As filed with the Securities and Exchange Commission on February 27, 1998
Securities Act Registration No. 33 -7339
Investment Company Act Registration No. 811-4757
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 22 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 23
__________________ [ ]
Smith Barney Natural Resources Fund Inc.
(a Maryland Corporation)
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
(212) 816-6474
(Registrant's Telephone Number, including Area Code)
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)
_____________________
Copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
_______________
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant to [ ] On (date) pursuant to
paragraph (b)
paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to [ ]
On (date) pursuant to
paragraph (a)(1) paragraph (a)(1)
[ ] 75 days after filing pursuant to [ ]
On (date) pursuant to
paragraph (a)(2) paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates
a new effective date for a previously filed
post effective amendment.
Title of Securities Being Registered: Shares of Common Stock
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 PROSPECTUS
P R O S P E C T U S
SMITH BARNEY
Natural
Resources
Fund
Inc.
FEBRUARY 27, 1998
PROSPECTUS BEGINS ON PAGE ONE
LOGO Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
PROSPECTUS FEBRUARY 27, 1998
Smith Barney
Natural Resources Fund Inc.
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Smith Barney Natural Resources Fund Inc. (the "Fund") is a mutual fund that
seeks long-term capital appreciation by investing primarily in "Natural
Resource Investments." Natural Resource Investments are defined as equity and
debt securities of issuers which: (1) own or process natural resources, such as
precious metals, other minerals, water, timberland, agricultural commodities
and forest products; (2) own or produce sources of energy such as oil, natural
gas, coal, uranium, geothermal, oil shale and biomass; (3) participate in the
exploration and development, transportation, distribution and/or processing of
natural resources; (4) own or control oil, gas, or other mineral leases, rights
or royalties; (5) provide related services or supplies, such as drilling, well
servicing, chemicals, parts and equipment; (6) develop or participate in ener-
gy-efficient technologies; and (7) are involved in the upgrading or processing
of raw commodities into intermediate products. The Fund may also invest in gold
bullion and gold coins. A company is considered a Natural Resource Investment
when it derives at least 50% of its total revenue from a business or activity
described above.
This Prospectus sets forth concisely certain information about the Fund,
including sales charges, distribution and service fees and expenses, that pro-
spective investors will find helpful in making an investment decision. Invest-
ors are encouraged to read this Prospectus carefully and retain it for future
reference.
Additional information about the Fund is contained in a Statement of Addi-
tional Information (the "SAI") dated February 27, 1998, as amended or supple-
mented from time to time, that is available upon request and without charge by
calling or writing the Fund at the telephone number or address set forth above
or by contacting a Smith Barney Financial Consultant. The SAI 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
MUTUAL MANAGEMENT CORP.
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 9
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 13
- -------------------------------------------------
VALUATION OF SHARES 23
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 24
- -------------------------------------------------
PURCHASE OF SHARES 26
- -------------------------------------------------
EXCHANGE PRIVILEGE 35
- -------------------------------------------------
REDEMPTION OF SHARES 38
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 40
- -------------------------------------------------
PERFORMANCE 41
- -------------------------------------------------
MANAGEMENT OF THE FUND 41
- -------------------------------------------------
ADDITIONAL INFORMATION 43
- -------------------------------------------------
</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 SAI. Cross references in this
summary are to headings in the Prospectus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, diversified management investment
company that seeks long-term capital appreciation by investing primarily in
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 $15,000,000. 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 of
$500,000 or more, 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 Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 $15,000,000. Class Y shares are sold at net
asset value with no initial sales charge or CDSC. They are not subject to any
service or distribution fees.
In deciding which Class of Fund shares to purchase, investors should 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 of $500,000 or more will be made at net asset value with no initial
sales charge, but will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase. The $500,000 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 spon-
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
sored 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 eli-
gible 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.
("First Data" or 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 $15,000,000. Subsequent investments of at least $50 may be made
for all Classes. For participants in retirement plans qualified under Sec-
tion 403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes of shares is $25. The minimum investment
requirements
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
for purchases 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 Mutual Management Corp. ("MMC" or the "Manager"), for-
merly known as Smith Barney Mutual Funds Management Inc., a wholly owned sub-
sidiary of Salomon Smith Barney Holdings Inc., formerly known as Smith Barney
Holdings ("Holdings"), serves as the Fund's investment manager. Holdings is a
wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a diversified
financial services holding company engaged, through its subsidiaries, princi-
pally in four business segments: Investment Services, including Asset Manage-
ment, Consumer Finance Services, Life Insurance Services and Property & Casu-
alty 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-
tion of net realized capital gains, if any, are declared and paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and dis-
tribution reinvestments will become eligible for conversion to Class A shares
on a pro rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS No assurance can be given that the
Fund will achieve its investment objective. The Fund's investments may be sub-
ject to greater risk and market fluctuation than a fund that invests in secu-
rities
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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."
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>
SMITH BARNEY NATURAL RESOURCES FUND INC. 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*** 0.51 0.43 0.37 0.51
- ------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.51% 2.18% 2.12% 1.26%
- ------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more 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 of purchase.
** 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, 1997.
Class A shares of the Fund purchased through the Smith Barney
AssetOne Program will be subject to an annual asset-based fee, payable quar-
terly, 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.
