity Futures Commission ("CFTC") or, consistent with
CFTC regulations, on foreign exchanges.
When the Fund enters into a futures contract to purchase, an amount of cash,
U.S. government securities or other high grade debt securities, equal to the
market value of the contract, will be deposited in a segregated account with
the Fund's custodian to collaterize the position, thereby insuring that the use
of the contract is unleveraged.
The Fund may lose the expected benefit of these futures transactions and may
incur losses if the prices of the underlying commodities move in an unantici-
pated manner. In addition, changes in the value of the Fund's futures positions
may not prove to be perfectly or even highly correlated with changes in the
value of its portfolio securities. Successful use of futures is subject to the
Fund's investment adviser's ability to predict correctly movements in the
direction of the securities markets generally, which ability may require dif-
ferent skills and techniques than predicting changes in the prices of individ-
ual securities. Moreover, futures contracts may only be closed out by entering
into offsetting transactions on the exchange where the position was entered
into (or a linked exchange), and as a result of daily price fluctuation limits
there can be no assurance that an offsetting transaction could be entered into
at an advantageous price at any particular time. Consequently, the Fund may not
be able to close a futures position without incurring a loss in the event of
adverse price movements.
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. Options on stock indexes are similar to
options on securities. Because no underlying security can be delivered, howev-
er, the option represents the holder's right to obtain from the writer, in
cash, a fixed multiple of the amount by which the exercise price exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the exercise date.
21
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Options on foreign stock indexes are similar to options on domestic stock
indexes. Like domestic stock index options, foreign stock index options are
subject to position and exercise limits and other regulations imposed by the
exchange on which they are traded. Unlike domestic stock index options, for-
eign 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 effective-
ness 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 direction of the underlying
index.
When the Fund writes an option on a stock index, it will establish a segre-
gated account with The Chase Manhattan Bank, N.A. ("Chase"), the Fund's custo-
dian, 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 exchange approved for such purpose by the CFTC. Currently, gold
futures and options thereon are traded primarily on the Commodity Exchange of
New York ("COMEX"), the Chicago Mercantile Exchange and the Chicago Board of
Trade; the Fund expects to trade futures and related options primarily on
COMEX. When the Fund enters into long futures and options positions (futures
contracts to purchase gold and call options purchased or put options written
by the Fund), an amount of cash and cash equivalents equal to the underlying
commodities value of the contracts will be deposited and maintained in a seg-
regated 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
22
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 antici-
pates 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), and there are no daily cash payments to reflect
changes in the value of the underlying contract. The value of the option, how-
ever, 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 curren-
cies. The Fund's dealings in forward currency contracts will be limited to
hedging involving either specific transactions or portfolio positions. In hedg-
ing specific portfolio positions, the Fund may enter into a forward currency
contract with respect to either the currency in which the positions are denomi-
nated or another currency deemed appropriate by SBMFM. A forward currency con-
tract 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 con-
tract 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 cus-
23
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
tomers. 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 con-
tracts.
Securities of Developing Countries. A developing country is generally consid-
ered to be a country that is in the initial stages of its industrialization
cycle. Investing in the equity and fixed-income markets of developing countries
involves exposure to economic structures that are generally less diverse and
mature, and to political systems that can be expected to have less stability,
than those of developed countries. Historical experience indicates that the
markets of developing countries have been more volatile than the markets of the
more mature economies of developed countries; however, such markets often have
provided higher rates of return to investors.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open for business by dividing
the value of the Fund's net assets attributable to each Class by the total 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
24
<PAGE>
VALUATION OF SHARES (CONTINUED)
cost whenever the Board of Directors determines that amortized cost reflects
fair value of those investments. Amortized cost valuation involves valuing an
instrument at its cost initially and thereafter assuming a constant amortiza-
tion to maturity of any discount or premium, regardless of the effect of fluc-
tuating interest rates on the market value of the instrument. Further informa-
tion regarding the Fund's valuation policies is contained in the Statement of
Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute its investment income (that is, its income
other than its net realized capital gains) and net realized capital gains, if
any, once a year, normally at the end of the year in which earned or at the
beginning of the next year.
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
25
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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 Fed-
eral dividends-received deduction for corporations.
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
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, 1996 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 CDSC and are
available only to investors investing a minimum of $5,000,000 (except for pur-
chases of Class Y shares by Smith Barney Concert Series Inc., for which there
is no minimum pur
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
chase amount). See "Prospectus Summary--Alternative Purchase Arrangements" for
a discussion of factors to consider in selecting which Class of shares to pur-
chase.
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney, an Introducing Broker or an investment dealer in the sell-
ing group, except for investors purchasing shares of the Fund through a quali-
fied retirement plan who may do so directly through the Transfer Agent. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A, Class B, Class C or Class Y shares. No maintenance fee will be
charged by the Fund in connection with a brokerage account through which an
investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open an account by 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 shareholders purchasing shares of the Fund through the
Systematic Investment Plan on a monthly basis, the minimum initial investment
requirement for Class A Class B and Class C shares and the subsequent invest-
ment requirement for all Classes is $25. For shareholders purchasing shares of
the Fund through the Systematic Investment Plan on a quarterly basis, the min-
imum initial investment requirement for Class A, Class B and Class C shares
and the subsequent investment requirement for all Classes is $50. There are no
minimum investment requirements for Class A shares for employees of Travelers
and its subsidiaries, including Smith Barney, Directors or Trustees of any of
the Smith Barney Mutual Funds, and their spouses and children. The Fund
reserves the right to waive or change minimums, to decline any order to pur-
chase its shares and to suspend the offering of shares from time to time.
Shares purchased will be held in the shareholder's account by the Fund's
Transfer Agent. Share certificates are issued only upon a shareholder's writ-
ten 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 (the "trade
date"). Orders received by dealers or Introducing Brokers prior to the close
of regular trading on the NYSE on any day the Fund calculates its net asset
value are priced according to the net asset value determined on that day, pro-
vided the order is received by the Fund or Smith Barney prior to Smith
Barney's close of business. For shares purchased through Smith Barney or
Introducing Brokers purchasing
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
through Smith Barney, payment for Fund shares is due on the third business day
(the "settlement date") after the trade date. In all other cases, payments
must be made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or the Transfer Agent is authorized
through pre-authorized transfers of at least $25 on a monthly basis or at
least $50 on a quarterly basis to charge the regular bank account or other
financial institution indicated by the shareholder to provide systematic addi-
tions to the shareholder's Fund account. A shareholder who has insufficient
funds to complete the transfer will be charged a fee of up to $25 by Smith
Barney or 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 shareholder's shares of a Smith Barney money market fund
to make additions to the account. Additional information is available from the
Fund or a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the 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
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 to (i) Board Members and
employees of Travelers and its subsidiaries and any of the Smith Barney Mutual
Funds (including retired Board Members and employees); the immediate families
of such persons (including the surviving spouse of a deceased Board Member or
employee); or a pension, profit-sharing or other benefit plan for such persons
and (ii) employees of members of the National Association of Securities Deal-
ers, Inc., provided such sales are made upon the assurance of the purchaser
that the purchase is made for investment purposes and that the securities will
not be resold except through redemption or repurchase; (b) offers of Class A
shares to any other investment company in connection with the combination of
such company with the Fund by merger, acquisition of assets or otherwise; (c)
purchases of Class A shares by any client of a newly employed Smith Barney
Financial Consultant (for a period up to 90 days from the commencement of the
Financial Consultant's employment with Smith Barney), on the condition the pur-
chase of Class A shares is made with the proceeds of the redemption of shares
of 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 Smith Barney Mutual Fund 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;
(e) accounts managed by registered investment advisory subsidiaries of Travel-
ers; (f) direct rollovers by plan participants of distributions from a 401(k)
plan offered to employees of Travelers or its subsidiaries or a 401(k) plan
enrolled in the Smith Barney 401(k) Program (Note: subsequent investments will
be subject to the applicable sales charge); (g) purchases by separate accounts
used to fund certain unregistered variable annuity contracts; and (h) purchases
by investors participating in a Smith Barney fee-based arrangement. 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
29
<PAGE>
PURCHASE OF SHARES (CONTINUED)
shares of the Fund and of funds sponsored by Smith Barney which are offered
with a sales charge listed under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the reduced
sales charge. The right of accumulation is subject to modification or discon-
tinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan meet-
ing certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A
shares at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of Class A shares offered
with a sales charge that have been previously purchased and are still owned by
the group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring 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.
30
<PAGE>
PURCHASE OF SHARES (CONTINUED)
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes pur-
chases of all Class A shares of the Fund and other Smith Barney Mutual Funds
offered with a sales charge over the 13 month period based on the total amount
of intended purchases plus the value of all Class A shares previously purchased
and still owned. An alternative is to compute the 13 month period starting up
to 90 days before the date of execution of a Letter of Intent. Each investment
made during the period receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the sales charges applica-
ble to the purchases made and the charges previously paid, or an appropriate
number of escrowed shares will be redeemed. Please contact a Smith Barney
Financial Consultant or the Transfer Agent to obtain a Letter of Intent appli-
cation.
