<PAGE>
 
--------------------------------------------------------------------------------
                               SEMI-ANNUAL REPORT
--------------------------------------------------------------------------------


       

                                     [PHOTO]




                               Smith Barney
                               Natural Resources
                               Fund Inc.
                               --------------------

                               April 30, 1997




                       [LOGO]  Smith Barney Mutual Funds  
                               Investing for your future.
                               Every Day.
<PAGE>
 
----------------------------------------
Smith Barney Natural Resources Fund Inc.
----------------------------------------


Dear Shareholder:

We are pleased to provide the semi-annual report of the Smith Barney Natural
Resources Fund Inc. for the period ended April 30, 1997. In this report, we
summarize the period's prevailing economic and market conditions and outline the
Fund's investment strategy. A detailed summary of performance and current
holdings can be found in the appropriate sections that follow.

Fund Performance Review

The Smith Barney Natural Resources Fund Inc. had a disappointing six months
ending April 30, 1997, posting a total return of -7.85% for Class A shares. In
comparison, the Fund's Lipper Analytical Services, Inc. peer group generated an
average return of -1.27% for the same period. (Lipper Analytical Services, Inc.
is a major fund tracking organization). While we are not pleased with this
performance, we remain convinced that the outlook for the natural resource
industries is bright over the next several years. In this letter, we will first
discuss the Fund's performance over the past six months, then look at how the
Fund is positioned to take advantage of the opportunities we see going forward.

The largest factors leading to the Fund's decline over the past six months were
the declines in the gold and energy sectors of the portfolio. Each of these
sectors represented 25%-30% of the total portfolio during the period, so
declines in these stocks had meaningful impacts on the Fund's net asset value
("NAV").

The price of gold declined steadily throughout the reporting period, from $377
per ounce on October 31, 1996, to $340 per ounce on April 30, 1997. Falling gold
prices, fueled by concerns over continued European central bank selling, led to
declining earnings expectations for the gold companies. The revelation in March
1997 that Canadian-based Bre-X Minerals' purported Busang-gold discovery,
supposedly the largest in the world, was likely a fraud (this was later
confirmed) caused gold fund liquidations and a sell-off of all gold stocks. The
combination of these two factors hurt the Fund's gold holdings and was one of
the main causes of the decline in its NAV during the period.

The energy sector was one of the best-performing areas of the stock market in
calendar 1996, as strong global demand and continued delay by Iraq in returning
to the world oil market led to high oil and natural gas prices for much of the
year. However, in the period from October to April, Iraq did return to the
market, and the winter in the Northern Hemisphere was warmer than normal. 

                                                                               1
<PAGE>
 
These factors led to a decline in the price of oil and natural gas, from $23.35
per barrel (WTI spot) and $2.70 per mcf (Henry Hubb spot) on October 31, 1996,
to $20.21 per barrel and $2.10 per mcf, respectively, on April 30, 1997. Prices
of many energy stocks declined in tandem with the change in energy prices. We
added substantially to our holdings in the energy sector during the period. We
will discuss one of our new positions, United Meridian Corporation, in a later
section.


[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.] 


                  Per Capita Oil Use in the Far East vs. U.S.
                         gallons per year (1993 actual)

                            Gallons/Year/Capita
                            -------------------
India                             20.878
                         
Pakistan                          29.419
                         
China                             34.164
                         
Philippines                       52.195
                         
Indonesia                         58.838
                         
Thailand                         122.421
                         
Malaysia                         233.454
                         
Hong Kong                        393.835
                         
Taiwan                           413.764
                         
S. Korea                         510.562
                         
Japan                            659.555
                         
U.S.                             995.501
                  
                                            Source: U.S. Dept. of Energy, US CIA

On the positive side, we had several good things happen to the Fund. Reynolds
Metals, for example, which was one of the Fund's largest holdings as of October
31, 1996, performed well -- in fact, far outperformed the aluminum sector, as
the market came to share our view that new management is going to be much more
proactive in reshaping the company. We took profits in Reynolds Metals late in
the quarter, using the proceeds to add to our holdings of Alcoa and Alumax.

The paper sector also performed quite well, led by our positions in Bowater and
Buckeye Cellulose. In the metals sector of the Fund, we realized a large gain in
Asturiana de Zinc, one of the largest zinc refiners in Europe.

2
<PAGE>
 
Outlook for the Resource Industries

Ever since we took over management of the Fund, we have believed that growth in
the developing countries around the world would lead to increased demand for
many natural resources. Recent statistical reports confirm our convictions about
a strengthening world economy. The World Bank recently increased its forecast
for growth in 1997 in global industrial production to 4.8%. The growth rate
compares favorably with the levels of recent years and should provide increased
demand for natural resources in general. Many of the industries we follow are
operating at or near capacity, but with little pricing power; and as demand
continues to build, we are looking for improved business conditions to develop
in many of the resource industries over the next several years.

The Bre-X Scandal

On May 4, 1997, the management of Bre-X Minerals of Canada announced to the
world that their fabled Busang discovery was actually the product of a massive
fraud - the scale of which was unmatched in the history of mining. From a price
of about 0.20 Canadian dollars per share several years ago, the Bre-X share
price rocketed to over 260 Canadian dollars in 1996, giving the firm a market
capitalization of over 5 billion Canadian dollars.

It appears that a small clique of company geologists systematically mixed gold
into the 260 core samples taken from the property over the last several years.
The sampling techniques used were clearly unorthodox, yet the scam was itself
sophisticated enough to fool the host of geologists, Wall Street analysts and
portfolio managers who actually visited the sight. The timing of the scam was
perfect because investors, having witnessed the tremendous success of Diamond
Field Resources in 1995, were determined not to miss out on the "gold discovery
of the century."

Fortunately, Smith Barney Natural Resources Fund never owned shares in
Bre-X Minerals. However, many of our holdings in the gold area were hurt by the
fallout from this event. The truth about Bre-X came out after gold had already
declined from a high of $415 per ounce in February 1996 to about $340 per ounce
this April. The combination of poor gold price performance and the Bre-X
uncertainty led many investors to liquidate their gold fund holdings. In order
to meet these redemptions, gold fund managers were forced to sell a significant
amount of gold stocks, large and small. All these factors combined to cause our
holdings in the gold sector to decline in price during the reporting period.

In spite of the Bre-X fiasco, we still believe that the junior mining sector
deserves some representation in a natural resource portfolio (A junior mining

                                                                               3
<PAGE>
 
company is an emerging company which may or may not have generated production
and revenues). To dismiss all junior mining companies as a result of the
misdeeds of Bre-X personnel is a disservice to the many scientists who are
working to understand the geology of vast, unexplored areas of the world. This
is a legitimate and difficult task, and there will likely be many genuine
successes over the next several years.

Our strategy in this sector of the Fund's portfolio remains unchanged. We are
looking for early stage opportunities, with small market valuations relative to
potential. We also spend a great deal of time trying to assess the quality of
the management teams involved. We view this sector of the Fund as public market
venture capital, and we hold several companies that are exploring for a range of
different minerals in locations around the world.

