<PAGE>
[GRAPHIC]
Smith Barney
Natural
Resources
Fund Inc.
---------------------------------------------
SEMI-ANNUAL REPORT
----------------------------------------------
April 30, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(SM)
<PAGE>
Smith Barney
Natural Resources
Fund Inc.
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Natural
Resources Fund Inc. ("Fund") for the period ended April 30, 1998. In this report
we have summarized the period's prevailing economic and market conditions and
outline the Fund's investment strategy. A detailed summary of performance and
current holdings can be found in the appropriate sections that follow.
Performance Update
The Fund experienced a disappointing six months ended April 30, 1998, and posted
a negative total return of 3.01% for Class A shares which was somewhat better
than the Fund's peer group average of a negative 3.64% as reported by Lipper
Analytical Services, Inc. (Lipper is a major fund-tracking organization.) While
we are not pleased with the Fund's performance, it is our opinion that the
outlook for natural resource industries is bright over the next several years.
In this letter, we will first discuss the Fund's performance over the past six
months, then look at how the Fund is positioned to take advantage of the
opportunities we see going forward.
Economic and Market Update
Many of the factors affecting the performance of the Fund in the last six months
are similar to those in existence for the last 10-15 years. Since the early
1980's, inflation has consistently fallen to the point where inflation is
regarded as "dead" for all practical purposes. Available capital has promoted
many natural resource companies in the last two decades to embark on capital
expenditure programs that have increased world capacity and led to greater
volatility in product prices. Unfortunately, the enthusiasm for future growth
prospects in the world economy had the effect of convincing many corporate
managements that each individual company's growth plan could be accommodated.
We believe the disinflationary environment, which is now taken for granted, will
begin to change next year. The Asian financial crisis has accelerated thinking,
already underway in many companies, that new directions must be pursued in the
next five years to improve returns for both natural resource companies and their
shareholders. In the last ten years, natural resource mutual funds have trailed
the
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 1
<PAGE>
Standard & Poor's 500 Index ("S&P 500") by 800 basis points as their
annualized returns over the decade have averaged just under 10% vs. 18% for the
index. We believe this is about to change for a number of reasons and that
natural resource investments will have a good chance to outperform the S&P 500
during the next five years.
We expect natural resource returns to exceed the absolute returns earned over
the last decade, but the real story may be that this will compare favorably with
returns elsewhere including those for the S&P 500. (Of course, no guarantees can
be made that these returns will be achieved.) Many sectors of the market may
experience returns in the next five years more in line with historic norms than
those experienced over the last ten years.
The Case For Natural Resources: 1998-2003
Here's why we're still bullish on natural resources:
o The Asian crisis has shown the folly of building new current capacity to
try to meet aggressive projections of future demand. If there is a silver
lining to problems in Asia and emerging markets, in general, it is that
many plans for additional capacity in the natural resources industry have
now been shelved. Between 1998-2001, tighter supply-demand conditions will
develop in many natural resource and basic industries and should lead to
better pricing.
o One result of the Asian crisis could be quite positive for the natural
resource industries. Capital expenditures to build market share, with
inadequate attention to the returns on the capital involved, may be a thing
of the past. The belief that Asia could do no wrong, which prompted
seemingly unlimited capital availability in some areas, is no longer
prevalent. The majority of Asian companies we have analyzed recently have
returns significantly below their cost of capital. Although capital will
continue to be available to Asian companies, it will likely be offered on
different terms in the future. It is unlikely that capital expenditures
will be as large in the natural resource industries in the next five years
unless much higher returns develop.
o Many natural resources companies are "just saying no" to capital
expenditures to expand capacity. The paper industry probably is a very good
example of developments that should characterize management decision-making
all across the natural resource spectrum. Many paper companies have
determined that the only realistic way to expand is through acquisition
rather than building new facilities. Recently a merger occurred in the
containerboard industry that will result in 18% of U.S. production being
controlled by one company. Also, in recent weeks, major Finnish and Swedish
paper companies announced their intentions to merge. The changing behavior
of natural resource company managements is another reason to believe the
next five years should be more prosperous for investors in this market
sector.
- --------------------------------------------------------------------------------
2 1998 Semi-Annual Report to Shareholders
<PAGE>
o Although many Asian and emerging economies will be restructuring and
experiencing much reduced growth rates in 1998-1999, we expect economies in
the region to be expanding again by 2000-2001. If and when this happens,
demand for many natural resources should once again improve substantially.
However, the difference may be that there may be far less enthusiasm for
increasing capacity, which could extend the length of the next upturn.
o Inflation may move up moderately to the 3%-3 1/2% range in the next few
years, in line with the 1950-1998 historical record if the inflationary
1970's are excluded. Thus far in 1998, wages are increasing faster than
inflation for the first time since 1990, and that trend is expected to
continue in 1999. This is important because wages make up a large part of
the cost of goods and services. Inflation is the least important reason to
consider additional investments in natural resources but even a modest move
upward may shift investor psychology.
Portfolio Strategy
Our goal is to include only the highest quality companies in the Fund's
portfolio. In many cases these will be stocks of larger, better-known companies,
but the description "high quality" is not always reserved for the biggest
companies in a given industry. When investor interest returns to the natural
resources universe, the first stocks to move will be the ones perceived by the
mutual fund community to be the best available. Market capitalizations of even
the largest natural resource companies are modest compared to many companies in
the S&P 500. This suggests even a small change in asset allocation by the mutual
fund industry could have a substantial effect on the valuations of this segment
of the market.
Sector Weightings
At the current time energy, including energy services, is the Fund's largest
weighting, with about 27% of Fund's portfolio invested in this sector as of
April 30, 1998. We expect that there will be an attempt to curtail production by
OPEC in the next few weeks and that this depressed group should do well over the
next six months. Although paper companies are now experiencing downtime and that
should affect their second quarter results, we believe this group of stocks may
do well in the next one to two years and outperform most important market
averages by a wide margin. We will continue to be opportunistic in trying to
identify those sectors within natural resources that we believe have the best
risk/reward characteristics.