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 six months from the date of the Letter. If a total investment of
$5,000,000 is not made within the six month period, all Class Y shares pur-
chased to date will be transferred to Class A shares, where they will be sub-
ject to all fees (including a service fee of 0.25%) and expenses applicable to
the 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
31
<PAGE>
PURCHASE OF SHARES (CONTINUED)
to Class B shares, shares redeemed more than five years after their purchase;
or (d) with respect to Class C shares and Class A shares that are CDSC Shares,
shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which the
CDSC is imposed on Class B shares, the amount of the charge will depend on the
number of years since the shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Smith Barney statement month. The following table sets forth the rates of the
charge for redemptions of Class B shares by shareholders, except in the case of
Class B shares held under the Smith Barney 401(k) Program, as described below.
See "Purchase of Shares--Smith Barney 401(k) and ExecChoice(TM) Programs."
<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 and thereafter 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 propor-
tion of Class B Dividend Shares owned by the shareholder as the total number of
his or her Class B shares converting at the time bears to the total number of
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 sub-
sequently 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 anniversary date. See "Prospectus
Summary--Alternative Purchase Arrangements--Class B Shares Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
32
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 to effect a combination of the Fund with any investment
company by merger, acquisition of assets or otherwise. In addition, a share-
holder who has redeemed shares from other Smith Barney Mutual Funds may, under
certain circumstances, reinvest all or part of the redemption proceeds within
60 days and receive pro rata credit for any CDSC imposed on the prior redemp-
tion.
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) AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k) Program
or the Smith Barney ExecChoice(TM) Programs. To the extent applicable, the same
terms
33
<PAGE>
PURCHASE OF SHARES (CONTINUED)
and conditions, which are outlined below, are offered to all plans participat-
ing ("Participating Plans") in these programs.
The Fund offers to Participating Plans Class A and Class C shares as invest-
ment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Programs.
Class A and Class C shares acquired through the Participating Plans are subject
to the same service and/or distribution fees as the Class A and Class C shares
acquired by other investors; however, they are not subject to any initial sales
charge or CDSC. Once a Participating Plan has made an initial investment in the
Fund, all of its subsequent investments in the Fund must be in the same Class
of shares, except as otherwise described below.
Class A Shares. Class A shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases $1,000,000 or more of
Class A shares of one or more Smith Barney Mutual Funds.
Class C Shares. Class C shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000 of
Class C shares of one or more Smith Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. If at the
end of the fifth year after the date the Participating Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program, a Par-
ticipating Plan's total Class C holdings in all non-money market Smith Barney
Mutual Funds equal at least $1,000,000, the Participating Plan will be offered
the opportunity to exchange all of its Class C shares for Class A shares of the
Fund. (For Participating Plans that were originally established through a Smith
Barney retail brokerage account, the five year period will be calculated from
the date the retail brokerage account was opened.) Such Participating Plans
will be notified of the pending exchange in writing within 30 days after the
fifth anniversary of the enrollment date and, unless the exchange offer has
been rejected in writing, the exchange will occur on or about the 90th day
after the fifth anniversary date. If the Participating Plan does not qualify
for the five year exchange to Class A shares, a review of the Participating
Plan's holdings will be performed each quarter until either the Participating
Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program, if its total Class
C holdings in all non-money market Smith Barney Mutual Funds equal at least
$500,000 as of the calendar year-end, the Participating Plan will be offered
the opportunity to exchange all of its Class 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.
34
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Any Participating Plan in the Smith Barney 401(k) Program, whether opened
before or after June 21, 1996 that has not previously qualified for an exchange
into Class A shares will be offered the opportunity to exchange all of its
Class C shares for Class A shares of the Fund, regardless of asset size, at the
end of the eighth year after the date the Participating Plan enrolled in the
Smith Barney 401(k) Program. Such Plans will be notified of the pending
exchange in writing approximately 60 days before the eighth anniversary of the
enrollment date and, unless the exchange has been rejected in writing, the
exchange will occur on or about the eighth anniversary date. Once an exchange
has occurred, a Participating Plan will not be eligible to acquire additional
Class C shares of the Fund but instead may acquire Class A shares of the Fund.
Any Class C shares not converted will continue to be subject to the distribu-
tion fee.
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from the Transfer Agent. For further information regarding
these Programs, investors should contact a Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Smith Barney Mutual Funds are not available for purchase by Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by any Par-
ticipating Plan in the Smith Barney 401(k) Program opened prior to such date
and originally investing in such Class. Class B shares acquired 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.
At the end of the eighth year after the date the Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating Plan will be offered the
opportunity to exchange all of its Class B shares for Class A shares of the
Fund. Such Participating Plan will be notified of the pending exchange in writ-
ing 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 Par-
ticipating 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 Participat-
ing 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 fea-
ture as Class B shares held by other investors. See "Purchase of Shares--
Deferred Sales Charge Alternatives."
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased
more than eight years prior to the redemption, plus increases in the net asset
value of the shareholder's Class B shares above the purchase payments made dur-
ing the preceding eight
35
<PAGE>
PURCHASE OF SHARES (CONTINUED)
years. Whether or not the CDSC applies to the redemption by 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 redemptions by 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 Class B 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.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged for
shares of the same Class in the following 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 invest-
ment requirements and all shares are subject to the other requirements of the
fund into which exchanges are made.
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
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Equity Income Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
36
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipal Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
*Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--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
Smith Barney Concert Series Inc.
Smith Barney Concert Series Inc.--Balanced Portfolio
Smith Barney Concert Series Inc.--Conservative Portfolio
Smith Barney Concert Series Inc.--Growth Portfolio
Smith Barney Concert Series Inc.--High Growth Portfolio
Smith Barney Concert Series Inc.--Income Portfolio
37
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.--Cash Portfolio
++Smith Barney Money Funds, Inc.--Government Portfolio
**Smith Barney Money Funds, Inc.--Retirement Portfolio
++Smith Barney Municipal Money Market Fund, Inc.
++Smith Barney Muni Funds--California Money Market Portfolio
++Smith Barney Muni Funds--New York Money Market Portfolio
- -------------------------------------------------------------------------------
*Available for exchange with Class A, Class C and Class Y shares of the Fund.
**Available for exchange with Class A shares of the Fund.
+Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the Smith
Barney 401(k) and ExecChoice(TM) Programs may exchange those shares for
Class C shares of this fund.
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.
Class A and Class Y Exchanges. Class A and Class Y shareholders of the Fund
who wish to exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may do so without impo-
sition 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
determine that a pattern of frequent exchanges is excessive and contrary to
the best interest of the Fund's other shareholders. In this event, the Fund
may, at its discretion, decide to limit additional purchases and/or exchanges
by the shareholder. Upon such a determination, the Fund will provide notice in
writing or by telephone to the shareholder at least 15 days prior to sus-
pending 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 Smith Barney Mutual Funds
ordinary available, which position the shareholder would be expected to main-
tain for a significant period of time. All relevant factors will be considered
in determining what constitutes an abusive pattern of exchanges.
38
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange Program." Exchanges will
be processed at the net asset value next determined. Redemption procedures dis-
cussed 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 reg-
istration 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 privileges upon 60 days' prior notice to shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until the Fund's Transfer Agent
receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third business day following receipt
of proper tender, except on any days on which the NYSE is closed or as permit-
ted under the Investment Company Act of 1940, as amended ("1940 Act"), in
extraordinary circumstances. Generally, if the redemption proceeds are remitted
to a Smith Barney brokerage account, these funds will not be invested for the
shareholder's benefit without specific instruction and Smith Barney will 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.
39
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
Smith Barney 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 share certificate, stock power or a writ-
ten 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, member bank of the Federal Reserve System or member firm
of a national securities exchange. 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 may require additional sup-
porting documents for redemptions made by corporations, executors, administra-
tors, trustees or guardians. A redemption request will not be deemed properly
received until the Transfer Agent receives all required documents 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 Transfer
Agent at (800) 451-2010. Such request may be made between 9:00 a.m. and 4:00
40
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
p.m. (New York City time) on any day the NYSE is open. Redemptions of shares
(i) by retirement plans or (ii) for which certificates have been issued are not
permitted under this program.
A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent relationship with
a member bank. The Fund reserves the right to charge shareholders a nominal fee
for each wire redemption. Such charges, if any, will be assessed against the
shareholder's account from which shares were redeemed. In order to change the
bank account designated to receive redemption proceeds, a shareholder must com-
plete a new Telephone/Wire Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a signature guarantee and
certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the fund being acquired is identical to the registra-
tion of 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
41
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
waived on amounts withdrawn that do not exceed 2.00% per month of the share-
holder'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 involuntary liquidation.
PERFORMANCE
TOTAL RETURN
From time to time, the Fund may include its total return and 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 nonstandard
total return information for differing periods computed in the same manner but
without annualizing the total return or taking sales charges into account. The
Fund may also include comparative performance information in advertising or
marketing its shares. Such performance information may include data from Lipper
Analytical Services, Inc. or similar independent services that monitor the per-
formance of mutual funds or other industry publications.
42
<PAGE>
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant agreements
between the Fund and the companies that furnish services to the Fund, including
agreements with its distributor, investment 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 registered investment
adviser. SBMFM renders investment advice to investment companies that had
aggregate assets under management as of January 31, 1996, in excess of $80 bil-
lion.
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 invest-
ment 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 Officer 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, 1996 is included in
the Annual Report dated October 31, 1996. A copy of the Annual Report may be
obtained upon request without charge from a Smith Barney Financial Consultant
or by writing or calling the Fund at the address or phone number listed on page
one of this Prospectus.
