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[BACKGROUND COVER LOGO APPEARS HERE]
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day./(R)/
PROSPECTUS
Natural Resources Fund
Class A, B, L and Y Shares
________________________________________________________________________________
February 26, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
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Natural Resources Fund
Contents
<TABLE>
<S> <C>
Fund goal and strategies.................................................... 2
Risks, performance and expenses............................................. 3
More on the fund's U.S. and foreign investments............................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 12
Buying shares............................................................... 13
Exchanging shares........................................................... 14
Redeeming shares............................................................ 16
Other things to know
about share transactions.................................................... 18
Smith Barney 401(k) and
ExecChoice(TM) programs..................................................... 20
Distributions, dividends and taxes.......................................... 21
Share price................................................................. 22
Financial highlights........................................................ 23
</TABLE>
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.
Smith Barney Mutual Funds
1
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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 pre-
cious 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 invests in a broad range of natural resources industries that have the
potential for capital appreciation. The manager considers the risks associated
with investing in the countries where these industries are located.
In allocating assets among these industries, the manager considers:
. 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
In selecting the securities of specific companies, the manager looks for:
. Consistently high return on capital
. Growth in cash flow and earnings
. A low stock price relative to private market valuation, or historical valua-
tion measures
. Experienced and effective management whose interests are aligned with those of
shareholders
. Events that cause a security to be temporarily undervalued
Natural Resources Fund
2
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Risks, performance and expenses
Principal risks of investing in the fund
Investing in securities of natural resources companies can bring added bene-
fits, 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:
. Stock prices of companies involved in natural resources industries decline
. Prices for natural resources decline because of reduced demand or excess sup-
ply
. 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 apprecia-
tion of a particular stock proves to be incorrect
The values 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 fluctua-
tions 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 vola-
tility
. 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
Smith Barney Mutual Funds
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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 neces-
sarily indicate how the fund will perform in the future.
Total Return for Class A Shares
[BAR GRAPH APPEARS HERE]
Calendar years ended December 31
89 90 91 92 93 94 95 96 97 98
------ ------- ------ ------ ------ ------ ------- ------ ------ -------
15.50% -19.71% -3.85% -4.57% 65.35% -9.43% -10.77% 34.81% -9.87% -24.59%
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 per-
formance 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: 30.75% in 4th quarter 1993; Lowest: (18.09)% in 4th quarter 1997
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 with that of the MSCI
World Index, a broad-based unmanaged index of foreign stocks. This table
assumes imposition of the maximum sales charge applicable to the class, redemp-
tion of shares at the end of the period, and reinvestment of distributions and
dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
A (28.35)% (6.79)% (0.10)% 0.50% 11/24/86
B (28.85)% (6.65)% n/a 2.14% 11/06/92
L (26.51)% n/a n/a (7.26)% 11/07/94
MSCI World Index 24.34% 15.68% 10.66% 12.20% *
</TABLE>
*Index comparison begins on November 30, 1986.
Natural Resources Fund
4
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Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge on purchases
(as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge on redemptions
(as a % of the lower of net asset value at
purchase or redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(paid by the fund as a % of net assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee .75% .75% .75% .75%
Distribution and service (12b-1) fees .25% 1.00% 1.00% None
Other expenses .57% .48% .42% .57%
----- ----- ----- -----
Total annual fund operating expenses 1.57% 2.23% 2.17% 1.32%
</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
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $652 $971 $1,312 $2,274
Class B (redemption at end of period) $726 $997 $1,295 $2,398
Class B (no redemption) $226 $697 $1,195 $2,398
Class L (redemption at end of period) $418 $772 $1,253 $2,578
Class L (no redemption) $318 $772 $1,253 $2,578
Class Y (with or without redemption) $134 $418 $ 723 $1,590
</TABLE>
Smith Barney Mutual Funds
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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 cor-
porate 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 credit rating of the security is down-
graded or the issuer 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
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 securi-
ties, 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 inter-
est 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.
In Europe, Economic and Monetary Union (EMU) and the introduction of a single
currency began on January 1, 1999. There are significant political and economic
risks associated with EMU, which may increase the volatility of the fund's
European investments and present valuation problems.