The Fund's Three Basic Investment Strategies

The Smith Barney Natural Resources Fund seeks to provide investors with
long-term capital appreciation by investing primarily in natural resource
investments. In order to achieve this goal, we employ three basic strategies.
First, we seek out good businesses with high, sustainable returns on capital
investment whose shares are selling at attractive valuations relative to the
rest of the market. Second, we seek to make contrarian bets on out-of-favor
industry groups where we feel prospects are likely to improve over a one-to-two
year time horizon. Lastly, we hold a portfolio of exploration companies that are
seeking to capitalize on resource development opportunities around the world. In
the following section are examples of how we employ these strategies.

Investment Strategy #1 - Seek out good businesses with high returns on invested
capital that are selling for discounted prices in the stock market.

Example: Buckeye Cellulose

Buckeye Cellulose dominates its niche of specialty cotton-based pulps, used
mainly in industrial products, with an estimated 80% worldwide market share. The
company also has a fixed margin, long-term contract to supply Procter & Gamble
with fluff pulp for diapers. Management of this company is totally aligned with
shareholder interests, since the CEO owns 25% of the outstanding stock. At a
recent price of $31.50 per share, this company sells at only 10.5x fiscal year
'97 earnings. Over the next several years, we expect earnings to continue to
grow at 10-15%, and we think the market will likely accord the stock a higher
multiple over time.

We have found several similar opportunities in the industrial sector of the
economy. Many of these companies have market capitalizations of less than $1

4
<PAGE>
 
billion and have been left behind by the large-cap stock market rallies of the
past two years. We try to balance our need for liquidity with our desire to
purchase streams of future cash flows at inexpensive prices. Over time, if our
judgments are correct about the quality and valuations of businesses, these
investments should go up in value.

Investment Strategy #2 - Make contrarian sector bets in out-of-favor industries
where we feel prospects are likely to improve over a one-to-two year time
horizon.

Example: Our 9% holding in the commodity paper sector

Over the past six to nine months, we have increased the weighting in the
commodity paper sector. We did so because the sector was trading at all-time
relative lows compared to the S&P 500 using price-to-book value or
price-to-sales measures. The pulp and paper recovery of 1994-1995 was unusually
sharp, but short-lived. In mid-1996 we believed that growing worldwide economies
would eventually lead to improvement in pulp and paper economics in the
1997-1998 time frame. In recent months, the market has begun to share our view,
as price increases have been announced for a number of paper products. In
addition, we are seeing early signs that paper industry executives are taking a
more cautious approach to capacity additions, focusing instead on increasing
returns on existing assets. Similar changes in management views towards capital
allocation have preceded significant improvement in economics in the airline and
banking industries. We were early in spotting this change, which could lead to a
major shift in valuation for the paper stocks.

Investment Strategy #3 - Invest in minerals exploration and development
opportunities around the world.

Example: United Meridian Corporation

In the past two months, the Fund has taken a 2.5% position in United Meridian
Corporation ("UMC"), a company whose stock had experienced a 45% decline from
its highs of late 1996. UMC is an oil and gas exploration company with
operations in the United States, Canada, the west coast of Africa, Pakistan and
Bangladesh. The company has a large position in the emerging Cotton Valley Reef
area in East Texas, which is probably the most exciting, high-potential
exploration place in the United States. We are also excited about the company's
5 million acre lease position off the west coast of Africa, which is equivalent
to more than 1,000 exploration blocks in the Gulf of Mexico. This large acreage
position should provide the company with exploration opportunities for many
years. The company's present plans call for production growth of at least 25%
per year between now and the end of the century. At our purchase price, we paid
less than 5 times estimated 1998 cash flow for our position.

                                                                               5
<PAGE>
 
 [THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]

                              United Meridian Corp.
                              (11/4/94 to 5/19/97)

                             Date                Close
                        19-May-95         $      15.50
                        01-Jun-95               15.125
                        03-Jul-95               15.500
                        01-Aug-95               17.625
                        01-Sep-95               18.250
                        02-Oct-95               17.000
                        01-Nov-95               17.125
                        01-Dec-95               16.875
                        02-Jan-96               17.500
                        01-Feb-96               17.750
                        01-Mar-96               19.500
                        01-Apr-96               24.250
                        01-May-96               30.250
                        03-Jun-96               27.875
                        01-Jul-96               36.875
                        01-Aug-96               33.000
                        03-Sep-96               40.500
                        01-Oct-96               45.875
                        01-Nov-96               46.375
                        02-Dec-96               51.250
                        02-Jan-97               50.500
                        03-Feb-97               36.375
                        03-Mar-97               30.125
                        01-Apr-97               30.500
                        19-May-97               35.375

                                                              Source: Bloomberg


Conclusion

We hope the above examples have provided you with some understanding of the
methods we use to capitalize on opportunities in the natural resources
industries. Thank you for your investment in Smith Barney Natural Resources Fund
Inc. We look forward to helping you achieve your investment goals in the years
ahead.

Sincerely,


/s/ Heath B. McLendon               /s/ John G. Goode
Heath B. McLendon                   John G. Goode
Chairman                            Vice President and
                                    Investment Officer


/s/ David Stadlin
David Stadlin
Investment Officer


May 29, 1997


6
<PAGE>
 
================================================================================
Historical Performance -- Class A Shares
================================================================================
<TABLE>
<CAPTION>
                              Net Asset Value
                           --------------------
                           Beginning     End       Income    Capital Gain    Return     Total
Period Ended               of Period  of Period   Dividends  Distributions  of Capital  Returns(1)
==================================================================================================
<S>                         <C>         <C>         <C>         <C>          <C>        <C>     
4/30/97                     $22.95      $20.85      $0.33       $0.00        $0.00      (7.85)%+
--------------------------------------------------------------------------------------------------
10/31/96                     16.50       22.95       0.00        0.00         0.00      39.09
--------------------------------------------------------------------------------------------------
10/31/95                     21.44       16.50       0.00        0.00         0.00     (23.04)
--------------------------------------------------------------------------------------------------
10/31/94                     18.89       21.44       0.00        0.00         0.00      13.50
--------------------------------------------------------------------------------------------------
10/31/93                     13.27       18.89       0.00        0.00         0.00      42.35
--------------------------------------------------------------------------------------------------
10/31/92                     13.93       13.27       0.06        0.00         0.03      (4.09)
--------------------------------------------------------------------------------------------------
10/31/91                     13.63       13.93       0.00        0.00         0.00       2.20
--------------------------------------------------------------------------------------------------
10/31/90                     16.96       13.63       0.21        0.00         0.11     (18.18)
--------------------------------------------------------------------------------------------------
10/31/89                     16.43       16.96       0.00        0.00         0.00       3.23
--------------------------------------------------------------------------------------------------
10/31/88                     18.58       16.43       0.00        0.90         0.00      (7.56)
--------------------------------------------------------------------------------------------------
Inception*-10/31/87          15.20       18.58       0.00        0.00         0.00      22.24+
==================================================================================================
Total                                               $0.60       $0.90        $0.14
==================================================================================================
</TABLE>