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
43
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
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 Consultants for servicing shareholder
accounts and, in the case of Class B and Class C shares, to cover expenses pri-
marily intended to result in the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing prospectuses to poten-
tial investors; payments to and expenses of Smith Barney Financial Consultants
and other persons who provide support services in connection with the distribu-
tion of shares; interest and/or carrying charges; and indirect and other over-
head 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 payments
may exceed distribution expenses actually incurred. The Fund's Board of Direc-
tors will evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in so doing will consider all relevant factors, including
expenses borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC.
ADDITIONAL INFORMATION
The Fund was incorporated on July 16, 1986, under the laws of the State of
Maryland, and is registered with the SEC as a diversified, open-end management
investment company. The Fund offers shares of common stock currently classified
into four Classes, A, B, C and Y, with a par value of $.001 per share. Each
Class of shares has the same rights, privileges and preferences, except with
respect to: (a) the designation of each Class; (b) the effect of the respective
sales charges for each Class; (c) the distribution and/or service fees borne by
each Class; (d) the expenses allocable exclusively to each Class; (e) voting
rights on matters exclusively affecting a single Class; (f) the exchange privi-
lege of each Class; and (g) the conversion feature of the Class B shares. The
Fund's Board of Directors does not anticipate that there will be any conflicts
among the interests of the holders of the different
44
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
Classes. The Directors, on an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.
Chase, located at 4 Chase MetroTech Center, Brooklyn, New York, 11245, acts
as the Fund's custodian.
First Data, 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 its semi-annual and
annual reports by household. This consolidation means that a household having
multiple accounts with the identical address of record will receive a single
copy of each report. In addition, the Fund also plans to consolidate the mail-
ing of its prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not want this consolidation to
apply to their accounts should contact their Smith Barney Financial Consultant
or the Transfer Agent.
45
<PAGE>
SMITH BARNEY
------------
A Member of TravelersGroup (ART)
SMITH BARNEY
NATURAL
RESOURCES
FUND
INC.
388 Greenwich Street New York, New York 10013
FD 0224 02/97
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
February 20, 1997
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 February 20, 1997,
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:
Management of the Fund
1
Investment Objective and Management Policies
5
Purchase of Shares
14
Redemption of Shares
15
Distributor.
15
Valuation of Shares
17
Exchange Privilege
17
Performance Data (See in the Prospectus "Performance")
18
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes")
20
Additional Information
23
Financial Statements
23
Appendix
24
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:
Name
Service
Smith Barney Inc. ("Smith
Barney")......................
Distributor
Smith Barney Mutual Funds
Management Inc.
("SBMFM").....................
............................
Investment Adviser
The Chase Manhattan Bank N.A.
("Chase").....................
................................
Custodian
First Data Investor Services Group,
Inc.
("First Data")
...................................
...........
Transfer Agent
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 73). Private investor. His address is
273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Alfred J. Bianchetti, Director (age 74). Retired; formerly Senior
Consultant to Dean Witter Reynolds Inc. His address is 19 Circle End
Drive, Ramsey, New Jersey 17466.
Martin Brody, Director (age 75). Vice Chairman of the Board of
Restaurant Associates Industries, Corp.; a Director of Jaclyn, Inc. His
address is HMK Associates, 30 Columbia Turnpike, Florham Park, New
Jersey, 07932.
Dwight B. Crane, Director (age 59). 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 66). 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 45 Rockefeller Plaza, Suite 2570, New
York, New York 10111.
Elliot S. Jaffe, Director (age 70). 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 64). Attorney. His address is
277 Park Avenue, New York, New York 10017.
Joseph J. McCann, Director (age 66). 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 63). 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; Mr. McLendon is Chairman of the Board of 42
Smith Barney Mutual Funds. His address is 388 Greenwich Street, New
York, New York 10013.
Cornelius C. Rose, Jr., Director (age 63). Chairman of the Board,
Cornelius C. Rose Associates, Inc., financial consultants; and Chairman
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 89). 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 37). 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 serves as President of 40 Smith Barney Mutual Funds. Her
address is 388 Greenwich Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer (age 39).
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 serves as Senior
Vice President and Treasurer of 42 Smith Barney Mutual Funds. His
address is 388 Greenwich Street, New York, New York 10013.
John G. Goode, Vice President and Investment Officer (age 52).
Chairman and Chief Investment Officer of Davis Skaggs Investment
Management ("Davis Skaggs"), a division of SBMFM; Managing Director of
Smith Barney. His address is 1 Sansome Street, 36th Floor, San
Francisco, California 94104.
David A. Stadlin, Vice President and Investment Officer (age 32).
Portfolio Manager/Research Analyst of Davis Skaggs; Vice President of
Smith Barney. His address is 1 Sansome Street, 36th Floor, San
Francisco, California 94104.
Christina T. Sydor, Secretary (age 46). Managing Director of Smith
Barney and Secretary of SBMFM. Ms. Sydor serves as Secretary of 42 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 17, 1997, 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 $1,000 per in-person meeting and $100 per
telephonic meeting. Each Director Emeritus who is not a director,
officer or employee of Smith Barney or any of its affiliates receives a
fee of $1,000 per annum plus $500 per in-person meeting and $50 per
telephonic meeting. All Directors are reimbursed for travel and out-of-
pocket expenses to attend meetings of the Board.
For the fiscal year ended October 31, 1996, the Directors of the
Fund were paid the following compensation:
Director(*)
Aggregate Compensation
from the Fund
Aggregate Compensation
from Smith Barney
Mutual Funds**
Herbert Barg (18)
$3,550
$105,175
Alfred J. Bianchetti
(13)
3,550
51,500
Martin Brody (21)
3,350
125,886
Dwight B. Crane (24)
3,550
140,375
Burt N. Dorsett
(13)****
3,550
47,400
Elliot Jaffe (13)
3,550
51,100
Stephen Kaufman (15)
3,550
93,236
Joseph J. McCann (13)
3,550
52,700
Heath B. McLendon (41)
- ----
- ----
Cornelius C. Rose, Jr.
(13)
3,650
51,400
James J. Crisona
(12)***
1,225
20,575
(*) Number of director/trusteeships held with other Smith Barney
Mutual Funds.
** Reflects compensation paid during the calendar year ended December
31, 1996
*** Mr. Crisona is a Director emeritus and as such may attend meetings
but has no voting rights.
****Deferred all or some of his compensation from the Fund for both 1995
and 1996 calendar years
Investment Manager--SBMFM
SBMFM serves as investment manager to the Fund pursuant to a
written agreement (the "Management Agreement"), which was first approved
by the Board of Directors, including a majority of the Directors who are
not "interested persons" of the Fund or SBMFM (the "Independent
Directors"), on September 26, 1995 and by shareholders on December 18,
1995 and most recently approved by the Board of Directors, including a
majority of the Independent Directors, on July 17, 1996. 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 period from November 1, 1993 through
June 20, 1994, the Fund paid LBGAM $376,967 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. For the fiscal
year ended October 31, 1996, the Fund paid SBSA and its successor,
SBMFM, $763,626 in the aggregate.
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
Independent Directors, 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, Boston Advisors received $59,580, 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; Securities and Exchange Commission ("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 the 1994, 1995 and 1996
fiscal years.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Fund. The
Independent Directors of the Fund have selected Stroock & Stroock &
Lavan LLP, 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.
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 engage in the writing of
covered put and call options and may enter into closing transactions.
The Fund also may purchase put and call options on securities.
The principal reason for writing covered call options on
securities is to attempt to realize, through the receipt of premiums, a
greater return than would be realized on the securities alone. In
return for a premium, the writer of a covered call option forfeits the
right to any appreciation in the value of the underlying security above
the strike price for the life of the option (or until a closing purchase
transaction can be effected). Nevertheless, the call writer retains the
risk of a decline in the price of the underlying security. Similarly,
the principal reason for writing covered put options is to realize
income in the form of premiums. The writer of a covered put option
accepts the risk of a decline in the price of the underlying security.
The size of the premiums that the Fund may receive may be adversely
affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
Options written by the Fund normally will have expiration dates
between one and nine months from the date written. The exercise price
of the options may be below, equal to or above the market values of the
underlying securities at the times the options are written. In the case
of call options, these exercise prices are referred to as "in-the-
money," "at-the-money" and "out-of-the-money," respectively. The Fund
may write (a) in-the-money call options when SBMFM expects that the
price of the underlying security will remain flat or decline moderately
during the option period, (b) at-the-money call options when SBMFM
expects that the price of the underlying security will remain flat or
advance moderately during the option period and (c) out-of-the-money
call options when SBMFM expects that the price of the underlying
security may increase but not above a price equal to the sum of the
exercise price plus the premiums received from writing the call option.
In any of the preceding situations, if the market price of the
underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part
by the premium received. Out-of-the-money, at-the-money and in-the-
money put options (the reverse of call options as to the relation of
exercise price to market price) may be utilized in the same market
environments that such call options are used in equivalent transactions.
So long as the obligation of the Fund as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-
dealer through which the option was sold, requiring the Fund to deliver,
in the case of a call, or take delivery of, in the case of a put, the
underlying security against payment of the exercise price. This
obligation terminates when the option expires or the Fund effects a
closing purchase transaction. The Fund can no longer effect a closing
purchase transaction with respect to an option once it has been assigned
an exercise notice. To secure its obligation to deliver the underlying
security when it writes a call option, or to pay for the underling
security when it writes a put option, the Fund will be required to
deposit in escrow the underlying security or other assets in accordance
with the rules of the Options Clearing Corporation ("Clearing
Corporation") and of the securities exchange on which the option is
written.
