As filed with the Securities and Exchange Commission on December 24,
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. 23 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 24 [X]
__________________
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)
_____________________
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective (check
appropriate box):
[ ] Immediately upon filing
pursuant to [ ] On (date) pursuant to
paragraph (b)
paragraph (b) of Rule 485
[ ] 60 days after filing pursuant
to [X] On February 26, 1999 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
Contents of Registration Statement
This Registration Statement contains the following pages and
documents:
Front cover
Part A-Prospectus
Part B-Statement of Additional Information
Part C-Other Information
Signature Page
Exhibits
Part A
<PAGE>
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
February 26, 1999 Natural Resources Fund
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
================================================================================
CONTENTS
================================================================================
Fund goal and strategies.................... 4
Principal risks, performance and expenses... 5
More on the fund's investments.............. 8
Smith Barney Mutual Management.................................. 9
Funds offers a distinctive
family of fund choices Choosing a class of shares to buy........... 10
tailored to help meet the
varying needs of large Comparing the fund's classes................ 11
and small investors.
Currently, Smith Barney Sales charges............................... 12
Mutual Funds offers
more than 60 individual More about deferred sales charges........... 15
funds with assets of more
than $xx billion. Buying shares............................... 16
Exchanging shares........................... 17
Redeeming shares............................ 18
Other things to know about
share transactions......................... 20
Smith Barney 401(k) and
ExecChoice/TM/ programs.................... 22
Dividends, distributions and taxes.......... 23
Share price................................. 24
Financial highlights........................ 24
YOU SHOULD KNOW:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
1
<PAGE>
================================================================================
FUND GOAL AND STRATEGIES
================================================================================
INVESTMENT OBJECTIVE
The fund seeks long-term capital appreciation by investing primarily in equity
and debt securities of issuers in natural resources industries.
KEY INVESTMENTS
The fund invests primarily in equity securities of U.S. and foreign companies in
natural resources industries. Natural resources include gold and other precious
metals, base metals, minerals, water, timberland and forest products,
agricultural commodities, oil, gas, coal and other energy resources. A natural
resources company derives at least 50% of its revenue from:
. Owning, producing or processing natural resources or leases or rights to
natural resources
. Exploring for, developing, transporting or distributing natural resources
. Providing services or supplies to a natural resources industry
. Developing energy efficient technologies
. Upgrading or processing raw commodities into intermediate products
SELECTION PROCESS
The fund focuses on developing a portfolio with investments in a broad range of
natural resources industries that have the potential for capital appreciation.
In allocating the fund's assets among natural resources industries, the manager
considers economic and industry factors in seeking to determine which natural
resources industries have the most favorable supply and demand characteristics
and represent the best investment value. The manager also considers the risks
associated with investing in the countries in which such industries are
conducted. The manager analyzes individual companies to select the fund's
investments within specific industries.
In allocating assets among natural resources industries, the manager considers
the following:
. The likely impact of expected economic development on industry demand
. Expected changes in industry supply relative to demand
. The degree to which expected positive or negative industry developments are
reflected in the market price of industry securities
. Domestic or international political factors that may influence natural
resource companies
2
<PAGE>
In selecting the securities of specific companies, the manager looks for the
following:
. Consistently high return on capital
. Growth in cash flow and earnings
. A low stock price relative to private market valuation, or historical
valuation measures
. Experienced and effective management whose interests are aligned with
those of shareholders
. Events that cause a security to be temporarily undervalued
PRINCIPAL RISKS, PERFORMANCE AND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in securities of natural resources companies can bring added benefits,
but it may also involve additional risks. Investors could lose money on their
investment in the fund, or the fund may not perform as well as other
investments, if any of the following occurs:
. Stock prices of companies involved in natural resources industries decline
. Prices for natural resources decline due to reduced demand or excess supply
. Governmental action or political, economic or market instability adversely
affects a country or region in which the fund invests
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
The value of natural resources, and consequently of securities of companies
engaged in natural resources industries, tend to be more volatile than other
investments. Also, because many of the natural resources companies in which the
fund invests are located outside the United States, including emerging market
countries, the fund has risks associated with investing in foreign issuers. Many
foreign countries in which the fund invests have markets that are less liquid
and more volatile than markets in the U.S. In some foreign countries, less
information is available about foreign issuers and markets because of less
rigorous accounting and regulatory standards than in the U.S. Currency
fluctuations could erase investment gains or add to investment losses. The risk
of investing in foreign securities is greater in the case of emerging markets.
WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you:
. Are seeking capital appreciation and can tolerate significant short-term
volatility
. Currently have exposure to the stock market and can tolerate concentrated
investment in a single market sector
. Are seeking a hedge against inflation by investing in natural resources
. Are comfortable with the risks of the stock market and the special risks of
foreign securities, including emerging market securities
. Are not looking for current income
3
<PAGE>
TOTAL RETURN
The bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[BAR CHART APPEARS HERE]
The bar chart shows the performance of the fund's Class A shares for each of the
past 10 calendar years. Class B, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
QUARTERLY RETURNS: (past 10 years) Highest: xx% in ___ quarter 199X; Lowest:
xx% in ___ quarter 199X
COMPARATIVE PERFORMANCE
The table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown to that of the MSCI
World Index, an unmanaged index of foreign stocks. This table assumes
imposition of the maximum sales charge applicable to the class, redemption of
shares at the end of the period, and reinvestment of distributions and
dividends.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
Calendar Years Ended December 31, 1998
Class Inception Date 1 year 5 years 10 years Since inception
<S> <C> <C> <C> <C> <C>
A 11/24/86
B 11/06/92 n/a
L 11/07/94 n/a n/a
Y __/__/__ n/a n/a
MSCI World Index n/a
</TABLE>
4
<PAGE>
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(paid directly from your investment) Class Class Class Class
A B L Y
<S> <C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering 5.00% None 1.00% None
price)
Maximum deferred sales charge on redemptions (as a % of None* 5.00% 1.00% None
the lower of net asset value at purchase or redemption)
ANNUAL FUND OPERATING EXPENSES (paid by
the fund as a % of fund net assets)
Management fee 0.75% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fee 0.25% 1.00% 1.00% None
Other expenses --- --- --- ---
Total annual fund operating expenses --- --- --- ---
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y $ $ $ $
5
<PAGE>
================================================================================
MORE ON THE FUND'S U.S. AND FOREIGN INVESTMENTS
================================================================================
OTHER INVESTMENTS. The fund may invest up to 35% of its assets in securities of
U.S. and foreign issuers not engaged in natural resources industries, as well as
in gold bullion and gold coins.
DEBT SECURITIES. The fund may invest in debt securities of U.S. and foreign
corporate and governmental issuers rated as low as B by the major rating
agencies or, if unrated, of comparable quality. The value of debt securities
will go down if interest rates go up, or the issuer of the security has its
credit rating downgraded or defaults on its obligation to pay principal or
interest. Debt securities rated below BBB and their unrated equivalents are
commonly referred to in the U.S. as "junk bonds." These securities may be
speculative, are subject to greater price volatility, are less liquid, and
involve high risk of loss.
DERIVATIVES AND HEDGING TECHNIQUES. The fund may, but need not, use derivative
contracts, such as futures and options on securities, securities indices or
currencies; options on these futures; forward currency contracts; and interest
rate or currency swaps for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market
value of its securities, because of changes in stock market prices, currency
exchange rates or interest rates
. As a substitute for buying or selling securities
. To enhance the fund's return
A derivative contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities,
currencies or indices. Even a small investment in derivative contracts can have
a big impact on the fund's stock market, currency and interest rate exposure.
Therefore, using derivatives can disproportionately increase losses and reduce
opportunities for gains when stock prices, currency rates or interest rates are
changing. The fund may not fully benefit from or may lose money on derivatives
if changes in their value do not correspond accurately to changes in the value
of the fund's holdings. The other parties to certain derivative contracts
present the same types of credit risk as issuers of fixed income securities.
Derivatives can also make the fund less liquid and harder to value, especially
in declining markets.
DEFENSIVE INVESTING. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
6
<PAGE>
================================================================================
MANAGEMENT
================================================================================
MANAGER. The fund's investment manager is Mutual Management Corp., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial services
- -- asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world. Among these businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset Management, Travelers Life
& Annuity, and Travelers Property Casualty.
John G. Goode and David Stadlin have been responsible for the day to day
management of the fund since November 1995. Mr. Goode is an investment officer
of Mutual Management Corp. and Chairman and chief investment officer of Davis
Skaggs Investment Management, a division of Mutual Management Corp. and a
managing director of Salomon Smith Barney. Mr. Stadlin is an investment officer
of Mutual Management Corp. and vice president and investment officer of Salomon
Smith Barney.
MANAGEMENT FEE. For its services, the manager received a fee during the fund's
last fiscal year equal to 0.xx% of the fund's average daily net assets.
DISTRIBUTOR. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith
Barney and other broker dealers sell fund shares to the public.
DISTRIBUTION PLANS. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
YEAR 2000 ISSUE. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund or its service providers to correct the problem
will be successful.
7
<PAGE>
================================================================================
CHOOSING A CLASS OF SHARES TO BUY
================================================================================
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment.
. If you establish a program of regular investment, you may wish to consider
Class A shares; as the investment accumulates, you may qualify for reduced
sales charges and the shares are subject to lower ongoing expenses.
. Class B shares are sold without any initial sales charge so the entire price
is immediately invested in the fund, which may partially or wholly offset the
higher annual expenses of this class. Class L shares are sold with a lower
initial sales charge than Class A shares, which may also help to offset the
higher annual expenses of this class. Because the fund's future return cannot
be predicted, however, there can be no assurance that this would be the case
for either class.
. Consider the effect of the CDSC period and any conversion rights in the
context of your investment time frame. For example, while Class L 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 L shares to investors with
long term investment outlooks.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears
through Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified
plans or certain dealer representatives
INVESTMENT MINIMUMS. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
------------------------------ ------------
CLASSES A, B, L CLASS Y ALL CLASSES
<S> <C> <C> <C>
General $1,000 $15 million $50
Individual Retirement Accounts, $ 250 $15 million $50
Self Employed Retirement Plans,
Uniform Gift to Minor Accounts
Qualified Retirement Plans $ 25 $15 million $25
Simple IRAs $ 1 n/a $ 1
Monthly Systematic Investment Plans $ 25 n/a $25
Quarterly Systematic Investment Plans $ 50 n/a $50
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
8
<PAGE>
================================================================================
COMPARING THE FUND'S CLASSES
================================================================================
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. Your Salomon Smith Barney Financial
Consultant or dealer representative may receive different compensation depending
upon which class you choose.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS L CLASS Y
<S> <C> <C> <C> <C>
KEY FEATURES . Initial sales . No initial sales . Initial sales . No initial or
charge charge charge is lower deferred sales
. You may . Deferred sales than Class A charge
qualify for charge declines . Deferred sales . Must invest at
reduction or over time charge for only 1 least $15 million
waiver of initial . Converts to year . Lower annual
sales charge Class A after 8 . Does not convert expenses than the
. Lower annual years to Class A other classes
expenses than . Higher annual . Higher annual
Class B and expenses than expenses than
Class L Class A Class A
INITIAL SALES Up to 5.00%; None 1.00% None
CHARGE reduced or
waived for large
purchases and
certain
investors. No
charge for
purchases of
$500,000 or
more
DEFERRED SALES 1% on Up to 5% charged 1% if you redeem None
CHARGE purchases of when you redeem within 1 year of
$500,000 or shares. The charge purchase
more if you is reduced over
redeem within 1 time and there is
year of purchase no deferred sales
charge after 6 years
ANNUAL 0.25% of average 1% of average 1% of average None
DISTRIBUTION daily net assets daily net assets daily net assets
AND SERVICE
FEES
EXCHANGEABLE Class A shares Class B shares of Class L shares of Class Y shares of
INTO* of most Smith most Smith Barney most Smith most Smith
Barney mutual mutual funds Barney mutual Barney mutual
funds funds funds
</TABLE>
*Ask your Salomon Smit Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
9
<PAGE>
================================================================================
SALES CHARGE: CLASS A SHARES
================================================================================
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
SALES CHARGE AS A % OF
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
INVESTMENTS OF $500,000 OR MORE. You do not pay an initial sales charge when
you buy $500,000 or more of Class A shares. However, if you redeem these Class
A shares within one year of purchase, you will pay a deferred sales charge of
1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
10
<PAGE>
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney mutual funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge within 90 days before you sign the letter.
WAIVERS FOR CERTAIN CLASS A INVESTORS. Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD.
. 403(b) or 401(k) retirement plans, if certain conditions are met
. Clients of newly employed Salomon Smith Barney Financial Consultants if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past
60 days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
11
<PAGE>
================================================================================
SALES CHARGE: CLASS B SHARES
================================================================================
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of
purchase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
----------------------------------------------
Year after purchase 1st 2nd 3rd 4th 5th 6th and over
----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
----------------------------------------------
</TABLE>
CLASS B CONVERSION. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
SHARES ISSUED: SHARES ISSUED: SHARES ISSUED:
AT INITIAL ON REINVESTMENT OF UPON EXCHANGE FROM PURCHASE
DIVIDENDS AND ANOTHER SMITH BARNEY
DISTRIBUTIONS MUTUAL FUND
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eight years after the In same proportion as the On the date the shares originally
date of purchase number of Class B shares acquired would have converted
converting is to total Class B into Class A shares
shares you own
- ----------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
SALES CHARGE: CLASS L SHARES
================================================================================
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before June
22, 2001.
================================================================================
SALES CHARGE: CLASS Y SHARES
================================================================================
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
12
<PAGE>
================================================================================
MORE ABOUT DEFERRED SALES CHARGES
================================================================================
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore, you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney mutual fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund and be credited with the
amount of the deferred sales charge, if you notify your Salomon Smith Barney
Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
13
<PAGE>
================================================================================
Buying shares
================================================================================
<TABLE>
<S> <C>
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith Barney arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your order will be
dealer rejected
represen-
tative . Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
- --------------------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who are
fund's clients of the selling group are eligible to buy shares directly from
transfer agent the fund.
. Write the transfer agent at the following address:
Smith Barney Natural Resources Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
. For more information, call the transfer agent at 1-800-451-2010
- --------------------------------------------------------------------------------------------
Systematic You may authorize Salomon Smith Barney, the dealer representative
investment or the transfer agent to transfer funds automatically from a regular
plan bank account, cash held in a Salomon Smith Barney brokerage
account or Smith Barney money market fund to buy shares on a
regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a transfer
date, Salomon Smith Barney, your dealer representative or the
transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult the
SAI.
</TABLE>
14
<PAGE>
================================================================================
Exchanging shares
================================================================================
<TABLE>
<S> <C>
Smith You should contact your Salomon Smith Barney Financial .....Consultant
Barney offers or dealer representative to exchange into other Smith Barney .....mutual
a distinctive funds. Be sure to read the prospectus of the Smith Barney ......mutual
family of fund you are exchanging into. An exchange is a taxable .....transaction.
mutual
funds . Not all Smith Barney funds may be offered for sale in .....your state of
tailored to residence. Contact your Salomon Smith Barney Financial .....Consultant, dealer
help meet the representative or the transfer agent.
varying
needs of both . You may exchange shares only for shares of the same .....class of
large and another Smith Barney mutual fund. Not all Smith Barney ......funds offer
small all classes.
investors.
. You must meet the minimum investment amount for each fund
. If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers before
the exchange is effective.
. The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
- ---------------------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the time of
additional the exchange.
sales charges
Your deferred sales charge (if any) will continue to be measured from
the date of your original purchase. If the fund you exchange into has
a higher deferred sales charge, you will be subject to that charge. If
you exchange at any time into a fund with a lower charge, the sales
charge will not be reduced.