================================================================================
Historical Performance -- Class B Shares
================================================================================
<TABLE>
<CAPTION>
                              Net Asset Value                                                        
                           --------------------                                                   
                           Beginning     End       Income    Capital Gain    Return     Total      
Period Ended               of Period  of Period   Dividends  Distributions  of Capital  Returns(1) 
================================================================================================== 
<S>                         <C>         <C>         <C>         <C>          <C>       <C>     
4/30/97                     $22.32      $20.36      $0.15       $0.00        $0.00     (8.15)%+
--------------------------------------------------------------------------------------------------
10/31/96                     16.15       22.32       0.00        0.00         0.00     38.20
--------------------------------------------------------------------------------------------------
10/31/95                     21.14       16.15       0.00        0.00         0.00    (23.60)
--------------------------------------------------------------------------------------------------
10/31/94                     18.75       21.14       0.00        0.00         0.00     12.75
--------------------------------------------------------------------------------------------------
Inception*-10/31/93          13.35       18.75       0.00        0.00         0.00     40.45+
==================================================================================================
Total                                               $0.15       $0.00       $0.00
==================================================================================================
</TABLE>


================================================================================
Historical Performance -- Class C Shares
================================================================================
<TABLE>
<CAPTION>
                              Net Asset Value                                                        
                           --------------------                                                    
                           Beginning     End       Income    Capital Gain    Return     Total      
Period Ended               of Period  of Period   Dividends  Distributions  of Capital  Returns(1) 
================================================================================================== 
<S>                         <C>         <C>         <C>         <C>          <C>       <C>     
4/30/97                     $22.32      $20.37      $0.15       $0.00        $0.00     (8.11)%+
--------------------------------------------------------------------------------------------------
10/31/96                     16.16       22.32       0.00        0.00         0.00     38.12
--------------------------------------------------------------------------------------------------
Inception*-10/31/95          20.63       16.16       0.00        0.00         0.00    (21.67)+
==================================================================================================
Total                                               $0.15       $0.00        $0.00
==================================================================================================
</TABLE>

It is the Fund's policy to distribute dividends and capital gains, if any,
annually.


                                                                               7
<PAGE>
 
================================================================================
Average Annual Total Return
================================================================================
<TABLE>
<CAPTION>
                                               Without Sales Charge(1)
                                      -----------------------------------------
                                      Class A        Class B      Class C
================================================================================
<S>                                    <C>           <C>          <C>    
Six Months Ended 4/30/97+              (7.85)%       (8.15)%      (8.11)%
--------------------------------------------------------------------------------
Year Ended 4/30/97                     (6.71)        (7.28)       (7.24)
--------------------------------------------------------------------------------
Five Years Ended 4/30/97               11.02           N/A           N/A
--------------------------------------------------------------------------------
Ten Years Ended 4/30/97                (0.83)          N/A           N/A
--------------------------------------------------------------------------------
Inception* through 4/30/97              3.90         10.04        (0.23)
================================================================================

<CAPTION>
                                               With Sales Charge(2)
                                      -----------------------------------------
                                      Class A        Class B       Class C
================================================================================
<S>                                   <C>           <C>           <C>    
Six Months Ended 4/30/97+             (12.46)%      (12.71)%      (9.02)%
--------------------------------------------------------------------------------
Year Ended 4/30/97                    (11.36)       (11.88)       (8.16)
--------------------------------------------------------------------------------
Five Years Ended 4/30/97                9.89           N/A           N/A
--------------------------------------------------------------------------------
Ten Years Ended 4/30/97                (1.34)          N/A           N/A
--------------------------------------------------------------------------------
Inception* through 4/30/97              3.39          9.88        (0.23)
================================================================================
</TABLE>


================================================================================
Cumulative Total Return
================================================================================
<TABLE>
<CAPTION>
                                                 Without Sales Charge(1)
================================================================================
<S>                                                      <C>    
Class A (4/30/87 through 4/30/97)                        (8.00)%
--------------------------------------------------------------------------------
Class B (Inception* through 4/30/97)                     53.56
--------------------------------------------------------------------------------
Class C (Inception* through 4/30/97)                     (0.58)
================================================================================
</TABLE>


(1)  Assumes reinvestment of all dividends and capital gain distributions, if
     any, at net asset value and does not reflect the deduction of the
     applicable sales charges with respect to Class A shares or the applicable
     contingent deferred sales charges ("CDSC") with respect to Class B and C
     shares.

(2)  Assumes reinvestment of all dividends and capital gain distributions, if
     any, at net asset value. In addition, Class A shares reflect the deduction
     of the maximum initial sales charge of 5.00%; Class B shares reflect the
     deduction of a 5.00% CDSC, which applies if shares are redeemed within one
     year from initial purchase and declines thereafter by 1.00% per year until
     no CDSC is incurred. Class C shares reflect the deduction of a 1.00% CDSC,
     which applies if shares are redeemed within the first year of purchase.

*    Inception dates for Class A, B and C shares are November 24, 1986, November
     6, 1992 and November 7, 1994, respectively.

+    Total return is not annualized, as it may not be representative of the
     total return for the year.


8
<PAGE>
 
================================================================================
Historical Performance (unaudited)
================================================================================

                 Growth of $10,000 Invested in Class A Shares of
                  the Smith Barney Natural Resources Fund Inc.
              vs. MSCI World Index and Standard & Poor's 500 Index+

--------------------------------------------------------------------------------
                            April 1987 -- April 1997


 [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]

<TABLE>
<CAPTION>
                       Smith   
                       Barney   
                       Natural         MSCI              Standard 
                       Resources       World             & Poor's
                       Fund Inc.       Index             500 Index
                       -------         -----             ---------
<S>                    <C>             <C>               <C>   
4/30/87                $9,499          $10,000           $10,000
10/87                  $7,165          $ 8,829           $ 8,863
10/88                  $6,624          $10,669           $10,170
10/89                  $6,837          $12,165           $12,851
10/90                  $5,594          $10,854           $11,889
10/91                  $5,717          $12,637           $15,862
10/92                  $5,483          $12,047           $17,441
10/93                  $7,806          $15,382           $20,040
10/94                  $8,859          $16,638           $20,814
10/95                  $6,818          $18,307           $26,311
10/96                  $9,483          $21,389           $32,650
4/30/97                $8,739          $23,055           $37,452
</TABLE>                                                 
 
 
+    Hypothetical illustration of $10,000 invested in Class A shares on April
     30, 1987, assuming deduction of the maximum 5.00% sales charge at the time
     of investment and the reinvestment of dividends and capital gains, if any,
     at net asset value through April 30, 1997. The Morgan Stanley Capital
     International World Index ("MSCI World Index") is an arithmetic average
     weighted by the market value performance of 1,468 securities listed on the
     stock exchanges of the USA, Europe, Canada, Australia, New Zealand and the
     Far East. The Standard & Poor's 500 Index is an index composed of widely
     held common stocks listed on the New York Stock Exchange, American Stock
     Exchange and the over-the-counter market. Figures for the index include the
     reinvestment of dividends. The indexes are unmanaged and not subject to the
     same management and trading expenses of a mutual fund. The performance of
     the Fund's other classes may be greater or less than the Class A shares'
     performance indicated on this chart, depending on whether greater or lesser
     sales charges and fees were incurred by shareholders investing in the other
     classes.

     All figures represent past performance and are not a guarantee of future
     results. Investment returns and principal value will fluctuate, and
     redemption values may be more or less than the original cost. No adjustment
     has been made for shareholder tax liability on dividends or capital gains.