An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized
securities exchange or in the over-the-counter market. In light of this
fact and current trading conditions, the Fund expects to purchase not
only call or put options issued by the Clearing Corporation, but also
options in the domestic and foreign over-the-counter markets. The Fund
expects to write options only on U.S. securities exchanges, except that
it may write options on U.S. government securities in the over-the-
counter market.
The Fund may realize a profit or loss upon entering into a closing
transaction. In cases in which the Fund has written an option, it will
realize a profit if the cost of the closing purchase transaction is less
than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the
premium received upon writing the original option. Similarly, when the
Fund has purchased an option and engages in a closing sale transaction,
whether the Fund realizes a profit or loss will depend upon whether the
amount received in the closing sale transaction is more or less than the
premium that the Fund initially paid for the original option plus the
related transaction costs.
Although the Fund generally will purchase or write only those
options for which SBMFM believes there is an active secondary market so
as to facilitate 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 events have at times
rendered inadequate certain of the facilities of the Clearing
Corporation and securities exchanges 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. If, as a covered call option
writer, the Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon
exercise.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may
be held or written, or exercised within certain time periods, by an
investor or group of investors acting in concert (regardless of whether
the options are written on the same or different securities exchanges or
are held, written or exercised in one or more accounts or through one or
more brokers). It is possible that the Fund and other clients of SBMFM
and certain of their 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.
In the case of options written by the Fund that are deemed covered
by virtue of the Fund's holding convertible or exchangeable preferred
stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying common stocks with respect to
which the Fund has written options may exceed the time within which the
Fund must make delivery in accordance with an exercise notice. In these
instances, the Fund may purchase or temporarily borrow the underlying
securities for purposes of physical delivery. By so doing, the Fund
will not bear any market risk, because the Fund will have the absolute
right to receive from the issuer of the underlying security an equal
number of shares to replace the borrowed stock, but the Fund may incur
additional transaction costs or interest expenses in connection with any
such purchase or borrowing.
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 Chase, 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
1995 and 1996 fiscal years were 40% and 120%, 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 1994, 1995 and 1996 fiscal years, the Fund
paid $287,617, $246,842, and $705,392 respectively, in brokerage
commissions.
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 1994 fiscal year, the Fund paid $2,800, in brokerage
commissions to Smith Barney and/or Shearson Lehman Brothers. For the
1995 and 1996 fiscal years, the Fund paid no 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
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 17, 1996. For the 1994, 1995 and 1996 fiscal years,
Smith Barney or its predecessor, Shearson Lehman Brothers, received
$93,066, $76,401 and $500,000, respectively, in sales charges from the
sale of Class A shares, and did not reallow any portion thereof to
dealers. For the fiscal years ended October 31, 1994, 1995 and 1996,
Smith Barney or its predecessor received from shareholders $94,391,
$136,462 and $119,000, 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, 1996, Smith Barney incurred
distribution expenses totaling approximately $1,958,640 consisting of
approximately $81,741 for advertising, $4,824 for printing and mailing
of prospectuses, $128,878 for support services, $1,683,165 to Smith
Barney Financial Consultants, and $60,032 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, 1995, the Fund incurred
$90,913, $76,842 and $663 in service fees for Class A, Class B and Class
C shares, respectively. For the fiscal year ended October 31, 1996, the
Fund incurred $111,199, $127,817 and $10,684.50 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 years ended October 31, 1995 and 1996,
the Fund incurred $230,525 and $383,451 for Class B shares,
respectively, in distribution fees. For the fiscal years ended October
31, 1995 and October 31, 1996, the Fund incurred $1,989 and $32,053.50,
respectively, 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 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday,
respectively. Because of the differences in distribution fees and Class-
specific expenses, the per share net asset value of each Class may
differ. The following is a 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. U.S. government securities will be valued at the mean
between the closing bid and asked prices 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.
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 Smith Barney Mutual Fund may be exchanged
without a sales charge for Class A shares of any of the other
Smith Barney Mutual Funds.
B. Class B shares of any Smith Barney Mutual Fund may be exchanged
without a sales charge for Class B shares of any of the other
Smith Barney Mutual Funds. Class B shares of the Fund exchanged
for Class B shares of another Smith Barney Mutual 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.
C. Class C shares of any Smith Barney Mutual Fund may be exchanged
without a sales charge for Class C shares of any of the other
Smith Barney Mutual Funds. Class C shares of the Fund exchanged
for Class C shares of another Smith Barney Mutual Fund 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 an
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.
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:
32.12% for the one-year period from November 1, 1995 through October
31, 1996.
9.53% per annum during the five-year period from November 1, 1991
through October 31, 1996.
4.42% per annum for the period from commencement of operations
(November 24, 1986) through October 31, 1996.
Class B's average annual total return was as follows for the
periods indicated:
33.20% for the one-year from November 1, 1995 through October 31,
1996; and
13.42% per annum for the period from commencement of operations
(November 6, 1992) through October 31, 1996.
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 39.09%, 10.65% and 4.96%,
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 38.20% and 13.76%, 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:
39.09% for the one-year period from November 1, 1995 through October
31, 1996.
65.87% for the five-year period from November 1, 1991 through October
31, 1996.
61.78% for the period from commencement of operations (November 24,
1986) through
October 31, 1996.
Class B's aggregate total return was as follows for the periods
indicated:
33.20% for the one-year period from November 1, 1995 through October
31, 1996.
65.19% per annum from commencement of operations (November 6, 1992)
through
October 31, 1996.
Class C's aggregate total return was as follows for the period
indicated:
37.12% for the one-year period from November 1, 1995 through October
31, 1996
8.19% for the period from commencement of operations (November 7,
1994) through
October 31, 1996.
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 32.12%, 57.61% and 53.69%, 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 5.00% CDSC had not been deducted at the time of
purchase, Class B's aggregate total return for the same periods would
have been 38.20% and 67.19%, respectively.
Class C aggregate total return figures assume 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 periods would
have been 38.12% and 8.19%, respectively.
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.
Chase, located at 4 Chase MetroTech Center, Brooklyn, New York
11245, serves as the Fund's custodian. Under its agreement with the
Fund, Chase holds the Fund's portfolio securities and keeps all
necessary accounts and records. For its services, Chase 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. Chase 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, 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,
1996 is incorporated herein by reference in its 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.
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, 1996 and the Report
of Independent Accountants dated December 19, 1996 are
incorporated by reference to the Rule 30(b)2-1 filed on
January 21, 1997 as
Accession # 91155-97-0000027.
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 to the Registration Statement filed on December 29, 1994
("Post-
Effective Amendment No. 15").
(h) Articles of Amendment dated December 18, 1995 to
the Articles of Incorporation
are incorporated by reference to Post Effective Amendment No. 20
to the Registration Statement filed on January 23, 1996
("Post-Effective Amendment No. 20").
(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
Chase Manhattan Bank N.A. is filed herein.
(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 to the Registration Statement
filed on December 30, 1993.
(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 incorporated by reference to Post-Effective Amendment No.
20.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Title of Class Number of Record Holders by Class
as of January 31, 1997
Common Stock Class A- 7632
par value $.001 per Class B- 8600
share Class C- 787
Item 27. Indemnification
The response to this item is incorporated by reference
to Post-
Effective Amendment No. 1 to the Registration Statement
filed on May 28, 1987.
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).
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 Travelers Group 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).
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) Chase Manhattan Bank, N.A.
4 Chase MetroTech Center
Brooklyn, New York 11245
(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 20th day of February, 1997.
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 2/20/97
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President and
Treasurer
Lewis E. Daidone (Chief Financial and Accounting
Officer)
2/20/97
/s/ Alfred Bianchetti
Alfred Bianchetti Director
2/20/97
/s/ Martin Brody
Martin Brody Director
2/20/97
/s/ Dwight B. Crane
Dwight B. Crane Director
2/20/97
/s/Burt N. Dorsett
Burt N. Dorsett Director
2/20/97
/s/ Elliot S. Jaffe
Elliot S. Jaffe Director
2/20/97
/s/ Stephen E. Kaufman
Stephen E. Kaufman Director
2/20/97
/s/ Joseph J. McCann
Joseph J. McCann Director
2/20/97
/s/ Cornelius C. Rose, Jr.
Cornelius C. Rose, Jr. Director
2/20/97
89
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective December 6, 1996 and is between THE
CHASE MANHATTAN BANK ("Bank") and each of the investment companies
listed on Exhibit I hereto, as amended from time to time, each acting on
its own behalf and not on behalf of any other investment company and
each being solely responsible for its obligations (each, a "Customer").
1. Customer Accounts.
Bank shall establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of Customer ("Custody
Account") for any and all stocks, shares, bonds, debentures, notes,
mortgages or other obligations for the payment of money, bullion, coin
and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the same or
evidencing or representing any other rights or interests therein and
other similar property whether certificated or uncertificated as may be
received by Bank or its Subcustodian (as defined in Section 3) for the
account of Customer ("Securities"); and
(b) A deposit account in the name of Customer ("Deposit
Account") for any and all cash in any currency received by Bank or its
Subcustodian for the account of Customer, which cash shall not be
subject to withdrawal by draft or check.