- ---------------------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible to
exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible, you
may make telephone exchanges on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010 between
9:00 a.m. and 4:00 p.m. (Eastern time).
You can make only telephone exchanges between accounts that have
identical registrations.
- ---------------------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent at the
address on the opposite page.
</TABLE>
15
<PAGE>
================================================================================
Redeeming shares
================================================================================
<TABLE>
<S> <C>
Generally Contact your Salomon Smith Barney Financial Consultant or dealer
representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers before
the redemption is effective.
If the shares are held by a fiduciary or corporation, other documents
may be required.
Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption proceeds
will not be sent to you until your original check clears.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases, unless
you direct otherwise, your redemption proceeds will be paid by
check mailed to your address of record.
- -----------------------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to the
transfer agent at the following address:
Smith Barney Natural Resources Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of shares to
be redeemed
. Signatures of each owner exactly as the account is registered
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
By telephone If you do not have a brokerage account, you may be eligible to
redeem shares (except those held in retirement plans) in amounts up
to $10,000 per day through the transfer agent. You must complete an
authorization form to authorize telephone redemptions. If eligible,
you may request redemptions by telephone on any day the New York
Stock Exchange is open. Call the transfer agent at 1-800-451-2010
between 4:00 a.m. and 4:00 p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address of
record or by wire transfer to a bank account designated on your
authorization form. You may be charged a fee for wire transfers.
You must submit a new authorization form to change the bank
account designated to receive wire transfers and you may be asked to
provide certain other documents.
- --------------------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of your
cash shares on a monthly or quarterly basis. To qualify you must own
withdrawal shares of the fund with a value of at least $10,000 and each automatic
plans redemption must be at least $50. If your shares are subject to a
deferred sales charge, the sales charge will be waived if your
automatic payments do not exceed 1% per month of the value of your
shares subject to a deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
</TABLE>
17
<PAGE>
================================================================================
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
================================================================================
When you buy, exchange or redeem shares, your request must be in good order.
This means that you have provided the following information, without which your
request will not be processed.
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or redeemed
. Signature of each owner exactly as account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES. To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming (together with other requests submitted in the previous 10
days) over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
18
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
SMALL ACCOUNT BALANCES. If your account falls below $500 because of a
redemption of fund shares, the fund may ask you to bring your account up to
$500. If your account is still below $500 after 60 days, the fund may close your
account and send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
SHARE CERTIFICATES. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
19
<PAGE>
================================================================================
SMITH BARNEY 401(K) AND EXECCHOICE PROGRAMS
================================================================================
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice program. The fund offers Class A and Class L shares to
participating plans as investment alternatives under the programs. You can meet
minimum investment and exchange amounts by combining the plan's investments in
any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of that class.
. Class A shares may be purchased by plans investing at least $1 million.
. Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible for exchange into Class A shares not later than 8
years after the plan joined the program. They are eligible for exchange sooner:
If the account was opened on or after June 21, 1996 and an aggregate of $1
million is invested in Smith Barney Funds Class L shares (other than money
market funds), all Class L shares are eligible for exchange after the plan
is in the program 5 years.
If the account was opened before June 21, 1996 and $500,000 in the
aggregate is invested in Smith Barney Funds Class L shares (other than
money market funds), all Class L shares are eligible for exchange on each
December 31 and the exchange will occur no later than March 31 of the
following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
20
<PAGE>
================================================================================
DISTRIBUTIONS, DIVIDENDS AND TAXES
================================================================================
DIVIDENDS. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class you hold. The fund expects
distributions to be primarily from capital gain. You do not pay a sales charge
on reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
TAXES. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
TRANSACTION FEDERAL TAX STATUS
<S> <C>
Redemption or exchange of shares Usually capital gain or loss; long-term only
if shares owned more than one year
- ----------------------------------------------------------------------------------------
Long-term capital gain distributions Long-term capital gain
- ----------------------------------------------------------------------------------------
Short-term capital gain distributions Ordinary income
- ----------------------------------------------------------------------------------------
Dividends Ordinary income
- ----------------------------------------------------------------------------------------
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain
distribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your
investment in the fund.
21
<PAGE>
================================================================================
SHARE PRICE
================================================================================
You may buy, exchange or redeem shares at their net asset value, adjusted for
any applicable sales charge, next determined after receipt of your request in
good order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When market prices are not
available, or when the manager believes they are unreliable or that the value of
a security has been materially affected by events occurring after a foreign
exchange closes, the fund may price those securities at fair value. Fair value
is determined in accordance with procedures approved by the fund's board. A
fund that uses fair value to price securities may value those securities higher
or lower than another fund using market quotations to price the same
securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
================================================================================
FINANCIAL HIGHLIGHTS
================================================================================
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP,
independent accountants, whose report, along with the fund's financial
statements, are included in the annual report (available upon request).
22
<PAGE>
No information is presented for Class Y shares since no Class Y shares were
outstanding for the periods shown.
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
OCTOBER 31:
<TABLE>
<CAPTION>
1998 1997 1996(1) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 22.95 $ 16.50 $ 21.44 $ 18.89 $ 13.27
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment
income (loss) (0.12) 0.08 (0.23)/(2)/ (0.06) (0.02)
Net realized and
unrealized gain
(loss) 0.73 6.37 (4.71) 2.61 5.64
- ----------------------------------------------------------------------------------------------------------------------
Total income (loss)
from operations 0.61 6.45 (4.94) 2.55 5.62
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment
income(3) (0.33) -- -- -- --
Net realized gains -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (0.33) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF YEAR $ 23.23 $ 22.95 $ 16.50 $ 21.44 $ 18.89
- ----------------------------------------------------------------------------------------------------------------------
Total return(4) 2.67% 39.09% (23.04)% 13.50% 42.35%
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF
YEAR (000)'S $45,488 $50,521 $ 27,884 $41,370 $20,097
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS:
Expenses 1.51% 1.62% 1.99% 1.81% 2.17%
Net investment
income (loss) (0.32) 0.15 (1.46) (0.34) (0.14)
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 101% 120% 40% 50% 108%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) Includes realized gains and losses from foreign currency transactions.
(3) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(4) Total return does not reflect any applicable sales loads or deferred sales
charges.
23
<PAGE>
FOR A CLASS B SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
OCTOBER 31:
<TABLE>
<CAPTION>
1998 1997/(1)/ 1996 1995 1994 1993/(2)/
- ---------------------------------------------------------------------------------------------------------
<S> <C> <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
income (loss) (0.27) (0.09) (0.22)/(3)/ (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(4) (0.15) -- -- -- --
Net realized gains (0.00) -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions (0.15) -- -- -- --
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF YEAR $ 22.60 $ 22.32 $ 16.15 $ 21.14 $ 18.75
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN(5) 1.95% 38.20% (23.60)% 12.75% 40.45%/(6)/
- ---------------------------------------------------------------------------------------------------------
NET ASSETS, END OF
YEAR (000)'S $ 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%/(7)/
Net investment
income (loss) (0.99) (0.83) (2.11) (1.06) (0.96)/(7)/
- ---------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 101% 120% 40% 50% 108%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(2) For the period from November 6, 1992 (inception date) to October 31, 1993.
(3) Includes realized gains and losses from foreign currency transactions.
(4) Distributions from net investment income include short-term capital gains,
if any, for federal income tax purposes.
(5) Total return does not reflect any applicable sales loads or deferred sales
charges.
(6) Not annualized.
(7) Annualized
24
<PAGE>
FOR A CLASS L SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
OCTOBER 31:
<TABLE>
<CAPTION>
1998/(1)/ 1997 1996/(2)/ 1995/(3)/
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $22.32 $ 16.16 $ 20.63
YEAR
- --------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income
(loss) (0.23) 0.05/(4)/ (0.29)
Net realized and
unrealized gain (loss) 0.68 6.11 (4.18)
- --------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM 0.45 6.16 (4.47)
OPERATIONS
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income(5) (0.15) -- --
Net realized gains (0.00) -- --
- --------------------------------------------------------------------------------------
Total distributions (0.15) -- --
- --------------------------------------------------------------------------------------
NET ASSETS VALUE, END OF YEAR $22.62 $ 22.32 $ 16.16
- --------------------------------------------------------------------------------------
TOTAL RETURN(6) 2.04% 38.12% (21.67)%/(7)/
- --------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S $6,393 $ 7,602 $ 572
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS: 2.12% 2.25% 2.69%/(8)/
Expenses
Net investment income (0.92) (0.21) (1.97)/(8)/
(loss)
- --------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 101% 120% 40%
- --------------------------------------------------------------------------------------
</TABLE>
(1) Prior to June 12, 1998, Class L shares were called Class C shares.
(2) Per share amounts calculated using the monthly average shares method.
(3) For the period from November 7, 1994 (inception date) to October 31, 1995.
(4) Includes realized gains and losses from foreign currency transactions.
(5) Distributions from net investment income include short-term capital gains,
if any, for Federal income tax purposes.
(6) Total return does not reflect any applicable sales loads or deferred sales
charges.
(7) Not annualized.
(8) Annualized.
25
<PAGE>
SALOMON SMITH BARNEY(SM)
A MEMBER OF CITIGROUP [SYMBOL]
NATURAL RESOURCES FUND
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010 or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. The Commission charges a fee for this
service. Information about the public reference room may be obtained by calling
1-800-SEC-0330. You can get the same information free from the Commission's
Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-04757)
[FD00000 2/99]
Part B
February 26, 1999
STATEMENT OF ADDITIONAL INFORMATION
Natural Resources Fund Inc.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The fund offers three classes of shares which may be purchased at the
next-determined net asset value per share plus a sales charge which, at
the election of the investor, may be imposed (i) at the time of purchase
(Class A and Class L shares) and/or (ii) on a deferred basis (Class B
and Class L shares). A fourth class of shares (the Class Y shares) is
sold at net asset value and is available only to investors investing a
minimum of $15,000,000. These alternatives permit an investor to choose
the method of purchasing shares that is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the
shares and other circumstances.
This Statement of Additional Information is not a prospectus. It is
intended to provide more detailed information about the fund as well as
matters already discussed in the Prospectus and therefore should be read
in conjunction with each Prospectus dated February 26, 1999, which may
be obtained from the fund or your Salomon Smith Barney Financial
Consultant.
CONTENTS
Directors and Executive Officers of the Fund 1
Investment Objective and Management Policies 3
Risk Factors 13
Investment Restrictions 16
Portfolio Turnover 18
Portfolio Transactions 18
Purchase of Shares 19
Exchange Privilege 25
Redemption of Shares 26
Dividends, Distributions and Taxes 28
Performance Information 32
Determination of Net Asset Value 34
Investment Management and Other Services 35
Other Information About the Fund 37
Financial Statements 38
Appendix A - Ratings of Debt Obligations 39
Appendix B.....................................................................
......................................................42
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
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 Directors and executive officers of the fund, together with
information as to their principal business occupations during the past
five years, are shown below.
HERBERT BARG (Age 75). Private Investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania, 19004.
*ALFRED J. BIANCHETTI (Age 76). Retired; formerly Senior Consultant to
Dean Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey,
New Jersey 07466.
MARTIN BRODY (Age 77). 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 (Age 61). Professor, Harvard Business School. His
address is c/o Harvard Business School, Soldiers Field Road, Boston,
Massachusetts 02163.
BURT N. DORSETT (Age 68). Managing Partner of the investment counseling
firm Dorsett McCabe Management, Inc. 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 (Age 72). Chairman of the Board and President of The
Dress Barn, Inc. His address is 30 Dunnigan Drive, Suffern, New York
10021.
STEPHEN E. KAUFMAN (Age 67). Attorney. His address is 277 Park Avenue,
New York, New York 10172.
JOSEPH J. MCCANN (Age 68). 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
65). Managing Director of Salomon Smith Barney, Chairman of the Board
of Smith Barney Strategy Advisers Inc. and President of Mutual
Management Corp. ("MMC" or the "Manager") and Travelers Investment
Adviser, Inc. ("TIA"); Chairman or Co-Chairman of the Board and Director
of 59 investment companies associated with Salomon Smith Barney.
CORNELIUS C. ROSE, JR. (Age 65). President, Cornelius C. Rose
Associates, Inc., financial consultants, and Chairman and Director of
Performance Learning Systems, an educational consultant. His address is
Meadowbrook Village, Building 4, Apt. 6, West Lebanon, New Hampshire
03784.
*LEWIS E. DAIDONE, SENIOR VICE PRESIDENT AND TREASURER (Age 41).
Managing Director of Salomon 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
certain other Smith Barney Mutual Funds.
*JOHN G. GOODE, VICE PRESIDENT AND INVESTMENT OFFICER (Age 53).
Chairman and Chief Investment Officer of Davis Skaggs Investment
Management ("Davis Skaggs"), a division of MMC; Managing Director of
Salomon Smith Barney. His address is 1 Sansome Street, 36th Floor, San
Francisco, California 94104.
*DAVID A. STADLIN, VICE PRESIDENT AND INVESTMENT OFFICER (Age 33).
Portfolio Manager/Research Analyst of Davis Skaggs; Vice President of
Salomon Smith Barney. His address is 1 Sansome Street, 36th Floor, San
Francisco, California 94104.
*CHRISTINA T. SYDOR, SECRETARY (Age 47). Managing Director of Salomon
Smith Barney; General Counsel and Secretary of MMC and TIA. Ms. Sydor
serves as Secretary of certain other Smith Barney Mutual Funds.
* Designates an "interested person" as defined in the Investment
Company Act of 1940, as amended (the "1940 Act") whose business address
is 388 Greenwich Street, New York, New York 10013. Such person is not
separately compensated for services as a fund officer or Director.
The following table shows the compensation paid by the fund and other
Smith Barney Mutual Funds to each Director during the fund's last fiscal
year. None of the officers of the fund received any compensation from
the fund for such period. The fund does not pay retirement benefits to
its Directors and officers. Officers and interested Directors of the
fund are compensated by Salomon Smith Barney.
Name of Person
Aggregate
Compensat
ion
from Fund
Total
Pension or
Retirement
Benefits
Accrued
as part of
Fund
Expenses
Compensation
from Fund
and Fund
Complex
Paid to
Directors
Estimated
Annual
Benefits
upon
Retirement
Number of
Funds for
Which
Director
Serves
Within
Fund Complex
Herbert Barg**
Alfred
Bianchetti* **
Martin Brody**
Dwight B.
Crane**
Burt N.
Dorsett**
Elliot S.
Jaffe**
Stephen E.
Kaufman**
Joseph J.
McCann**
Heath B.
McLendon*
Cornelius C.
Rose, Jr.**
$3,350
3,350
2,850
2,850,
3,350
3,100
3,350
3,350
- -----
3,350
$0
0
0
0
0
0
0
0
0
0
$101,600
49,600
119,814
133,850
49,600
48,500
91,964
49,600
- ------
49,600
18
13
21
24
13
13
15
13
59
13
* Designates an "interested" Director.
** Designates member of Audit Committee.
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. Directors Emeritus may attend meetings but have no
voting rights. During the fund's last fiscal year, aggregate
compensation paid by the fund to Directors Emeritus was $1,500.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
General. The Prospectus discusses the fund's investment objective and
the policies it employs to achieve its objective. The fund is an
open-end, diversified management investment company under the Investment
Company Act of 1940 (the "1940 Act"). The fund's investment manager is
MMC. The investment objective of the fund is to seek long-term capital
appreciation by investing primarily in issuers in natural resources
industries. Under normal market conditions, the fund will invest at
least 65% of its assets in issuers in natural resources industries.