                                                                               9
<PAGE>
 
================================================================================
Portfolio Highlights (unaudited) April 30, 1997
================================================================================

 [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]

<TABLE>
<CAPTION>
Portfolio Breakdown


<S>                                          <C>
Canada                                        2.1%
Australia                                    13.3%
United Kingdom                                1.2%
United States                                74.7%
South Africa                                  4.9%
Other Investments                             2.5%
Singapore                                     1.3%
</TABLE>


<TABLE>
<CAPTION>

                                                                Percentage of
Top Ten Common Stock Holdings                                 Total Investments
================================================================================
<S>                                                                   <C> 
Union Camp Corp.                                                      3.2%
Champion International Corp.                                          3.0
Aluminum Co. of America                                               2.9
Western Areas Gold Mining Co. Ltd.                                    2.8
Schnitzer Steel Industries, Inc.                                      2.8
Sons of Gwalia NL                                                     2.7
Titanium Metals Corp.                                                 2.7
Ultramar Diamond Shamrock Corp.                                       2.7
Santa Fe Energy Resources, Inc.                                       2.6
Wellman, Inc.                                                         2.6
</TABLE>


10
<PAGE>
 
================================================================================
Schedule of Investments (unaudited) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
    SHARES                         SECURITY                             VALUE
================================================================================
STOCKS -- 97.5%
================================================================================
<S>           <C>                                                   <C>       
Australia -- 13.3%
   700,000    Acacia Resources Ltd.+                                $  1,045,135
 6,800,000    Anzoil NL+                                                 345,512
   668,329    Aurora Gold Ltd.+                                        1,097,112
 3,250,000    Australian Coal NL                                       1,143,239
   366,300    Emperor Mines Ltd.+                                        544,041
 1,500,000    Kimberly Diamond Co. NL+                                   234,511
 1,520,000    Meekatharra Minerals Ltd.+                                 469,334
 2,000,235    Normandy Mining Ltd.                                     2,454,832
   212,212    Normandy Mining Ltd. Warrants, Expire 4/30/01+              48,107
 1,500,000    Pasminco Ltd.                                            2,861,029
   299,600    Ranger Minerals NL+                                        913,372
 1,142,600    Savage Resources Ltd.                                    1,116,466
   750,400    Sons of Gwalia NL                                        3,314,229
 2,116,666    Tanami Gold NL+                                            512,927
--------------------------------------------------------------------------------
                                                                      16,099,846
--------------------------------------------------------------------------------
Canada -- 2.1%
   280,000    Ecuadorian Minerals Corp.+                                 160,263
   483,100    El Callao Mining Corp.+                                    449,331
    25,000    Guyanor Resources S.A.+                                     78,701
   750,000    Nelson Gold Corp. Ltd.+                                    482,936
   400,000    Ourominas Minerals Inc.+                                   400,658
   100,000    Ourominas Minerals Inc. Warrants, Expire 8/8/97+                 0
   680,600    Pan African Resources Corp.+                               194,777
   150,000    Philex Gold Inc.+                                          751,234
 1,013,500    Reclamation Management Ltd.+                                36,256
--------------------------------------------------------------------------------
                                                                       2,554,156
--------------------------------------------------------------------------------
Singapore -- 1.3%
   500,000    Keppel Fels Ltd.                                         1,562,608
--------------------------------------------------------------------------------
South Africa -- 4.9%
   775,149    Avgold Ltd.+                                             1,244,701
    11,000    Vaal Reefs Exploration & Mining Co. Ltd.                   653,098
   100,000    Vaal Reefs Exploration & Mining Co. Ltd. Unsponsored ADR   587,500
   379,060    Western Areas Gold Mining Co. Ltd.                       3,409,963
--------------------------------------------------------------------------------
                                                                       5,895,262
--------------------------------------------------------------------------------
United Kingdom -- 1.2%
 1,450,000    Kenmare Resources PLC+                                     635,253
   325,000    Phillipine Gold PLC+                                       632,819
   100,000    Reunion Mining PLC+                                        207,694
--------------------------------------------------------------------------------
                                                                       1,475,766
--------------------------------------------------------------------------------
United States -- 74.7%
   181,000    Abacan Resource Corp.+                                   1,165,188
   142,749    Agrium Inc.                                              1,837,893
    50,000    Aluminum Co. of America                                  3,493,750
</TABLE>


                       See Notes to Financial Statements.


                                                                              11
<PAGE>
 
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
                                                                                
    SHARES                        SECURITY                               VALUE
================================================================================
<S>          <C>                                                    <C>     
United States -- 74.7% (continued)
    80,000   Alyn Corp.+                                            $    710,000
   217,900   American Exploration Co.+                                 2,451,375
   140,000   Ashanti Goldfields Co. Ltd. Sponsored GDR                 1,662,500
   340,200   Asia Pacific Resources International Holdings Ltd.
             Class A Shares+                                           1,530,900
    75,000   Benton Oil & Gas Co.+                                     1,096,875
    42,000   BJ Services Co.+                                          1,979,250
    70,000   Bowater Inc.                                              3,027,500
   102,000   Buckeye Cellulose Corp.+                                  3,072,750
    77,500   Champion International Corp.                              3,603,750
    85,000   Commonwealth Industries Inc.                              1,466,250
   261,500   Crown Resource Corp.+                                     1,536,312
   100,000   Cyprus Amax Minerals Co.                                  2,237,500
   125,000   Del Webb Corp.                                            1,968,750
    83,800   Dresser Industries, Inc.                                  2,503,524
    30,000   Eastman Chemical Co.                                      1,530,000
    30,000   Enron Corp.                                               1,128,750
    40,000   Essex International, Inc.+                                  720,000
    70,000   GeoScience Corp.+                                           673,750
   125,000   Global Industries Ltd.+                                   2,625,000
   225,000   Golden Star Resources Ltd.+                               1,631,250
    94,000   Hugoton Energy Corp.+                                     1,022,250
    75,000   Input/Output, Inc.+                                       1,050,000
   127,900   International Specialty Products, Inc.+                   1,662,700
    53,300   Mitchell Energy & Development Corp., Class A Shares       1,012,700
    96,700   Mitchell Energy & Development Corp., Class B Shares       1,849,388
    30,000   Newmont Mining Corp.                                      1,038,750
   100,000   Noble Drilling Corp.+                                     1,737,500
    50,000   Nuevo Energy Co.+                                         1,718,750
   100,000   Oryx Energy Co.+                                          2,000,000
     9,200   Reynolds Metals Co.                                         624,450
   225,000   Santa Fe Energy Resources, Inc.+                          3,178,125
   125,000   Santa Fe Pacific Gold Corp.                               1,843,750
   150,000   Schnitzer Steel Industries, Inc.                          3,337,500
    50,000   Schweitzer-Mauduit International, Inc.                    1,656,250
   100,000   Stillwater Mining Co.+                                    2,012,500
    50,000   Tech-Sym Corp.+                                           1,418,750
   125,000   Titanium Metals Corp.+                                    3,234,375
   100,000   Ultramar Diamond Shamrock Corp.+                          3,212,500
    80,000   Union Camp Corp.                                          3,890,000
   110,000   United Meridian Corp.+                                    3,121,250
   135,000   USX-Delhi Group                                           1,704,375
   200,000   Wellman, Inc.                                             3,150,000
   125,000   Willbros Group. Inc.+                                     1,265,625
--------------------------------------------------------------------------------
                                                                      90,394,305
--------------------------------------------------------------------------------
             TOTAL STOCKS
             (Cost -- $123,525,346)                                  117,981,943
================================================================================
</TABLE>

                       See Notes to Financial Statements.