Our mission is to upgrade the quality of holdings where necessary and to run the
Fund as essentially fully invested. We want to provide a high quality,
diversified natural resources portfolio that should do well if the circumstances
we have outlined in this letter come to pass.
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 3
<PAGE>
Conclusion
The past has been a difficult time for the natural resource industries, but it
does not change our belief that the next several years will be decidedly better.
We remain committed to providing you a high quality fund that should experience
significant upside when the natural resource industries return to favor in the
investment community.
Thank you for your investment in the Smith Barney Natural Resources Fund Inc. We
look forward to helping you pursue your investment goals in the years ahead.
Sincerely,
/s/ Heath B. McLendon /s/ John G. Goode
Heath B. McLendon John G. Goode
Chairman Vice President and
Investment Officer
/s/ David Stadlin
David Stadlin
Investment Officer
June 10, 1998
- --------------------------------------------------------------------------------
4 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================
Historical Performance -- Class A Shares
==========================================================================================
Net Asset Value
--------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==========================================================================================
<S> <C> <C> <C> <C> <C> <C>
4/30/98 $23.23 $22.35 $0.00 $0.16 $0.00 (3.01)%+
- ------------------------------------------------------------------------------------------
10/31/97 22.95 23.23 0.33 0.00 0.00 2.67
- ------------------------------------------------------------------------------------------
10/31/96 16.50 22.95 0.00 0.00 0.00 39.09
- ------------------------------------------------------------------------------------------
10/31/95 21.44 16.50 0.00 0.00 0.00 (23.04)
- ------------------------------------------------------------------------------------------
10/31/94 18.89 21.44 0.00 0.00 0.00 13.50
- ------------------------------------------------------------------------------------------
10/31/93 13.27 18.89 0.00 0.00 0.00 42.35
- ------------------------------------------------------------------------------------------
10/31/92 13.93 13.27 0.06 0.00 0.03 (4.09)
- ------------------------------------------------------------------------------------------
10/31/91 13.63 13.93 0.00 0.00 0.00 2.20
- ------------------------------------------------------------------------------------------
10/31/90 16.96 13.63 0.21 0.00 0.11 (18.18)
- ------------------------------------------------------------------------------------------
10/31/89 16.43 16.96 0.00 0.00 0.00 3.23
- ------------------------------------------------------------------------------------------
10/31/88 18.58 16.43 0.00 0.90 0.00 (7.56)
==========================================================================================
Total $0.60 $1.06 $0.14
==========================================================================================
<CAPTION>
==========================================================================================
Historical Performance -- Class B Shares
==========================================================================================
Net Asset Value
--------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==========================================================================================
<S> <C> <C> <C> <C> <C> <C>
4/30/98 $22.60 $21.67 $0.00 $0.16 $0.00 (3.31)%+
- ------------------------------------------------------------------------------------------
10/31/97 22.32 22.60 0.15 0.00 0.00 1.95
- ------------------------------------------------------------------------------------------
10/31/96 16.15 22.32 0.00 0.00 0.00 38.20
- ------------------------------------------------------------------------------------------
10/31/95 21.14 16.15 0.00 0.00 0.00 (23.60)
- ------------------------------------------------------------------------------------------
10/31/94 18.75 21.14 0.00 0.00 0.00 12.75
- ------------------------------------------------------------------------------------------
Inception*-10/31/93 13.35 18.75 0.00 0.00 0.00 40.45+
==========================================================================================
Total $0.15 $0.16 $0.00
==========================================================================================
<CAPTION>
==========================================================================================
Historical Performance -- Class C Shares
==========================================================================================
Net Asset Value
--------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==========================================================================================
<S> <C> <C> <C> <C> <C> <C>
4/30/98 $22.62 $21.70 $0.00 $0.16 $0.00 (3.27)%+
- ------------------------------------------------------------------------------------------
10/31/97 22.32 22.62 0.15 0.00 0.00 2.04
- ------------------------------------------------------------------------------------------
10/31/96 16.16 22.32 0.00 0.00 0.00 38.12
- ------------------------------------------------------------------------------------------
Inception*-10/31/95 20.63 16.16 0.00 0.00 0.00 (21.67)+
==========================================================================================
Total $0.15 $0.16 $0.00
==========================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 5
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Average Annual Total Return
================================================================================
Without Sales Charge(1)
----------------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Six Months Ended 4/30/98+ (3.01)% (3.31)% (3.27)%
- --------------------------------------------------------------------------------
Year Ended 4/30/98 8.07 7.32 7.42
- --------------------------------------------------------------------------------
Five Years Ended 4/30/98 6.77 6.03 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 4/30/98 2.67 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 4/30/98 4.26 9.54 1.91
================================================================================
<CAPTION>
Without Sales Charge(2)
----------------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Six Months Ended 4/30/98+ (7.85)% (8.11)% (4.23)%
- --------------------------------------------------------------------------------
Year Ended 4/30/98 2.65 2.32 6.42
- --------------------------------------------------------------------------------
Five Years Ended 4/30/98 5.68 5.87 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 4/30/98 2.14 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 4/30/98 3.79 9.54 1.91
================================================================================
<CAPTION>
================================================================================
Cumulative Total Return
================================================================================
Without Sales Charge(1)
================================================================================
<S> <C>
Class A (4/30/88 through 4/30/98) 30.14%
- --------------------------------------------------------------------------------
Class B (Inception* through 4/30/98) 64.81
- --------------------------------------------------------------------------------
Class C (Inception* through 4/30/98) 6.80
================================================================================
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and C
shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 5.00%; Class B shares reflect the
deduction of a 5.00% CDSC, which applies if shares are redeemed within one
year from initial purchase and declines thereafter by 1.00% per year until
no CDSC is incurred. Class C shares reflect the deduction of a 1.00% CDSC,
which applies if shares are redeemed within the first year of purchase.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B and C shares are November 24, 1986, November
6, 1992 and November 7, 1994, respectively.