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 daily net assets of the respective Class, con-
sisting 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>
SMITH BARNEY NATURAL RESOURCES FUND INC. 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 $65 $95 $128 $221
Class B 72 98 127 234
Class C 32 66 114 245
Class Y 13 40 69 152
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A $65 $95 $128 $221
Class B 22 68 117 234
Class C 22 66 114 245
Class Y 13 40 69 152
- ------------------------------------------------------------------------------
</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.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the three year period ended October 31, 1997 has
been audited by KPMG Peat Marwick LLP, independent auditors, whose report
thereon appears in the Fund's Annual Report dated October 31, 1997. The follow-
ing information for the fiscal years ending October 31, 1988 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 SAI. 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>
CLASS A SHARES 1997 1996(1) 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $22.95 $16.50 $21.44 $18.89 $13.27 $13.93
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income
(loss) (0.12) 0.08 (0.23)* (0.06) (0.02) (0.10)
Net realized and
unrealized gain (loss) 0.73 6.37 (4.71) 2.61 5.64 (0.47)
- --------------------------------------------------------------------------------
Total Income From
Operations 0.61 6.45 (4.94) 2.55 5.62 (0.57)
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.33) -- -- -- -- (0.06)
Capital -- -- -- -- -- (0.03)
- --------------------------------------------------------------------------------
Total Distributions (0.33) -- -- -- -- (0.09)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $23.23 $22.95 $16.50 $21.44 $18.89 $13.27
- --------------------------------------------------------------------------------
TOTAL RETURN# 2.67% 39.09% (23.04)% 13.50% 42.35% (4.09)%
- --------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $45,488 $50,521 $27,884 $41,370 $20,097 $14,138
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.51% 1.62% 1.99% 1.81% 2.17% 2.85%
Net investment income
(loss) (0.32) 0.15 (1.46) (0.34) (0.14) (0.76)
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 101% 120% 40% 50% 108% 58%
- --------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER
SHARE PAID ON EQUITY
TRANSACTIONS(2)(3) $ 0.01 $0.02 $0.02 -- -- --
- --------------------------------------------------------------------------------
</TABLE>
(1) 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.
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(3) 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 returns do not reflect any applicable sales loads or contingent
deferred sales charges.
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED OCTOBER 31,
-------------------------------------------
CLASS A SHARES (CONTINUED) 1991 1990 1989 1988
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $13.63 $16.96 $16.43 $18.58
- ------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income
(loss)(1)...................... 0.16 0.11 0.15 0.03
Net realized and unrealized
gains (loss) 0.14 (3.12) 0.38 (1.28)
- ------------------------------------------------------------------------------
Total Income (Loss) From
Operations 0.30 (3.01) 0.53 (1.25)
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- (0.21) -- --
Capital -- (0.11) -- --
Net realized gains -- -- -- (0.90)
- ------------------------------------------------------------------------------
Total Distributions -- (0.32) -- (0.90)
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $13.93 $13.63 $16.96 $16.43
- ------------------------------------------------------------------------------
TOTAL RETURN# 2.20% (18.18)% 3.23% (7.56)%
- ------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $17,167 $ 22,350 $ 34,590 $ 49,029
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2) 2.24% 2.44% 2.35% 1.78%
Net investment income (loss) 0.97 0.69 0.88 0.27
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 63% 61% 25% 30%
- ------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY TRANSACTIONS(3) -- -- -- --
- ------------------------------------------------------------------------------
</TABLE>
(1) Net investment loss before waiver of fees by investment adviser and sub-
investment adviser for the year ended October 31, 1993 was $(0.04).
(2) 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.
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
# Total returns do not reflect any applicable sales loads or contingent
deferred sales charges.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CLASS B SHARES 1997 1996(1) 1995 1994 1993(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $22.32 $16.15 $21.14 $18.75 $13.35
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.27) (0.09) (0.22)* (0.33) (0.15)
Net realized and unrealized
gain (loss) 0.70 6.26 (4.77) 2.72 5.55
- -------------------------------------------------------------------------------
Total Income (Loss) From
Operations 0.43 6.17 (4.99) 2.39 5.40
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.15) -- -- -- --
- -------------------------------------------------------------------------------
Total Distributions (0.15) -- -- -- --
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $22.60 $22.32 $16.15 $21.14 $18.75
- -------------------------------------------------------------------------------
TOTAL RETURN# 1.95% 38.20% (23.60)% 12.75% 40.45%++
- -------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $66,819 $73,969 $25,747 $37,704 $40,895
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.18% 2.29% 2.62% 2.54% 2.98%+
Net investment loss (0.99) (0.83) (2.11) (1.06) (0.96)+
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 101% 120% 40% 50% 108%
- -------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY
TRANSACTIONS(3)(4) $0.01 $0.02 $0.02 -- --
- -------------------------------------------------------------------------------
</TABLE>
(1) 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.
(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.
(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 form 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.
# Total returns do not reflect any applicable sales loads or contingent
deferred sales charges.
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CLASS C SHARES 1997 1996(1) 1995(2)
- --------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $22.32 $16.16 $20.63
- --------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss) (0.23) 0.05 (0.29)*
Net realized and unrealized gain (loss) 0.68 6.11 (4.18)
- --------------------------------------------------------------------
Total Income (Loss) From Operations 0.45 6.16 (4.47)
- --------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.15) -- --
- --------------------------------------------------------------------
Total Distributions (0.15) -- --
- --------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $22.62 $22.32 $16.16
- --------------------------------------------------------------------
TOTAL RETURN# 2.04% 38.12% (21.67)%++
- --------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $6,393 $7,602 $572
- --------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.12% 2.25% 2.69%+
Net investment loss (0.92) (0.21) (1.97)+
- --------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 101% 120% 40%
- --------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS(3) $0.01 $0.02 $0.02
- --------------------------------------------------------------------
</TABLE>
(1) 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.
(2) For the period from November 7, 1994 (inception date) to October 31, 1995.
(3) 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.