12
<PAGE>
 
================================================================================
Schedule of Investments (unaudited) (continued) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
     FACE
    AMOUNT                         SECURITY                             VALUE
================================================================================
<S>          <C>                                                    <C>
CONVERTIBLE NOTE -- 0.2%
$  200,000   Stillwater Mining Co., 7.00% due 5/1/03+++
             (Cost-- $200,000)                                      $    201,000
================================================================================

EXCHANGEABLE DEBENTURE -- 0.2%
   379,800   Atlas Corp., 7.00% due 12/5/00 (Cost-- $341,298)            303,840
================================================================================

REPURCHASE AGREEMENT -- 2.1%
 2,550,000   CS First Boston Corp., 5.30% due 5/1/97; 
             Proceeds at maturity $2,550,375; 
             (Fully collateralized by U.S. Treasury Note, 
             7.125% due 2/29/00; Market value -- $2,604,888) 
             (Cost -- $2,550,000)                                      2,550,000
================================================================================
            TOTAL INVESTMENTS -- 100%
            (Cost -- $126,616,644*)                                 $121,036,783
================================================================================
</TABLE>

+    Non-income producing security.
+++  Security exempt from registration under Rule 144A of the Securities Act of
     1993. These securities may be resold in transactions exempt from
     registration, generally to qualified institutional buyers.
*    Aggregate cost for Federal income tax purposes is substantially the same.


                       See Notes to Financial Statements.


                                                                              13
<PAGE>
 
================================================================================
Statement of Assets and Liabilities (unaudited) April 30, 1997
================================================================================
<TABLE>
<CAPTION>
<S>                                                                 <C>          
ASSETS:
  Investments, at value (Cost -- $126,616,644)                      $ 121,036,783
  Foreign currency (Cost -- $83,156)                                       83,397
  Cash                                                                     60,803
  Receivable for securities sold                                        3,272,396
  Receivable for open forward foreign currency contracts (Note 6)          80,754
  Receivable for Fund shares sold                                           9,802
  Dividends and interest receivable                                        21,419
---------------------------------------------------------------------------------
  Total Assets                                                        124,565,354
---------------------------------------------------------------------------------
LIABILITIES:
  Management fees payable                                                  41,070
  Distribution fees payable                                                35,228
  Payable for open forward foreign currency contracts (Note 6)             17,535
  Payable for securities purchased                                          6,636
  Payable for Fund shares purchased                                            19
  Accrued expenses                                                        181,375
---------------------------------------------------------------------------------
  Total Liabilities                                                       281,863
---------------------------------------------------------------------------------
Total Net Assets                                                    $ 124,283,491
=================================================================================
NET ASSETS:
  Par value of capital shares                                       $       6,051
  Capital paid in excess of par value                                 135,407,345
  Accumulated net investment loss                                        (909,206)
  Accumulated net realized loss from security
    transactions and options                                           (4,863,465)
  Net unrealized depreciation of investments,
    options and foreign currencies                                     (5,357,234)
---------------------------------------------------------------------------------
Total Net Assets                                                    $ 124,283,491
=================================================================================
Shares Outstanding:
  Class A                                                               2,226,098
---------------------------------------------------------------------------------
  Class B                                                               3,465,802
---------------------------------------------------------------------------------
  Class C                                                                 359,554
---------------------------------------------------------------------------------
Net Asset Value:
  Class A (and redemption price)                                           $20.85
---------------------------------------------------------------------------------
  Class B*                                                                 $20.36
---------------------------------------------------------------------------------
  Class C**                                                                $20.37
---------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
  (net asset value plus 5.26% of net asset value per share)                $21.95
=================================================================================
</TABLE>

*    Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
     are redeemed less than one year from initial purchase (See Note 2).
**   Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares
     are redeemed within the first year of purchase (See Note 2).

                       See Notes to Financial Statements.


14
<PAGE>
 
================================================================================
Statement of Operations (unaudited)
================================================================================
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1997
<S>                                                                      <C>         
INVESTMENT INCOME:
  Dividends                                                              $    646,711
  Interest                                                                    227,143
  Less: Foreign withholding tax                                               (14,770)
-------------------------------------------------------------------------------------
  Total Investment Income                                                     859,084
-------------------------------------------------------------------------------------
EXPENSES:
  Management fees (Note 2)                                                    513,763
  Distribution fees (Note 2)                                                  488,571
  Shareholder and system servicing fees                                       143,121
  Registration fees                                                            66,821
  Custody                                                                      33,736
  Shareholder communications                                                   32,173
  Directors' fees                                                              24,581
  Audit and legal                                                              22,768
  Other                                                                         2,915
-------------------------------------------------------------------------------------
  Total Expenses                                                            1,328,449
-------------------------------------------------------------------------------------
Net Investment Loss                                                          (469,365)
-------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
OPTIONS AND FOREIGN CURRENCIES (NOTES 3, 5, AND 6):
  Realized Gain (Loss) From:
    Security transactions (excluding short-term securities)                 7,265,205
    Options written                                                           201,755
    Foreign currency transactions                                             (31,685)
-------------------------------------------------------------------------------------
  Net Realized Gain                                                         7,435,275
-------------------------------------------------------------------------------------
  Change in Net Unrealized Appreciation (Depreciation) of Investments,
  Options and Foreign Currencies:
    Beginning of period                                                    12,674,567
    End of period                                                          (5,357,234)
 -------------------------------------------------------------------------------------
  Increase in Net Unrealized Depreciation                                 (18,031,801)
 -------------------------------------------------------------------------------------
Net Loss on Investments, Options and Foreign Currencies                   (10,596,526)
-------------------------------------------------------------------------------------
Decrease in Net Assets From Operations                                   $(11,065,891)
=====================================================================================
</TABLE>


                       See Notes to Financial Statements.


                                                                              15
<PAGE>
 
================================================================================
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1997 (unaudited)
and the Year Ended October 31, 1996

                                                            1997             1996
=====================================================================================
<S>                                                    <C>              <C>          
OPERATIONS:
  Net investment loss                                  $    (469,365)   $    (363,384)
  Net realized gain                                        7,435,275       13,520,028
  (Increase) decrease in net unrealized depreciation     (18,031,801)      12,191,702
-------------------------------------------------------------------------------------
  Increase (Decrease) in Net Assets From Operations      (11,065,891)      25,348,346
-------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
  Net investment income                                   (1,377,238)            --
-------------------------------------------------------------------------------------
  Decrease in Net Assets From
  Distributions to Shareholders                           (1,377,238)            --
-------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
  Net proceeds from sale of shares                       164,101,292      544,169,046
  Net asset value of shares issued for
    reinvestment of dividends                              1,321,529             --
  Cost of shares reacquired                             (160,787,714)    (491,629,316)
  -----------------------------------------------------------------------------------
  Increase in Net Assets From
    Fund Share Transactions                                4,635,107       52,539,730
  -----------------------------------------------------------------------------------
Increase (Decrease) in Net Assets                         (7,808,022)      77,888,076
NET ASSETS:
  Beginning of period                                    132,091,513       54,203,437
-------------------------------------------------------------------------------------
  End of period*                                       $ 124,283,491    $ 132,091,513
=====================================================================================
* Includes accumulated net investment income (loss):       $(909,206)        $969,082
=====================================================================================
</TABLE>

                       See Notes to Financial Statements.