- --------------------------------------------------------------------------------
6 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A Shares of
the Smith Barney Natural Resources Fund Inc.
vs. MSCI World Index and Standard & Poor's 500 Index+
- --------------------------------------------------------------------------------
April 1988 - April 1998
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Natural Resources Fund Inc. MSCI World Index S&P 500 Index
--------------------------- ---------------- -------------
<S> <C> <C> <C>
4/88 $ 9,499 $10,000 $10,000
10/88 $ 8,670 $10,488 $10,878
10/89 $ 8,950 $11,958 $13,745
10/90 $ 7,323 $10,670 $12,716
10/91 $ 7,484 $12,423 $16,966
10/92 $ 7,178 $11,842 $18,654
10/93 $10,217 $15,121 $21,434
10/94 $11,596 $16,356 $22,262
10/95 $ 8,925 $17,996 $28,142
10/96 $12,413 $21,026 $34,921
10/97 $12,745 $24,654 $46,131
4/30/98 $12,361 $29,358 $56,510
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A shares on April
30, 1988, assuming deduction of the maximum 5.00% sales charge at the time
of investment and the reinvestment of dividends and capital gains, if any,
at net asset value through April 30, 1998. The Morgan Stanley Capital
International World Index ("MSCI World Index") is an arithmetic average
weighted by the market value performance of 1,468 securities listed on the
stock exchanges of the USA, Europe, Canada, Australia, New Zealand and the
Far East. The Standard & Poor's 500 Index is an index composed of widely
held common stocks listed on the New York Stock Exchange, American Stock
Exchange and the over-the-counter market. Figures for the index include the
reinvestment of dividends. The indexes are unmanaged and not subject to the
same management and trading expenses of a mutual fund. The performance of
the Fund's other classes may be greater or less than the Class A shares'
performance indicated on this chart, depending on whether greater or lesser
sales charges and fees were incurred by shareholders investing in the other
classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 7
<PAGE>
================================================================================
Portfolio Highlights (unaudited) April 30, 1998
================================================================================
Portfolio Breakdown
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<S> <C>
Steel 3.5%
Repurchase Agreement 4.1%
Aluminum 5.4%
Base Materials 7.8%
Chemical 1.9%
Energy Service & Equipment 24.1%
Oil-Exploration & Production 16.8%
Gold 12.8%
Miscellaneous 3.3%
Paper 16.8%
Diversified Energy Companies 3.5%
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Top Five Countries Total Investments
- --------------------------------------------------------------------------------
<S> <C>
United States 71.6%
Canada 10.8
Australia 9.7
South Africa 2.7
Singapore 1.9
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Top Ten Common Stock Holdings Total Investments
- --------------------------------------------------------------------------------
<S> <C>
Georgia Pacific Corp. 4.4%
Ocean Energy Inc. 4.1
Sons of Gwalia Ltd. 4.0
Weatherford Enterra Inc. 3.6
Louis Dreyfus Natural Gas Corp. 3.6
Diamond Offshore Drilling Inc. 3.4
Jefferson Smurfit Corp. 3.3
Noble Drilling Corp. 3.2
RMI Titanium Co. 3.1
Aluminum Co. of America 3.0
</TABLE>
- --------------------------------------------------------------------------------
8 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedule of Investments (unaudited) April 30, 1998
================================================================================
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
STOCKS -- 94.5%
Aluminum -- 5.4%
35,000 Aluminum Co. of America $ 2,712,500
430,000 Billiton PLC 1,234,805
70,000 Commonwealth Industries Inc. 1,190,000
- --------------------------------------------------------------------------------
5,137,305
- --------------------------------------------------------------------------------
Base Metals -- 7.8%
125,000 RMI Titanium Co.(a)(b) 2,789,062
100,000 Titanium Metals Corp.(a)(b) 2,662,500
50,700 Wolverine Tube Inc.(b) 1,996,312
- --------------------------------------------------------------------------------
7,447,874
- --------------------------------------------------------------------------------
Chemical -- 1.9%
80,000 Wellman Inc. 1,810,000
- --------------------------------------------------------------------------------
Diversified Energy Companies -- 3.5%
20,000 Amoco Corp. 885,000
50,000 Enron Corp.(a) 2,459,375
- --------------------------------------------------------------------------------
3,344,375
- --------------------------------------------------------------------------------
Energy Service & Equipment -- 24.1%
40,000 Baker Hughes Inc. 1,620,000
60,000 BJ Services Co.(b) 2,250,000
90,000 Canadian Fracmaster Ltd. 1,167,156
200,000 Canadian Fracmaster Ltd. Installment Receipts(b) 1,293,344
60,000 Diamond Offshore Drilling Inc. 3,037,500
100,000 Global Industries Ltd.(a)(b) 2,268,750
35,000 Nabors Industries(a)(b) 881,562
90,000 Noble Drilling Corp.(b) 2,908,125
16,000 Pe Ben Oilfield Services(b) 43,064
57,100 R & B Falcon Corp.(b) 1,845,043
135,000 Ryan Energy Technologies Inc.(b) 953,229
65,000 Weatherford Enterra Inc.(b) 3,254,062
85,000 Willbros Group Inc.(b) 1,413,125
- --------------------------------------------------------------------------------
22,934,960
- --------------------------------------------------------------------------------
Gold -- 12.8%
58,109 Atlas Corp.(b) 14,527
300,000 Crown Resources Corp.(b) 1,312,500
150,000 Golden Star Resources Ltd.(a)(b) 543,750
1,836,494 Normandy Mining Ltd. 2,047,546
212,212 Normandy Mining Ltd. Warrants, Expire 4/30/01(b) 28,364
100,000 Ourominas Minerals Inc. Warrants, Expire 2/14/99(b) 0
150,000 Philex Gold Inc.(b) 157,298
272,000 Plutonic Resources Ltd. 1,069,385
36,927 Randfontein Gold Warrants, Expire 7/1/02(b) 32,862
299,600 Ranger Minerals NL(b) 779,404
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 9
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1998
================================================================================