Generating current income is not a primary part of the fund's investment
objective. No assurance can be given that the fund will achieve its
investment objective.
The fund's investment objective may be changed only by the ''vote of a
majority of the outstanding voting securities'' as defined in the 1940
Act. However, the fund's investment policies are nonfundamental, and
thus may be changed by the Board of Directors, provided the change is
not prohibited by the fund's fundamental investment restrictions
(described under INVESTMENT RESTRICTIONS) or applicable law. Any such
change will first be disclosed in the then current prospectus.
Up to 35% of the fund's assets may be invested in companies not in the
natural resources area, corporate debt securities, U.S. government
securities and, for cash management purposes, money market instruments.
For temporary defensive purposes, the fund may invest in excess of 35%
of its assets in money market instruments.
The fund may utilize up to 10% of its assets to purchase put options on
securities owned by the fund and up to an additional 10% of its assets
to 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.
EQUITY SECURITIES
Common Stocks. The fund invests primarily in common stocks. Common
stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if any,
without preference over any other shareholder or class of shareholders,
including holders of the
entity's preferred stock and other senior equity. Common stock usually
carries with it the right to vote and frequently an exclusive right to
do so. The fund may invest 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.
Preferred Stocks and Convertible Securities. The fund may invest in
convertible debt and preferred stocks. Convertible debt securities and
preferred stock entitle the holder to acquire the issuer's stock by
exchange or purchase at a predetermined rate. Convertible securities
are subject both to the credit and interest rate risks associated with
fixed income securities and to the stock market risk associated with
equity securities.
Warrants. The fund may invest up to 5% of its assets in warrants.
Warrants acquired entitle the fund to buy common stock from the issuer
at a specified price and time. Warrants are subject to the same market
risks as stocks, but may be more volatile in price. The fund's
investment in warrants will not entitle it to receive dividends or
exercise voting rights and will become worthless if the warrants cannot
be profitably exercised before the expiration dates.
Illiquid and Restricted Securities. Up to 15% of the assets of the fund
may be invested in securities with contractual 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 calendar days and (c) new and
early stage companies whose securities are not publicly traded.
FIXED INCOME SECURITIES
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
("U.S. government securities"), including instruments that are supported
by the full faith and credit of the United States; instruments that are
supported by the right of the issuer to borrow from the United States
Treasury; and instruments that are supported solely by the credit of the
instrumentality.
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 it sponsors,
the fund will invest in obligations issued by such an instrumentality
only if the Manager determines that the credit risk with respect to the
instrumentality does not make its securities unsuitable for investment
by the fund.
Short-Term Investments. The fund may hold up to 20% of the value of its
assets in cash and 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 instruments in which the fund may invest include: (a) obligations
issued or guaranteed as to principal and interest by the United States
government, its agencies or instrumentalities (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 institutions); (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 corporations
located in countries that are members of the Organization for Foreign
Cooperation and Development; and (d) commercial paper rated no lower
than A-2 by Standard & Poor's Ratings Group ("S&P") or Prime-2 by
Moody's Investors Service, Inc. ("Moody's") or the equivalent from
another major rating service or, if unrated, of an issuer having an
outstanding, unsecured debt issue then rated within the three highest
rating categories.
DERIVATIVE CONTRACTS
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
write only covered put and call options, which means that for so long as
the fund remains obligated as the writer of the option it will, in the
case of a call option, continue to own the underlying security and, in
the case of a put option, maintain an amount of cash or permissible
securities in a segregated account equal to the exercise price of the
option. Thus, the purchaser of a put option has the right to compel the
fund to purchase 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.
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
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 when it wishes to
do so. The obligation of the fund to purchase or deliver securities,
respectively, upon the exercise of a covered put or call option which it
has written terminates upon the effectuation of a closing purchase
transaction.
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 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 underlying
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.
The fund may realize a profit or loss upon entering into a closing
transaction. 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.
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.
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 purchased, of options of the same series), and profit or
loss from the sale will depend on whether the amount received is more or
less than the premium paid for the option plus the related transaction
costs.
Stock Index 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 speculation and will only enter
into futures contracts that are traded on exchanges designated by the
Commodity Futures Trading Commission ("CFTC") or, consistent with CFTC
regulations, on foreign exchanges.
When the fund enters into a futures contract to purchase, an amount of
cash, or other permissible liquid securities, equal to the market value
of the contract, will be deposited in a segregated account to
collateralize 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
unanticipated 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 Manager's ability to predict
correctly movements in the direction of the securities markets
generally, which ability may require different skills and techniques
than predicting changes in the prices of individual 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. 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.
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 securities, as described above. The
advisability of using stock index options to hedge against the risk of
market-wide movements will depend on the extent of diversification of
the fund's stock investments and the sensitivity of its stock
investments to factors influencing the underlying index. The
effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the
fund's securities investments correlate with price movements in the
stock index selected. In addition, successful use by the fund of options
will be subject to the ability of the Manager to predict correctly
movements in the direction of the underlying index.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements
in the 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, it will set aside in a segregated account cash or other
permissible liquid assets 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. 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. 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 enter into only
futures contracts that are traded on a regulated domestic or foreign
commodities exchange and will purchase or write options on gold futures
only on a regulated domestic or foreign exchange approved for such
purpose by the CFTC. Currently, gold futures and options thereon are
traded primarily on the Commodity Exchange of New York ("COMEX"), the
Chicago Mercantile Exchange and the Chicago Board of Trade; the fund
expects to trade futures and related options primarily on COMEX. When
the fund enters into long futures and options positions (futures
contracts to purchase gold and call options purchased or put options
written by the fund), an amount of cash or other permissible liquid
assets equal to the underlying commodities value of the contracts will
be set aside in a segregated account to collateralize the positions,
thereby insuring that the use of the contract is unleveraged.
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 or other liquid
securities. 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.
A gold futures contract provides for the future sale by one party and
the purchase by the other party of a certain amount of gold at a
specified price, date, time and place. The fund may enter into futures
contracts to sell gold when the Manager believes 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. 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).
The use of gold futures contracts as a hedging device involves several
risks. Losses incurred in hedging transactions and the costs of these
transactions will affect the fund's performance. 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 the Manager
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.
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.
An option on a gold futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return
for the premium 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.
The ability of the fund to trade in gold futures contracts and related
options and to invest directly in gold bullion or gold coins 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 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 transactions 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. In hedging specific portfolio positions, the fund may enter
into a forward currency contract with respect to either the currency in
which the positions are denominated or another currency deemed
appropriate by the Manager. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract.
These contracts are entered into in the interbank market conducted
directly between currency traders (usually large commercial banks) and
their customers. Although such transactions are intended to minimize the
risk of loss due to a decline in the value of the hedged currency, at
the same time they tend to limit any potential gain which might result
should the value of such currency increase. To assure that the fund's
forward currency contracts are not used to achieve investment leverage,
the fund will set aside in a segregated account cash or other
permissible liquid assets in an amount at all times equal to or
exceeding the fund's commitment with respect to these contracts. 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 cash or other permissible
liquid assets 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 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
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.
OTHER PRACTICES
In attempting to achieve its investment objective, the fund may employ,
among others, the following portfolio strategies:
Repurchase Agreements. The fund may enter into repurchase agreements
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 monitored 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 in
or restrictions upon the fund's ability to dispose of the underlying
securities, the risk of a possible decline in the value of the
underlying securities during the period in which the fund seeks to
assert its rights to them, the risk of incurring expenses associated
with asserting those rights and the risk of losing all or part of the
income from the agreement. The Manager, acting under the supervision of
the Board of Directors, reviews the value of the collateral and the
creditworthiness of those banks and dealers with which the fund enters
into repurchase agreements in order to evaluate potential risks.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the fund has the ability to lend securities from its
portfolio to brokers, dealers and other financial organizations. The
fund may not lend its portfolio securities to Salomon Smith Barney or
its affiliates unless it has applied for and received specific authority
from the Securities and Exchange Commission ("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 (determined
by marking to market daily) 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 Salomon 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. 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.
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.
Borrowing. 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.
RISK FACTORS
General. 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. The composition of the fund's
portfolio will vary depending on the determination of the Manager of how
best to achieve long-term capital appreciation. The fund may invest in
debt securities when the Manager believes they will enhance the fund's
ability to achieve long-term capital appreciation. 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. Investors
should realize that risk of loss is inherent in the ownership of any
securities and that the fund's net asset value will fluctuate,
reflecting fluctuations in the market value of its portfolio positions.
The fund intends to invest at least 65% of its assets in natural
resource investments as defined in the Prospectus. 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 companies
involved in natural resource-related industries have been volatile.
Foreign Securities. The fund's policy of investing in securities of
foreign issuers 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
currencies other than the U.S. dollar, changes in foreign currency
exchange rates will affect the value of securities in the fund and the
unrealized appreciation or depreciation of investments. To protect
against uncertainty concerning changes in exchange rates, the fund may
enter into forward currency exchange transactions. Foreign securities
may be subject to foreign government taxes that could reduce the yield
on such securities.
Securities of Developing Countries. A developing country is generally
considered 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.
Lower-Rated Securities. The fund may invest in medium- or low-rated
securities and unrated securities of comparable quality (sometimes
referred to as junk bonds). Generally, these securities offer a higher
current yield than the yield offered by higher-rated securities but
involve greater volatility of price and risk of loss of income and
principal, including the probability of default by or bankruptcy of the
issuers of such securities. Medium- and low-rated and comparable unrated
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
securities held by the fund, with a commensurate effect on the value of
the fund's shares. Therefore, an investment in the fund should not be
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 developments 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 lower-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
economic 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 it is required to seek recovery
upon a default in the payment of principal or interest on its portfolio
holdings. In addition, the markets 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
quotations 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 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
characteristics with respect to capacity to pay interest and repay
principal. Securities which are rated B generally lack characteristics
of the desirable investment and assurance of interest and principal
payments over any long period of time may be small.
In light of these risks, the Manager, in evaluating the creditworthiness
of an issuer, whether rated or unrated, will take various factors into
consideration, which may include, as applicable, the issuer's financial
resources, its 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.
Derivative Instruments. In accordance with its investment policies, the
fund may invest in certain derivative instruments which are securities
or contracts that provide for payments based on or "derived" from the
performance of an underlying asset, index or other economic benchmark.
Essentially, a derivative instrument is a financial arrangement or a
contract between two parties (and not a true security like a stock or a
bond). Transactions in derivative instruments can be, but are not
necessarily, riskier than investments in conventional stocks, bonds and
money market instruments. A derivative instrument is more accurately
viewed as a way of reallocating risk among different parties or
substituting one type of risk for another. Every investment by a fund,
including an investment in conventional securities, reflects an implicit
prediction about future changes in the value of that investment. Every
fund investment also involves a risk that the portfolio manager's
expectations will be wrong. Transactions in derivative instruments
often enable a fund to take investment positions that more precisely
reflect the portfolio manager's expectations concerning the future
performance of the various investments available to the fund.
Derivative instruments can be a legitimate and often cost-effective
method of accomplishing the same investment goals as could be achieved
through other investment in conventional securities.
Derivative contracts include options, futures contracts, forward
contracts, forward commitment and when-issued securities transactions,
forward foreign currency exchange contracts and interest rate, mortgage
and currency swaps. The following are the principal risks associated
with derivative instruments.
Market risk: The instrument will decline in value or that an
alternative investment would have appreciated more, but this is no
different from the risk of investing in conventional securities.
Leverage and associated price volatility: Leverage causes
increased volatility in the price and magnifies the impact of adverse
market changes, but this risk may be consistent with the investment
objective of even a conservative fund in order to achieve an average
portfolio volatility that is within the expected range for that type of
fund.
Credit risk: The issuer of the instrument may default on its
obligation to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are
traded in institutional markets rather than on an exchange.
Nevertheless, many derivative instruments are actively traded and can be
priced with as much accuracy as conventional securities. Derivative
instruments that are custom designed to meet the specialized investment
needs of a relatively narrow group of institutional investors such as
the funds are not readily marketable and are subject to a fund's
restrictions on illiquid investments.
Correlation risk: There may be imperfect correlation between the
price of the derivative and the underlying asset. For example, there
may be price disparities between the trading markets for the derivative
contract and the underlying asset.
Each derivative instrument purchased for a fund's portfolio is reviewed
and analyzed by the fund's portfolio manager to assess the risk and
reward of each such instrument in relation the fund's portfolio
investment strategy. The decision to invest in derivative instruments
or conventional securities is made by measuring the respective
instrument's ability to provide value to the fund and its shareholders.
Economic and Monetary Union (EMU). On January 1, 1999, 11 European
countries adopted a single currency - the euro. For participating
countries, EMU will mean sharing a single currency and single official
interest rate and adhering to agreed upon limits on government
borrowing. Budgetary decisions will remain in the hands of each
participating country, but will be subject to each country's commitment
to avoid "excessive deficits" and other more specific budgetary
criteria. A European Central Bank will be responsible for setting the
official interest rate to maintain price stability within the euro zone.
EMU is driven by the expectation of a number of economic benefits,
including lower transaction costs, reduced exchange risk, greater
competition, and a broadening and deepening of European financial
markets. However, there are a number of significant risks associated
with EMU. Monetary and economic union on this scale has never been
attempted before. There is a significant degree of uncertainty as to
whether participating countries will remain committed to EMU in the face
of changing economic conditions. This uncertainty may increase the
volatility of European markets and may adversely affect the prices of
securities of European issuers in the fund's portfolio.
Year 2000. The investment management services provided to the fund by
the Manager and the services provided to shareholders by Salomon Smith
Barney 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 Salomon 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,
Salomon Smith Barney or any other service provider will be successful,
or that interaction with other non-complying computer systems will not
impair the fund's services at that time.
INVESTMENT RESTRICTIONS
The fund has adopted the following investment restrictions for the
protection of shareholders. These fundamental policies 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 investment restrictions and policies adopted by the fund
prohibit it from:
1. Investing in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the rules,
regulations and orders thereunder.
2. Issuing "senior securities" as defined in the 1940 Act and the
rules, regulations and orders thereunder, except as permitted
under the 1940 Act and the rules, regulations and orders
thereunder.
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 (a) 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, and (b) the fund
may, to the extent consistent with its investment policies, enter
into reverse repurchase agreements, forward roll transactions and
similar investment strategies and techniques. To the extent that
it engages in transactions described in (a) and (b), the Portfolio
will be limited so that no more than 33 1/3% of the value of its
total assets (including the amount borrowed), valued at the lesser
of cost or market, less liabilities (not including the amount
borrowed) valued at the time the borrowing is made, is derived
from such transactions.
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,
to the fullest extent permitted under the 1940 Act.
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 real estate, real estate mortgages,
commodities or commodity contracts, but this restriction shall not
prevent the fund from: (a) investing in securities of issuers
engaged in the real estate business or the business of investing
in real estate (including interests in limited partnerships owning
or otherwise engaging in the real estate business or the business
of investing in real estate) and securities which are secured by
real estate or interests therein; (b) holding or selling real
estate received in connection with securities it holds or held;
(c) trading in futures contracts and options on futures contracts
(including options on currencies to the extent consistent with the
fund's investment objective and policies); (d) investing in real
estate investment trust securities; or (e) investing in gold
bullion and coins or receipts for gold.