Customer warrants its authority to: 1) deposit the cash and
Securities ("Assets") received in the Accounts and 2) give Instructions
(as defined in Section 11) concerning the Accounts. Bank may deliver
securities of the same class in place of those deposited in the Custody
Account.
Upon written agreement between Bank and Customer, additional
Accounts may be established and separately accounted for as additional
Accounts hereunder.
2. Maintenance of Securities and Cash at Bank and Subcustodian
Locations.
Unless Instructions specifically require another location
acceptable to Bank:
(a) Securities shall be held in the country or other
jurisdiction in which the principal trading market for such Securities
is located, where such Securities are to be presented for payment or
where such Securities are acquired; and
(b) Cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular
currency. To the extent Instructions are issued and Bank can comply
with such Instructions, Bank is authorized to maintain cash balances on
deposit for Customer with itself or one of its "Affiliates" at such
reasonable rates of interest as may from time to time be paid on such
accounts, or in non-interest bearing accounts as Customer may direct, if
acceptable to Bank. For purposes hereof, the term "Affiliate" shall
mean an entity controlling, controlled by, or under common control with,
Bank.
If Customer wishes to have any of its Assets held in the custody
of an institution other than the established Subcustodians as defined in
Section 3 (or their securities depositories), such arrangement must be
authorized by a written agreement, signed by Bank and Customer.
3. Subcustodians and Securities Depositories.
Bank may act hereunder through the subcustodians listed in
Schedule A hereof with which Bank has entered into subcustodial
agreements ("Subcustodians"). Customer authorizes Bank to hold Assets
in the Accounts in accounts which Bank has established with one or more
of its branches or Subcustodians. Bank and Subcustodians are authorized
to hold any of the Securities in their account with any securities
depository in which they participate.
Bank reserves the right to add new, replace or remove
Subcustodians. Customer shall be given reasonable notice by Bank of any
amendment to Schedule A. Upon request by Customer, Bank shall identify
the name, address and principal place of business of any Subcustodian of
Customer's Assets and the name and address of the governmental agency or
other regulatory authority that supervises or regulates such
Subcustodian.
4. Use of Subcustodian.
(a) Bank shall identify the Assets on its books as belonging to
Customer.
(b) A Subcustodian shall hold such Assets together with assets
belonging to other customers of Bank in accounts identified on such
Subcustodian's books as custody accounts for the exclusive benefit of
customers of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be
subject only to the instructions of Bank or its agent. Any Securities
held in a securities depository for the account of a Subcustodian shall
be subject only to the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for
holding Bank's customers' assets shall provide that such assets shall
not be subject to any right, charge, security interest, lien or claim of
any kind in favor of such Subcustodian, except for safe custody or
administration, and that the beneficial ownership of such assets shall
be freely transferable without the payment of money or value other than
for safe custody or administration. The foregoing shall not apply to
the extent of any special agreement or arrangement made by Customer with
any particular Subcustodian.
5. Deposit Account Transactions.
(a) Bank or its Subcustodians shall make payments from the
Deposit Account upon receipt of Instructions which include all
information required by Bank.
(b) In the event that any payment to be made under this Section
5 exceeds the funds available in the Deposit Account, Bank, in its
discretion, may advance Customer such excess amount which shall be
deemed a loan payable on demand, bearing interest at the rate
customarily charged by Bank on similar loans.
(c) If Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit
Account, with interest, dividends, redemptions or any other amount due,
Customer shall promptly return any such amount upon oral or written
notification: (i) that such amount has not been received in the ordinary
course of business or (ii) that such amount was incorrectly credited.
If Customer does not promptly return any amount upon such notification,
Bank shall be entitled, upon oral or written notification to Customer,
to reverse such credit by debiting the Deposit Account for the amount
previously credited. Bank or its Subcustodian shall have no duty or
obligation to institute legal proceedings, file a claim or a proof of
claim in any insolvency proceeding or take any other action with respect
to the collection of such amount, but may act for Customer upon
Instructions after consultation with Customer.
6. Custody Account Transactions.
(a) Securities shall be transferred, exchanged or delivered by
Bank or its Subcustodian upon receipt by Bank of Instructions which
include all information required by Bank. Settlement and payment for
Securities received for, and delivery of Securities out of, the Custody
Account may be made in accordance with the customary or established
securities trading or securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs, including,
without limitation, delivery of Securities to a purchaser, dealer or
their agents against a receipt with the expectation of receiving later
payment and free delivery. Delivery of Securities out of the Custody
Account may also be made in any manner specifically required by
Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on
a contractual settlement date with cash or Securities with respect to
any sale, exchange or purchase of Securities. Otherwise, such
transactions shall be credited or debited to the Accounts on the date
cash or Securities are actually received by Bank and reconciled to the
Account.
(i) Bank may reverse credits or debits made to the
Accounts in its discretion if the related transaction fails to
settle within a reasonable period, determined by Bank in its
discretion, after the contractual settlement date for the related
transaction.
(ii) If any Securities delivered pursuant to this Section 6
are returned by the recipient thereof, Bank may reverse the
credits and debits of the particular transaction at any time.
7. Actions of Bank.
Bank shall follow Instructions received regarding assets held in
the Accounts. However, until it receives Instructions to the contrary,
Bank shall:
(i) Present for payment any Securities which are called,
redeemed or retired or otherwise become payable and all coupons
and other income items which call for payment upon presentation,
to the extent that Bank or Subcustodian is actually aware of such
opportunities.
(ii) Execute in the name of Customer such ownership and
other certificates as may be required to obtain payments in
respect of Securities.
(iii) Exchange interim receipts or temporary Securities for
definitive Securities.
(iv) Appoint brokers and agents for any transaction
involving the Securities, including, without limitation,
Affiliates of Bank or any Subcustodian.
(v) Issue statements to Customer, at times mutually agreed
upon, identifying the Assets in the Accounts.
Bank shall send Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices
or notifications shall indicate the identity of the entity having
custody of the Assets. Unless Customer sends Bank a written exception
or objection to any Bank statement within sixty (60) days of receipt,
Customer shall be deemed to have approved such statement. In such event,
or where Customer has otherwise approved any such statement, Bank shall,
to the extent permitted by law, be released, relieved and discharged
with respect to all matters set forth in such statement or reasonably
implied therefrom as though it had been settled by the decree of a court
of competent jurisdiction in an action where Customer and all persons
having or claiming an interest in Customer or Customer's Accounts were
parties.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk
of Customer. Bank shall have no liability for any loss occasioned by
delay in the actual receipt of notice by Bank or by its Subcustodians of
any payment, redemption or other transaction regarding Securities in the
Custody Account in respect of which Bank has agreed to take any action
hereunder.
8. Corporate Actions; Proxies; Tax Reclaims.
(a) Corporate Actions. Whenever Bank receives information
concerning the Securities which requires discretionary action by the
beneficial owner of the Securities (other than a proxy), such as sub-
scription rights, bonus issues, stock repurchase plans and rights
offerings, or legal notices or other material intended to be transmitted
to securities holders ("Corporate Actions"), Bank shall give Customer
notice of such Corporate Actions to the extent that Bank's central
corporate actions department has actual knowledge of a Corporate Action
in time to notify its customers.
When a rights entitlement or a fractional interest resulting from
a rights issue, stock dividend, stock split or similar Corporate Action
is received which bears an expiration date, Bank shall endeavor to
obtain Instructions from Customer or its Authorized Person, but if
Instructions are not received in time for Bank to take timely action, or
actual notice of such Corporate Action was received too late to seek
Instructions, Bank is authorized to sell such rights entitlement or
fractional interest and to credit the Deposit Account with the proceeds
or take any other action it deems, in good faith, to be appropriate in
which case it shall be held harmless for any such action.
(b) Proxy Voting. Bank shall provide proxy voting services, if
elected by Customer, in accordance with the terms of the proxy voting
services rider hereto. Proxy voting services may be provided by Bank
or, in whole or in part, by one or more third parties appointed by Bank
(which may be Affiliates of Bank).
(c) Tax Reclaims.
(i) Subject to the provisions hereof, Bank shall apply for
a reduction of withholding tax and any refund of any tax paid or
tax credits which apply in each applicable market in respect of
income payments on Securities for the benefit of Customer which
Bank believes may be available to such Customer.
(ii) The provision of tax reclaim services by Bank is
conditional upon Bank receiving from the beneficial owner of
Securities (A) a declaration of its identity and place of
residence and (B) certain other documentation (pro forma copies of
which are available from Bank). Customer acknowledges that, if
Bank does not receive such declarations, documentation and
information, additional United Kingdom taxation shall be deducted
from all income received in respect of Securities issued outside
the United Kingdom and that U.S. non-resident alien tax or U.S.
backup withholding tax shall be deducted from U.S. source income.
Customer shall provide to Bank such documentation and information
as it may require in connection with taxation, and warrants that,
when given, this information shall be true and correct in every
respect, not misleading in any way, and contain all material
information. Customer undertakes to notify Bank immediately if
any such information requires updating or amendment.
(iii) Bank shall not be liable to Customer or any third
party for any tax, fines or penalties payable by Bank or Customer,
and shall be indemnified accordingly, whether these result from
the inaccurate completion of documents by Customer or any third
party, or as a result of the provision to Bank or any third party
of inaccurate or misleading information or the withholding of
material information by Customer or any other third party, or as a
result of any delay of any revenue authority or any other matter
beyond the control of Bank.