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
Gold -- 12.8% (continued)
1,175,000 Sons of Gwalia Ltd. $ 3,623,658
2,187,666 Tanami Gold NL(b) 171,163
94,171 Western Areas Gold Co. Ltd. ADR(a) 577,334
308,460 Western Areas Gold Mining 1,891,082
- --------------------------------------------------------------------------------
12,248,873
- --------------------------------------------------------------------------------
Miscellaneous -- 1.9%
85,000 Alyn Corp.(b) 701,250
3,600,000 Austral Coal NL 1,126,657
- --------------------------------------------------------------------------------
1,827,907
- --------------------------------------------------------------------------------
Oil - Exploration & Production -- 16.8%
1,399,000 Abacan Resource Corp.(b) 1,792,468
26,000 Abacan Resource Corp. - Canada(b) 34,354
212,900 Baytex Energy Ltd., Class A Shares(b) 2,515,387
50,000 Benton Oil and Gas Co.(b) 609,375
260,000 Canrise Resources Ltd.(b) 908,836
160,000 Louis Dreyfus Natural Gas Corp.(b) 3,210,000
150,000 Ocean Energy Inc.(a)(b) 3,675,000
85,000 Oryx Energy Co.(b) 2,220,625
80,000 Remington Energy Ltd.(b) 1,048,657
- --------------------------------------------------------------------------------
16,014,702
- --------------------------------------------------------------------------------
Paper -- 16.8%
635,000 Asia Pacific Resources International
Holdings Ltd., Class A Shares 1,706,578
120,000 Asia Pulp & Paper Ltd. 1,747,500
40,000 Champion International Corp. 2,152,500
51,000 Georgia Pacific Corp.(a) 3,936,562
115,000 Georgia Pacific Timber Group(a) 2,946,875
60,000 Jefferson Smurfit Corp.(b) 1,237,500
70,000 Schweitzer-Mauduit International 2,327,500
- --------------------------------------------------------------------------------
16,055,015
- --------------------------------------------------------------------------------
Steel -- 3.5%
80,000 Olympic Steel Inc.(b) 1,170,000
80,000 Schnitzer Steel Industries, Class A Shares 2,120,000
- --------------------------------------------------------------------------------
3,290,000
- --------------------------------------------------------------------------------
TOTAL STOCKS
(Cost-- $90,443,022) 90,111,011
================================================================================
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
10 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1998
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
<S> <C> <C>
CONVERTIBLE NOTE -- 1.4%
- --------------------------------------------------------------------------------
Platinum -- 1.4%
$1,200,000 Stillwater Mining Co., 7.00% due 5/1/03(c)
(Cost-- $1,235,000) $ 1,314,000
================================================================================
REPURCHASE AGREEMENT -- 4.1%
3,956,000 CIBC Wood Gundy Securities Inc., 5.400% due 5/1/98;
Proceeds at maturity $3,956,593; (Fully collateralized
by U.S. Treasury Note, 6.375% due 8/15/99;
Market value-- $4,036,170) (Cost-- $3,956,000) 3,956,000
================================================================================
Total Investments -- 100%
(Cost-- $95,634,022*) $95,381,011
================================================================================
</TABLE>
(a) A portion of this security is on loan (see Note 7).
(b) Non-income producing security.
(c) Security is exempt from registration under Rule 144a of the Securities Act
of 1993. This security may be resold in transactions that are exempt from
registration, generally to qualified institutional buyers.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 11
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Statement of Assets and Liabilities (unaudited) April 30, 1998
================================================================================
<S> <C>
ASSETS:
Investments, at value (Cost-- $95,634,022) $ 95,381,011
Foreign currency (Cost-- $150,754) 150,487
Cash 760
Collateral for securites loaned (Note 7) 27,096,680
Receivable for securities sold 2,363,774
Receivable for Fund shares sold 28,795
Dividends and interest receivable 217,195
- --------------------------------------------------------------------------------
Total Assets 125,238,702
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities loaned (Note 7) 27,096,680
Payable for Fund shares purchased 44,739
Payable for securities purchased 92,019
Management fees payable 47,978
Distribution fees payable 26,387
Payable for open forward foreign currency contracts (Note 6) 416
Accrued expenses 78,770
- --------------------------------------------------------------------------------
Total Liabilities 27,386,989
- --------------------------------------------------------------------------------
Total Net Assets $ 97,851,713
================================================================================
NET ASSETS:
Par value of capital shares $ 4,456
Capital paid in excess of par value 99,650,177
Overdistributed net investment income (575,153)
Accumulated net realized loss from security
transactions, options and foreign currencies (976,022)
Net unrealized depreciation of investments
and foreign currencies (251,745)
- --------------------------------------------------------------------------------
Total Net Assets $ 97,851,713
================================================================================
Shares Outstanding:
Class A 1,882,929
------------------------------------------------------------------------------
Class B 2,349,031
------------------------------------------------------------------------------
Class C 224,242
------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $22.35
------------------------------------------------------------------------------
Class B* $21.67
------------------------------------------------------------------------------
Class C** $21.70
------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per share) $23.53
================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed less than one year from initial purchase (See Note 2).
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase (See Note 2).