16
<PAGE>
 
================================================================================
Notes to Financial Statements (unaudited)
================================================================================

     1. SIGNIFICANT ACCOUNTING POLICIES

     Smith Barney Natural Resources Fund Inc. ("Fund"), a Maryland corporation,
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.

     The significant accounting policies followed by the Fund are: (a) security
transactions are accounted for on trade date; (b) securities traded in national
securities markets are valued at the closing prices in the primary exchange on
which they are traded; securities listed or traded on certain foreign exchanges
or other markets whose operations are similar to the U.S. over-the-counter
market (including securities listed on exchanges where the primary market is
believed to be over-the-counter) and securities for which no sale was reported
on that date are valued at the mean between the bid and ask prices. Securities
which are listed or traded on more than one exchange or market are valued at the
quotations on the exchange or market determined to be the primary market for
such securities. Gold bullion is valued at the daily London afternoon fixing;
(c) securities maturing within 60 days are valued at cost plus accreted
discount, or minus amortized premium, which approximates value; (d) the
accounting records of the Fund are maintained in U.S. dollars. All assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
based on the rate of exchange of such currencies against U.S. dollars on the
date of valuation. Purchases and sales of securities, and income and expenses
are translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income or expense amounts
recorded and collected or paid are adjusted when reported by the custodian; (e)
interest income, adjusted for amortization of premium and accretion of discount,
is recorded on an accrual basis; (f) dividend income is recorded on the
ex-dividend date; foreign dividends are recorded on the ex-dividend date or as
soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence; (g) dividends and
distributions to shareholders are recorded on the ex-dividend date; (h) gains or
losses on the sale of securities are calculated by using the specific
identification method; (i) direct expenses are charged to each class; management
fees and general expenses are allocated on the basis of relative net assets; (j)
the character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. At October 31, 1996, reclassifications were made to the Fund's
capital accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Accordingly, a portion
of accumulated realized losses amounting to $1,209,130 was reclassified to
paid-in capital. Net investment income, net realized gains


                                                                              17
<PAGE>
 
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================

and net assets were not affected by this change; (k) the Fund intends to comply
with the requirements of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (l) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.

     In addition, the Fund may enter into forward exchange contracts in order to
hedge against foreign currency risk. These contracts are marked-to-market daily,
by recognizing the difference between the contract exchange rate and the current
market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.

     2. MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS

     Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager to the Fund. The Fund
pays SBMFM a management fee calculated at an annual rate of 0.75% of the average
daily net assets. This fee is calculated daily and paid monthly.

     Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
the Fund's shares. For the six months ended April 30, 1997, SB received sales
charges of $95,000 on sales of the Fund's Class A shares.

     There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B
shares, which applies if redemption occurs within one year from initial purchase
and declines thereafter by 1.00% per year until no CDSC is incurred. Class C
shares have a 1.00% CDSC, which applies if redemption occurs within the first
year of purchase. For the six months ended April 30, 1997, CDSCs paid to SB were
approximately:

<TABLE>
<CAPTION>
                                                          Class B       Class C
================================================================================
<S>                                                     <C>              <C>   
CDSCs                                                   $67,000          $5,000
================================================================================
</TABLE>


18
<PAGE>
 
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================

     Pursuant to a Distribution Plan, the Fund pays a service fee with respect
to Class A, B and C shares calculated at the annual rate of 0.25% of the average
daily net assets of each respective class. The Fund also pays a distribution fee
with respect to Class B and C shares calculated at an annual rate of 0.75% of
the average daily net assets for each class, respectively. For the six months
ended April 30, 1997, total Distribution Plan fees incurred were:

<TABLE>
<CAPTION>
                                              Class A      Class B     Class C
================================================================================
<S>                                           <C>         <C>          <C>    
Distribution Plan Fees                        $66,012     $382,861     $39,698
================================================================================
</TABLE>


     All officers and one Director of the Fund are employees of SB.

     3. INVESTMENTS

     During the six months ended April 30, 1997, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:

<TABLE>
<CAPTION>
================================================================================
<S>                                                                 <C>        
Purchases                                                           $67,692,351
--------------------------------------------------------------------------------
Sales                                                                60,584,977
================================================================================
</TABLE>

     At April 30, 1997, aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:

<TABLE>
<CAPTION>
================================================================================
<S>                                                                <C>         
Gross unrealized appreciation                                      $  8,553,494
Gross unrealized depreciation                                       (14,133,355)
--------------------------------------------------------------------------------
Net unrealized depreciation                                        $ (5,579,861)
================================================================================
</TABLE>


     4. FUTURES CONTRACTS

     Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contract. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marking to market" on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are received or made and recognized as assets
due from or liabilities due to broker, depending upon whether unrealized gains
or losses are incurred. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the proceeds from (or cost of) the
closing transactiont and the Fund's basis in the contract. The Fund enters into
such contracts to hedge a portion of its portfolio. The Fund bears the market
risk


                                                                              19
<PAGE>
 
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================

that arises from changes in the value of the financial instruments and
securities indices (futures contracts) and the credit risk should a counterparty
fail to perform under such contracts.

     At April 30, 1997, there were no open futures contracts.

     5. OPTIONS CONTRACTS

     Premiums paid when put or call options are purchased by the Fund, represent
investments, which are marked-to-market daily and are included in the schedule
of investments. When a purchased option expires, the Fund will realize a loss in
the amount of the premium paid. When the Fund enters into a closing sales
transaction, the Fund will realize a gain or loss depending on whether the
proceeds from the closing sales transaction are greater or less than the premium
paid for the option. When the Fund exercises a put option, it will realize a
gain or loss from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. When the Fund exercises a
call option, the cost of the security which the Fund purchases upon exercise
will be increased by the premium originally paid.

     At April 30, 1997, the Fund had no open purchased call or put option
contracts.

     When a Fund writes a covered call or put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is eliminated. When a written call
option is exercised the cost of the security sold will be decreased by the
premium originally received. When a written put option is exercised, the amount
of the premium originally received will reduce the cost of the security which
the Fund purchased upon exercise. When written index options are exercised,
settlement is made in cash. The risk associated with purchasing options is
limited to the premium originally paid. The Fund enters into options for hedging
purposes. The risk in writing a covered call option is that the Fund gives up
the opportunity to participate in any increase in the price of the underlying
security beyond the exercise price. The risk in writing a put option is that the
Fund is exposed to the risk of loss if the market price of the underlying
security declines.