In addition to the investment restrictions and policies mentioned above,
the fund has voluntarily adopted the following policies and
restrictions. They differ from fundamental investment policies because
they may be changed or amended by the Board of Directors without prior
notice to or approval of shareholders. Accordingly, the fund is
prohibited from:
a. 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 sell any securities short
(except "against the box"). For purposes of this restriction, the
deposit or payment by the fund of underlying securities and other
assets in escrow and collateral agreements with respect to initial
or maintenance margin in connection with futures contracts and
related options and options on securities, indexes or similar
items is not considered to be the purchase of a security on
margin.
b. 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, (i) repurchase agreements
providing for settlement in more than seven days after notice by
the fund and (ii) time deposits maturing in more than seven
calendar days shall be considered illiquid securities.
c. 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.
d. Making investments for the purpose of exercising control or
management.
e. 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.
f. Engaging in the purchase or sale of put, call, straddle or
spread options or in the writing of such options other than (i)
purchasing and writing put and call options on securities and
stock indexes, (ii) entering into closing purchase transactions
with respect to such options, (iii) purchasing put and call
options on gold, purchasing gold futures contracts and writing
covered call options on gold, or (iv) upon 60 days' notice given
to its shareholders, (1) writing put and other call options on
gold or (2) entering into other hedging transactions involving
futures contracts and related options, including gold futures
contracts.
Certain restrictions listed above permit the fund without shareholder
approval to engage in investment practices that the fund does not
currently pursue. The fund has no present intention of altering its
current investment practices as otherwise described in the Prospectus
and this Statement of Additional Information and any future change in
those practices would require Board approval and appropriate disclosure
to investors. If any percentage limitation is complied with at the time
of an investment, a later increase or decrease resulting from a change
in values or assets will not constitute a violation of that limitation.
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 1996, 1997 and 1998
fiscal years were 120%, 101% and 177% 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 1996, 1997 and 1998
fiscal years, the fund paid $705,392, $702,508 and $618,393,
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 account. 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 Salomon Smith Barney
or an affiliate of Salomon Smith Barney if, in the judgment of the
Manager, the use of Salomon 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, Salomon Smith Barney charges the fund a
commission rate consistent with those charged by Salomon 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, Salomon 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 Salomon Smith Barney to
effect such transactions and (b) Salomon Smith Barney annually advises
the fund of the aggregate compensation it earned on such transactions.
Salomon 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 1996, 1997 and 1998 fiscal years, the fund
paid $0, $9,000 and $14,131, respectively, in brokerage commissions to
Salomon 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 Salomon Smith Barney is a member, except to
the extent permitted by regulations adopted by the SEC.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase. See the
Prospectus for a discussion of factors to consider in selecting which
Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the public
offering price, which is the net asset value plus an initial sales
charge as follows:
Amount of
Investment
Sales Charge
as a %
of
Transaction
Sales Charge
as a %
of Amount
Invested
Dealers'
Reallowance
as %
of Offering
Price
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
*
*
*
* 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 Salomon Smith
Barney, which compensates Salomon 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 L shares is waived.
See "Deferred Sales Charge Alternatives" and "Waivers of
CDSC."
Members of the selling group may receive up to 90% of the sales charge
and may be deemed to be underwriters of the fund as defined in the 1933
Act. 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.
Class B Shares. Class B shares are sold without an initial sales charge
but are subject to a CDSC payable upon certain redemptions. See
"Deferred Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial sales charge of
1.00% (which is equal to 1.01% of the amount invested) and are subject
to a CDSC payable upon certain redemptions. See "Deferred Sales Charge
Provisions" below. Until June 22, 2001 purchases of Class L shares by
investors who were holders of Class C shares of the fund on June 12,
1998 will not be subject to the 1% initial sales charge.
Class Y Shares. 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 purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum purchase amount).
General
Investors may purchase shares from a Salomon Smith Barney Financial
Consultant or a Dealer Representative. In addition, certain investors,
including qualified retirement plans purchasing through certain Dealer
Representatives, may purchase shares directly from the fund. When
purchasing shares of the fund, investors must specify whether the
purchase is for Class A, Class B, Class L or Class Y shares. Salomon
Smith Barney and Dealer Representatives 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 Investor Services Group, Inc. ("First Data" or
"transfer agent") are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account in
the fund by making 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 participants in retirement plans
qualified under Section 403(b)(7) or Section 401(c) of the Code, the
minimum initial investment required for Class A, Class B and Class L
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 L shares and
subsequent investment requirement for all Classes is $25. For
shareholders purchasing shares of the fund through the Systematic
Investment Plan on a quarterly basis, the minimum initial investment
required for Class A, Class B and Class L shares and the subsequent
investment requirement for all Classes is $50. There are no minimum
investment requirements for Class A shares for employees of Citigroup
and its subsidiaries, including Salomon Smith Barney, unitholders who
invest distributions from a Unit Investment Trust ("UIT") sponsored by
Salomon Smith Barney, and Directors/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 First Data. Share
certificates are issued only upon a shareholder's written request to
First Data.
Purchase orders received by the fund or a Salomon Smith Barney Financial
Consultant 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 a Dealer Representative 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,
provided the order is received by the fund or the fund's agent prior to
its close of business. For shares purchased through Salomon Smith Barney
or a Dealer Representative purchasing through Salomon Smith Barney,
payment for shares of the fund is due on the third business day after
the trade date. In all other cases, payment 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,
Salomon Smith Barney or First Data is authorized through preauthorized
transfers of at least $25 on a monthly basis or at least $50 on a
quarterly basis to charge the shareholder's account held with a bank or
other financial institution on a monthly or quarterly basis as indicated
by the shareholder, to provide for systematic additions 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 Salomon
Smith Barney or First Data. The Systematic Investment Plan also
authorizes Salomon Smith Barney to apply cash held in the shareholder's
Salomon 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 Salomon
Smith Barney Financial Consultant or a Dealer Representative.
Sales Charge Waivers and Reductions
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 Citigroup
and its subsidiaries and any Citigroup affiliated funds including 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); and to a
pension, profit-sharing or other benefit plan for such persons and (ii)
employees of members of the National Association of Securities Dealers,
Inc., provided such sales are made upon the assurance of the purchaser
that the purchase is made for investment purposes and that the
securities will not be resold except through redemption or repurchase;
(b) offers of Class A shares to any other investment company to effect
the combination of such company with the fund by merger, acquisition of
assets or otherwise; (c) purchases of Class A shares by any client of a
newly employed Salomon Smith Barney Financial Consultant (for a period
up to 90 days from the commencement of the Financial Consultant's
employment with Salomon Smith Barney), on the condition the purchase of
Class A shares is made with the proceeds of the redemption of shares of
a mutual fund which (i) was sponsored by the Financial Consultant's
prior employer, (ii) was sold to the client by the Financial Consultant
and (iii) was subject to a sales charge; (d) purchases by shareholders
who have redeemed Class A shares in the fund (or Class A shares of
another Smith Barney Mutual Fund that is 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 managed by registered investment advisory
subsidiaries of Citigroup; (f) direct rollovers by plan participants of
distributions from a 401(k) plan offered to employees of Citigroup 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 a separate account used to fund certain
unregistered variable annuity contracts; (h) investments of
distributions from a UIT sponsored by Salomon Smith Barney; and
(i) purchases by investors participating in a Salomon Smith Barney fee-
based arrangement. In order to obtain such discounts, the purchaser must
provide sufficient information at the time of purchase to permit
verification that the purchase would qualify for the elimination of the
sales charge.
Right of Accumulation. Class A shares of the fund may be purchased by
''any person'' (as defined above) at a reduced sales charge or at net
asset value determined by aggregating the dollar amount of the new
purchase and the total net asset value of all Class A shares of the fund
and of other Smith Barney Mutual Funds that are offered with a sales
charge as currently 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.
Letter of Intent - Class A Shares. A Letter of Intent for an amount 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 (i) all Class A
shares of the fund and other Smith Barney Mutual Funds offered with a
sales charge acquired during the term of the letter plus (ii) the value
of all Class A shares previously purchased and still owned. Each
investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay the difference
between the sales charges applicable to the purchases made and the
charges previously paid, or an appropriate number of escrowed shares
will be redeemed. The term of the Letter will commence upon the date
the Letter is signed, or at the options of the investor, up to 90 days
before such date. Please contact a Salomon Smith Barney Financial
Consultant or First Data to obtain a Letter of Intent application.
Letter of Intent - 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 (except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no minimum purchase
amount). 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 13 months from the
date of the Letter. If a total investment of $15,000,000 is not made
within the 13-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 a
Salomon Smith Barney Financial Consultant or First Data for further
information.
Deferred Sales Charge Provisions
''CDSC Shares'' are: (a) Class B shares; (b) Class L shares; and (c)
Class A shares that were purchased without an initial sales charge but
are subject to a CDSC. A CDSC may be imposed on certain redemptions of
these shares.
Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their net asset value
at the time of redemption. CDSC Shares that are redeemed will not be
subject to a CDSC to the extent that the value of such shares
represents: (a) capital appreciation of fund assets; (b) reinvestment of
dividends or capital gain distributions; (c) with respect to Class B
shares, shares redeemed more than five years after their purchase; or
(d) with respect to Class L shares and Class A shares that are CDSC
Shares, shares redeemed more than 12 months after their purchase.
Class L 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 Salomon 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 ExecChoiceTM
Programs.''
Year Since Purchase Payment Was Made
CDSC
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
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 fees. There will also be converted
at that time such proportion of Class B Dividend Shares owned by the
shareholders as the total number of his or her Class B shares converting
at the time bears to the total number of outstanding Class B shares
(other than Class B Dividend Shares) owned by the shareholder.
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 Smith Barney Mutual Funds,
and fund shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain
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 realized on redemption. The
amount of any CDSC will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares
of the fund at $10 per share for a cost of $1,000. Subsequently, the
investor acquired 5 additional shares of the fund 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) automatic 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) redemptions of shares
made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 591/2; (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 shareholder 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 redemption.
CDSC waivers will be granted subject to confirmation (by Salomon Smith
Barney in the case of shareholders who are also Salomon Smith Barney
clients or by First Data in the case of all other shareholders) of the
shareholder's status or holdings, as the case may be.
Smith Barney 401(k) and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith Barney 401(k)
Program or the Smith Barney ExecChoiceTM Program. To the extent
applicable, the same terms and conditions, which are outlined below, are
offered to all plans participating (''Participating Plans'') in these
programs.
The fund offers to Participating Plans Class A and Class L shares as
investment alternatives under the Smith Barney 401(k) and ExecChoiceTM
Programs. Class A and Class L shares acquired through the Participating
Plans are subject to the same service and/or distribution fees as the
Class A and Class L shares acquired by other investors; however, they
are not subject to any initial sales charge or CDSC. Once a
Participating Plan has made an initial investment in the fund, all of
its subsequent investments in the fund must be in the same Class of
shares, except as otherwise described below.
Class A Shares. Class A shares of the fund are offered without any
sales charge or CDSC to any Participating Plan that purchases $1,000,000
or more of Class A shares of one or more funds of the Smith Barney
Mutual Funds.
Class L Shares. Class L 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 L shares of one or more funds of the Smith Barney
Mutual Funds.
401(k) and ExecChoiceTM 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 ExecChoiceTM
Program, a Participating Plan's total Class L 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 L shares for Class A shares of the fund. For Participating
Plans that were originally established through a Salomon 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 Participating Plan enrolled in the Smith Barney 401(k) Program, if a
Participating Plan's total Class L 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 L 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) or the Smith Barney
ExecChoiceTM Programs, 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 L shares
for Class A shares of the fund, regardless of asset size, at the end of
the eighth year after the date the Participating Plan enrolled in the
Smith Barney 401(k) Program. Such Plans will be notified of the pending
exchange in writing approximately 60 days before the eighth anniversary
of the enrollment date and, unless the exchange has been rejected in
writing, the exchange will occur on or about the eighth anniversary
date. Once an exchange has occurred, a Participating Plan will not be
eligible to acquire additional Class L shares of the fund, but instead
may acquire Class A shares of the fund. Any Class L 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 ExecChoiceTM Program
must purchase such shares directly from the transfer agent. For further
information regarding these Programs, investors should contact a Salomon
Smith Barney Financial Consultant.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class of the fund may be
exchanged for shares of the same Class of certain 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 L shares
are subject to minimum investment requirements and all shares are
subject to the other requirements of the fund into which exchanges are
made.
Class B Exchanges. If 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 L Exchanges. Upon an exchange, the new Class L shares will be
deemed to have been purchased on the same date as the Class L 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 imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the fund's performance and its
shareholders. The Manager may determine that a pattern of frequent
exchanges is excessive and contrary to the best interests 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
suspending the exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her shares in the fund
or (b) remain invested in the fund or exchange into any of the funds of
the Smith Barney Mutual Funds ordinarily available, which position the
shareholder would be expected to maintain for a significant period of
time. All relevant factors will be considered in determining what
constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by telephone. See
''Redemption of Shares-Telephone Redemptions 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. An exchange
involves a taxable redemption of shares, subject to the tax treatment
described in "ADDITIONAL TAX INFORMATION" above, followed by a purchase
of shares of a different fund. 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 transfer agent receives further instructions from Salomon Smith
Barney, or if the shareholder's account is not with Salomon Smith
Barney, from the shareholder directly. The redemption proceeds will be
remitted on or before the third business day following receipt of proper
tender, except on any days on which the NYSE is closed or as permitted
under the 1940 Act in extraordinary circumstances. Generally, if the
redemption proceeds are remitted to a Salomon Smith Barney brokerage
account, these funds will not be invested for the shareholder's benefit
without specific instruction and Salomon 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 Salomon Smith Barney as custodian must be redeemed by
submitting a written request to a Salomon Smith Barney Financial
Consultant. Shares other than those held by Salomon Smith Barney as
custodian may be redeemed through an investor's Financial Consultant,
Dealer Representative or by submitting a written request for redemption
to:
Smith Barney Natural Resources Fund Inc.
Class A, B, L 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 (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 written 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 supporting documents for
redemptions made by corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly received
until the transfer agent receives all required documents in proper form.
Automatic Cash Withdrawal Plan. The fund offers shareholders an
automatic cash withdrawal plan, under which shareholders who own shares
with a value of at least $10,000 may elect to receive cash payments of
at least $50 monthly or quarterly. Retirement plan accounts are
eligible for automatic cash withdrawal plans only where the shareholder
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 Classes of a 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 value of the
shareholder's shares subject to the CDSC.) For further information
regarding the automatic cash withdrawal plan, shareholders should
contact a Salomon Smith Barney Financial Consultant.
Telephone Redemption and Exchange Program. Shareholders who do not have
a brokerage account may be eligible to redeem and exchange shares by
telephone. To determine if a shareholder is entitled to participate in
this program, he or she should contact the transfer agent at 1-800-451-
2010. Once eligibility is confirmed, the shareholder must complete and
return a Telephone/Wire Authorization Form, along with 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 the applicant's signature guarantee when
making his/her initial investment in a fund.)
Redemptions. Redemption requests of up to $10,000 of any class or
classes of shares of a fund may be made by eligible shareholders by
calling the transfer agent at 1-800-451-2010. Such requests may be made
between 9:00 a.m. and 4:00 p.m. (Eastern 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 complete a new Telephone/Wire Authorization Form and,
for the protection of the shareholder's assets, will be required to
provide a signature guarantee and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is
identical to the registration of the shares of the fund exchanged. Such
exchange requests may be made by calling the transfer agent at 1-800-
451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern 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 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 following at least seven
(7) days prior notice to shareholders.