Defensive investing The fund may depart from its principal investment strate-
gies 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.
Natural Resources Fund
6
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Management
Manager The fund's investment manager is SSBC Fund Management Inc., an affili-
ate 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 serv-
ices--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
John G. Goode and David Stadlin have been responsible for the day-to-day man-
agement of the fund's portfolio since November 1995. Mr. Goode is an investment
officer of the manager and Chairman and chief investment officer of Davis
Skaggs Investment Management, a division of the manager and a managing director
of Salomon Smith Barney. Mr. Stadlin is an investment officer of the manager
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 0.75% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells 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 serv-
ice 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 cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by 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 guaran-
tee that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
Smith Barney Mutual Funds
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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 plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through Sal-
omon 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
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
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
Natural Resources Fund
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Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .The ini- .No initial
sales sales tial sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced or
waived for
large pur-
chases and
certain
investors;
no charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
- ------------------------------------------------------------------------
Exchangeable into* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
- ------------------------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or dealer representative
or visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds
9
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Sales charges
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.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
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 0.00 0.00
</TABLE>
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. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
. Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales
Natural Resources Fund
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charge, if any, as if all shares had been purchased at once. You may include
purchases on which you paid a sales charge made 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 cer-
tain 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 Con-
sultant or dealer representative or consult the Statement of Additional Infor-
mation ("SAI").
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 pur-
chase, 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:
On reinvestment of Upon exchange from
Shares issued: dividends and another Smith Barney
At initial purchase distributions fund
<S> <C> <C>
Eight years after the date In same proportion On the date the
of purchase as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
</TABLE>
Smith Barney Mutual Funds
11
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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.
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.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase 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 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 at the current net asset
value 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.
Natural Resources Fund
12
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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.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your order
dealer will be rejected
representative
. 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
fund's transfer are clients of the selling group are eligible to buy shares
agent directly from 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 pur-
chases, complete and send an account application.
. For more information, call the transfer agent at 1-800-451-
2010.
Smith Barney Mutual Funds
13
<PAGE>
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith
plan 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 represen-
tative 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.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the
varying needs . You may exchange shares only for shares of the same class of
of both large another Smith Barney fund. Not all Smith Barney funds offer
and small all classes.
investors
. Not all Smith Barney funds may be offered in your state of
residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent.
. 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 (documents transferring ownership of
certificates) before the exchange is effective.
. The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
Natural Resources Fund
14
<PAGE>
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured 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 com-
plete 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 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
You can make telephone exchanges only 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.
Smith Barney Mutual Funds
15
<PAGE>
Redeeming shares
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 redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
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
Natural Resources Fund
16
<PAGE>
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 tel-
ephone 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
5:00 p.m. (Eastern time). Requests received after the close
of regular trading on the Exchange are priced at the net
asset value next determined.
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
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic 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.
Smith Barney Mutual Funds
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 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 the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal 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 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 regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
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
Natural Resources Fund
18
<PAGE>
. 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 Securi-
ties and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
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 share-
holders. 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.
Smith Barney Mutual Funds
19
<PAGE>
Smith Barney 401(k) and ExecChoiceTM programs
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoiceTM 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 invest-
ments in any of the Smith Barney 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 the same 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 in
the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 mil-
lion is invested in Smith Barney Funds, Class L and Class O 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 a total of $500,000 is
invested in Smith Barney Funds, Class L and Class O shares (other than
money market funds) on December 31 in any year, all Class L shares are
eligible for exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Natural Resources Fund
20
<PAGE>
Distributions, dividends and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, 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 addi-
tional 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 distribu-
tions (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 dis-
tribution 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 dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer 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.
Smith Barney Mutual Funds
21
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus 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 liabili-
ties. 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. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation 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 quota-
tions. The fund's currency conversions are done when the London stock exchange
closes, which is 12 noon Eastern time. When reliable market prices are not
readily available, or when 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 proce-
dures approved by the fund's board. A fund that uses fair value to price secu-
rities 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 repre-
sentative before the New York Stock Exchange closes. If the 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.
Natural Resources Fund
22
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance 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). The information for the
fiscal year ended October 31, 1994 has been audited by other auditors.