See Notes to Financial Statements
- --------------------------------------------------------------------------------
12 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Statement of Operations (unaudited)
================================================================================
For the Six Months Ended April 30, 1998
<S> <C>
INVESTMENT INCOME:
Dividends $ 636,744
Interest 105,763
Less: Foreign withholding tax (22,528)
- --------------------------------------------------------------------------------
Total Investment Income 719,979
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 364,217
Distribution fees (Note 2) 338,083
Shareholder and system servicing fees 101,204
Registration fees 32,640
Audit and legal 25,016
Shareholder communications 20,978
Custody 20,719
Directors' fees 6,561
Other 4,067
- --------------------------------------------------------------------------------
Total Expenses 913,485
- --------------------------------------------------------------------------------
Net Investment Loss (193,506)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
OPTIONS AND FOREIGN CURRENCIES (NOTES 3, 5 AND 6):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) 1,425,417
Options written (87,437)
Foreign currency transactions (52,473)
- --------------------------------------------------------------------------------
Net Realized Gain 1,285,507
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of Investments
and Foreign Currencies:
Beginning of period 5,525,267
End of period (251,745)
- --------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (5,777,012)
- --------------------------------------------------------------------------------
Net Loss on Investments, Options and Foreign Currencies (4,491,505)
- --------------------------------------------------------------------------------
Decrease in Net Assets From Operations $(4,685,011)
================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 13
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended April 30, 1998 (unaudited)
and the Year Ended October 31, 1997
1998 1997
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment loss $ (193,506) $ (969,805)
Net realized gain 1,285,507 11,756,075
Increase in net unrealized depreciation (5,777,012) (7,149,300)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net
Assets From Operations (4,685,011) 3,636,970
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income -- (1,377,238)
Net realized gain (770,168) --
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (770,168) (1,377,238)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 199,970,838 351,964,263
Net asset value of shares issued for
reinvestment of dividends 732,813 1,321,529
Cost of shares reacquired (216,097,042) (368,936,754)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (15,393,391) (15,650,962)
- --------------------------------------------------------------------------------
Decrease in Net Assets (20,848,570) (13,391,230)
NET ASSETS:
Beginning of period 118,700,283 132,091,513
- --------------------------------------------------------------------------------
End of period* $ 97,851,713 $ 118,700,283
================================================================================
* Includes overdistributed net investment income: $(575,153) $ (329,174)
================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
Smith Barney Natural Resources Fund Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
The significant accounting policies followed by the Fund are: (a) security
transactions are accounted for on trade date; (b) securities traded in national
securities markets are valued at the closing prices in the primary exchange on
which they are traded; securities listed or traded on certain foreign exchanges
or other markets whose operations are similar to the U.S. over-the-counter
market (including securities listed on exchanges where the primary market is
believed to be over-the-counter) and securities for which no sale was reported
on that date are valued at the mean between the bid and ask prices. Securities
which are listed or traded on more than one exchange or market are valued at the
quotations on the exchange or market determined to be the primary market for
such securities. Gold bullion is valued at the daily London afternoon fixing;
(c) securities maturing within 60 days are valued at cost plus accreted
discount, or minus amortized premium, which approximates value; (d) the
accounting records of the Fund are maintained in U.S. dollars. All assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
based on the rate of exchange of such currencies against U.S. dollars on the
date of valuation. Purchases and sales of securities, and income and expenses
are translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income or expense amounts
recorded and collected or paid are adjusted when reported by the custodian; (e)
interest income, adjusted for amortization of premium and accretion of discount,
is recorded on an accrual basis; (f) dividend income is recorded on the
ex-dividend date; foreign dividends are recorded on the ex-dividend date or as
soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence; (g) dividends and
distributions to shareholders are recorded on the ex-dividend date; (h) gains or
losses on the sale of securities are calculated by using the specific
identification method; (i) direct expenses are charged to each class; management
fees and general expenses are allocated on the basis of relative net assets; (j)
the character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. At October 31, 1997, reclassifications were made to the Fund's
capital accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Accordingly, a portion
of overdistributed net investment income amounting to $79,303 was reclassified
to paid-in capital. Net investment income, net realized gains and net assets
were not affected by this adjustment; (k) the
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 15
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Fund intends to comply with the requirements of the Internal Revenue Code of
1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; and (l) estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
In addition, the Fund may enter into forward exchange contracts in order to
hedge against foreign currency risk. These contracts are marked-to-market daily,
by recognizing the difference between the contract exchange rate and the current
market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
2. Management Agreement and Other Transactions
Mutual Management Corp. ("MMC"), formerly known as Smith Barney Mutual Funds
Management Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"),
acts as investment manager to the Fund. The Fund pays MMC a management fee
calculated at an annual rate of 0.75% of the average daily net assets. This fee
is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SSBH, acts as distributor of the
Fund's shares. For the six months ended April 30, 1998, SB received sales
charges of $15,000 on sales of the Fund's Class A shares and brokerage
commissions of $11,736.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B shares,
which applies if redemption occurs within one year from initial purchase and
declines thereafter by 1.00% per year until no CDSC is incurred. Class C shares
have a 1.00% CDSC, which applies if redemption occurs within the first year of
purchase. For the six months ended April 30, 1998, CDSCs paid to SB were
approximately:
<TABLE>
<CAPTION>
Class B Class C
================================================================================
<S> <C> <C>
CDSCs $142,000 $1,000
================================================================================
</TABLE>
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
Class A, B and C shares calculated at an annual rate of 0.25% of the average
daily net assets of each respective class. The Fund also pays a distribution fee
with respect to Class B and C shares calculated at an annual rate of 0.75% of
the average daily net assets for each class, respectively.
- --------------------------------------------------------------------------------
16 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
For the six months ended April 30, 1998, total Distribution Plan fees incurred
were:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Distribution Plan Fees $49,180 $264,140 $24,763
================================================================================
</TABLE>
All officers and one Director of the Fund are employees of SB.