(iv) Customer confirms that Bank is authorized to deduct
from any cash received or credited to the Deposit Account any
taxes or levies required by any revenue or governmental authority
for whatever reason in respect of the Securities or Cash Accounts.
(v) Bank shall perform tax reclaim services only with
respect to taxation levied by the revenue authorities of the
countries notified to Customer from time to time and Bank may, by
notification in writing, at its absolute discretion, supplement or
amend the markets in which the tax reclaim services are offered.
Other than as expressly provided in this sub-clause, Bank shall
have no responsibility with regard to Customer's tax position or
status in any jurisdiction.
(vi) Customer confirms that Bank is authorized to disclose
any information requested by any revenue authority or any
governmental body in relation to Customer or the Securities and/or
Cash held for Customer.
(vii) Tax reclaim services may be provided by Bank or, in
whole or in part, by one or more third parties appointed by Bank
(which may be Affiliates of Bank); provided that Bank shall be
liable for the performance of any such third party to the same
extent as Bank would have been if it performed such services
itself.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of Bank, Subcustodian or securities
depository, as the case may be. Bank may without notice to Customer
cause any such Securities to cease to be registered in the name of any
such nominee and to be registered in the name of Customer. In the event
that any Securities registered in a nominee name are called for partial
redemption by the issuer, Bank may allot the called portion to the
respective beneficial holders of such class of security in any manner
Bank deems to be fair and equitable. Customer shall hold Bank,
Subcustodians, and their respective nominees harmless from any liability
arising directly or indirectly from their status as a mere record holder
of Securities in the Custody Account.
10. Authorized Persons.
As used herein, the term "Authorized Person" means employees or
agents including investment managers as have been designated by written
notice from Customer or its designated agent to act on behalf of
Customer hereunder. Such persons shall continue to be Authorized
Persons until such time as Bank receives Instructions from Customer or
its designated agent that any such employee or agent is no longer an
Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized
Person received by Bank, via telephone, telex, facsimile transmission,
bank wire or other teleprocess or electronic instruction or trade
information system acceptable to Bank which Bank believes in good faith
to have been given by Authorized Persons or which are transmitted with
proper testing or authentication pursuant to terms and conditions which
Bank may specify. Unless otherwise expressly provided, all Instructions
shall continue in full force and effect until canceled or superseded.
Any Instructions delivered to Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which
confirmation may bear the facsimile signature of such Person), but Cus-
tomer shall hold Bank harmless for the failure of an Authorized Person
to send such confirmation in writing, the failure of such confirmation
to conform to the telephone instructions received or Bank's failure to
produce such confirmation at any subsequent time. Bank may
electronically record any Instructions given by telephone, and any other
telephone discussions with respect to the Custody Account. Customer
shall be responsible for safeguarding any testkeys, identification codes
or other security devices which Bank shall make available to Customer or
its Authorized Persons.
12. Standard of Care; Liabilities.
(a) Bank shall be responsible for the performance of only such
duties as are set forth herein or expressly contained in Instructions
which are consistent with the provisions hereof as follows:
(i) Bank shall use reasonable care with respect to its
obligations hereunder and the safekeeping of Assets. Bank shall
be liable to Customer for any loss which shall occur as the result
of the failure of a Subcustodian to exercise reasonable care with
respect to the safekeeping of such Assets to the same extent that
Bank would be liable to Customer if Bank were holding such Assets
in New York. In the event of any loss to Customer by reason of
the failure of Bank or its Subcustodian to utilize reasonable
care, Bank shall be liable to Customer only to the extent of
Customer's direct damages, to be determined based on the market
value of the property which is the subject of the loss at the date
of discovery of such loss and without reference to any special
conditions or circumstances. Bank shall have no liability
whatsoever for any consequential, special, indirect or speculative
loss or damages (including, but not limited to, lost profits)
suffered by Customer in connection with the transactions
contemplated hereby and the relationship established hereby even
if Bank has been advised as to the possibility of the same and
regardless of the form of the action. Bank shall not be
responsible for the insolvency of any Subcustodian which is not a
branch or Affiliate of Bank.
(ii) Bank shall not be responsible for any act, omission,
default or the solvency of any broker or agent which it or a
Subcustodian appoints unless such appointment was made negligently
or in bad faith.
(iii) Bank shall be indemnified by, and without liability
to Customer for any action taken or omitted by Bank whether
pursuant to Instructions or otherwise within the scope hereof if
such act or omission was in good faith, without negligence. In
performing its obligations hereunder, Bank may rely on the
genuineness of any document which it believes in good faith to
have been validly executed.
(iv) Customer shall pay for and hold Bank harmless from any
liability or loss resulting from the imposition or assessment of
any taxes or other governmental charges, and any related expenses
with respect to income from or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for Customer) on all matters
and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
(vi) Bank need not maintain any insurance for the benefit
of Customer.
(vii) Without limiting the foregoing, Bank shall not be
liable for any loss which results from: 1) the general risk of
investing, or 2) investing or holding Assets in a particular
country including, but not limited to, losses resulting from
malfunction, interruption of or error in the transmission of
information caused by any machines or system or interruption of
communication facilities, abnormal operating conditions,
nationalization, expropriation or other governmental actions;
regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions
which prevent the orderly execution of securities transactions or
affect the value of Assets.
(viii) Neither party shall be liable to the other for
any loss due to forces beyond their control including, but not
limited to strikes or work stoppages, acts of war (whether
declared or undeclared) or terrorism, insurrection, revolution,
nuclear fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of
this Section 12, it is specifically acknowledged that Bank shall have no
duty or responsibility to:
(i) question Instructions or make any suggestions to
Customer or an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise Customer or an Authorized Person regarding any
default in the payment of principal or income of any security
other than as provided in Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person
regarding the financial condition of any broker, agent or other
party to which Securities are delivered or payments are made
pursuant hereto; and
(v) review or reconcile trade confirmations received from
brokers. Customer or its Authorized Persons (as defined in
Section 10) issuing Instructions shall bear any responsibility to
review such confirmations against Instructions issued to and
statements issued by Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding
that Bank or any of its divisions or Affiliates may have a material
interest in a transaction, or circumstances are such that Bank may have
a potential conflict of duty or interest including the fact that Bank or
any of its Affiliates may provide brokerage services to other customers,
act as financial advisor to the issuer of Securities, act as a lender to
the issuer of Securities, act in the same transaction as agent for more
than one customer, have a material interest in the issue of Securities,
or earn profits from any of the activities listed herein.
13. Fees and Expenses.
Customer shall pay Bank for its services hereunder such amounts as
may be agreed upon in writing, together with Bank's reasonable
out-of-pocket or incidental expenses, including, but not limited to,
legal fees. Bank shall have a lien on and is authorized to charge any
Accounts of Customer for any amount owing to Bank under any provision
hereof.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the
administration of Customer's trading and investment activity, Bank is
authorized to enter into spot or forward foreign exchange contracts with
Customer or an Authorized Person for Customer and may also provide
foreign exchange through its subsidiaries, Affiliates or Subcustodians.
Instructions, including standing instructions, may be issued with
respect to such contracts but Bank may establish rules or limitations
concerning any foreign exchange facility made available. In all cases
where Bank, its subsidiaries, Affiliates or Subcustodians enter into a
foreign exchange contract related to Accounts, the terms and conditions
of the then current foreign exchange contract of Bank, its subsidiary,
Affiliate or Subcustodian and, to the extent not inconsistent, this
Agreement shall apply to such transaction.
(b) Certification of Residency, etc. Customer certifies that it
is a resident of the United States and shall notify Bank of any changes
in residency. Bank may rely upon this certification or the
certification of such other facts as may be required to administer
Bank's obligations hereunder. Customer shall indemnify Bank against all
losses, liability, claims or demands arising directly or indirectly from
any such certifications.
(c) Access to Records. Bank shall allow Customer's independent
public accountant reasonable access to the records of Bank relating to
the Assets as is required in connection with their examination of books
and records pertaining to Customer's affairs. Subject to restrictions
under applicable law, Bank shall also obtain an undertaking to permit
Customer's independent public accountants reasonable access to the
records of any Subcustodian which has physical possession of any Assets
as may be required in connection with the examination of Customer's
books and records.
(d) Governing Law; Successors and Assigns, Captions THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN NEW YORK and shall
not be assignable by either party, but shall bind the successors in
interest of Customer and Bank. The captions given to the sections and
subsections of this Agreement are for convenience of reference only and
are not to be used to interpret this Agreement.
(e) Entire Agreement; Applicable Riders. Customer represents
that the Assets deposited in the Accounts are (Check one):
Employee Benefit Plan or other assets subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA");
X Investment Company assets subject to certain U.S.
Securities and Exchange Commission rules
and regulations;
Neither of the above.
This Agreement consists exclusively of this document together with
Schedule A, Exhibit I and the following Rider(s) [Check applicable
rider(s)]:
ERISA
X INVESTMENT COMPANY
X PROXY VOTING
X SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this Agreement supersedes
any other agreements, whether written or oral, between the parties. Any
amendment hereto must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions
hereof are held invalid, illegal or unenforceable in any respect on the
basis of any particular circumstances or in any jurisdiction, the
validity, legality and enforceability of such provision or provisions
under other circumstances or in other jurisdictions and of the remaining
provisions shall not in any way be affected or impaired.