20
<PAGE>
 
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================

     The following covered call option transactions occurred during the six
months ended April 30, 1997:
<TABLE>  
<CAPTION>
                                                          Number of
                                                          Contracts     Premium
================================================================================
<S>                                                          <C>      <C>      
Options written, outstanding at October 31, 1996               500    $ 126,620
Options written during the period ended April 30, 1997       3,425      318,085
Options cancelled in closing purchase transactions          (1,250)     (91,247)
Options expired                                             (1,400)    (194,320)
--------------------------------------------------------------------------------
Options written, outstanding at April 30, 1997               1,275    $ 159,138
================================================================================
</TABLE>

     The following represents the covered call option written contracts as of
April 30, 1997:

<TABLE>  
<CAPTION>
Number of                                                    Strike
 Contracts                                   Expiration       Price     Value
================================================================================
<S>                                            <C>          <C>         <C>
Covered Call Options Written
     500   Golden Star Resources Ltd.          7/18/97      $20.00       $0
     600   United Meridian Corp.               5/19/97       35.00        0
     175   USX - Delhi Group                   7/18/97       17.50        0
--------------------------------------------------------------------------------
        (Premium received - $159,138)                                    $0
================================================================================
</TABLE>


     6. FORWARD FOREIGN CURRENCY CONTRACTS

     At April 30, 1997, the Fund had open forward foreign currency contracts as
described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized gain (loss) on the contracts
reflected in the accompanying financial statements are as follows:

<TABLE>
<CAPTION>
                                    Local             Market   Settlement    Unrealized
Foreign Currency                  Currency             Value      Date       Gain(Loss)
========================================================================================
<S>                                 <C>               <C>        <C>             <C>    
To Sell:
Spanish Peseta                      116,253,000       $796,363   7/14/97         $80,754
----------------------------------------------------------------------------------------
To Buy:
Spanish Peseta                      116,253,000        796,363   7/14/97         (17,535)
----------------------------------------------------------------------------------------
Total Unrealized Gain on Forward
   Foreign Currency Contracts                                                    $63,219
========================================================================================
</TABLE>


                                                                              21
<PAGE>
 
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================

     7. REPURCHASE AGREEMENTS

     The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.

    8. FUND CONCENTRATION OF RISK

     The Fund's investments in foreign securities may involve risks not present
in domestic investments. Since securities may be denominated in a foreign
currency and may require settlement in foreign currencies and pay interest or
dividends in foreign currencies, changes in the relationship of these foreign
currencies to the U.S. dollar can significantly affect the value of these
investments and earnings of the Fund. Foreign investments may also subject the
Fund to foreign government exchange restrictions, expropriation, taxation or
other political, social or economic developments, all of which could affect the
market and/or credit risk of the investments.

     In addition to the risks described above, risks may arise from forward
foreign currency contracts with respect to the potential inability of
counterparties to meet the terms of their contracts.

     The Fund also intends to invest at least 65% of its assets in natural
resource-related investments. As a result of this concentration policy, which is
a fundamental policy of the Fund, the Fund's investment may be subject to
greater risk and market fluctuation than a fund that invests in securities
representing a broader range of investment alternatives. Historically, stock
prices of companies involved in natural resource-related industries have been
volatile.

     9. CAPITAL LOSS CARRYFORWARD

     At October 31, 1996, the Fund had, for Federal income tax purposes,
approximately $11,968,000 of capital loss carryforwards available to offset any
future realized capital gains. To the extent that these carryforward losses are
used to offset capital gains, it is probable that the gains so offset will not
be distributed. The amount and year of the expiration for each carryforward loss
is indicated below:

<TABLE>
<CAPTION>
                                         10/31/98     10/31/99      10/31/00
================================================================================
<S>                                     <C>          <C>           <C>       
Carryforward Amounts                    $3,460,000   $7,188,000    $1,320,000
================================================================================
</TABLE>


22
<PAGE>
 
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================

     10. CAPITAL SHARES

     At April 30, 1997, the Fund had three billion shares of capital stock
authorized with a par value of $0.001 per share. The Fund has the ability to
issue multiple classes of shares. Each share of a class represents an identical
interest in the Fund and has the same rights, except that each class bears
certain expenses specifically related to the distribution of its shares.

     At April 30, 1997, total paid-in capital amounted to the following for each
class:

<TABLE>
<CAPTION>
                                     Class A          Class B        Class C
================================================================================
<S>                                <C>              <C>            <C>       
Total Paid-in Capital              $63,807,566      $64,236,484    $7,369,346
================================================================================
</TABLE>

     Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
                                         Six Months Ended                   Year Ended
                                          April 30, 1997                 October 31, 1996
                                      ---------------------            --------------------
                                      Shares         Amount            Shares        Amount
================================================================================================
<S>                                 <C>          <C>                <C>            <C>         
Class A
Shares sold                         5,742,808    $ 131,341,492       19,586,022    $ 402,810,122
Shares issued on reinvestment          32,875          752,525             --               --
Shares redeemed                    (5,750,641)    (131,442,748)     (19,074,759)    (393,472,638)
------------------------------------------------------------------------------------------------
Net Increase                           25,042    $     651,269          511,263    $   9,337,484
================================================================================================
Class B
Shares sold                         1,339,425    $  29,838,433        6,446,926    $ 130,177,104
Shares issued on reinvestment          22,934          513,732             --               --
Shares redeemed                    (1,210,745)     (26,818,696)      (4,726,657)     (93,497,561)
------------------------------------------------------------------------------------------------
Net Increase                          151,614    $   3,533,469        1,720,269    $  36,679,543
================================================================================================
Class C
Shares sold                           130,776    $   2,921,367          533,568    $  11,181,820
Shares issued on reinvestment           2,466           55,272             --               --
Shares redeemed                      (114,219)      (2,526,270)        (228,398)      (4,659,117)
------------------------------------------------------------------------------------------------
Net Increase                           19,023    $     450,369          305,170    $   6,522,703
================================================================================================
</TABLE>


                                                                              23
<PAGE>
 
================================================================================
 Financial Highlights
================================================================================
<TABLE>
<CAPTION>
For a share of each class of capital stock outstanding throughout each period:


Class A Shares                         1997(1)          1996(2)        1995           1994          1993          1992
==========================================================================================================================
<S>                                   <C>              <C>           <C>            <C>            <C>            <C>    
Net Asset Value, Beginning
  of Period                            $22.95           $16.50        $21.44         $18.89         $13.27         $13.93
--------------------------------------------------------------------------------------------------------------------------
Income (Loss) From
  Operations:
  Net investment income
    (loss)                              (0.08)            0.08         (0.23)*        (0.06)         (0.02)         (0.10)
  Net realized and unrealized
    gain (loss)                         (1.69)            6.37         (4.71)          2.61           5.64          (0.47)
--------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From
  Operations                            (1.77)            6.45         (4.94)          2.55           5.62          (0.57)
--------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
  Net investment income                 (0.33)              --            --             --             --          (0.06)
  Capital                                  --               --            --             --             --          (0.03)
--------------------------------------------------------------------------------------------------------------------------
Total Distributions                     (0.33)              --            --             --             --          (0.09)
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End
  of Period                            $20.85           $22.95        $16.50         $21.44         $18.89         $13.27
--------------------------------------------------------------------------------------------------------------------------
Total Return                            (7.85)%+++       39.09%       (23.04)%        13.50%         42.35%         (4.09)%
--------------------------------------------------------------------------------------------------------------------------
Net Assets, End of
  Period (000s)                       $46,406          $50,521       $27,884        $41,370        $20,097        $14,138
--------------------------------------------------------------------------------------------------------------------------
Ratios to Average
  Net Assets:
  Expenses                               1.56%+           1.62%         1.99%          1.81%          2.17%          2.85%
  Net investment
    income (loss)                       (0.35)+           0.15         (1.46)         (0.34)         (0.14)         (0.76)
--------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                    44%             120%           40%            50%           108%            58%
--------------------------------------------------------------------------------------------------------------------------
Average commissions
  per share paid on
  equity transactions(3)(4)             $0.02            $0.02         $0.02             --             --             --
==========================================================================================================================
</TABLE>


(1)  For the six months ended April 30, 1997 (unaudited).
(2)  Per share amounts have been calculated using the monthly average shares
     method rather than the undistributed net investment income method, because
     it more accurately reflects the per share data for the period.
(3)  As of September 1995, the SEC instituted new guidelines requiring the
     disclosure of average commissions per share. 
(4)  Trades executed in the United States and Canada have an average commission
     rate of $0.06 per share. Commission on trades executed outside these
     countries are generally executed as a percentage of cost or proceeds
     ranging from 0.5% to 1.00%.
*    Includes realized gains and losses from foreign currency transactions.
+++  Total return is not annualized, as it may not be representative of the
     total return for the year.
+    Annualized.