Redemptions in Kind. In conformity with applicable rules of the SEC,
redemptions may be paid in portfolio securities, in cash or any
combination of both, as the Board of Directors may deem advisable;
however, payments shall be made wholly in cash unless the Board of
Directors believes economic conditions exist that would make such a
practice detrimental to the best interests of the fund and its remaining
shareholders. If a redemption is paid in portfolio securities, such
securities will be valued in accordance with the procedures described
under "Determination of Net Asset Value" in the Prospectus and a
shareholder would incur brokerage expenses if these securities were then
converted to cash.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. The fund's policy is to distribute its net
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 federal 4% nondeductible
excise tax on certain undistributed amounts of ordinary income and
capital gains, the fund may make an additional distribution shortly
before or shortly after December 31 in each year of any undistributed
ordinary income or capital gains and expects to pay any additional
dividends and distributions necessary to avoid the application of this
tax. For federal income tax purposes, dividends declared by the fund in
October, November or December as of a record date in such a month and
which are actually paid in January of the following year will be treated
as if they were paid on December 31. These dividends will be taxable to
shareholders as if actually received on December 31 rather than in the
year in which shareholders actually receive the dividends.
The per share dividends on Class B and Class L 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 L 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 service fee applicable to Class A shares.
Distributions of capital gains, if any, will be in the same amount for
Class A, Class B, Class L and Class Y shares.
The following is a summary of selected Federal income tax considerations
that may affect the fund and its shareholders. In addition to the
considerations described below, there may be other federal, state, local
or foreign tax applications to consider. 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.
General. 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, any
excess of its net short-term capital gain over its net long-term
capital loss ) for a taxable year, 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 in compliance with the Code's timing and other
requirements. One of several requirements for qualification is that the
fund receives at least 90% of its gross income for each taxable year
from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stocks or securities or
foreign currencies, or certain other income (including but not limited
to gains from options, futures and forward contracts) derived with
respect to the fund's investments in stock, securities and foreign
currencies. Income from investments in gold bullion, gold coins and
possibly futures or options contracts related to gold will not qualify
as permitted gross income for purposes of the 90% test. Therefore, the
fund intends to restrict its investment in gold bullion, gold coins and
possibly futures or options contracts related to gold to the extent
necessary to meet the 90% test. Gains from foreign currencies or
related forward contracts, if any, that are not directly related to the
fund's principal business of investing in stock or securities (or
options or futures with respect to stock or securities) might be
excluded by regulations from permitted gross income for purposes of 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, except for
certain currency gains or losses, as described below. 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 market 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 not previously included in the fund's
income.
Dividends or other income (including, in some cases, capital gains)
received by the fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such foreign
countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. [If eligible, the fund will
determine whether to make an election to treat any qualified foreign
income taxes paid by it as paid by its shareholders. In determining
whether to make this election, the fund will take into consideration
such factors as the amount of foreign taxes paid and the administrative
costs associated with making the election. If the election is made,
shareholders of the fund would be required to include their respective
pro rata portions of such qualified foreign taxes in computing their
taxable income and would then generally 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 potentially available as a credit or deduction,
subject to the limitations generally applicable under the Code.]
Under the Code, gains or losses attributable to foreign currency forward
contracts, or to fluctuations in exchange rates between the time the
fund accrues income or receivables or expenses or other liabilities
denominated in a foreign currency and the time the fund actually
collects such income or pays such liabilities, are treated as ordinary
income or ordinary loss. Similarly, gains or losses on the disposition
of debt securities denominated in foreign currency, to the extent
attributable to fluctuations in exchange rates between the acquisition
and disposition dates, are also treated as ordinary income or loss.
If the fund purchases shares in certain foreign investment entities,
referred to as "passive foreign investment companies," the fund itself
may be subject to U.S. federal income tax and an additional charge in
the nature of interest on a portion of any "excess distribution" from
such company or gain from the disposition of such shares, even if the
distribution or gain is distributed by the fund to its shareholders in a
manner that satisfies the requirements described above. If the fund
were able and elected to treat a passive foreign investment company as a
"qualified electing fund," in lieu of the treatment described above, the
fund would be required each year to include in income, and distribute to
shareholders in accordance with the distribution requirements described
above, the fund's pro rata share of the ordinary earnings and net
capital gains of the company, whether or not actually received by the
fund. The fund generally should be able to make an alternative election
to mark these investments to market annually, resulting in the
recognition of ordinary income (rather than capital gain) or ordinary
loss, subject to limitations on the ability to use any such loss.
The fund may be required to treat amounts as taxable income or gain,
subject to the distribution requirements referred to above, even though
no corresponding amounts of cash are received concurrently, as a result
of (1) mark to market, constructive sale or other rules applicable to
passive foreign investment companies or partnerships in which the fund
invests or to certain options, futures, forward contracts, or
"appreciated financial positions" or (2) the inability to obtain cash
distributions or other amounts due to currency controls or restrictions
on repatriation imposed by a foreign country with respect to the fund's
investments in issuers in such country or (3) tax rules applicable to
debt obligations acquired with "original issue discount," including
zero-coupon or deferred payment bonds and pay-in-kind debt obligations,
or to market discount if an election is made with respect to such market
discount. The fund may therefore be required to obtain cash to be used
to satisfy these distribution requirements by selling portfolio
securities at times that it might not otherwise be desirable to do so or
borrowing the necessary cash, thereby incurring interest expenses.
Options, Futures and Currency Forward Transactions. The tax
consequences of options, futures and forward transactions entered into
by the fund will vary depending on the nature of the underlying security
or currency and whether the "straddle" rules, discussed separately
below, apply to the transaction.
If the fund purchases a put or call option on an equity security,
convertible debt security or gold (provided that the option on gold is
not a "Section 1256 contract", as described below) 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 or gold for more than one year before it purchases
the put) from the sale of the underlying security or gold measured by
the sales proceeds decreased by the premium paid and the fund's tax
basis in the underlying security or gold. 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 the securities and gold
described above. 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
security or 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 security or gold. Whether
the gain or loss will be long-term or short-term will depend on the
fund's holding period for the underlying security or gold.
The Code imposes a special "mark-to-market" system for taxing "section
1256 contracts" including certain listed options on nonconvertible debt
securities (including U.S. government securities or other listed
nonequity options), options on certain stock indexes, regulated 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 or making 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 mark-to-
market year-end gain or loss from these investment positions (including
premiums on listed, nonequity 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 (except that gain or loss with respect to foreign currency
forward contracts will generally be treated as ordinary income or loss).
Constructive sale rules may also require the recognition of gains (but
not losses) if the fund engages in short sales or certain other
transactions.
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 or securities ("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 certain circumstances whether 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, options, futures,
forward currency contracts and other positions 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.
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%" and/or 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. The effect
of the straddle rules and the other rules described above may be to
change the amount, timing and character of the fund's income, gains and
losses and, therefore, its distributions.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder will also receive,
if appropriate, various written notices after the close of the fund's
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
taxable year. Shareholders should consult their tax advisors regarding
specific questions as to the Federal and local tax consequences of
investing in the fund.
Taxation of Shareholders. Dividends paid from net investment income and
distributions of net 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 distributions
are received in cash or reinvested in additional fund shares.
Distributions of net long-term capital gains are 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. Some of the fund's dividends
declared from net investment income and attributable to qualifying
dividends received by the fund from domestic corporations may qualify
for the Federal dividends-received deduction for corporations.
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
requirement must be satisfied separately for each dividend during a
prescribed period before and after the ex-dividend date and 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, granting an
option to buy, 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 for which a corporate shareholder satisfies
the same holding period rules applicable to the fund. Receipt of
dividends that qualify for the dividends received deduction may increase
a corporate shareholder's liability, if any, for the alternative minimum
tax. Such a shareholder should also consult its tax adviser regarding
the possibility that its federal tax basis in its fund shares may be
reduced by the receipt of "extraordinary dividends" from the fund and,
to the extent such basis would be reduced below zero, current
recognition of income would be required.
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 (e.g., 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 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 any such payment will be a taxable dividend or
distribution payment even though it may represent a return of invested
capital.
Share Redemptions. As a general rule, a shareholder who is not a dealer
in securities and 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, provided in each
case that the transaction is properly treated as a sale rather than a
dividend for tax purposes. 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
will be treated as a long-term capital loss to the extent of the
distribution.
Additionally, any loss realized on a redemption or exchange of fund
shares will be disallowed to the extent the shares disposed of are
replaced with other shares of the fund within a period of 61 days
beginning 30 days before and ending 30 days after such disposition, such
as pursuant to reinvestment of dividends in fund shares.
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) 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. Distributions to
nonresident aliens and foreign entities may also be subject to other
withholding taxes.
PERFORMANCE INFORMATION
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:
(31.72)% for the one-year period from November 1, 1997 through
October 31, 1998.
(3.16)% per annum during the five-year period from November 1,
1993 through October 31, 1998.
1.06% per annum for the period from commencement of operations
(November 24, 1986) through October 31, 1998.
Class B's average annual total return was as follows for the periods
indicated:
(32.15)% for the one-year from November 1, 1997 through October
31, 1998.
(3.02)% per annum during the five-year period from November 6,
1993 through October 31, 1998.
3.33% per annum for the period from commencement of operations
(November 6, 1992) through October 31, 1998.
Class L's average annual total return was as follows for the periods
indicated:
(29.25)% for the one year period from November 1, 1997 through
October 31, 1998.
(5.78)% per annum for the period from commencement of operations
(November 7, 1994) through October 31, 1998.
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 (28.13)%, (2.16)% and 1.49%,
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 (28.61)%, (2.83)% and 3.33%, respectively. If the
maximum CDSC had not been deducted at the time of purchase, Class L's
average annual total return for the same periods would have been
(28.54)% and (5.78)%, 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:
(31.72)% for the one-year period from November 1, 1997 through
October 31, 1998.
(14.82)% for the five-year period from November 1, 1993 through
October 31, 1998.
13.40% for the period from commencement of operations (November
24, 1986) through
October 31, 1998.
Class B's aggregate total return was as follows for the periods
indicated:
(32.15)% for the one-year period from November 1, 1997 through
October 31,1998.
(14.21)% for the five-year period from November 1, 1993 through
October 31, 1998.
21.69% per annum from commencement of operations (November 6,
1992) through
October 31,1998.
Class L's aggregate total return was as follows for the period
indicated:
(29.96)% for the one-year period from November 1, 1997 through
October 31,1998.
(21.90)% for the period from commencement of operations (November
7, 1994) through
October 31,1998.
Class A aggregate total return figures assume 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 (28.13)%, (10.36)% and 19.37%, respectively.
Class B aggregate total return figures assume 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
(28.61)%, (13.36)% and 21.69%, respectively.
Class L aggregate total return figures assume 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
L's aggregate total return for the same periods would have been (28.54)%
and (21.11)%, 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.
DETERMINATION OF NET ASSET VALUE
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.
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 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 securities and securities listed or traded on certain
foreign exchanges whose operations are similar to the United States
over-the-counter market for which no sale was reported on that date are
valued at the mean between the bid and asked price. If market
quotations for those securities are not readily available, they are
valued at fair value, as determined in good faith by the fund's Board of
Directors. An option is generally valued at the last sale price or, in
the absence of a last sale price, the last offer price.
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.
Short-term investments maturing 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.
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.
INVESTMENT MANAGEMENT AND OTHER SERVICES tc \l1 "INVESTMENT MANAGEMENT
AND OTHER SERVICES
Manager. Mutual Management Corp., 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") dated as
of December 18, 1995. The agreement 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 is a wholly owned subsidiary of Salomon Smith Barney Holdings
Inc. ("Holdings"), which in turn, is a wholly owned subsidiary of
Citigroup, Inc. ("Citigroup"). 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, 1999, in excess of $__ billion.
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 securities analysts who
provide research services to the fund and oversees all aspects of the
fund's administration.
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, 1996, October 31, 1997 and October 31, 1998, the fund paid
the Manager $763,626, $1,012,447 and $607,349, respectively, in
investment advisory fees.
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." The Manager bears all expenses in connection with the
performance of its services. 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 Salomon Smith Barney or the Manager; 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. Willkie Farr & Gallagher serves as counsel to the fund. The
Independent Directors of the fund have selected Stroock & Stroock &
Lavan LLP, as their counsel.
Auditors. KPMG 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.
Custodian. The Chase Manhattan Bank, N.A. ("Chase" or "Custodian"),
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.
Transfer Agent. 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.
Distributor. CFBDS, Inc. serves as the fund's distributor pursuant to a
written agreement dated October 8, 1998 (the "Distribution Agreement")
which was approved by the fund's Board of Directors, including a
majority of the Independent Directors on July 15, 1998. Prior to the
merger of Travelers Group, Inc. and Citicorp Inc. on October 8, 1998,
Salomon Smith Barney served as the fund's distributor. For the 1996,
1997 and 1998 fiscal years, Salomon Smith Barney, received $500,000,
$115,000 and __________, 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, 1996, 1997 and 1998, Salomon Smith
Barney or its predecessor received from shareholders $119,000, $201,000
and $_________, respectively, in CDSC on the redemption of Class B and
Class L 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 Salomon Smith Barney may
benefit from the temporary use of the funds. The fund's Board of
Directors has been advised of the benefits to Salomon 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, 1998, Salomon Smith Barney
incurred distribution expenses totaling approximately $622,346
consisting of approximately $32,428 for advertising, $5,345 for printing
and mailing of prospectuses, $302,634 for support services, $277,469 to
Salomon Smith Barney Financial Consultants, and $4,470 in accruals for
interest on the excess of Salomon Smith Barney expenses incurred in
distributing the fund's shares over the sum of the distribution fees and
CDSC received by Salomon Smith Barney from the fund.
Distribution Arrangements. To compensate Salomon 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 Salomon 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 L shares. In addition, the fund pays Salomon Smith Barney a
distribution fee with respect to Class B and Class L shares primarily
intended to compensate Salomon Smith Barney for its initial expense of
paying Financial Consultants a commission upon sales of those shares.
The Class B and Class L 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.
The following service and distribution fees were incurred pursuant to a
Distribution Plan during the periods indicated:
Distribution Plan Fees
Fiscal Year
Ended
10/31/98
Fiscal Year
Ended
10/31/97
Fiscal Year
Ended
10/31/96
Class A
$ 82,238
$131,379
$111,199
Class B
$438,557
$750,082
$511,268
Class L*
$ 42,290
$ 75,921
$ 42,739
* Class L shares were called Class C shares until June 12, 1998.
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, Salomon 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.
OTHER INFORMATION ABOUT THE FUND
General. 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. As the name of its sponsor has changed, the
fund's name has been changed, most recently on October 14, 1994 and
December 19, 1995, to Smith Barney Precious Metals and Minerals Fund
Inc. and Smith Barney Natural Resources Fund Inc., respectively. The
fund 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, L and Y, with a par value of $.001 per share. Each class
of shares has the same rights, privileges and preferences, except with
respect to: (a) the designation of each class; (b) the effect of the
respective sales charges for each class; (c) the distribution and/or
service fees borne by each class; (d) the expenses allocable exclusively
to each class; (e) voting rights on matters exclusively affecting a
single class; (f) the exchange privilege of each class; and (g) the
conversion feature of the Class B shares. The fund's Board of Directors
does not anticipate that there will be any conflicts among the interests
of the holders of the different classes. The Directors, on an ongoing
basis, will consider whether any such conflict exists and, if it does,
take appropriate action.
Voting. 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. Generally, 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.
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 this fund, each account
must satisfy the minimum account size.) The fund, however, will not
redeem shares based solely on market reductions in net asset value.
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.
Annual and Semi-annual Reports. 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 mailing costs, the fund
consolidates 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 consolidates the mailing 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 Salomon
Smith Barney Financial Consultant or the Transfer Agent.
FINANCIAL STATEMENTS tc \l1 "FINANCIAL STATEMENTS
The fund's Annual Report for the fiscal year ended October 31, 1998 is
incorporated herein by reference in its entirety.