# Total returns do not reflect any applicable sales loads or contingent
deferred sales charges.
12
<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 current
income is not a primary part of the Fund's investment objective. The Fund's
objective may not be changed without approval of a majority of the Fund's out-
standing shares. Because the securities in which the Fund invests may involve
risks not associated with more traditional investments, an investment in the
Fund, by itself, should not be considered a balanced investment program. There
is no guarantee that the Fund will achieve its investment objective.
Under normal market conditions, the Fund will invest at least 65% of its
assets in Natural Resource Investments. Up to 35% of the Fund's assets may be
invested in companies not in the natural resources area, corporate debt securi-
ties, U.S. Government securities and, for cash management purposes, money mar-
ket instruments. For temporary defensive purposes, the Fund may invest in
excess of 35% in money market instruments.
The Fund may utilize up to 10% of its assets to purchase put options on secu-
rities owned by the Fund and up to an additional 10% of its assets to purchase
call options on securities the Fund may acquire in the future. The Fund may
purchase only put options that are traded on a regulated exchange. The Fund may
purchase and write put and call options on domestic and foreign stock indexes
to hedge against risks of market-wide movements affecting that portion of its
assets invested in the country whose stocks are subject to the hedges.
The composition of the Fund's portfolio will vary depending on the determina-
tion of the Manager 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 the Manager 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 Invest-
ors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P") or, if
unrated, are deemed by the Manager to be of comparable quality. The medium- and
lower-rated securities in which the Fund may invest, some of which have specu-
lative 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 particular
countries or regions will change from time to time in accordance with the judg-
ment of the
13
<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
14
<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
15
<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, the Manager, in evaluating the creditworthiness of
an issuer, whether rated or unrated, will take various factors into considera-
tion, which may include, as applicable, the issuer's financial resources, its
sensitivity to economic conditions and trends, the operating history of and the
community support for the facility financed by the issue, the ability of the
issuer's management and regulatory matters.
ADDITIONAL INVESTMENTS
Money Market Instruments. The Fund may hold up to 20% of the value of its
assets in cash and invest in short-term instruments, and it may hold cash and
short-term instruments without limitation when the Manager determines that it
is appropriate to maintain a temporary defensive posture. Short-term instru-
ments in which the Fund may invest include: (a) obligations issued or guaran-
teed as to principal and interest by the United States government, its agencies
or instrumentalities ("U.S. government securities") (including repurchase
agreements with respect to such securities); (b) bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loan associations and similar institu-
tions); (c) floating rate securities and other instruments denominated in U.S.
dollars issued by international development agencies, banks and other financial
institutions, governments and their agencies or instrumentalities and corpora-
tions located in countries that are members of the Organization for Foreign
Cooperation and Development; and (d) commercial paper rated no lower than A-2
by S&P or Prime-2 by Moody's or the equivalent from another major rating serv-
ice 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.
16
<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 SAI.
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 the Manager 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. The Manager, acting under
the supervision of the Board of Directors, reviews the value
17
<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 the Manager to be of good standing and will not be made
unless, in the judgment of the Manager, 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
18
<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
19
<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.
20
<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, foreign
stock index options carry risks associated with investing in foreign securi-
ties, 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 the Manager to predict correctly movements in the direction of the under-
lying 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" or "Custodian"), the
Fund's custodian, or with a foreign subcustodian with which the Fund will
deposit cash or cash equivalents or a combination of both in an amount equal to
the market value of the option, and will maintain the account while the option
is open.
Gold Futures Contracts and Related Options. If the Manager determines it
would be advantageous to do so, the Fund may, for hedging purposes, utilize its
assets as initial margin and premiums on futures contracts and options on those
contracts. The Fund may enter into futures contracts for the purchase and sale
of gold, purchase put and call options on those futures contracts and write
call options on those futures contracts. Use of these strategies may provide a
defense against a decline in the value of the Fund's assets in a period of
anticipated 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 pur-
chase gold and call options purchased or put options written by the Fund), an
amount of cash and cash equivalents equal to the underlying commodities value
of the contracts will be deposited and maintained in a segregated account with
the Fund's custodian to collateralize the positions, thereby insuring that the
use of the contract is unleveraged.
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
21
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
and place. The Fund may enter into futures contracts to sell gold when the
Manager believes that the value of its gold and gold-related securities will
decrease. The Fund may enter into futures contracts to purchase gold when the
Manager anticipates purchasing gold or gold-related securities and believes
that prices will rise before the purchases will be made. The use of gold
futures contracts as a hedging device involves several risks. There can be no
assurance that there will be a correlation between price movements in the gold
underlying the futures contracts, on the one hand, and price movements in the
assets that are subject of the hedge, on the other hand. Positions in gold
futures contracts and related options may be closed out only through an
exchange on which the contract or option was entered into and there can be no
assurance that an active market will exist for a particular contract at any
particular time. Losses incurred in hedging transactions and the costs of
these transactions will affect the Fund's performance.
An option on a gold futures contract, as contrasted with the direct invest-
ment in such a contract, gives the purchaser the right, in return for the pre-
mium paid, to assume a position in a gold futures contract at a specified
exercise price at any time prior to the expiration date of the option. Upon
exercise of an option, the delivery of the futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents
the amount by which the market price of the futures contract exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of
the option on the futures contract. The potential loss related to the purchase
of an option on futures contracts is limited to the premium paid for the
option (plus transactions costs), and there are no daily cash payments to
reflect changes in the value of the underlying contract. The value of the
option, however, does change daily and that change would be reflected in the
net asset value of the Fund.