(g) Waiver. Except as otherwise provided herein, no failure or
delay on the part of either party in exercising any power or right
hereunder operates as a waiver, nor does any single or partial exercise
of any power or right preclude any other or further exercise, or the
exercise of any other power or right. No waiver by a party of any
provision hereof, or waiver of any breach or default, is effective
unless in writing and signed by the party against whom the waiver is to
be enforced.
(h) Representations and Warranties. (i) Customer hereby
represents and warrants to Bank that: (A) it has full authority and
power to deposit and control the Securities and cash deposited in the
Accounts; (B) it has all necessary authority to use Bank as its
custodian; (C) this Agreement is its legal, valid and binding
obligation, enforceable in accordance with its terms; (D) it shall have
full authority and power to borrow moneys and enter into foreign
exchange transactions; and (E) it has not relied on any oral or written
representation made by Bank or any person on its behalf, and
acknowledges that this Agreement sets out to the fullest extent the
duties of Bank. (ii) Bank hereby represents and warrants to Customer
that: (A) it has the power and authority to perform its obligations
hereunder, (B) this Agreement constitutes a legal, valid and binding
obligation on it; enforceable in accordance with its terms; and (C)
that it has taken all necessary action to authorize the execution and
delivery hereof.
(i) Notices. All notices hereunder shall be effective when
actually received. Any notices or other communications which may be
required hereunder are to be sent to the parties at the following
addresses or such other addresses as may subsequently be given to the
other party in writing: (a) Bank: The Chase Manhattan Bank, 4 Chase
MetroTech Center, Brooklyn, NY 11245, Attention: Global Custody
Division; and (b) Customer: C/O Smith Barney Inc., 388 Greenwich
Street, 22nd Floor, New York, New York 10013, Attn: Lewis E. Daidone
or Christina T. Sydor.
(j) Termination. This Agreement may be terminated by Customer
or Bank by giving sixty (60) days written notice to the other, provided
that such notice to Bank shall specify the names of the persons to whom
Bank shall deliver the Assets in the Accounts. If notice of termination
is given by Bank, Customer shall, within sixty (60) days following
receipt of the notice, deliver to Bank Instructions specifying the names
of the persons to whom Bank shall deliver the Assets. In either case
Bank shall deliver the Assets to the persons so specified, after
deducting any amounts which Bank determines in good faith to be owed to
it under Section 13. If within sixty (60) days following receipt of a
notice of termination by Bank, Bank does not receive Instructions from
Customer specifying the names of the persons to whom Bank shall deliver
the Assets, Bank, at its election, may deliver the Assets to a bank or
trust company doing business in the State of New York to be held and
disposed of pursuant to the provisions hereof, or to Authorized Persons,
or may continue to hold the Assets until Instructions are provided to
Bank.
(k) Imputation of Certain Information. Bank shall not be held
responsible for and shall not be required to have regard to information
held by any person by imputation or information of which Bank is not
aware by virtue of a "Chinese Wall" arrangement. If Bank becomes aware
of confidential information which in good faith it feels inhibits it
from effecting a transaction hereunder Bank may refrain from effecting
it.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first-above written.
CUSTOMER
By:____________________________________________
Title: Senior Vice President and
Treasurer
Date: December 6, 1996
THE CHASE MANHATTAN BANK
By:____________________________________________
Title:
Date:
78111
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this 6th day of December, 1996, before me personally came Lewis E.
Daidone, to me known, who being by me duly sworn, did depose and say that he
resides in Holmdel, New Jersey at 15 Sherwood Court, that he is Senior Vice
President and Treasurer of Customer, the entity described in and which
executed the foregoing instrument; and that he signed his name thereto by
order of said entity.
Lewis E. Daidone
Sworn to before me this 6th
day of December, 1996.
Notary
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this _______ day of December, 1996, before me personally came
, to me known, who being by me duly sworn, did depose and say that he/she
resides in at
; that he/she is a Vice President of THE CHASE MANHATTAN BANK, the corporation
described in and which executed the foregoing instrument; that he/she knows
the seal of said corporation, that the seal affixed to said instrument is such
corporate seal, that it was so affixed by order of the Board of Directors of
said corporation, and that he/she signed his/her name thereto by like order.
Sworn to before me this
day of , 199 .
Notary
EXHIBIT I
Dated December 6, 1996
Smith Barney World Funds, Inc.
Emerging Market Portfolio
European Portfolio
Global Government Bond Portfolio
International Balanced Portfolio
International Equity Portfolio
Pacific Portfolio
Smith Barney Natural Resources Fund Inc.
Smith Barney Income Funds
Smith Barney Diversified Strategic Income Fund
Consulting Group Capital Markets Funds (TRAK)
International Equity Investments
International Fixed Income Investments
Emerging Markets Equity Investments
The Italy Fund
Travelers Series Fund Inc. (Vintage)
GT Global Strategic Income Portfolio
Smith Barney International Equity Portfolio
Smith Barney Pacific Basin Portfolio
Travelers Series Trust (Architect)
Lazard International Stock Portfolio
Smith Barney Series Trust (Symphony)
Diversified Strategic Income Fund
International Equity Fund
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
Each of the Investment Companies listed on Exhibit I to said Global Custody
Agreement
effective December 6, 1996
Customer represents that the Assets being placed in Bank's custody are
subject to the Investment Company Act of 1940, as amended (the "1940 Act"), as
the same may be amended from time to time.
Except to the extent that Bank has specifically agreed to comply with a
condition of a rule, regulation, interpretation promulgated by or under the
authority of the Securities and Exchange Commission ("SEC") or the Exemptive
Order applicable to accounts of this nature issued to Bank (1940 Act, Release
No. 12053, November 20, 1981), as amended, or unless Bank has otherwise
specifically agreed, Customer shall be solely responsible to assure that the
maintenance of Assets hereunder complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of
the Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used herein shall
mean a branch of a qualified U.S. bank, an eligible foreign custodian or
an eligible foreign securities depository, which are further defined as
follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined
in Rule 17f-5 under the 1940 Act;
(b) "eligible foreign custodian" shall mean (i) a banking institution
or trust company, incorporated or organized under the laws of a country
other than the United States, that is regulated as such by that
country's government or an agency thereof and that has shareholders'
equity in excess of $200 million in U.S. currency (or a foreign currency
equivalent thereof) as of the close of its fiscal year most recently
completed prior to the date hereof, (ii) a majority owned direct or
indirect subsidiary of a qualified U.S. bank or bank holding company
that is incorporated or organized under the laws of a country other than
the United States and that has shareholders' equity in excess of $100
million in U.S. currency (or a foreign currency equivalent thereof) as
of the close of its fiscal year most recently completed prior to the
date hereof, (iii) a banking institution or trust company incorporated
or organized under the laws of a country other than the United States or
a majority owned direct or indirect subsidiary of a qualified U.S. bank
or bank holding company that is incorporated or organized under the laws
of a country other than the United States which has such other
qualifications as shall be specified in Instructions and approved by
Bank; or (iv) any other entity that shall have been so qualified by
exemptive order, rule or other appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws
of a country other than the United States, which operates (i) the
central system for handling securities or equivalent book-entries in
that country, or (ii) a transnational system for the central handling of
securities or equivalent book-entries.
Customer represents that its Board of Directors has approved each of the
Subcustodians listed in Schedule A hereto, and further represents that its
Board has determined that the use of each Subcustodian and the terms of each
subcustody agreement are consistent with the best interests of the Fund(s) and
its (their) shareholders. Bank shall supply Customer with any amendment to
Schedule A for approval. Customer has supplied or shall supply Bank with
certified copies of its Board of Directors resolution(s) with respect to the
foregoing prior to placing Assets with any Subcustodian so approved.
Section 11. Instructions.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant
to Section 5 and 6 hereof may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction
is to be made and Customer shall be solely responsible to assure that
Instructions are in accord with any limitations or restrictions
applicable to Customer by law or as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise
become payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;
(g) In connection with any borrowings by Customer requiring a pledge of
Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to Customer;
(i) For the purpose of redeeming shares of the capital stock of
Customer and the delivery to, or the crediting to the account of, Bank,
its Subcustodian or Customer's transfer agent, such shares to be
purchased or redeemed;
(j) For the purpose of redeeming in kind shares of Customer against
delivery to Bank, its Subcustodian or Customer's transfer agent of such
shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement
among Customer, Bank and a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of The National Association of
Securities Dealers, Inc., relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by
Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only
upon payment to Bank of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option,
or at expiration, Bank shall receive from brokers the Securities
previously deposited. Bank shall act strictly in accordance with
Instructions in the delivery of Securities to be held in escrow and
shall have no responsibility or liability for any such Securities which
are not returned promptly when due other than to make proper request for
such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
(n) For other proper purposes as may be specified in Instructions
issued by an officer of Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of
the payment or specific Securities to be delivered, the name of the
person or persons to whom delivery or payment is to be made, and a
certification that the purpose is a proper purpose under the instruments
governing Customer; and
(o) Upon the termination hereof as set forth in Section 14(j).
Section 12. Standard of Care; Liabilities.
Add the following at the end of Section as 12:
(d) Bank hereby warrants to Customer that in its opinion, after due
inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. Bank, each eligible foreign
custodian and each eligible foreign securities depository holding
Customer's Securities pursuant hereto afford protection for such
Securities at least equal to that afforded by Bank's established
procedures with respect to similar securities held by Bank and its
securities depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from Customer, Bank shall furnish Customer such
reports (or portions thereof) of Bank's system of internal accounting
controls applicable to Bank's duties hereunder. Bank shall endeavor to
obtain and furnish Customer with such similar reports as it may
reasonably request with respect to each Subcustodian and securities
depository holding Assets.