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(/1/) 1997 1996(/1/) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $23.23 $22.95 $16.50 $21.44 $18.89
- --------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income
(loss) (0.01) (0.12) 0.08 (0.23)(/2/) (0.06)
Net realized and unrealized
gain (loss) (6.50) 0.73 6.37 (4.71) 2.61
- --------------------------------------------------------------------------------
Total income (loss) from
operations (6.51) 0.61 6.45 (4.94) 2.55
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income(/3/) -- (0.33) -- -- --
Net realized gains (0.16) -- -- -- --
- --------------------------------------------------------------------------------
Total distributions (0.16) (0.33) -- -- --
- --------------------------------------------------------------------------------
Net asset value, end of
year $16.56 $23.23 $22.95 $16.50 $21.44
- --------------------------------------------------------------------------------
Total return(/4/) (28.13)% 2.67% 39.09% (23.04)% 13.50%
- --------------------------------------------------------------------------------
Net assets, end of year
(000)'s $27,147 $45,488 $50,521 $27,884 $41,370
- --------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 1.57% 1.51% 1.62% 1.99% 1.81%
Net investment income
(loss) (0.05) (0.32) 0.15 (1.46) (0.34)
- --------------------------------------------------------------------------------
Portfolio turnover rate 151% 101% 120% 40% 50%
- --------------------------------------------------------------------------------
</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.
Smith Barney Mutual Funds
23
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
1998(/1/) 1997(/1/) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $22.60 $22.32 $16.15 $21.14 $18.75
- -------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income
(loss) (0.13) (0.27) (0.09) (0.22)(/2/) (0.33)
Net realized and
unrealized gain (loss) (6.31) 0.70 6.26 (4.77) 2.72
- -------------------------------------------------------------------------------
Total income (loss) from
operations (6.44) 0.43 6.17 (4.99) 2.39
- -------------------------------------------------------------------------------
Less distributions from:
Net investment
income(/3/) -- (0.15) -- -- --
Net realized gains (0.16) -- -- -- --
- -------------------------------------------------------------------------------
Total distributions (0.16) (0.15) -- -- --
- -------------------------------------------------------------------------------
Net asset value, end of
year $16.00 $22.60 $22.32 $16.15 $21.14
- -------------------------------------------------------------------------------
Total return(/4/) (28.61)% 1.95% 38.20% (23.60)% 12.75%
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $29,309 $66,819 $73,969 $25,747 $37,704
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 2.23% 2.18% 2.29% 2.62% 2.54%
Net investment income
(loss) (0.71) (0.99) (0.83) (2.11) (1.06)
- -------------------------------------------------------------------------------
Portfolio turnover rate 151% 101% 120% 40% 50%
- -------------------------------------------------------------------------------
</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.
Natural Resources Fund
24
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
October 31:
<TABLE>
<CAPTION>
1998(/1/)(/2/) 1997 1996(/2/) 1995(/3/)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of year $22.62 $22.32 $16.16 $20.63
- ------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income
(loss) (0.12) (0.23) 0.05(/4/) (0.29)
Net realized and
unrealized gain (loss) (6.31) 0.68 6.11 (4.18)
- ------------------------------------------------------------------------------
Total income (loss) from
operations (6.43) 0.45 6.16 (4.47)
- ------------------------------------------------------------------------------
Less distributions from:
Net investment
income(/5/) -- (0.15) -- --
Net realized gains (0.16) -- -- --
- ------------------------------------------------------------------------------
Total distributions (0.16) (0.15) -- --
- ------------------------------------------------------------------------------
Net assets value, end of
year $16.03 $22.62 $22.32 $16.16
- ------------------------------------------------------------------------------
Total return(/6/) (28.54)% 2.04% 38.12% (21.67)%(/7/)
- ------------------------------------------------------------------------------
Net assets, end of year
(000)'s $3,096 $6,393 $7,602 $572
- ------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 2.17% 2.12% 2.25% 2.69%(/8/)
Net investment income
(loss) (0.63) (0.92) (0.21) (1.97)(/8/)
- ------------------------------------------------------------------------------
Portfolio turnover rate 151% 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.