Currency Exchange Transactions. The Fund may engage in currency exchange
transactions in order to protect against uncertainty in the level of future
exchange rates. The Fund will conduct its currency exchange transactions
either on a spot (i.e., cash) basis at the rate prevailing in the currency
exchange market, or through entering into forward contracts to purchase or
sell currencies. The Fund's dealings in forward currency contracts will be
limited to hedging involving either specific transactions or portfolio posi-
tions. In hedging specific portfolio positions, the Fund may enter into a for-
ward currency contract with respect to either the currency in which the posi-
tions are denominated or another currency deemed appropriate by the Manager. A
forward currency contract involves an obligation to purchase or sell a spe-
cific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are entered into in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their cus -
22
<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.
Year 2000. The investment management services provided to the Fund by the
Manager and the services provided to shareholders by Smith Barney, the Fund's
Distributor, depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were
encoded and calculated. That failure could have a negative impact on the Fund's
operations, including the handling of securities trades, pricing and account
services. The Manager and Smith Barney have advised the Fund that they have
been reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, the Manager has been
advised by the Fund's custodian, transfer agent and accounting service agent
that they are also in the process of modifying their systems with the same
goal. There can, however, be no assurance that the Manager, Smith Barney or any
other service provider will be successful, or that interaction with other non-
complying computer systems will not impair Fund services at that time.
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 asked price. Portfolio securities that are primarily
traded on foreign exchanges are generally
23
<PAGE>
VALUATION OF SHARES (CONTINUED)
valued at the preceding closing values of such securities on their respective
exchanges, except that when an occurrence subsequent to the time a value was so
established is likely to have changed the value, then the fair value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Directors or its delegates. Over-the-counter securi-
ties and securities listed or traded on certain foreign exchanges whose opera-
tions 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 asked
price. An option is generally valued at the last sale price or, in the absence
of a last sale price, the last offer price. Investments in U.S. government
securities (other than short-term securities) are valued at the average of the
quoted bid and asked prices in the over-the-counter market. Short-term invest-
ments that mature in 60 days or less are valued at amortized cost whenever the
Board of Directors determines that amortized cost reflects fair value of those
investments. Amortized cost valuation involves valuing an instrument at its
cost initially and thereafter assuming a constant amortization to maturity of
any discount or premium, regardless of the effect of fluctuating interest rates
on the market value of the instrument. Further information regarding the Fund's
valuation policies is contained in the SAI.
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.
24
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
TAXES
The Fund has qualified and intends to continue to qualify each year as a reg-
ulated investment company under Subchapter M of the Code. Dividends paid from
net investment income and distributions of net realized short-term capital
gains are taxable to shareholders as ordinary income, regardless of how long
shareholders have held their Fund shares and whether such dividends and distri-
butions are received in cash or reinvested in additional Fund shares. Distribu-
tions of net realized long-term capital gains will be taxable to shareholders
as long-term capital gains, regardless of how long shareholders have held Fund
shares and whether such distributions are received in cash or reinvested in
additional Fund shares. Furthermore, as a general rule, a shareholder's gain or
loss on a sale or redemption of Fund shares will be a long-term capital gain or
loss if the shareholder has held the shares for more than one year and will be
a short-term capital gain or loss if the shareholder has held the shares for
one year or less. Some of the Fund's dividends declared from net investment
income may qualify for the Federal dividends-received deduction for corpora-
tions.
Dividends or other income received by the Fund may be subject to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes and share-
holders may be entitled to claim a credit or deduction for foreign taxes paid
in calculating their United States income tax, subject to certain limitations.
If eligible, the Fund will determine whether to make an election to treat any
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, 1997 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.
25
<PAGE>
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 $15,000,000 (except for
purchases of Class Y shares by Smith Barney Concert Allocation Series Inc.,
for which there is no minimum purchase amount). See "Prospectus Summary--
Alternative Purchase Arrangements" for a discussion of factors to consider in
selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney, an Introducing Broker or an investment dealer in the 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. Smith Barney and other
broker/dealers may charge their customers an annual account maintenance fee in
connection with a brokerage account through which an investor purchases or
holds shares. Accounts held directly at First Data are not subject to a main-
tenance fee.
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 $15,000,000.
Subsequent investments of at least $50 may be made for all Classes. For par-
ticipants in retirement plans qualified under Section 403(b)(7) or Section
401(a) of the Code, the minimum initial investment requirement for Class A,
Class B and Class C shares and the subsequent investment requirement for all
Classes in the Fund is $25. For 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 subse-
quent investment requirement for all Classes is $25. For shareholders purchas-
ing shares of the Fund through the Systematic Investment Plan on a quarterly
basis, the minimum initial investment requirement for Class A, Class B and
Class C shares and the subsequent investment requirement for all Classes is
$50. There are no minimum investment requirements for Class A shares for
employees of Travelers and its subsidiaries, including Smith Barney, Directors
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 purchase its shares and to suspend the offering of shares from
time to time. Shares purchased will be held in the shareholder's account by
the Fund's Transfer Agent. Share certificates are issued only upon a share-
holder's written request to the Transfer Agent.
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 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 of $500,000 or more, 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."
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 and his or her immediate family, or a trustee or other fiduciary of
a single trust estate or single fiduciary account.