APPENDIX A- RATINGS OF DEBT OBLIGATIONS tc \l1 "APPENDIX A- RATINGS OF
DEBT OBLIGATIONS
BOND (AND NOTE) RATINGS
Moody's
Aaa - Bonds rated "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 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 that make the long term
risks appear somewhat larger than in "Aaa" securities.
A - Bonds 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 that suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds 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 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 rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds 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 rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
short-comings.
C - Bonds 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 applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates 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
the issue ranks in the lower end of its generic rating category.
Standard & Poor's
AAA - Debt rated "AAA" has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only in
small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B and CCC - Bonds rated BB and B are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
represents a lower degree if speculation than B and CCC 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 category.
COMMERCIAL PAPER RATINGS
Moody's
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial
charges and high internal cash generation; well-established access to a
range of financial markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Standard & Poor's
A-1 - This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics will be
denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as high as for
issues designated A-1.
APPENDIX B
The Smith Barney Mutual Fund Family encompasses more than 60 mutual
funds, representing approximately $87 billion of shareholder assets
under management as of September 30, 1998. This places us among the
largest mutual fund companies in the United States. Our portfolio
managers average approximately 25 years of experience in the financial
field - of which, on average, 18 have been with Smith Barney.
By building a core portfolio of mutual funds with complementary
investment styles, individuals can work toward specific goals of capital
appreciation, regular income and preservation of investment principal.
Your Salomon Smith Barney Financial Consultant can recommend and provide
a prospectus for one or more mutual funds designed to help you meet your
individual goals for education funding, retirement and changing
lifestyle needs.
Smith Barney Mutual Funds provide a broad selection of funds to suit
every investment goal, from capital appreciation to preservation of
investment principal. Our Family is divided into these main categories:
? Growth: For individuals seeking long-term capital appreciation
through investments in common stocks. Some of our growth funds
also give equal emphasis to income.
? Taxable Fixed Income: For individuals seeking current income.
? Tax-Exempt Fixed Income: For individuals seeking a tax-exempt
investment that allows them to keep more of what they earn for
current spending or future investment.
? Global/International: For individuals seeking to diversify their
portfolio to include long-term capital appreciation or income from
investments in markets around the world.
? Concert Allocation Series:
We understand that investors can be ________ in how they wish to reach
their financial goals. That's why we offer four different Series of
funds. Some investors, guided by their Financial Consultant, prefer to
take an active role in allocating their investment portfolio. For these
investors we offer the Style Pure Series. Others prefer to rely on the
asset allocation decisions of experienced portfolio managers, and may
fund solutions to their investment needs in our Classic Series. For
investors who want to explore opportunities using a narrower focus, we
offer the Specialty Series. The Concert Allocation Series allows
investors to invest in a diversified "fund of funds."
Style Pure Series Smith Barney mutual funds designated as "Style Pure"
are the basic building blocks of asset allocation. Other than
maintaining minimal cash, or under extraordinary market conditions, each
of these funds is 100% invested, 1005 of the time within its designated
asset classes and designated investment style. The Style Pure Series
enables you and your Smith Barney Financial Consultant to control your
asset allocation decisions using funds managed by experienced portfolio
managers.
Global/International Funds
Taxable Fixed Income Funds
Emerging Markets Portfolio
Adjustable Rate Government
Income Fund
European Portfolio
Government Securities Fund
Pacific Portfolio
High Income Fund
Investment Grade Bond Fund
Growth Funds
Managed Governments Fund
Large Cap Blend Fund
Short-Term High Grade Bond Fund
Large Capitalization Growth
Fund
U.S. Government Securities Fund
Large Cap Value Fund
Mid Cap Blend Fund
Tax-Exempt Fixed Income Funds
Small Cap Blend Fund
Limited Term Portfolio
Municipal High Income Fund
Classic Series The "Classic Series" lets you participate in mutual
funds whose investment decisions are determined by experienced portfolio
managers, based on each fund's investment objectives and guidelines.
Funds in the Smith Barney Classic Series invest across asset classes and
sectors, utilizing a range of strategies in order to achieve their
objectives.
Global/International Funds
Taxable Fixed Income Funds
Global Government Bond Fund
Diversified Strategic Income
Fund
Hansberger Global Small Cap
Value Fund
Total Return Bond Fund
Hansberger Global Value Fund
International Balanced
Portfolio
Tax-Exempt Fixed Income Funds
International Equity Portfolio
Managed Municipals Fund
Growth Funds
Aggressive Growth Fund
Appreciation Fund
Balanced Fund
Concert Peachtree Growth Fund
Contrarian Fund
Fundamental Value Fund
Premium Total Return Fund
Special Equities Fund
Specialty Series Mutual funds included in Smith Barney's "Specialty
Series" explore opportunities in a narrower sector of the market or by
using a narrower investment focus.
Growth Funds
State-Specific, Intermediate-
Term Tax-Exempt Fixed Income
Funds
Concert Social Awareness Fund
Intermediate Maturity
California Municipals Fund
Convertible Fund
Intermediate Maturity New York
Municipals Fund
Natural Resources Fund
S&P 500 Index Fund
State-Specific, Tax-Exempt
Fixed Income Funds
Arizona New Jersey
California New York
Florida Oregon
Georgia Pennsylvania
Massachusetts
Concert Allocation Series These "funds of funds" are designed to
provide you with targeted objectives, but at diversification levels that
are significantly greater than an investment in a single fund can
provide. Currently, available options include Global, High Growth,
Growth, Balanced, Conservative and Income Portfolios. These Portfolios'
objectives are achieved through stock and bond fund allocations that
range from 100% stocks to 10% stocks/90% bonds, allowing you to match
"funds of funds" in the Concert Allocation Series with your changing
financial goals and risk tolerance.
The Global Portfolio The Balanced
Portfolio
The High Growth Portfolio The Conservative
Portfolio
The Growth Portfolio The Income
Portfolio
Help Along the Way
A professionally trained Salomon Smith Barney Financial Consultant is
ready, willing and able to serve as a reliable financial guide
throughout your financial journey. Talk with your Financial Consultant
before you invest in order to help prioritize your goals. Once you've
set your sights on clear objectives, rely on the expertise of this
dedicated professional to help you determine which investment mix may be
suited to your unique circumstances.
Your Financial Consultant knows from experience that allocating assets
is a key part of determining the long-term success of investment
strategies. As your circumstances and life style change, your Financial
Consultant will suggest adjustments to your strategy in order to keep
you on the right road and on track for achieving your financial goals.
International Investing
Whether you're a conservative or aggressive investor, just starting to
save or nearing retirement, chances are you could benefit from investing
a portion of your overall portfolio in international stocks and bonds.
Smith Barney offers a variety of international mutual funds designed to
help you gain access to:
Expanded horizons
Today, approximately 55% of the world's stock and bond opportunities are
found beyond U.S. boundaries. And non-U.S. markets represent some of
the fastest-growing economies in the world.
Potential for higher return
Taken as a whole, foreign markets have outperformed their domestic
counterparts on a long-term basis. Foreign markets do not outperform
the U.S. every quarter of every year, but they have delivered superior
returns over time.
Enhanced diversification
One of the most significant benefits of investing abroad is the
potential for reducing risk. Intentionally diversified portfolios tend
to experience less overall price volatility than portfolios invested in
single markets. Since world markets do not necessarily move in tandem
with those of the U.S., many international markets may be on the rise
when U.S. markets are down. The net result may be lower overall
portfolio volatility and potentially higher investment returns over
time. In addition, global/international mutual funds offer convenient
access to attractive opportunities not always available to U.S.
investors.
Growth Investing
A growth mutual fund can offer you the benefits of professional
management, lower volatility as a result of diversification, and
affordability in terms of both initial and subsequent investments. If
you are a long-term investor, you may be best served by having a
significant portion of your assets invested in growth funds, although
past performance is not a guarantee of future results and principal
value will fluctuate with changes in the market. For younger investors,
growth funds may be one of the best ways to grow your assets and help
you reach your financial goals. Yet investing for growth is also
important for older investors, who should not underestimate the
importance of offsetting the effects of inflation and continuing to
build financial resources for future needs.
Different types of investments have different rewards and risks
associated with them. For example, funds that invest in bonds as well
as stocks may be less volatile than funds investing solely in stocks.
You may reduce overall investment risk by owning funds that span
different market capitalizations and investment styles. The Smith
Barney Natural Resources Fund may be useful as a diversification
component in growth portfolios, since natural resource prices have
tended to move counter to equity markets in recent decades.
Tax-Exempt Investing: Helping You to Keep More of What You Earn
Tax-exempt fixed income funds, also known as "municipal bond mutual
funds," seek to provide tax-exempt income by investing in portfolios of
selected municipal bonds. Cities, states and municipalities issue
municipal bonds to finance ongoing operations and public projects.
These tax-exempt funds have remained tax-free and offer the potential to
provide shareholders with income and capital growth at levels that may
equal or exceed total returns from taxable investments on an after-tax
basis.
Maturity and credit quality can be important factors in determining the
potential risks and rewards of a municipal bond investment. Longer-term
bond funds generally offer higher yields but your principal will be more
affected by interest rate changes, and therefore, are more risky.
Municipal bonds that are of lower credit quality tend to be riskier
because they are subject to credit risk; however, they generally offer
higher yields. Tax-exempt funds may be appropriate for investors in
high tax brackets. If you are risk-averse, or have shorter-term goals,
an intermediate or shorter-term investment may be more appropriate.
Investors with longer time horizons or a greater tolerance for risk may
benefit from the higher yields offered by longer-term municipal funds.
3
18
Part C. Other Information
Item 23. Exhibits
(a) (1) 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").
(a) (2) Articles of Amendment dated October 30, 1986 to Articles
of Incorporation are incorporated by reference to Post-Effective
Amendment No. 12.
(a) (3) Articles of Amendment dated November 17, 1989 to Articles
of Incorporation are incorporated by reference to Post-Effective
Amendment No.12.
(a) (4) Articles Supplementary dated November 5, 1992 to Articles
of Incorporation are incorporated by reference to Post-Effective
Amendment No.12.
(a) (5) Articles of Amendment dated November 19, 1992 to Articles
of Incorporation are incorporated by reference to Post-Effective
Amendment No.12.
(a) (6) Articles of Amendment dated July 30, 1993 to Articles of
Incorporation are incorporated by reference to Post-Effective
Amendment No.12.
(a) (7) 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").
(a) (8) 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").
(a) (9) Articles of Amendment dated June 1, 1998 to the Articles
of Incorporation are filed herein.
(b) (1) Registrant's By-Laws are incorporated by reference to the
Registration Statement.
(b) (2) 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").
(c) Specimen form of common stock certificate filed herein.
(d) 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").
(e)(1) Distribution Agreement between the Registrant and Smith
Barney Shearson Inc. is incorporated by reference to Post-Effective
Amendment No. 12.
(e)(2) Form of Distribution Agreement between Registrant and
CFBDS, Inc. is filed herein.
(f) Not Applicable.
(g) Form of Custodian Agreement between the Registrant and The
Chase Manhattan Bank N.A. is incorporated by reference to Post-
Effective Amendment No. 21 filed on February 20, 1997.
(h) Transfer Agency Agreement dated August 2, 1993 between the
Registrant and First Data Investor Services Group is incorporated by
reference to Post-Effective Amendment No. 14 to the Registration
Statement filed on December 30, 1993.
(i) Not Applicable.
(j) Consent of Independent Accountants is filed herein.
(k) Not Applicable.
(l) Purchase Agreement between the Registrant and Shearson Lehman
Brothers is incorporated by reference to Pre-Effective Amendment No.
1.
(m)(1) 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.
(m)(2) Form of Amended Service and Distribution Plan pursuant to
Rule 12b-1 between the Registrant and Smith Barney Inc. is filed
herein.
(n) Financial Data Schedule to be filed by amendment.
(o) Form of Rule 18f-3(d) Multiple Class Plan of the Registrant is
filed herein.
Item 24. Persons Controlled by or Under Common Control with
Registrant
None.
Item 25. 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 26. Business and Other Connections of Investment Adviser
Investment Adviser - - Mutual Management Corp.
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 Citigroup Inc. ("Citigroup"). 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 26 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 27. Principal Underwriters
(a) CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is also
the distributor for the following Smith Barney funds: Concert
Investment Series, Consulting Group Capital Markets Funds, Greenwich
Street Series Fund, 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 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 Money Market 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., Travelers Series Fund Inc., and
various series of unit investment trusts.
CFBDS also serves as the distributor for the following funds: The
Travelers Fund UL for Variable Annuities, The Travelers Fund VA for
Variable Annuities, The Travelers Fund BD for Variable Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers Fund BD
III for Variable Annuities, The Travelers Fund BD IV for Variable
Annuities, The Travelers Fund ABD for Variable Annuities, The
Travelers Fund ABD II for Variable Annuities, The Travelers Separate
Account PF for Variable Annuities, The Travelers Separate Account PF
II for Variable Annuities, The Travelers Separate Account QP for
Variable Annuities, The Travelers Separate Account TM for Variable
Annuities, The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for Variable
Annuities, The Travelers Separate Account Six for Variable Annuities,
The Travelers Separate Account Seven for Variable Annuities, The
Travelers Separate Account Eight for Variable Annuities, The
Travelers Fund UL for Variable Annuities, The Travelers Fund UL II
for Variable Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life Insurance Separate
Account Two, The Travelers Variable Life Insurance Separate Account
Three, The Travelers Variable Life Insurance Separate Account Four,
The Travelers Separate Account MGA, The Travelers Separate Account
MGA II, The Travelers Growth and Income Stock Account for Variable
Annuities, The Travelers Quality Bond Account for Variable Annuities,
The Travelers Money Market Account for Variable Annuities, The
Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable
Annuities, The Travelers Timed Aggressive Stock Account for Variable
Annuities, The Travelers Timed Bond Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the
distributor for CitiFunds Multi-State Tax Free Trust, CitiFunds
Premium Trust, CitiFunds Institutional Trust, CitiFunds Tax Free
Reserves, CitiFunds Trust I, CitiFunds Trust II, CitiFunds Trust III,
CitiFunds International Trust, CitiFunds Fixed Income Trust,
CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP
Folio 400, CitiSelect VIP Folio 500, CitiFunds Small Cap Growth VIP
Portfolio. CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio,
Foreign Bond Portfolio, Intermediate Income Portfolio, Short-Term
Portfolio, Growth & Income Portfolio, U.S. Fixed Income Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio, International
Equity Portfolio, Balanced Portfolio, Government Income Portfolio,
Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following Salomon
Brothers funds: Salomon Brothers Opportunity Fund Inc., Salomon
Brothers Investors Fund Inc., Salomon Brothers Capital Fund Inc.,
Salomon Brothers Series Funds Inc., Salomon Brothers Institutional
Series Funds Inc., Salomon Brothers Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the Centurion Funds,
Inc.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to
Schedule A of Form BD filed by CFBDS pursuant to the Securities and
Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. 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) The 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 29. Management Services
Not Applicable.
Item 30. Undertakings
None.