3. Investments
During the six months ended April 30, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $51,363,001
- --------------------------------------------------------------------------------
Sales 73,912,882
================================================================================
At April 30, 1998, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 11,747,719
Gross unrealized depreciation (12,000,730)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (253,011)
================================================================================
4. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. Securities equal to the initial margin amount are segregated by the
custodian in the name of the broker. Additional securities are also segregated
up to the current market value of the futures contract. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking to market" on a daily basis to reflect
the market value of the contract at the end of each day's trading. Variation
margin payments are received or made and recognized as assets due from or
liabilities due to broker, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract.
The Fund enters into such contracts to hedge a portion of its portfolio. The
Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At April 30, 1998, there were no open futures contracts.
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 17
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
5. Options Contracts
Premiums paid when put or call options are purchased by the Fund, represent
investments, which are marked-to-market daily and are included in the schedule
of investments. When a purchased option expires, the Fund will realize a loss in
the amount of the premium paid. When the Fund enters into a closing sales
transaction, the Fund will realize a gain or loss depending on whether the
proceeds from the closing sales transaction are greater or less than the premium
paid for the option. When the Fund exercises a put option, it will realize a
gain or loss from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. When the Fund exercises a
call option, the cost of the security which the Fund purchases upon exercise
will be increased by the premium originally paid.
At April 30, 1998, the Fund had no open purchased call or put option contracts.
When the Fund writes a covered call or put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss depending upon whether
the cost of the closing transaction is greater or less than the premium
originally received, without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised, the cost of the security sold will be
decreased by the premium originally received. When a written put option is
exercised, the amount of the premium originally received will reduce the cost of
the security which the Fund purchased upon exercise. When written index options
are exercised, settlement is made in cash. The risk associated with purchasing
options is limited to the premium originally paid. The Fund enters into options
for hedging purposes. The risk in writing a covered call option is that the Fund
gives up the opportunity to participate in any increase in the price of the
underlying security beyond the exercise price. The risk in writing a put option
is that the Fund is exposed to the risk of loss if the market price of the
underlying security declines.
- --------------------------------------------------------------------------------
18 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
The following covered call option transactions occurred during the six months
ended April 30, 1998:
<TABLE>
<CAPTION>
Number of
Contracts Premium
===================================================================================
<S> <C> <C>
Options written, outstanding at October 31, 1997 1,000 $ 210,992
Options written during the six months ended April 30, 1998 1,765 289,320
Options cancelled in closing purchase transactions (1,500) (189,243)
Options expired (1,000) (210,992)
Options exercised (265) (100,077)
- -----------------------------------------------------------------------------------
Options written, outstanding at April 30, 1998 0 $ 0
===================================================================================
</TABLE>
6. Forward Foreign Currency Contracts
At April 30, 1998, the Fund had open forward foreign currency contracts as
described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized loss on the contracts reflected
in the accompanying financial statements are as follows:
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Loss
================================================================================
<S> <C> <C> <C> <C>
To Sell:
Canadian Dollar 120,345 $84,134 5/1/98 $(416)
- --------------------------------------------------------------------------------
Total Unrealized Loss on Forward
Foreign Currency Contracts $(416)
================================================================================
</TABLE>
7. Lending of Portfolio Securities
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations. Fees earned by the Fund on securities lending are recorded as
interest income. Loans of securities by the Fund are collateralized by cash,
U.S. government securities or high quality money market instruments that are
maintained at all times in an amount at least equal to the current market value
of the loaned securities, plus a margin depending on the type of securities
loaned. The custodian establishes and maintains the collateral in a segregated
account. The Fund maintains exposure for the risk of any losses in the
investment of amounts received as collateral.
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 19
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
At April 30, 1998, the Fund loaned common stock having a value of approximately
$25,669,838 and holds the following collateral for loaned securities:
<TABLE>
<CAPTION>
Security Description Value
================================================================================
<S> <C>
Bank of Montreal, Montreal Time Deposit, 5.625% due 5/1/98 $ 1,269,680
Bear Stearns Repurchase Agreement, 5.600% due 5/1/98 5,360,869
Commerzbank AG, Frankfurt Time Deposit, 5.59375% due 5/1/98 1,269,680
CS First Boston Repurchase Agreement, 5.570% due 5/1/98 5,360,869
Deutsche Bank Grand Caymen Time Deposit, 5.625% due 5/1/98 1,269,680
J.P. Morgan Securities Repurchase Agreement, 5.580% due 5/1/98 3,903,866
Merrill Lynch Repurchase Agreement, 5.625% due 5/1/98 1,833,980
NationsBanc Montgomery Securities Inc. Repurchase Agreement,
5.6125% due 5/1/98 4,288,696
Svenska Grand Caymen Time Deposit, 5.625% due 5/1/98 1,269,680
UBS, Grand Caymen Time Deposit, 5.625% due 5/1/98 1,269,680
- --------------------------------------------------------------------------------
Total $27,096,680
================================================================================
</TABLE>
8. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
9. Concentration of Risk
The Fund's investments in foreign securities may involve risks not present in
domestic investments. Since securities may be denominated in a foreign currency
and may require settlement in foreign currencies and pay interest or dividends
in foreign currencies, changes in the relationship of these foreign currencies
to the U.S. dollar can significantly affect the value of these investments and
earnings of the Fund. Foreign investments may also subject the Fund to foreign
government exchange restrictions, expropriation, taxation or other political,
social or economic developments, all of which could affect the market and/or
credit risk of the investments.
The Fund also intends to invest at least 65% of its assets in natural
resource-related investments. As a result of this concentration policy, which is
a fundamental policy of the Fund, the Fund's investment may be subject to
greater risk and market fluctuation than a fund that invests in securities
representing a broader range of investment alternatives.