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 or 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 Secu-
rities Dealers, Inc., provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes and that the secu-
rities will not be resold except through redemption or repurchase; (b) offers
of Class A shares to any other investment company in connection with the combi-
nation of such company with the Fund by merger, acquisition of assets or other-
wise; (c) purchases of Class A shares by any client of a newly employed Smith
Barney Financial Consultant (for a period up to 90 days from the commencement
of the Financial Consultant's employment with Smith Barney), on the condition
the purchase of Class A shares is made with the proceeds of the redemption of
shares of 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) purchases by shareholders who have
redeemed Class A shares in the Fund (or Class A shares of another fund of the
Smith Barney Mutual Funds that are offered with a sales charge,) and who wish
to reinvest their redemption proceeds in the Fund, provided the reinvestment is
made within 60 calendar days of the redemption; (e) purchases by accounts man-
aged by registered investment advisory subsidiaries of Travelers; (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 elimi-
nation of the sales charge.
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Fund and of funds sponsored by Smith Barney which are
offered with a sales charge listed under "Exchange Privilege" then held by such
person and applying the sales charge applicable to such aggregate. In order to
obtain such discount, the purchaser must provide sufficient information at the
time of purchase to permit verification that the purchase qualifies for the
reduced sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
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
29
<PAGE>
PURCHASE OF SHARES (CONTINUED)
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. Approval
of group purchase reduced sales charge plans is subject to the discretion of
Smith Barney.
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 $5,000,000 in Class Y shares of the Fund
and agree to purchase a total of $15,000,000 of Class Y shares of the Fund
within thirteen months from the date of the Letter. If a total investment of
$15,000,000 is not made within the thirteen month period, all Class Y shares
purchased to date will be transferred to Class A shares, where they will be
subject 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 that were purchased without an initial sales
charge but subject to a CDSC.
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
30
<PAGE>
PURCHASE OF SHARES (CONTINUED)
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gains distributions; (c)
with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class C shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
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.
See "Prospectus Summary--Alternative Purchase Arrangements--Class B Shares Con-
version Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other applicable Smith Barney Mutual Funds, and Fund
shares being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gains distribution reinvestments in such
other funds. For Federal income tax purposes, the amount of the CDSC will
reduce the gain or increase the loss, as the case may be, on the amount real-
ized on redemption. The amount of any CDSC will be paid to Smith Barney.
31
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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) Program. To the extent applicable, the same
terms and conditions, which are outlined below, are offered to all plans par-
ticipating ("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
32
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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.
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
33
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 distribution 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 years. Whether or not the CDSC applies to the redemp-
tion by a Participating Plan depends on the number of years since the Partici-
pating 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 pay-
ment 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 employ-
34
<PAGE>
PURCHASE OF SHARES (CONTINUED)
ment 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 Partici-
pating Plan to the extent permitted under Section 401(k) of the Code; or (f)
redemptions of shares in connection with a loan made by the Participating Plan
to an employee.
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.
Concert Peachtree Growth Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Large Capitalization Growth Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Large Cap Value Fund
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Fund
Smith Barney Funds, Inc.--U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
35
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
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 Municipal High Income Fund
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global-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 Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc.--Balanced Portfolio
Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
Smith Barney Concert Allocation Series Inc.--Growth Portfolio
Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
Smith Barney Concert Allocation Series Inc.--Income Portfolio
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.
36
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
++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, Participating Plans opened prior to June 21, 1996 and investing
in Class C shares may exchange Fund shares for Class C shares of this fund.
Class B Exchanges. In the event a Class B shareholder 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. The Manager
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.
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
discussed below are also applicable for exchanging shares, and exchanges will
be made upon receipt of all supporting documents in proper form. If the
account registration of the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged, no signature guarantee
is required. A capital gain or
37
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's Transfer
Agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemp-
tion proceeds will be remitted on or before the third business day following
receipt of proper tender, except on any days on which the NYSE is closed or as
permitted under the Investment Company Act of 1940, as amended ("1940 Act"),
in 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 benefit from the use of temporarily uninvested funds. Redemption proceeds
for shares purchased by check, other than a certified or official bank check,
will be remitted upon clearance of the check, which may take up to ten days or
more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than
those held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Natural Resources Fund Inc.
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
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
38
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
(c) be signed by each registered owner exactly as the shares are registered. If
the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power)
and must be submitted to 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 $10,000 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 requests of $10,000 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 requests may be made between 9:00 a.m. and 4:00
p.m. (New York City time) on any day the NYSE is open. Redemptions of shares
(i) by retirement plans or (ii) for which certificates have been issued are not
permitted under this program.
A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent 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
39
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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 waived on amounts withdrawn that do not
exceed 2.00% per month of the shareholder's shares subject to the CDSC.) For
further information regarding the automatic cash withdrawal plan, shareholders
should contact a Smith Barney Financial Consultant.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size.) The Fund, howev-
er, will not redeem shares based solely on market reductions in net asset val-
ue. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
40
<PAGE>
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.
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 SAI contains background information regarding each
Director and executive officer of the Fund.
INVESTMENT MANAGER--MMC
MMC, 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. The Manager (through predecessor entities) has been in
the investment counseling business since 1968 and is a registered investment
adviser. The Manager renders investment advice to investment companies that had
aggregate assets under management as of January 31, 1998, in excess of $94 bil-
lion.
Subject to the supervision and direction of the Fund's Board of Directors,
the Manager manages the Fund's portfolio in accordance with the Fund's stated
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, employs professional portfolio
managers and securi -
41
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
ties analysts who provide research services to the Fund and oversees all
aspects of the Fund's administration. For investment management services ren-
dered, the Fund pays the Manager 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 MMC, 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, 1997 is included in
the Annual Report dated October 31, 1997. 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 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 dis-
tribution fee. The fees are used by Smith Barney to pay its Financial Consul-
tants for servicing shareholder accounts and, in the case of Class B and Class
C shares, to cover expenses primarily intended to result in the sale of those
shares. These expenses include: advertising expenses; the cost of printing and
mailing prospectuses to potential investors; payments to and expenses of Smith
Barney Financial Consultants and other persons who provide support services in
connection with the distribution of shares; interest and/or carrying charges;
and indirect and other overhead costs of Smith Barney associated with the sale
of Fund shares, including lease, utility, communications and sales promotion
expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of
42
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
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 Classes. The Directors, on
an ongoing basis, will consider whether any such conflict exists and, if so,
take appropriate action.