24
<PAGE>
 
================================================================================
 Financial Highlights (continued)                                               
================================================================================
<TABLE>
<CAPTION>
For a share of each class of capital stock outstanding throughout each period:

Class B Shares                                     1997(1)          1996(2)         1995          1994         1993(3)
===========================================================================================================================
<S>                                               <C>              <C>            <C>            <C>            <C>    

Net Asset Value, Beginning of Period               $22.32           $16.15         $21.14         $18.75         $13.35
---------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
  Net investment loss                               (0.11)           (0.09)         (0.22)*        (0.33)         (0.15)
  Net realized and unrealized gain (loss)           (1.70)            6.26          (4.77)          2.72           5.55
---------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations                 (1.81)            6.17          (4.99)          2.39           5.40
---------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
  Net investment income                             (0.15)              --             --             --             --
---------------------------------------------------------------------------------------------------------------------------
Total Distributions                                 (0.15)              --             --             --             --
---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period                     $20.36           $22.32         $16.15         $21.14         $18.75
---------------------------------------------------------------------------------------------------------------------------
Total Return                                        (8.15)%+++       38.20%        (23.60)%        12.75%         40.45%+++
---------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s)                  $70,554          $73,969        $25,747        $37,704        $40,895
---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses                                           2.19%+           2.29%          2.62%          2.54%          2.98%+
  Net investment loss                               (0.96)+          (0.83)         (2.11)         (1.06)         (0.96)+
---------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                                44%             120%            40%            50%           108%
---------------------------------------------------------------------------------------------------------------------------
Average commissions per share
  paid on equity transactions(4)(5)                 $0.02            $0.02          $0.02             --             --
===========================================================================================================================
</TABLE>

(1)  For the six months ended April 30, 1997 (unaudited).
(2)  Per share amounts have been calculated using the monthly average shares
     method rather than the undistributed net investment income method, because
     it more accurately reflects the per share data for the period.
(3)  For the period from November 6, 1992 (inception date) to October 31, 1993.
(4)  As of September 1995, the SEC instituted new guidelines requiring the
     disclosure of average commissions per share.
(5)  trades executed in the United States and Canada have an average commission
     rate of $0.06 per share. Commission on trades executed outside these
     countries are generally executed as a percentage of cost or proceeds
     ranging from 0.5% to 1.00%.
*    Includes realized gains and losses from foreign currency transactions.
+++  Total return is not annualized, as it may not be representative of the
     total return for the year.
+    Annualized.


                                                                              25
<PAGE>
 
================================================================================
 Financial Highlights (continued)                                               
================================================================================
<TABLE>
<CAPTION>
For a share of each class of capital stock outstanding throughout each period:

Class C Shares                                    1997(1)        1996(2)     1995(3)
========================================================================================
<S>                                               <C>             <C>         <C>   
Net Asset Value, Beginning of Period              $22.32          $16.16      $20.63
----------------------------------------------------------------------------------------
Income (Loss) From Operations:
  Net investment income (loss)                     (0.12)           0.05       (0.29)*
  Net realized and unrealized gain (loss)          (1.68)           6.11       (4.18)
----------------------------------------------------------------------------------------
Total Income (Loss) From Operations                (1.80)           6.16       (4.47)
----------------------------------------------------------------------------------------
Less Distributions From:
  Net investment income                            (0.15)             --          --
----------------------------------------------------------------------------------------
Total Distributions                                (0.15)             --          --
----------------------------------------------------------------------------------------
Net Asset Value, End of Period                    $20.37          $22.32      $16.16
----------------------------------------------------------------------------------------
Total Return                                       (8.11)%+++      38.12%     (21.67)%+++
----------------------------------------------------------------------------------------
Net Assets, End of Period (000s)                  $7,323          $7,602        $572
----------------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses                                          2.13%+          2.25%       2.69%+
  Net investment loss                              (0.90)+         (0.21)      (1.97)+
----------------------------------------------------------------------------------------
Portfolio Turnover Rate                               44%            120%         40%
----------------------------------------------------------------------------------------
Average commissions per share
  paid on equity transactions(4)(5)                $0.02           $0.02       $0.02
========================================================================================
</TABLE>


(1)  For the six months ended April 30, 1997 (unaudited).
(2)  Per share amounts have been calculated using the monthly average shares
     method rather than the undistributed net investment income method, because
     it more accurately reflects the per share data for the period.
(3)  For the period from November 7, 1994 (inception date) to October 31, 1995.
(4)  As of September 1995, the SEC instituted new guidelines requiring the
     disclosure of average commissions per share.
(5)  Trades executed in the United States and Canada have an average commission
     rate of $0.06 per share. Commission on trades executed outside these
     countries are generally executed as a percentage of cost or proceeds
     ranging from 0.5% to 1.00%.
*    Includes realized gains and losses from foreign currency transactions.
+++  Total return is not annualized, as it may not be representative of the
     total return for the year.
+    Annualized.


26
<PAGE>
 
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<PAGE>
 
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<PAGE>
 
Smith Barney                                                        SMITH BARNEY
Natural Resources                                                   ------------
Fund Inc.                                       A Member of TravelersGroup[LOGO]

                                        Investment Adviser                      
Directors                               and Administrator                       
                                    
Herbert Barg                            Smith Barney Mutual Funds               
Alfred J. Bianchetti                    Management Inc.                         
Martin Brody                                                                    
Dwight B. Crane                     
Burt N. Dorsett                         Distributor                             
Elliot S. Jaffe                     
Stephen E. Kaufman                      Smith Barney Inc.                       
Joseph J. McCann                                                                
Heath B. McLendon, Chairman         
Cornelius C. Rose, Jr.                  Custodian                               
                                    
                                        The Chase Manhattan Bank                
Officers                                                                        
                                                                                
Heath B. McLendon                       Shareholder                             
Chief Executive Officer                 Servicing Agent  
                                    
Lewis E. Daidone                        First Data Investor Services Group, Inc.
Senior Vice President                   P.O. Box 9134                           
and Treasurer                           Boston, MA 02205-9134                   
                                                                                
John Goode                              This report is submitted for the        
Vice President and                      general information of the              
Investment Officer                      shareholders of Smith Barney            
                                        Natural Resources Fund Inc. It is       
David Stadlin                           not authorized for distribution to      
Investment Officer                      prospective investors unless            
                                        accompanied or preceded by a            
Irving P. David                         current Prospectus for the Fund,        
Controller                              which contains information              
                                        concerning the Fund's investment        
Christina T. Sydor                      policies and expenses as well as        
Secretary                               other pertinent information.            
                                                                                
                                        Smith Barney                            
                                        Natural Resources                       
                                        Fund Inc.                               
                                        388 Greenwich Street                    
                                        New York, New York 10013                
                                                                                
                                        FD0299 6/97