Smith Barney Mutual Funds
25
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Natural Resources Fund
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 refer-
ence 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 Ref-
erence Room in Washington, D.C. You can get copies of these materials for a fee
by writing to the Public Reference Section of the Commission, Washington, D.C.
20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the Commis-
sion'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 law-
fully sell its shares.
/SM/Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-04757)
FD0224 2/99
February 26, 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY NATURAL RESOURCES FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is meant to be read in
conjunction with the Prospectus of the Smith Barney Natural Resources Fund
Inc. (the "fund") dated February 26, 1999, as amended or supplemented from
time to time (the "Prospectus"), and is incorporated by reference in it
entirety into the Prospectus. Additional information about the fund's
investments is available in the fund's annual and semi-annual reports to
shareholders which are incorporated herein by reference. The Prospectus
and copies of the reports may be obtained free of charge by contacting a
Salomon Smith Barney Financial Consultant, or by writing or calling
Salomon Smith Barney at the address or telephone number above.
This SAI 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 2
Investment Objective and Management Policies 4
Risk Factors 17
Investment Restrictions 19
Portfolio Turnover 22
Portfolio Transactions 22
Purchase of Shares 24
Exchange Privilege 31
Redemption of Shares 32
Dividends, Distributions and Taxes 34
Performance Information 40
Determination of Net Asset Value 43
Investment Management and Other Services 44
Other Information About the Fund 47
Financial Statements 49
Appendix A - Ratings of Debt Obligations 50
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 the fund's distributor, investment
manager, custodian and transfer agent. The day-to-day operations of the
fund are delegated to the fund's investment manager SSBC Fund Management
Inc. ("SSBC" or the "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. The executive officers of the fund are
employees of organizations that provide services to the fund. Each
Director who is an "interested person" of the fund, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), is indicated
by an asterisk. The address of the "non-interested" Directors and
executive officers of the fund is 388 Greenwich Street, New York, New York
10013.
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 (Age 65). Chairman of the Board and Investment
Officer. Managing Director of Salomon Smith Barney Inc. ("Salomon Smith
Barney"), President of SSBC and Travelers Investment Adviser, Inc.
("TIA"); Chairman or Co-Chairman of the Board of 59 investment companies
associated with Salomon Smith Barney; and former Chairman of the Board of
Smith Barney Strategy Advisers Inc.
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 (Age 41). Senior Vice President and Treasurer. Managing
Director of Salomon Smith Barney, Chief Financial Officer of the Smith
Barney Mutual funds; Director and Senior Vice President of SSBC and TIA.
JOHN G. GOODE (Age 53). Vice President and Investment Officer. Chairman
and Chief Investment Officer of Davis Skaggs Investment Management ("Davis
Skaggs"), a division of SSBC; Managing Director of Salomon Smith Barney.
His address is 1 Sansome Street, 36th Floor, San Francisco, California
94104.
DAVID A. STADLIN (Age 33). Vice President and Investment Officer 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.
PAUL BROOK (Age 45). Controller. Director of Salomon Smith Barney; from
1997-1998 Managing Director of AMT Capital Services Inc.; prior to 1997
Partner with Ernst & Young LLP
CHRISTINA T. SYDOR (Age 47). Secretary. Managing Director of Salomon
Smith Barney. General Counsel and Secretary of SSBC and TIA.
As of February 22, 1999, the Directors and officers of the fund, as a
group, owned less than 1% of the outstanding shares of beneficial interest
of the fund. As of February 22, 1999, to the knowledge of the fund and
the Board no single shareholder or "group" (as that term is used in
Section 13 (d) of the Securities Act of 1934) beneficially owned more than
5% of the outstanding shares of the fund.
No officer, Director or employee of Salomon Smith Barney or any of its
affiliates receives any compensation from the fund for serving as an
officer or director of the fund. The fund pays each Director who is not
an officer, director or employee of Salomon Smith Barney or any of its
affiliates a fee of $2,000 per annum plus $250 per in-person meeting and
$100 per telephonic meeting. Each Director emeritus who is not an
officer, Director or employee of Salomon Smith Barney or its affiliates
receives a fee of $1,000 per annum plus $125 per in-person meeting and $50
per telephonic meeting. All Directors are reimbursed for travel and out-
of-pocket expenses incurred to attend such meetings.