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.
Chase, located at 4 Chase MetroTech Center, Brooklyn, New York, 11245, serves
as custodian of the Fund's investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Fund's transfer agent.
43
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
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.
44
<PAGE>
SMITH BARNEY
-------------------------------
A Member of TravelersGroup LOGO
SMITH BARNEY NATURAL RESOURCES FUND INC.
388 Greenwich Street
New York, New York 10013
FD 0224 02/98
SMITH BARNEY NATURAL RESOURCES FUND INC.
PART B STATEMENT OF ADDITIONAL INFORMATION
Smith Barney
Natural Resources Fund Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information February 27, 1998
This Statement of Additional Information (the SAI") expands upon and
supplements the information contained in the current Prospectus of Smith
Barney Natural Resources Fund Inc. (the "Fund") dated February 27, 1998, 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 SAI, 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 SAI, except where shown below:
Management of the Fund
1
Investment Objective and Management Policies
4
Purchase of Shares
12
Redemption of Shares
13
Distributor.
14
Valuation of Shares
15
Exchange Privilege
16
Performance Data (See in the Prospectus "Performance")
16
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes")
19
Additional Information
21
Financial Statements
22
Appendix
23
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" or the
"Distributor)...........................
......
Distributor
Mutual Management Corp.
("MMC" or the
"Manager")..................................
.............
Investment Manager
The Chase Manhattan Bank N.A.
("Chase" or the
"Custodian").................................
............
Custodian
First Data Investor Services Group, Inc.
("First Data" or the "Transfer
Agent")................................
Transfer Agent
These organizations and the functions they perform for the Fund are discussed
in the Prospectus and in this SAI.
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 (Age 74). Private Investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Director (Age 75). Retired; formerly Senior
Consultant to Dean Witter Reynolds Inc. His address is 19 Circle End Drive,
Ramsey, New Jersey 07466.
Martin Brody, Director (Age 76). Consultant, HMK Associates; Retired
Vice Chairman of the Board of Restaurant Associates Corp. His address is c/o
HMK Associates, 30 Columbia Turnpike, Florham Park, New Jersey 07932.
Dwight B. Crane, Director (Age 60). Professor, Harvard Business School.
His address is c/o Harvard Business School, Soldiers Field Road, Boston,
Massachusetts 02163.
Burt N. Dorsett, Director (Age 67). Managing Partner of Dorsett McCabe
Management. Inc., an investment counseling firm; Director of Research
Corporation Technologies, Inc., a nonprofit patent clearing and licensing
firm. His address is 201 East 62nd Street, New York, New York 10021.
Elliot S. Jaffe, Director (Age 71). 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 66). Attorney. His address is 277
Park Avenue, New York, New York 10172.
Joseph J. McCann, Director (Age 67). Financial Consultant; Retired
Financial Executive, Ryan Homes, Inc. His address is 200 Oak Park Place,
Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer (Age
64). Managing Director of Smith Barney, Chairman of the Board of Smith Barney
Strategy Advisers Inc. and President of MMC and Travelers Investment Adviser,
Inc. ("TIA"); prior to July 1993, Senior Executive Vice President of Shearson
Lehman Brothers Inc., Vice Chairman of Shearson Asset Management. 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 64). President, Cornelius C. Rose
Associates, Inc., financial consultants, and Chairman and Director of
Performance Learning Systems, an educational consultant. His address is Fair
Oaks, Enfield, New Hampshire 03748.
James J. Crisona, Director Emeritus. 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
Lewis E. Daidone, Senior Vice President and Treasurer (Age 40).
Managing Director of Smith Barney, Chief Financial Officer of the Smith Barney
Mutual Funds; Director and Senior Vice President of MMC and TIA. 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 MMC; 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; General Counsel and Secretary of MMC and TIA. Ms. Sydor serves as
Secretary of 42 Smith Barney Mutual Funds. Her address is 388 Greenwich
Street, New York, New York 10013.
No officer, director or employee of Smith Barney or any parent or
subsidiary of Smith Barney receives any compensation from the Fund for serving
as an officer or Director of the Fund. The Trust pays each Director who is not
an officer, director or employee of Smith Barney or any of their affiliates a
fee of $8,000 per annum plus $500 per meeting attended and each Trustee
Emeritus $2,000 per annum plus $250 per meeting attended. All Directors are
reimbursed for travel and out-of-pocket expenses incurred to attend such
meetings.
For the calendar year ended October 31, 1997, the Directors of the Fund
were paid the following compensation.
Total
Pension or Compensation Number of
Retirement from Fund Funds for
Aggregate Benefits Accrued and Fund Which
Director
Compensation as part of Complex Serves Within
Name of Person from Fund Fund Expenses Paid to Directors Fund Complex
Herbert Berg $3,100 $0
$101,600 18
Alfred Bianchetti** 3,100 0 49,600
13
Martin Brody 3,000 0 119,814
21
Dwight B. Crane 3,100 0 133,850
24
Burt N. Dorsett* 3,100 0 49,600
13
Elliot S. Jaffe 3,000 0 48,500
13
Stephen E. Kaufman 3,100 0 91,964
15
Joseph J. McCann 3,100 0 49,600
13
Heath B. McLendon ** - - -
42
Cornelius C. Rose, Jr. 3,100 0 49,600
13
James J. Crisona*** 1,550 0 18,825
12
* Pursuant to the Fund's deferred compensation plan, Mr. Dorsett elected to
defer the compensation due to him from the Fund. As of January 1, 1997,
Mr. Dorsett elected not to defer his future compensation.