EXHIBIT INDEX
Exhibit No. Exhibit
(a)(9) Articles of Amendment filed June 1, 1998
(c) Specimen Form of common stock certificate
(e)(2) Form of Distribution Agreement
(j) Consent of Independent Accountants
(m)(1) Form of Rule 12b-1 Plan
(n) Financial Data Schedule +
(o) 18f-3 Plan
+ To be filed by further amendment
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 24th day of December, 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)
12/24/98
/s/ Lewis E. Daidone Senior Vice President and
Treasurer
Lewis E. Daidone (Chief Financial and Accounting
Officer)
12/24/98
/s/ Herbert Barg Director
Herbert Barg 12/24/98
/s/ Alfred Bianchetti Director
Alfred Bianchetti 12/24/98
/s/ Martin Brody Director
Martin Brody 12/24/98
/s/ Dwight B. Crane Director
Dwight B. Crane 12/24/98
/s/Burt N. Dorsett Director
Burt N. Dorsett 12/24/98
/s/ Elliot S. Jaffe Director
Elliot S. Jaffe 12/24/98
/s/ Stephen E. Kaufman Director
Stephen E. Kaufman 12/24/98
/s/ Joseph J. McCann Director
Joseph J. McCann 12/24/98
/s/ Cornelius C. Rose, Jr. Director
Cornelius C. Rose, Jr. 12/24/98
SMITH BARNEY NATURAL RESOURCES FUND INC PRIVATE
ARTICLES OF AMENDMENT
Smith Barney Natural Resources Fund Inc., a Maryland
corporation, having its principal office in Baltimore City, Maryland
(the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended to
provide that the name of all of the issued and unissued Class C Common
Stock of the Corporation is hereby changed to Class L Common Stock.
SECOND: The foregoing amendment to the Charter of the
Corporation has been approved by a majority of the entire Board of
Directors and is limited to a change expressly permitted by Section 2-
605 of the Maryland General Corporation Law to be made without action
of the stockholders.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940.
FOURTH: The amendment to the Charter of the Corporation
effected hereby shall become effective at 9:00 a.m. on June 12, 1998.
IN WITNESS WHEREOF, Smith Barney Natural Resources Fund Inc. has
caused these presents to be signed in its name and on its behalf by
its President and witnessed by its Assistant Secretary as of June 1,
1998.
WITNESS: SMITH BARNEY NATURAL RESOURCES
FUND INC.
/s/ Michael Kocur By: /s/ Heath
B. McLendon
Michael Kocur Heath B. McLendon
Assistant Secretary President
THE UNDERSIGNED, President of Smith Barney Natural Resources Fund
Inc., who executed on behalf of the Corporation Articles of Amendment
of which this Certificate is made a part, hereby acknowledges in the
name and on behalf of said Corporation the foregoing Articles of
Amendment to be the corporate act of said Corporation and hereby
certifies that the matters and facts set forth herein with respect to
the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ Heath B. McLendon
Heath B. McLendon,
President
LEGAL\FUNDS\NATR\NATRAMND.DOC
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
SMITH BARNEY NATURAL RESOURCES FUND INC.
The Corporation Is Authorized To Issue Million Shares, Par Value
$.001.
SPECIMEN
The Corporation is authorized to issue four or more series of stock. The
Corporation will
furnish to any stockholder on request and without charge a full statement of the
designation
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as
to dividends, qualifications and terms and conditions of redemption of the stock
of each
series which the Corporation is authorized to issue and, if the Corporation is
authorized to
issue any preferred or special class in such series, of the differences in the
relative rights
and preferences among the shares of each series to the extent they have been set
and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent
series.
FORM OF SHARE CERTIFICATE MD.doc
- -2-
SMITH BARNEY NATURAL RESOURCES FUND INC.
FORM OF
DISTRIBUTION AGREEMENT
October 8, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements
hereinafter contained, the above-named investment company (the "Fund")
has agreed that you shall be, for the period of this Agreement, the non-
exclusive principal underwriter and distributor of shares of the Fund
and each Series of the Fund set forth on Exhibit A hereto, as such
Exhibit may be revised from time to time (each, including any shares of
the Fund not designated by series, a "Series"). For purposes of this
Agreement, the term "Shares" shall mean shares of the each Series, or
one or more Series, as the context may require.
1. Services as Principal Underwriter and Distributor
1.1 You will act as agent for the distribution of Shares
covered by, and in accordance with, the registration statement,
prospectus and statement of additional information then in effect under
the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act"), and will
transmit or cause to be transmitted promptly any orders received by you
or those with whom you have sales or servicing agreements for purchase
or redemption of Shares to the Transfer and Dividend Disbursing Agent
for the Fund of which the Fund has notified you in writing.
1.2 You agree to use your best efforts to solicit orders
for the sale of Shares. It is contemplated that you will enter into
sales or servicing agreements with registered securities brokers and
banks and into servicing agreements with financial institutions and
other industry professionals, such as investment advisers, accountants
and estate planning firms. In entering into such agreements, you will
act only on your own behalf as principal underwriter and distributor.
You will not be responsible for making any distribution plan or service
fee payments pursuant to any plans the Fund may adopt or agreements it
may enter into.
1.3 You shall act as the non-exclusive principal
underwriter and distributor of Shares in compliance with all applicable
laws, rules, and regulations, including, without limitation, all rules
and regulations made or adopted from time to time by the Securities and
Exchange Commission (the "SEC") pursuant to the 1933 Act or the 1940
Act or by any securities association registered under the Securities
Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such action is warranted
for any reason, including, without limitation, market, economic or
political conditions, the Fund's officers may decline to accept any
orders for, or make any sales of, any Shares until such time as those
officers deem it advisable to accept such orders and to make such sales
and the Fund shall advise you promptly of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and expenses in
connection with the registration of Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data
to be furnished by the Fund hereunder, and all expenses in connection
with the preparation and printing of the Fund's prospectuses and
statements of additional information for regulatory purposes and for
distribution to shareholders; provided however, that nothing contained
herein shall be deemed to require the Fund to pay any costs of
advertising or marketing the sale of Shares.
2.2 The Fund agrees to execute any and all documents and
to furnish any and all information and otherwise to take any other
actions that may be reasonably necessary in the discretion of the Fund's
officers in connection with the qualification of Shares for sale in such
states and other U.S. jurisdictions as the Fund may approve and
designate to you from time to time, and the Fund agrees to pay all
expenses that may be incurred in connection with such qualification.
You shall pay all expenses connected with your own qualification as a
securities broker or dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all other expenses
incurred by you in connection with the sale of Shares as contemplated in
this Agreement.
2.3 The Fund shall furnish you from time to time, for use
in connection with the sale of Shares, such information reports with
respect to the Fund or any relevant Series and the Shares as you may
reasonably request, all of which shall be signed by one or more of the
Fund's duly authorized officers; and the Fund warrants that the
statements contained in any such reports, when so signed by the Fund's
officers, shall be true and correct. The Fund also shall furnish you
upon request with (a) the reports of the annual audits of the financial
statements of the Fund for each Series made by independent certified
public accountants retained by the Fund for such purpose; (b) semi-
annual unaudited financial statements pertaining to each Series; (c)
quarterly earnings statements prepared by the Fund for any Series; (d) a
monthly itemized list of the securities in each Series' portfolio; (e)
monthly balance sheets as soon as practicable after the end of each
month; (f) the current net asset value and offering price per share
for each Series on each day such net asset value is computed and (g)
from time to time such additional information regarding the financial
condition of each Series of the Fund as you may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration statements,
prospectuses and statements of additional information filed by the Fund
with the SEC under the 1933 Act and the 1940 Act with respect to the
Shares have been prepared in conformity with the requirements of said
Acts and the rules and regulations of the SEC thereunder. As used in
this Agreement, the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration
statement, prospectus and statement of additional information filed by
the Fund with the SEC and any amendments and supplements thereto filed
by the Fund with the SEC. The Fund represents and warrants to you that
any such registration statement, prospectus and statement of additional
information, when such registration statement becomes effective and as
such prospectus and statement of additional information are amended and
supplemented, includes at the time of such effectiveness, amendment or
supplement all statements required to be contained therein in
conformance with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of material fact contained
in any registration statement, prospectus or statement of additional
information will be true and correct when such registration statement
becomes effective; and that neither any registration statement nor any
prospectus or statement of additional information when such registration
statement becomes effective will include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of the Fund's Shares. The Fund may, but shall not be
obligated to, propose from time to time such amendment or amendments to
any registration statement and such supplement or supplements to any
prospectus or statement of additional information as, in the light of
future developments, may, in the opinion of the Fund, be necessary or
advisable. If the Fund shall not propose such amendment or amendments
and/or supplement or supplements within fifteen days after receipt by
the Fund of a written request from you to do so, you may, at your
option, terminate this Agreement or decline to make offers of the Fund's
Shares until such amendments are made. The Fund shall not file any
amendment to any registration statement or supplement to any prospectus
or statement of additional information without giving you reasonable
notice thereof in advance; provided, however, that nothing contained in
this Agreement shall in any way limit the Fund's right to file at any
time such amendments to any registration statement and/or supplements to
any prospectus or statement of additional information, of whatever
character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any prospectus or
statement of additional information furnished by the Fund from time to
time, in connection with the sale of Shares. The Fund agrees to
indemnify, defend and hold you, your several officers and directors, and
any person who controls you within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any such counsel fees
incurred in connection therewith) which you, your officers and
directors, or any such controlling person, may incur under the 1933 Act
or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact
contained in any registration statement, any prospectus or any statement
of additional information or arising out of or based upon any omission,
or alleged omission, to state a material fact required to be stated in
any registration statement, any prospectus or any statement of
additional information or necessary to make the statements in any of
them not misleading; provided, however, that the Fund's agreement to
indemnify you, your officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or
expenses arising out of any statements or representations made by you or
your representatives or agents other than such statements and
representations as are contained in any prospectus or statement of
additional information and in such financial and other statements as are
furnished to you pursuant to paragraph 2.3 of this Agreement; and
further provided that the Fund's agreement to indemnify you and the
Fund's representations and warranties herein before set forth in
paragraph 3 of this Agreement shall not be deemed to cover any liability
to the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of
your obligations and duties under this Agreement. The Fund's agreement
to indemnify you, your officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon the Fund's being
notified of any action brought against you, your officers or directors,
or any such controlling person, such notification to be given by letter
or by telegram addressed to the Fund at its principal office in New
York, New York and sent to the Fund by the person against whom such
action is brought, within ten days after the summons or other first
legal process shall have been served. The failure so to notify the Fund
of any such action shall not relieve the Fund from any liability that
the Fund may have to the person against whom such action is brought by
reason of any such untrue, or alleged untrue, statement or omission, or
alleged omission, otherwise than on account of the Fund's indemnity
agreement contained in this paragraph 4.1. The Fund will be entitled to
assume the defense of any suit brought to enforce any such claim, demand
or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the Fund. In the event the Fund
elects to assume the defense of any such suit and retains counsel of
good standing, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but
if the Fund does not elect to assume the defense of any such suit, the
Fund will reimburse you, your officers and directors, or the controlling
person or persons named as defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by you or them.
The Fund's indemnification agreement contained in this paragraph 4.1 and
the Fund's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of you, your officers and directors, or any
controlling person, and shall survive the delivery of any of the Fund's
Shares. This agreement of indemnity will inure exclusively to your
benefit, to the benefit of your several officers and directors, and
their respective estates, and to the benefit of the controlling persons
and their successors. The Fund agrees to notify you promptly of the
commencement of any litigation or proceedings against the Fund or any of
its officers or Board members in connection with the issuance and sale
of any of the Fund's Shares.
4.2 You agree to indemnify, defend and hold the Fund, its
several officers and Board members, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith)
that the Fund, its officers or Board members or any such controlling
person may incur under the 1933 Act, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the
Fund, its officers or Board members, or such controlling person
resulting from such claims or demands shall arise out of or be based
upon any untrue, or alleged untrue, statement of a material fact
contained in information furnished in writing by you to the Fund and
used in the answers to any of the items of the registration statement or
in the corresponding statements made in the prospectus or statement of
additional information, or shall arise out of or be based upon any
omission, or alleged omission, to state a material fact in connection
with such information furnished in writing by you to the Fund and
required to be stated in such answers or necessary to make such
information not misleading. Your agreement to indemnify the Fund, its
officers or Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon your being notified of any
action brought against the Fund, its officers or Board members, or any
such controlling person, such notification to be given by letter or
telegram addressed to you at your principal office in Boston,
Massachusetts and sent to you by the person against whom such action is
brought, within ten days after the summons or other first legal process
shall have been served. You shall have the right to control the defense
of such action, with counsel of your own choosing, satisfactory to the
Fund, if such action is based solely upon such alleged misstatement or
omission on your part or with the Fund's consent, and in any event the
Fund, its officers or Board members or such controlling person shall
each have the right to participate in the defense or preparation of the
defense of any such action with counsel of its own choosing reasonably
acceptable to you but shall not have the right to settle any such action
without your consent, which will not be unreasonably withheld. The
failure to so notify you of any such action shall not relieve you from
any liability that you may have to the Fund, its officers or Board
members, or to such controlling person by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission, otherwise
than on account of your indemnity agreement contained in this paragraph
4.2. You agree to notify the Fund promptly of the commencement of any
litigation or proceedings against you or any of your officers or
directors in connection with the issuance and sale of any of the Fund's
Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the Fund under any of
the provisions of this Agreement and no orders for the purchase or sale
of such Shares under this Agreement shall be accepted by the Fund if and
so long as the effectiveness of the registration statement then in
effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current
prospectus as required by Section 5(b) (2) of the 1933 Act is not on
file with the SEC; provided, however, that nothing contained in this
paragraph 5 shall in any way restrict or have any application to or
bearing upon the Fund's obligation to repurchase its Shares from any
shareholder in accordance with the provisions of the Fund's prospectus,
statement of additional information or charter documents, as amended
from time to time.
6. Offering Price
Shares of any class of any Series of the Fund offered for sale by
you shall be offered for sale at a price per share (the "offering
price") equal to (a) their net asset value (determined in the manner
set forth in the Fund's charter documents and the then-current
prospectus and statement of additional information) plus (b) a sales
charge, if applicable, which shall be the percentage of the offering
price of such Shares as set forth in the Fund's then-current prospectus
relating to such Series. In addition to or in lieu of any sales charge
applicable at the time of sale, Shares of any class of any Series of the
Fund offered for sale by you may be subject to a contingent deferred
sales charge as set forth in the Fund's then-current prospectus and
statement of additional information. You shall be entitled to receive
any sales charge levied at the time of sale in respect of the Shares
without remitting any portion to the Fund. Any payments to a broker or
dealer through whom you sell Shares shall be governed by a separate
agreement between you and such broker or dealer and the Fund's then-
current prospectus and statement of additional information. Any
payments to any provider of services to you shall be governed by a
separate agreement between you and such service provider.
7. Notice to You
The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for
amendments to the registration statement,
prospectus or statement of additional
information then in effect or for additional
information;
(b) in the event of the issuance by
the SEC of any stop order suspending the
effectiveness of the registration statement,
prospectus or statement of additional
information then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that
makes untrue any statement of a material fact
made in the registration statement,
prospectus or statement of additional
information then in effect or that requires
the making of a change in such registration
statement, prospectus or statement of
additional information in order to make the
statements therein not misleading; and
(d) of all actions of the SEC with
respect to any amendment to the registration
statement, or any supplement to the
prospectus or statement of additional
information which may from time to time be
filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the date hereof, shall
have an initial term of one year from the date hereof, and shall
continue for successive annual periods thereafter so long as such
continuance is specifically approved at least annually by (a) the Fund's
Board or (b) by a vote of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board members of the
Fund who are not interested persons (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable
with or without cause, without penalty, on 60 days' notice by the Fund's
Board or by vote of holders of a majority of the relevant Series
outstanding voting securities, or on 90 days' notice by you. This
Agreement will also terminate automatically, as to the relevant Series,
in the event of its assignment (as defined in the 1940 Act and the rules
and regulations thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising under
this Agreement (collectively, a "Dispute") shall be settled by
arbitration administered under the rules of the American Arbitration
Association ("AAA") in New York, New York. Any arbitration and award
of the arbitrators, or a majority of them, shall be final and the
judgment upon the award rendered may be entered in any state or federal
court having jurisdiction. No punitive damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter and distributor of
Shares, you shall not perform any services for any entity other than
investment companies advised or administered by Citigroup Inc. or its
subsidiaries. The Fund recognizes that the persons employed by you to
assist in the performance of your duties under this Agreement may not
devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict the persons employed by
you or any of your affiliates right to engage in and devote time and
attention to other businesses or to render services of whatever kind or
nature, provided, however, that in conducting such business or rendering
such services your employees and affiliates would take reasonable steps
to assure that the other parties involved are put on notice as to the
legal entity with which they are dealing. This Agreement and the terms
and conditions set forth herein shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect
to its conflict of interest principles.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning to
us the enclosed copy, whereupon this Agreement will become binding on
you.