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
Each of the Investment Companies Listed on Exhibit I to said Global Custody
Agreement
dated December 6, 1996.
1. Global Proxy Services ("Proxy Services") shall be provided for the
countries listed in the procedures and guidelines ("Procedures")
furnished to Customer, as the same may be amended by Bank from time to
time on prior notice to Customer. The Procedures are incorporated by
reference herein and form a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by
Bank to Customer of the dates of pending shareholder meetings,
resolutions to be voted upon and the return dates as may be received by
Bank or provided to Bank by its Subcustodians or third parties, and (b)
voting by Bank of proxies based on Customer Directions. Original proxy
materials or copies thereof shall not be provided. Notifications shall
generally be in English and, where necessary, shall be summarized and
translated from such non-English materials as have been made available
to Bank or its Subcustodian. In this respect Bank's only obligation is
to provide information from sources it believes to be reliable and/or to
provide materials summarized and/or translated in good faith. Bank
reserves the right to provide Notifications, or parts thereof, in the
language received. Upon reasonable advance request by Customer, backup
information relative to Notifications, such as annual reports,
explanatory material concerning resolutions, management recommendations
or other material relevant to the exercise of proxy voting rights shall
be provided as available, but without translation.
3. While Bank shall attempt to provide accurate and complete Notifications,
whether or not translated, Bank shall not be liable for any losses or
other consequences that may result from reliance by Customer upon
Notifications where Bank prepared the same in good faith.
4. Notwithstanding the fact that Bank may act in a fiduciary capacity with
respect to Customer under other agreements or otherwise under the
Agreement, in performing Proxy Services Bank shall be acting solely as
the agent of Customer, and shall not exercise any discretion with regard
to such Proxy Services.
5. Proxy voting may be precluded or restricted in a variety of
circumstances, including, without limitation, where the relevant
Securities are: (i) on loan; (ii) at registrar for registration or
reregistration; (iii) the subject of a conversion or other corporate
action; (iv) not held in a name subject to the control of Bank or its
Subcustodian or are otherwise held in a manner which precludes voting;
(v) not capable of being voted on account of local market regulations or
practices or restrictions by the issuer; or (vi) held in a margin or
collateral account.
6. Customer acknowledges that in certain countries Bank may be unable to
vote individual proxies but shall only be able to vote proxies on a net
basis (e.g., a net yes or no vote given the voting instructions received
from all customers).
7. Customer shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered hereby, and shall
in no event sell, license, give or otherwise make the information
provided hereunder available, to any third party, and shall not directly
or indirectly compete with Bank or diminish the market for Proxy
Services by provision of such information, in whole or in part, for
compensation or otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services shall be furnished to
Bank in accordance with Sec.10 of the Agreement. Proxy Services fees shall
be as set forth in Sec.13 of the Agreement or as separately agreed.
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the latter if
held in DTC), the following provisions shall apply rather than the
pertinent provisions of Section 8 of the Agreement and the Global Proxy
Service rider:
Bank shall send to Customer or the Authorized Person for a
Custody Account, such proxies (signed in blank, if issued in
the name of Bank's nominee or the nominee of a central
depository) and communications with respect to Securities in
the Custody Account as call for voting or relate to legal
proceedings within a reasonable time after sufficient copies
are received by Bank for forwarding to its customers. In
addition, Bank shall follow coupon payments, redemptions,
exchanges or similar matters with respect to Securities in
the Custody Account and advise Customer or the Authorized
Person for such Account of rights issued, tender offers or
any other discretionary rights with respect to such
Securities, in each case, of which Bank has received notice
from the issuer of the Securities, or as to which notice is
published in publications routinely utilized by Bank for
this purpose.
5
3
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Natural Resources Fund Inc.
We consent to the use of our report dated December 19, 1996 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
February 19, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000797480
<NAME> SMITH BARNEY NATURAL RESOURCES FUND INC. CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 111,756,014
<INVESTMENTS-AT-VALUE> 124,138,577
<RECEIVABLES> 579,570
<ASSETS-OTHER> 1,325,131
<OTHER-ITEMS-ASSETS> 18,139,000
<TOTAL-ASSETS> 144,782,278
<PAYABLE-FOR-SECURITIES> 5,268,430
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,422,335
<TOTAL-LIABILITIES> 12,690,765
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 130,778,289
<SHARES-COMMON-STOCK> 2,201,056
<SHARES-COMMON-PRIOR> 1,689,793
<ACCUMULATED-NII-CURRENT> 969,082
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12,330,425)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,674,567
<NET-ASSETS> 132,091,513
<DIVIDEND-INCOME> 1,048,629
<INTEREST-INCOME> 575,274
<OTHER-INCOME> 1,623,903
<EXPENSES-NET> 1,987,287
<NET-INVESTMENT-INCOME> (363,384)
<REALIZED-GAINS-CURRENT> 13,520,028
<APPREC-INCREASE-CURRENT> 12,191,702
<NET-CHANGE-FROM-OPS> 25,348,346
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,586,022
<NUMBER-OF-SHARES-REDEEMED> 19,074,759
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 77,888,076
<ACCUMULATED-NII-PRIOR> (1,100,214)
<ACCUMULATED-GAINS-PRIOR> (24,990,828)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 763,626
<INTEREST-EXPENSE> 221,703
<GROSS-EXPENSE> 1,223,661
<AVERAGE-NET-ASSETS> 44,434,142
<PER-SHARE-NAV-BEGIN> 16.50
<PER-SHARE-NII> 6.45
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.95
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<ARTICLE> 6
<CIK> 0000797480
<NAME> SMITH BARNEY NATURAL RESOURCES FUND INC. CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
[INVESTMENTS-AT-COST] 111,756,014
[INVESTMENTS-AT-VALUE] 124,138,577
[RECEIVABLES] 579,570
[ASSETS-OTHER] 1,325,131
[OTHER-ITEMS-ASSETS] 18,139,000
[TOTAL-ASSETS] 144,782,278
[PAYABLE-FOR-SECURITIES] 5,268,430
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 7,422,335
[TOTAL-LIABILITIES] 12,690,765
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 130,778,289
[SHARES-COMMON-STOCK] 3,314,188
[SHARES-COMMON-PRIOR] 1,593,919
[ACCUMULATED-NII-CURRENT] 969,082
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (12,330,425)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 12,674,567
[NET-ASSETS] 132,091,513
[DIVIDEND-INCOME] 1,048,629
[INTEREST-INCOME] 575,274
[OTHER-INCOME] 1,623,903
[EXPENSES-NET] 1,987,287
[NET-INVESTMENT-INCOME] (363,384)
[REALIZED-GAINS-CURRENT] 13,520,028
[APPREC-INCREASE-CURRENT] 12,191,702
[NET-CHANGE-FROM-OPS] 25,348,346
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 6,446,926
[NUMBER-OF-SHARES-REDEEMED] 4,726,657
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 77,888,076
[ACCUMULATED-NII-PRIOR] (1,100,214)
[ACCUMULATED-GAINS-PRIOR] (24,990,828)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 763,626
[INTEREST-EXPENSE] 221,703
[GROSS-EXPENSE] 1,223,661
[AVERAGE-NET-ASSETS] 51,122,441
[PER-SHARE-NAV-BEGIN] 16.15
[PER-SHARE-NII] 6.17
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 22.32
[EXPENSE-RATIO] 2.29
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000797480
<NAME> SMITH BARNEY NATURAL RESOURCES FUND INC. CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
[INVESTMENTS-AT-COST] 111,756,014
[INVESTMENTS-AT-VALUE] 124,138,577
[RECEIVABLES] 579,570
[ASSETS-OTHER] 1,325,131
[OTHER-ITEMS-ASSETS] 18,139,000
[TOTAL-ASSETS] 144,782,278
[PAYABLE-FOR-SECURITIES] 5,268,430
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 7,422,335
[TOTAL-LIABILITIES] 12,690,765
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 130,778,289
[SHARES-COMMON-STOCK] 340,531
[SHARES-COMMON-PRIOR] 35,361
[ACCUMULATED-NII-CURRENT] 969,082
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (12,330,425)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 12,674,567
[NET-ASSETS] 132,091,513
[DIVIDEND-INCOME] 1,048,629
[INTEREST-INCOME] 575,274
[OTHER-INCOME] 1,623,903
[EXPENSES-NET] 1,987,287
[NET-INVESTMENT-INCOME] (363,384)
[REALIZED-GAINS-CURRENT] 13,520,028
[APPREC-INCREASE-CURRENT] 12,191,702
[NET-CHANGE-FROM-OPS] 25,348,346
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 533,568
[NUMBER-OF-SHARES-REDEEMED] 228,398
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 77,888,076
[ACCUMULATED-NII-PRIOR] (1,100,214)
[ACCUMULATED-GAINS-PRIOR] (24,990,828)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 763,626
[INTEREST-EXPENSE] 221,703
[GROSS-EXPENSE] 1,223,661
[AVERAGE-NET-ASSETS] 4,281,544
[PER-SHARE-NAV-BEGIN] 16.16
[PER-SHARE-NII] 6.16
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 22.32
[EXPENSE-RATIO] 2.25
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