** Designates an "interested" Director.
*** Upon attainment of age 80, Fund Directors are required to change to
emeritus status. Directors Emeritus are entitled to serve in emeritus
status for a maximum of 10 years, during which time they are paid 50% of
the annual retainer fee and meeting fees otherwise applicable to Fund
Directors, together with reasonable out-of-pocket expenses for each meeting
attended. Mr. Crisona is a Director Emeritus and as such may attend
meetings but has no voting rights.
Investment Adviser--MMC
MMC, formerly known as Smith Barney Mutual Funds Management Inc., serves
as investment manager to the Fund pursuant to a written agreement (the
"Investment Management Agreement"), which was approved by the Board of
Directors, including a majority of the Directors who are not "interested
persons" of the Fund or the Manager (the "Independent Directors"). The Manager
pays the
salary of any officer and employee who is employed by both it and the Fund.
The services provided by the Manager under the Investment Management
Agreement are
described in the Prospectus under "Management of the Fund." The Manager bears
all
expenses in connection with the performance of its services. The Manager is a
wholly
owned subsidiary of Salomon Smith Barney Holdings Inc. ("Holdings"), which in
turn, is a wholly owned subsidiary of Travelers Group Inc. ("Travelers").
As compensation for investment advisory services provided pursuant the
Investment Management Agreement, the Fund pays the Manager a fee computed
daily and
paid monthly at the annual rate of 0.75% of the value of the Fund's average
daily net assets. For the fiscal years ended October 31, 1995, October 31,
1996 and October 31, 1997 the Fund paid the Manager $505,253, $763,626
and $1,012,447,respectively, in investment advisory 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
the Manager;
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.
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 MMC 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 the
Manager to be of good standing and will not be made unless, in the judgment of
the Manager, 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 the Manager 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 the Manager 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 the Manager 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 the Manager 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 the Manager 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 the Manager 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 the Manager 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 the Custodian, 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
MMC 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 call options on gold or (ii)
entering into other hedging transactions involving futures contracts and
related options, including gold futures contacts.
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. 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, 1996 and 1997
fiscal years were 40%, 120% and 101%, 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 the Manager, 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 the Manager, 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 the Manager 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 the Manager 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 1995, 1996 and 1997
fiscal years, the Fund paid $246,842, $705,392, and $702,508, respectively, in
brokerage commissions.
In selecting brokers or dealers to execute portfolio transactions on
behalf of the Fund, the Manager seeks the best overall terms available. In
assessing the best overall terms available for any transaction, the Manager
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 Investment Management Agreement authorizes the Manager 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 the Manager 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 the Manager 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 Investment Management Agreement is not reduced by
reason of the receipt by the Manager 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 the Manager, 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 1995
and 1996 fiscal years, the Fund paid no brokerage commissions to Smith Barney.
For the 1997 fiscal year the Fund paid $9,000 in brokerage commissions to
Smith Barney.
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 Director
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 Director 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 SAI.
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
approved by the Fund's Board of Directors, including a majority of the
Independent Directors. For the 1995, 1996 and 1997 fiscal years, Smith Barney,
received $76,401, $500,000 and $115,000, 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, 1995, 1996 and 1997, Smith
Barney or its predecessor received from shareholders $136,462, $119,000 and
$201,000, 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 Investment Management and Distribution
Agreements for continuance.
For the fiscal year ended October 31, 1997, Smith Barney incurred
distribution expenses totaling approximately $2,412,949 consisting of
approximately $101,442 for advertising, $6,548 for printing and mailing of
prospectuses, $167,102 for support services, $1,980,781 to Smith Barney
Financial Consultants, and $157,076 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, 1996, the Fund incurred $111,199,
$127,817 and $10,685 in service fees for Class A, Class B and Class C shares,
respectively. For the fiscal year ended October 31, 1997, the Fund incurred
$131,379, $187,521 and $18,980 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, 1996 and 1997,
the Fund incurred $383,451 and $562,561 for Class B shares, respectively, in
distribution fees. For the fiscal years ended October 31, 1996 and October
31, 1997, the Fund incurred $32,054 and $56,941, 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, Martin Luther King, Jr. 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:
(2.47)% for the one-year period from November 1, 1996 through October 31,
1997.
11.02% per annum during the five-year period from November 1, 1992 through
October 31, 1997.
4.26% per annum for the period from commencement of operations (November
24, 1986) through October 31, 1997.
Class B's average annual total return was as follows for the periods
indicated:
(3.05)% for the one-year from November 1, 1996 through October 31, 1997;
and
11.16% per annum for the period from commencement of operations (November
6, 1992) through October 31, 1997.
Class C's average annual total return was as follows for the periods
indicated:
1.04% for the one year period from November 1, 1996 through October 31,
1997.
3.37% per annum for the period from commencement of operations (November 7,
1994) through October 31, 1997.
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 2.67%, 12.17% and 4.75%, 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 1.95% and 11.29%, respectively. If the
maximum CDSC had not been deducted at the time of purchase, Class C's average
annual total return for the same periods would have been 2.04% and 3.37%,
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:
2.67% for the one-year period from November 1, 1995 through October 31,
1997.
77.56% for the five-year period from November 1, 1991 through October 31,
1997.
35.88% for the period from commencement of operations (November 24, 1986)
through
October 31, 1997.