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
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 SSBC. 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 natural
resources industries, 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, upon the exercise of a covered put or
call option respectively, 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 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 on the fund's
books 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 on the fund's books 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 futures contracts only if 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 on the fund's books 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.
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 because of 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 on the fund's books 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 on the fund's books 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
because of 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 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 investing 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.
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.
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 SAI 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 (because of 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 151% 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 accounts. The fee under the Investment Management
Agreement is not reduced by reason of the receipt by the manager of such
brokerage and research services.
The fund's Board of Directors has determined that any portfolio
transactions for the fund may be executed through 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 deferred sales charge of 1.00% on redemptions made
within 12 months of purchase. The deferred sales charge 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 deferred sales
charge is waived in the same circumstances in which the deferred
sales charge applicable to Class B and Class L shares is waived.
See "Deferred Sales Charge Alternatives" and "Waivers of
Deferred Sales Charge."
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 deferred sales charge 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 deferred sales charge 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 deferred sales charge 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 broker that clears through Salomon Smith Barney ("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 Inc. ("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 New York Stock
Exchange ("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 most other Smith Barney Mutual Funds that are offered with a sales
charge 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 deferred sales charge of 1.00%. Please contact a Salomon Smith
Barney Financial Consultant or First Data for further information.
Deferred Sales Charge Provisions
''Deferred sales charge 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 deferred sales charge. A deferred sales
charge may be imposed on certain redemptions of these shares.
Any applicable deferred sales charge 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. Deferred sales charge shares
that are redeemed will not be subject to a deferred sales charge 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 deferred sales charge shares, shares
redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are deferred sales charge shares
are subject to a 1.00% deferred sales charge if redeemed within 12 months
of purchase. In circumstances in which the deferred sales charge 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
Deferred Sales Charge
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 (Class B shares that were
acquired through the reinvestment of dividends and distributions) owned by
the shareholder as the total number of his or her Class B shares
converting at the time bears to the total number of outstanding Class B
shares (other than Class B Dividend Shares) owned by the shareholder.
The length of time that deferred sales charge 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 deferred sales charge will reduce the gain or increase the
loss, as the case may be, on the amount realized on redemption. The amount
of any deferred sales charge 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 deferred sales charge 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 Deferred Sales Charge
The deferred sales charge 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
deferred sales charge imposed on the prior redemption.
Deferred sales charge 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 deferred sales charge. 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 deferred sales charge 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 deferred sales charge 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 and Class O 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 and Class O 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
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
deferred sales charge than that imposed by the fund, the exchanged Class
B shares will be subject to the higher applicable deferred sales charge.
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 "Dividend, Distributions and Taxes" 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 deferred sales charge. 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 deferred sales charge 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 deferred sales charge at the time the
withdrawal plan commences. (With respect to withdrawal plans in effect
prior to November 7, 1994, any applicable deferred sales charge 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 deferred sales charge.)
For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Salomon Smith Barney Financial Consultant or
your Dealer Representative or the transfer agent.
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 5:00 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 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 5:00 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 "Share Price" 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 deferred
sales charge. 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 Internal Revenue Code of
1986, as amended ("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 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.
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 because of 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
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 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 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 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 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 in large part 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 advertise its total return and average
annual total return in advertisements and/or other types of sales
literature. These figures are computed separately for Class A, Class B,
Class L and Class Y shares of the fund. These figures are based on
historical earnings and are not intended to indicate future performance.
Total return is computed for a specified period of time assuming
deduction of the maximum sales charge, if any, from the initial amount
invested and reinvestment of all income dividends and capital gain
distributions on the reinvestment dates at prices calculated as stated in
this prospectus, then dividing the value of the investment at the end of
the period so calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as prescribed by the SEC
is derived from this total return, which provides the ending redeemable
value. Such standard total return information may also be accompanied
with nonstandard total return information for differing periods computed
in the same manner but without annualizing the total return or taking
sales charges into account. The fund may also include comparative
performance information in advertising or marketing its shares. Such
performance information may include data from Lipper Analytical Services,
Inc. and other financial publications.