- --------------------------------------------------------------------------------
20 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
10. Capital Loss Carryforward
At October 31, 1997, the Fund had, for Federal income tax purposes,
approximately $2,320,000 of capital loss carryforwards available to offset any
future realized capital gains. To the extent that these carryforward losses are
used to offset capital gains, it is probable that the gains so offset will not
be distributed. The amount and year of the expiration for each carryforward loss
is indicated below:
<TABLE>
<CAPTION>
10/31/99 10/31/00
================================================================================
<S> <C> <C>
Carryforward Amounts $1,000,000 $1,320,000
================================================================================
</TABLE>
11. Capital Shares
At April 30, 1998, the Fund had three billion shares of capital stock authorized
with a par value of $0.001 per share. The Fund has the ability to issue multiple
classes of shares. Each share of a class represents an identical interest in the
Fund and has the same rights, except that each class bears certain expenses
specifically related to the distribution of its shares.
At April 30, 1998, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Total Paid-in Capital $54,849,049 $40,388,301 $4,417,283
================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1998 October 31, 1997
-------------------------- -----------------------------
Shares Amount Shares Amount
==================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 8,655,550 $ 180,520,900 12,511,559 $ 290,617,251
Shares issued on
reinvestment 14,116 279,913 32,875 752,525
Shares redeemed (8,745,020) (182,743,791) (12,787,207) (297,753,915)
- ----------------------------------------------------------------------------------
Net Decrease (75,354) $ (1,942,978) (242,773) $ (6,384,139)
==================================================================================
Class B
Shares sold 847,674 $ 17,079,734 2,489,353 $ 56,140,451
Shares issued on
reinvestment 21,547 415,220 22,934 513,732
Shares redeemed (1,476,806) (29,723,440) (2,869,859) (64,659,897)
- ----------------------------------------------------------------------------------
Net Decrease (607,585) $ (12,228,486) (357,572) $ (8,005,714)
==================================================================================
Class C
Shares sold 116,080 $ 2,370,204 230,260 $ 5,206,561
Shares issued on
reinvestment 1,953 37,680 2,466 55,272
Shares redeemed (176,419) (3,629,811) (290,629) (6,522,942)
- ----------------------------------------------------------------------------------
Net Decrease (58,386) $ (1,221,927) (57,903) $ (1,261,109)
==================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 21
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class A Shares 1998(1)(2) 1997 1996(2) 1995 1994 1993
=====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 23.23 22.95 $ 16.50 $ 21.44 $ 18.89 $ 13.27
- -----------------------------------------------------------------------------------------------------
Income (Loss)
From Operations:
Net investment income (loss) (0.01) (0.12) 0.08 (0.23)* (0.06) (0.02)
Net realized and
unrealized gain (loss) (0.71) 0.73 6.37 (4.71) 2.61 5.64
- -----------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.72) 0.61 6.45 (4.94) 2.55 5.62
- -----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.33) -- -- -- --
Net realized gain (0.16) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------
Total Distributions (0.16) (0.33) -- -- -- --
- -----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 22.35 $ 23.23 $ 22.95 $ 16.50 $ 21.44 $ 18.89
- -----------------------------------------------------------------------------------------------------
Total Return (3.01)%++ 2.67% 39.09% (23.04)% 13.50% 42.35%
- -----------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $42,078 $45,488 $ 50,521 $27,884 $41,370 $20,097
- -----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.50%+ 1.51% 1.62% 1.99% 1.81% 2.17%
Net investment income (loss) (0.02)+ (0.32) 0.15 (1.46) (0.34) (0.14)
- -----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 8% 101% 120% 40% 50% 108%
- -----------------------------------------------------------------------------------------------------
Average commissions
per share paid on equity
transactions(3)(4) $ 0.01 $ 0.01 $ 0.02 $ 0.02 -- --
=====================================================================================================
</TABLE>
(1) For the six months ended April 30, 1998 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(4) Trades executed in the United States and Canada have an average commission
rate of $0.06 per share. Commission on trades executed outside these
countries are generally executed as a percentage of cost or proceeds
ranging from 0.50% to 1.00%.
* 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.
- --------------------------------------------------------------------------------
22 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class B Shares 1998(1)(2) 1997 1996(2) 1995 1994 1993(3)
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $22.60 $22.32 $16.15 $21.14 $18.75 $13.35
- -------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.10) (0.27) (0.09) (0.22)* (0.33) (0.15)
Net realized and
unrealized gain (loss) (0.67) 0.70 6.26 (4.77) 2.72 5.55
- -------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.77) 0.43 6.17 (4.99) 2.39 5.40
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.15) -- -- -- --
Net realized gain (0.16) -- -- -- -- --
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.16) (0.15) -- -- -- --
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $21.67 $22.60 $22.32 $16.15 $21.14 $18.75
- -------------------------------------------------------------------------------------------------------
Total Return (3.31)%++ 1.95% 38.20% (23.60)% 12.75% 40.45%++
- -------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $50,908 $66,819 $73,969 $25,747 $37,704 $40,895
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.13%+ 2.18% 2.29% 2.62% 2.54% 2.98%+
Net investment loss (0.66)+ (0.99) (0.83) (2.11) (1.06) (0.96)+
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 8% 101% 120% 40% 50% 108%
- -------------------------------------------------------------------------------------------------------
Average commissions
per share paid on equity
transactions(4)(5) $0.01 $0.01 $0.02 $0.02 -- --
=======================================================================================================
</TABLE>
(1) For the six months ended April 30, 1998 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from November 6, 1992 (inception date) to October 31, 1993.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(5) Trades executed in the United States and Canada have an average commission
rate of $0.06 per share. Commission on trades executed outside these
countries are generally executed as a percentage of cost or proceeds
ranging from 0.50% to 1.00%.
* 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.