Class B's aggregate total return was as follows for the periods
indicated:
1.95% for the one-year period from November 1, 1996 through October 31,
1997.
70.46% per annum from commencement of operations (November 6, 1992) through
October 31, 1997.
Class C's aggregate total return was as follows for the period
indicated:
2.04% for the one-year period from November 1, 1996 through October 31,
1997
10.40% for the period from commencement of operations (November 7, 1994)
through
October 31, 1997.
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 (2.47%), 68.67% and 29.07%, respectively.
Class B aggregate total return figures assume that the maximum
applicable CDSC has not been deducted from the investment at the time of
purchase. If the maximum 5.00% CDSC had been deducted at the time of purchase,
Class B's aggregate total return for the same periods would have been (3.05%)
and 69.46%, respectively.
Class C aggregate total return figures assume that the maximum
applicable CDSC has not been deducted from the investment at the time of
purchase. If the maximum 1% CDSC had been deducted at the time of purchase,
Class C's aggregate total return for the same periods would have been 1.04%
and 10.40%, 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.
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. The long-term
portion of such gain or loss will be treated as a gain or loss from an asset
held for more than eighteen months.
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 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, 1997 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.
Smith Barney
Natural
Resources Fund Inc.
Statement of
Additional
Information
February 27, 1998
Smith Barney
Natural Resources Fund Inc.
388 Greenwich Street
New York, NY 10013..................................Fund
........................ SMITH BARNEY
29
g:\funds\natr\1998\secdocs\1998sai3.doc
SMITH BARNEY NATURAL RESOURCES FUND INC.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year ended October 31,
1997 and the Report
of Independent Accountants dated December 18, 1997 are incorporated by
reference to the Rule 30(b)2-1 filed on January 9, 1998 as Accession # 91155-
98-000017.
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 Mutual
Management Corp.(formerly known as 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 incorporated by reference to Post-Effective Amendment No. 21
filed on February 20, 1997.
(9) Transfer Agency Agreement dated August 2, 1993 between the Registrant
and First Data Investor Services Group (First Data) 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, 1998
Common Stock Class A - 6,265
par value $.001 per Class B - 6,666
share Class C - 625
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 - - Mutual Management Corp. Inc.
Mutual Management Corp.("MMC") was incorporated in December 1968 under the
laws of the State of Delaware. MMC is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc. (formerly known as Smith Barney Holdings Inc.),
which in turn is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"). MMC 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 MMC 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 MMC pursuant to the Advisers Act (SEC File No. 801-8314).
Item 29. Principal Underwriters
Consulting Group Capital Markets Funds, Global Horizons Investment Series
(Cayman Islands)
Greenwich Street California Municipal Fund Inc., Greenwich Street Municipal
Fund Inc., Greenwich Street Series Fund, High Income Opportunity Fund Inc.,
The Italy Fund Inc., Managed High Income Portfolio Inc.
Managed Municipals Portfolio II Inc., Managed Municipals Portfolio Inc.,
Municipal High Income Fund Inc.
Puerto Rico Daily Liquidity Fund Inc., Smith Barney Adjustable Rate Government
Income Fund
Smith Barney Aggressive Growth Fund Inc., Smith Barney Appreciation Fund Inc.,
Smith Barney Arizona Municipals Fund Inc., Smith Barney California Municipals
Fund Inc. Smith Barney Concert Allocation Series Inc., Smith Barney Equity
Funds, Smith Barney Fundamental Value Fund Inc., Smith Barney Funds, Inc.,
Smith Barney Income Funds, Smith Barney Institutional Cash Management Fund,
Inc., Smith Barney Intermediate Municipal Fund, Inc., Smith Barney Investment
Funds Inc., Smith Barney Investment Trust, Smith Barney Managed Governments
Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Money Funds, Inc., Smith Barney
Muni Funds, Smith Barney Municipal Fund, Inc., Smith Barney Municipal Money
Market Fund, Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New
Jersey Municipals Fund Inc., Smith Barney Oregon Municipals Fund Inc., Smith
Barney Principal Return Fund, Smith Barney Small Cap Blend Fund, Inc., Smith
Barney Telecommunications Trust, Smith Barney Variable Account Funds, Smith
Barney World Funds, Inc., Smith Barney Worldwide Special Fund N.V.
(Netherlands Antilles), Travelers Series Fund Inc., The USA High Yield Fund
N.V., Worldwide Securities Limited (Bermuda), Zenix Income Fund Inc. and
various series of unit investment trusts.
This 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 FileNo. 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) Mutual Management Corp.
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 27th day
of February, 1998.
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
Heath B. McLendon Board (Chief Executive Officer) 2/27/98
/s/ Lewis E. Daidone Senior Vice President and Treasurer
Lewis E. Daidone (Chief Financial and Accounting
Officer) 2/27/98
/s/ Herbert Barg Director
Herbert Barg 2/27/98
/s/ Alfred Bianchetti Director
Alfred Bianchetti 2/27/98
/s/ Martin Brody Director
Martin Brody 2/27/98
/s/ Dwight B. Crane Director
Dwight B. Crane 2/27/98
/s/Burt N. Dorsett Director
Burt N. Dorsett 2/27/98
/s/ Elliot S. Jaffe Director
Elliot S. Jaffe 2/27/98
/s/ Stephen E. Kaufman Director
Stephen E. Kaufman 2/27/98
/s/ Joseph J. McCann Director
Joseph J. McCann 2/27/98
/s/ Cornelius C. Rose, Jr. Director
Cornelius C. Rose, Jr. 2/27/98
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 18, 1997 for the Smith
Barney Natural Resources Fund Inc. 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 26, 1998
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