From time to time, the trust may quote a fund's yield or total return in
advertisements or in reports and other communications to shareholders.
The trust may include comparative performance information in advertising
or marketing the fund's shares. Such performance information may include
the following industry and financial publications- Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. To the
extent any advertisement or sales literature of the fund describes the
expenses or performance of any Class it will also disclose such
information for the other Classes.
Average Annual Total Return. "Average annual total return" figures, as
described below, are computed according to a formula prescribed by the
SEC. The formula can be expressed as follows:
P (1+T)n = ERV
Where: P = a hypothetical initial payment of
$1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment made at the beginning of
the 1-, 5- or 10-year period at the end of
the 1-, 5- or 10-year period (or
fractional portion thereof), assuming
reinvestment of all dividends and
distributions.
Class A's average annual total return was as follows for the periods
indicated:
(31.72)% for the one-year period ended October 31, 1998.
(3.16)% per annum during the five-year period ended 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 period ended October 31, 1998.
(3.02)% per annum during the five-year period ended 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 ended 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 deferred sales charge, 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 deferred sales charge 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 deferred sales charge 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 ended October 31, 1998.
(14.82)% for the five-year period ended 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 ended October 31,1998.
(14.21)% for the five-year period ended 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:
(29.26)% for the one-year period ended 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
deferred sales charge has not been deducted from the investment at the
time of purchase. If the maximum 5.00% deferred sales charge 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
deferred sales charge has not been deducted from the investment at the
time of purchase. If the maximum 1% deferred sales charge 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
Manager. SSBC (formerly known as Mutual Management Corp) serves as
investment manager to the fund pursuant to an investment management
agreement (the "Investment Management Agreement") with the fund which was
approved by the board of directors, including a majority of directors who
are not "interested persons" of the fund or the manager. The manager is
a wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"), which in turn, is a wholly owned subsidiary of Citigroup.
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, and
employs professional portfolio managers and securities analysts who
provide research services to the fund. The manager pays the salary of any
officer and employee who is employed by both it and the fund. The manager
bears all expenses in connection with the performance of its services.
SSBC (through its predecessor entities) has been in the investment
counseling business since 1968 and renders investment advice to a wide
variety of individual, institutional and investment company clients that
had aggregate assets under management as of January 31, 1999 in excess of
$115 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., located at 20 Milk Street, Boston,
Massachusetts 02109-5408 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 and 1997 fiscal
years, Salomon Smith Barney, received $500,000 and $115,000, respectively,
in sales charges from the sale of Class A shares, and did not reallow any
portion thereof to dealers. For the period November 1, 1997 through
October 8, 1998 the aggregate dollar amount of commission on Class A
shares was $26,000, all of which was paid to Salomon Smith Barney. For
the period October 8, 1998 through October 31, 1998 the aggregate dollar
amount of commission on Class A shares was $1,000, $900 of which was paid
to Salomon Smith Barney. For the period June 12, 1998 through October 7,
1998 the aggregate dollar amount of commission on Class L shares was
$2,000, respectively, all of which was paid to Salomon Smith Barney. For
the period October 8, 1998 through October 31, 1998 the aggregate dollar
amount of commission on Class L shares was $0. For the fiscal years ended
October 31, 1996, 1997 and 1998, Salomon Smith Barney or its predecessor
received from shareholders $109,000, $193,000 and $242,000, respectively,
in deferred sales charges on the redemption of Class B shares. For the
fiscal years ended October 31, 1996, 1997 and 1998, Salomon Smith Barney
or its predecessor received from shareholders $10,000, $8,000 and $1,000,
respectively, in deferred sales charges on the redemption of 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.
Distribution Arrangements. To compensate Salomon Smith Barney for the
service it provides and for the expenses it bears, 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.
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 deferred sales
charge received by Salomon Smith Barney from the fund.
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 the 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
The fund's annual report for the fiscal year ended October 31, 1998 is
incorporated herein by reference in its entirety. The annual report was
filed on December 30, 1998, Accession Number 0000091155-98-000733.
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.
S & P
AAA - Debt rated "AAA" has the highest rating assigned by S & P.
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 of 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.
S & P
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.
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