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 23
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class C Shares 1998(1)(2) 1997 1996(2) 1995(3)
==============================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $22.62 $22.32 $16.16 $20.63
- ----------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.05) (0.23) 0.05 (0.29)*
Net realized and unrealized gain (loss) (0.71) 0.68 6.11 (4.18)
- ----------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.76) 0.45 6.16 (4.47)
- ----------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.15) -- --
Net realized gain (0.16) -- -- --
- ----------------------------------------------------------------------------------------------
Total Distributions (0.16) (0.15) -- --
- ----------------------------------------------------------------------------------------------
Net Asset Value, End of Period $21.70 $22.62 $22.32 $16.16
- ----------------------------------------------------------------------------------------------
Total Return (3.27)%++ 2.04% 38.12% (21.67)%++
- ----------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $4,866 $6,393 $7,602 $ 572
- ----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.07%+ 2.12% 2.25% 2.69%+
Net investment loss (0.70)+ (0.92) (0.21) (1.97)+
- ----------------------------------------------------------------------------------------------
Portfolio Turnover Rate 8% 101% 120% 40%
- ----------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4)(5) $ 0.01 $ 0.01 $ 0.02 $ 0.02
==============================================================================================
</TABLE>
(1) For the six months ended April 30, 1998 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from November 7, 1994 (inception date) to October 31, 1995.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(5) Trades executed in the United States and Canada have an average commission
rate of $0.06 per share. Commission on trades executed outside these
countries are generally executed as a percentage of cost or proceeds
ranging from 0.50% to 1.00%.
* 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.
- --------------------------------------------------------------------------------
24 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Additional Shareholder Information (unaudited)
================================================================================
On March 9, 1998 a special meeting of shareholders of the Fund was held for the
purpose of voting on the following matters:
1. To elect Directors of the Fund; and
2. To approve or disapprove the reclassification, modification and/or
elimination of certain fundamental investment policies.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Voted Percentage of Shares Voted Percentage of
Name of Directors For Shares Voted Against Shares Voted
==================================================================================
<S> <C> <C> <C> <C>
Herbert Barg 2,380,237.932 95.677% 107,552.606 4.323%
Alfred J. Bianchetti 2,378,767.743 95.618 109,022.795 4.382
Martin Brody 2,379,754.489 95.657 108,036.049 4.343
Dwight B. Crane 2,383,105.675 95.792 104,684.863 4.208
Burt N. Dorsett 2,382,696.092 95.776 105,094.446 4.224
Elliot S. Jaffe 2,380,711.381 95.696 107,079.157 4.304
Stephen E. Kaufman 2,382,091.574 95.751 105,698.964 4.249
Joseph J. McCann 2,383,097.005 95.792 104,693.533 4.208
Heath B. McLendon 2,378,892.113 95.623 108,898.425 4.377
Cornelius C. Rose, Jr. 2,383,552.861 95.810 104,237.677 4.190
==================================================================================
</TABLE>
Proposal 2 requested that shareholders approve certain changes to the
fundamental policies of the Fund in order to modernize them in view of certain
regulatory, business or industry developments that have occurred since original
adoption of these policies by the Fund. The following chart demonstrates that
all proposals were approved by shareholders.
Please note that "M" indicates a modification of the policy and "R" indicates
the reclassification of the policy from fundamental (which would require
shareholder approval to change) to non-fundamental (which can be changed by a
vote of the Board of Directors).
<TABLE>
<CAPTION>
====================================================================================
<S> <C>
M Lending by the Fund Approved
- ------------------------------------------------------------------------------------
M Real Estate, Real Estate Limited Partnership Interests or Commodities Approved
- ------------------------------------------------------------------------------------
R Margin and Short Sales Approved
- ------------------------------------------------------------------------------------
M Diversification Approved
- ------------------------------------------------------------------------------------
M Senior Securities Approved
- ------------------------------------------------------------------------------------
M Borrowing Approved
====================================================================================
</TABLE>
The information below reports the lowest percentage of shares voting for the
proposals and the highest percentage of shares voting against and abstaining by
shareholders of the Fund on all of the items in Proposal 2.
<TABLE>
<CAPTION>
Percentage Percentage Percentage
Shares Voted of Shares Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Abstained
================================================================================
<S> <C> <C> <C> <C> <C>
2,209,104.993 88.921% 63,841.918 2.570% 211,404.627 8.509%
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Natural Resources Fund Inc. 25
<PAGE>
Smith Barney SMITH BARNEY
Natural A Member of TravelersGroup [LOGO]
Resources
Fund Inc.
Directors Investment Manager
Herbert Barg and Administrator
Alfred J. Bianchetti Mutual Management Corp.
Martin Brody
Dwight B. Crane Distributor
Burt N. Dorsett Smith Barney Inc.
Elliot S. Jaffe
Stephen E. Kaufman Custodian
Joseph J. McCann The Chase Manhattan Bank, N.A.
Heath B. McLendon, Chairman
Cornelius C. Rose, Jr. Shareholder
Servicing Agent
James J. Crisona, Emeritus First Data Investor Services Group, Inc.
P.O. Box 9134
Officers Boston, MA 02205-9134
Heath B. McLendon
President and This report is submitted for the general
Chief Executive Officer information of the shareholders of Smith
Barney Natural Resources Fund Inc. It is
not authorized for distribution to
Lewis E. Daidone prospective investors unless accompanied
Senior Vice President or preceded by a current Prospectus for
and Treasurer the Fund, which contains information
concerning the Fund's investment
policies and expenses as well as other
John Goode pertinent information.
Vice President and
Investment Officer Smith Barney
Natural Resources
David Stadlin Fund Inc.
Investment Officer 388 Greenwich Street
New York, New York 10013
Irving P. David www.smithbarney.com
Controller
FD0299 6/98
Christina T. Sydor
Secretary