Very truly yours,
SMITH BARNEY NATURAL RESOURCES FUND
INC.
By: _____________________
Authorized Officer
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
Page: 3
8
Independent Auditor's Consent
To the Shareholders and Board of Directors of
Natural Resources Fund Inc.:
We consent to, with respect to the Natural Resources
Fund Inc., the references to our Firm under the headings
"Financial Highlights" in the Prospectus and "Auditors" in
the Statement of Additional Information.
KPMG Peat Marwick LLP
New York, New York
December 21, 1998
SMITH BARNEY NATURAL RESOURCES FUND INC.
FORM OF AMENDED SHAREHOLDER
SERVICES AND DISTRIBUTION PLAN
This Shareholder Services and Distribution Plan (the "Plan") is
adopted in accordance with Rule 12b-1 (the "Rule") under the
Investment Company Act of 1940, as amended (the "1940 Act"), by Smith
Barney Natural Resources Fund Inc., a corporation organized under the
laws of the State of Maryland (the "Fund") subject to the following
terms and conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The Fund will pay to Smith
Barney Inc., a corporation organized under the laws of the
State of Delaware (("Smith Barney"), a service fee under
the Plan at an annual rate of 0.25% of the average daily net
assets of the Fund attributable to the Class A shares sold
by Smith Barney (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund will pay to Smith
Barney a service fee under the Plan at the annual rate of
0.25% of the average daily net assets of the Fund
attributable to the Class B shares sold by Smith Barney (the
"Class B Service Fee").
(c) Distribution Fee for Class B shares. In addition to the
Class B Service Fee, the Fund will pay Smith Barney a
distribution fee under the Plan at the annual rate of 0.75%
of the average daily net assets of the Fund attributable to
the Class B shares sold by Smith Barney (the "Class B
Distribution Fee").
(d) Service Fee for Class L shares. The Fund will pay to Smith
Barney a service fee under the plan at the annual rate of
0.25% of the average daily net assets of the Fund
attributable to the Class L shares sold by Smith Barney (the
"Class L Service Fee").
(e) Distribution Fee for Class L shares. In addition to the
Class L Service Fee, the Fund will pay Smith Barney a
distribution fee under the plan at the annual rate of 0.75%
of the average daily net assets of the Fund attributable to
the Class L shares sold by Smith Barney (the "Class L
Distribution Fee").
(f) Payment of Fees. The Service Fees and Distribution Fees will
be calculated daily and paid monthly by the Fund with
respect to the foregoing classes of the Fund's shares (each
a "Class" and together, the "Classes") at the annual rates
indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class, its respective
Service Fee and/or Distribution Fee may be used by Smith Barney for:
(a) costs of printing and distributing the Fund's prospectuses,
statements of additional information and reports to prospective
investors in the Fund; (b) costs involved in preparing, printing and
distributing sales literature pertaining to the Fund; (c) an
allocation of overhead and other branch office distribution-related
expenses of Smith Barney; (d) payments made to, and expenses of,
Smith Barney's financial consultants and other persons who provide
support services to Fund shareholders in connection with the
distribution of the Fund's shares, including but not limited to,
office space and equipment, telephone facilities, answering routine
inquires regarding the Fund and its operation, processing shareholder
transactions, forwarding and collecting proxy material, changing
dividend payment elections and providing any other shareholder
services not otherwise provided by the Fund's transfer agent; and
(e) accruals for interest on the amount of the foregoing expenses
that exceed the Distribution Fee for that Class and, in the case of
Class B and Class L shares, any contingent deferred sales charges
received by Smith Barney; provided, however, that the Distribution
Fees may be used by Smith Barney only to cover expenses primarily
intended to result in the sale of those shares, including, without
limitation, payments to Smith Barney's financial consultants at the
time of the sale of the shares. In addition, Service Fees are
intended to be used by Smith Barney primarily to pay its financial
consultants for servicing shareholder accounts, including a
continuing fee to each such financial consultant, which fee shall
begin to accrue immediately after the sale of such shares.
Section 3. Approval by Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of the Plan, with respect to a Class until
the Plan has been approved by a vote of at least a majority of the
outstanding voting securities of the Class. The Plan will be deemed
to have been approved with respect to a Class, so long as a majority
of the outstanding voting securities of the Class votes for the
approval of the Plan, notwithstanding that: (a) the Plan has not been
approved by a majority of the outstanding voting securities of any
other Class; or (b) the Plan has not been approved by a majority of
the outstanding voting securities of the Fund.
Section 4. Approval by Directors
Neither the Plan nor any related agreements will take effect until
approved by a majority vote of both (a) the Board of Directors and
(b) those Directors who are not interested persons of the Fund and
who have no direct or indirect financial interest in the operation of
the Plan or in any agreements related to it (the "Qualified
Trustees"), cast in person at a meeting called for the purpose of
voting on the Plan and the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each Class until
July 15, 1999 and thereafter for successive twelve-month periods with
respect to each Class; provided, however, that such continuance is
specifically approved at least annually by the Directors of the Fund
and by a majority of the Qualified Directors.
Section 6. Termination.
The Plan may be terminated at any time with respect to a Class (i)
by the Fund without the payment of any penalty, by the vote of a
majority of the outstanding voting securities of such Class or (ii)
by a majority vote of the Qualified Directors. The Plan may remain in
effect with respect to a particular Class even if the Plan has been
terminated in accordance with this Section 6 with respect to any
other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class so as to
increase materially the amounts of the fees described in Section 1
above, unless the amendment is approved by a vote of holders of at
least a majority of the outstanding voting securities of that Class.
No material amendment to the Plan may be made unless approved by the
Fund's Board of Directors in the manner described in Section 4 above.
Section 8. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the
Fund's Directors who are not interested persons of the Fund will be
committed to the discretion of the Directors then in office who are
not interested persons of the Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, any person
authorized to direct the disposition of monies paid or payable by the
Fund pursuant to the Plan or any related agreement will prepare and
furnish to the Trust's Board of Directors and the Board will review,
at least quarterly, written reports complying with the requirements
of the Rule, which set out the amounts expended under the Plan and
the purposes for which those expenditures were made.
Section 10. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating
to the Plan and any report made pursuant to Section 9 above, for a
period of not less than six years (the first two years in an easily
accessible place) from the date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority
of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the rules and regulations under
the 1940 Act, subject to any exemption that may be granted to the
Fund under the 1940 Act, by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the Fund has executed the Plan as of July 15,
1998.
SMITH BARNEY NATURAL RESOURCES FUND INC.
By: ____________________________________
Heath B. McLendon
Chairman of the Board
g:\boards\wed\1998\misc\12b1amnd
Rule 18f-3 (d) Multiple Class Plan for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d) of the
Investment Company Act of 1940, as amended (the "1940 Act"). The
purpose of the Plan is to restate the existing arrangements previously
approved by the Boards of Directors and Trustees of certain of the open-
end investment companies set forth on Schedule A (the "Funds" and each a
"Fund") under the Funds' existing order of exemption (Investment Company
Act Release Nos. 20042 (January 28, 1994) (notice) and 20090 (February
23, 1994)). Shares of the Funds are distributed pursuant to a system
(the "Multiple Class System") in which each class of shares (a "Class")
of a Fund represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent outlined below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for purchase by
investors with the following sales load structure. In addition,
pursuant to Rule 12b-1 under the 1940 Act (the "Rule"), the Funds have
each adopted a plan (the "Services and Distribution Plan") under which
shares of the Classes are subject to the
services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and under the
Services and Distribution Plan are subject to a service fee of up to
0.25% of average daily net assets. In addition, the Funds are permitted
to assess a contingent deferred sales charge ("CDSC") on certain
redemptions of Class A shares sold pursuant to a complete waiver of
front-end sales loads applicable to large purchases, if the shares are
redeemed within one year of the date of purchase. This waiver applies
to sales of Class A shares where the amount of purchase is equal to or
exceeds $500,000 although this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load, but are
subject to a five-year declining CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual rate of up
to 0.25% of average daily net assets and a distribution fee at an annual
rate of up to 0.75% of average daily net assets.
3. Class D Shares
Class D shares are offered without a front-end sales load, CDSC, service
fee or distribution fee.
4. Class L Shares
Class L shares are offered with a front-end load, are subject to a one-
year CDSC and under the Services and Distribution Plan are subject to a
service fee at an annual rate of up to 0.25% of average daily net assets
and a distribution fee at an annual rate of up to 0.75% of average daily
net assets. Unlike Class B shares, Class L shares do not have the
conversion feature as discussed below and accordingly, these shares are
subject to a
distribution fee for an indefinite period of time. The Funds reserve
the right to impose these fees at such higher rates as may be
determined.
5. Class I Shares
Class I shares are offered without a front-end sales load, but are
subject under the Services and Distribution Plan to a service fee at an
annual rate of up to 0.25% of average daily net assets.
6. Class O Shares
Class O shares are offered without a front-end load, but are subject to
a one-year CDSC and under the Services and Distribution Plan are subject
to a service fee at an annual rate of up to 0.25% of average daily net
assets and a distribution fee at an annual rate of up to 0.50% of
average daily net assets. Unlike Class B
shares, Class O shares do not have the conversion feature as discussed
below and accordingly, these shares are subject to a distribution fee
for an indefinite period of time. The Funds reserve the right to impose
these fees at such higher rates as may be determined.
Effective June 28, 1999, Class O shares will be offered with a front-end
load and will continue to be subject to a one year CDSC, a service fee
at an annual rate of up to 0.25% of average daily net assets and a
distribution fee at an annual rate of up to 0.50% of average daily net
assets.
7. Class Y Shares
Class Y shares are offered without imposition of either a sales charge
or a service or distribution fee for investments where the amount of
purchase is equal to or exceeds a specific amount as specified in each
Fund's prospectus.
8. Class Z Shares
Class Z shares are offered without imposition of either a sales charge
or a service or distribution fee for purchase (i) by employee benefit
and retirement plans of Salomon Smith Barney Inc. ("Salomon Smith
Barney") and its affiliates, (ii) by certain unit investment trusts
sponsored by Salomon Smith Barney and its affiliates, and (iii) although
not currently authorized by the governing boards of the Funds, when and
if authorized, (x) by employees of Salomon Smith Barney and its
affiliates and (y) by directors, general partners or trustees of any
investment company listed on Schedule A and, for each of (x) and (y),
their
spouses and minor children.
9. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the authority to
create additional classes, or change existing Classes, from time to
time, in accordance with Rule 18f-3 of the 1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a Fund are
allocated among the various Classes of shares based on the net assets of
the Fund attributable to each Class, except that each Class's net asset
value and expenses reflect the expenses associated with that Class under
the Fund's Services and
Distribution Plan, including any costs associated with obtaining
shareholder approval of the Services and Distribution Plan (or an
amendment thereto) and any expenses specific to that Class. Such
expenses are limited to the following:
(i) transfer agency fees as identified by the transfer agent as
being attributable to a specific Class;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and
proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services as
required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely to one
Class of shares; and
(vii) fees of members of the governing boards of the funds
incurred as a result of issues relating to one Class of shares.
Pursuant to the Multiple Class System, expenses of a Fund allocated to a
particular Class of shares of that Fund are borne on a pro rata basis by
each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert to Class A
shares after a certain holding period, expected to be, in most cases,
approximately eight years but may be shorter. Upon the expiration of
the holding period, Class B shares (except those purchases through the
reinvestment of dividends and other
distributions paid in respect of Class B shares) will automatically
convert to Class A shares of the Fund at the relative net asset value of
each of the Classes, and will, as a result, thereafter be subject to the
lower fee under the Services and Distribution Plan. For purposes of
calculating the holding period required for conversion, newly created
Class B shares issued after the date of implementation of the Multiple
Class
System are deemed to have been issued on (i) the date on which the
issuance of the Class B shares occurred or (ii) for Class B shares
obtained through an exchange, or a series of exchanges, the date on
which the issuance of the original Class B shares occurred.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares are also Class B shares.
However, for purposes of conversion to Class A, all Class B shares in a
shareholder's Fund account that were purchased through the reinvestment
of dividends and other distributions paid in respect of Class B shares
(and that have not converted to Class A shares as provided in the
following sentence) are considered to be held in a separate sub-account.
Each time any Class B shares
in the shareholder's Fund account (other than those in the sub-account
referred to in the preceding
sentence) convert to Class A, a pro rata portion of the Class B shares
then in the sub-account also converts to Class A. The portion is
determined by the ratio that the shareholder's Class B shares converting
to Class A bears to the shareholder's total Class B shares not acquired
through dividends and distributions.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of a ruling of the Internal Revenue Service that
payment of different dividends on Class A and Class B shares does not
result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and the continuing availability
of an opinion of counsel to the effect that the conversion of shares
does not constitute a taxable event under the Code. The conversion of
Class B shares to Class A shares may be suspended if this opinion is no
longer available, In the event that conversion of Class B shares does
not occur, Class B shares would continue to be subject to the
distribution fee and any incrementally higher transfer agency costs
attending the Class B shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net asset value for
shares of the same Class in certain other of the Smith Barney Mutual
Funds as set forth in the prospectus for such Fund. Funds only permit
exchanges into shares of money market funds having a plan under the Rule
if, as permitted by paragraph (b) (5) of Rule 11a-3 under the 1940 Act,
either (i) the time period during which the shares of the money market
funds are held is included in the calculations of the CDSC or (ii) the
time period is not included but the amount of the CDSC is reduced by the
amount of any payments made under a plan adopted pursuant to the
Rule by the money market funds with respects to those shares.
Currently, the Funds include the time period during which shares of the
money market fund are held in the CDSC period. The exchange privileges
applicable to all Classes of shares must comply with Rule 11a-3 under
the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of October 31, 1998)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Concert Allocation Series Inc.
Conservative Portfolio
Balanced Portfolio
Global Portfolio
Growth Portfolio
Income Portfolio
High Growth Portfolio
Smith Barney Equity Funds -
Concert Social Awareness Fund
Smith Barney Large Cap Blend Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Large Cap Value Fund
Short-Term High Grade Bond Fund
U.S. Government Securities Fund
Smith Barney Income Funds -
Smith Barney Balanced Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney High Income Fund
Smith Barney Municipal High Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Total Return Bond Fund
Smith Barney Investment Trust -
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney S&P 500 Index Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Investment Funds Inc. -
Concert Peachtree Growth Fund
Smith Barney Contrarian Fund
Smith Barney Government Securities Fund
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Special Equities Fund
Smith Barney Institutional Cash Management Fund, Inc.
Cash Portfolio
Government Portfolio
Municipal Portfolio
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Money Market Portfolio
Florida Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New York Portfolio
New York Money Market
Pennsylvania Portfolio
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
Emerging Markets Portfolio
