<PAGE>
- ------------------------------------------------------------------------------
- --
ANNUAL REPORT November 30, 1993
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and
Appreciation
Series 1996
[LOGO]
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
DEAR SHAREHOLDER:
We are pleased to be reporting to you, our shareholders, at the end of
another fiscal year. For the fiscal year ended November 30, 1993, the Fund's
total return was 7.85%. This compares to a return of the Standard & Poor's
Daily
Price Index of 500 Common Stocks ("S&P 500") (an unmanaged index which tracks
the movement of common stock prices) of 10.9% and Lehman Brothers Intermediate
Term Government Bond Index (an unmanaged index comprised of all publicly
issued,
non-convertible debt of the U.S. Government or any agency thereof, quasi-
federal
corporations, and corporate debt guaranteed by the U.S. Government with a
maturity of between one and ten years) of 9.13%. Since the Fund's inception on
January 1, 1989, an original investment of $10,000 has grown from $9,500 to
$16,345 representing an average annual total return of 10.61%. These
performance
figures represent the total of the dividend and interest income of the Fund's
investment, as well as the appreciation of the stocks and zero coupon bonds
held
in the Fund. As we had hoped at the inception of this Fund, the combination of
zero coupon US Treasury bonds and a managed portfolio of our favorite stocks
has
provided consistently good returns with excellent downside protection.
Since our last letter to you, the financial markets have continued to
inch
ahead, fueled as much by the diversion of funds from maturing certificates of
deposit into stocks as from an improving economy. Interestingly, the flow of
new
money into mutual funds is being matched, almost dollar for dollar, by an
increasing supply of new equity offerings. With no net inflows, the volatility
of stocks and groups within the overall market has increased dramatically, as
money managers try to either catch or avoid the newest hot or disappointing
area.
Our investment philosophy has always been to own a core of great growth
companies and build certain themes around that core. This year the themes we
have highlighted, such as "Telecommunications in the 1990's," entertainment
and
entertainment software, and "restructuring" stocks are working well. On the
other hand, stocks of the great growth companies have struggled for most of
the
year although their performance has improved recently. More importantly, it
has
been our observation over the years that fashions may move in and out of vogue
in this business, but history has shown that the scientific way to lose money
is
to try to chase those stocks that are currently in vogue, while ignoring the
sound investments that might be temporarily out of favor. We think that
through
these core holdings and themes we have a portfolio of good values in
Continued
1
<PAGE>
the Fund which will enable us to continue to meet our goal of earnings
consistent and positive returns for you.
Over the past six months we have increased our holdings in some of our
attractive themes by initiating positions in Comcast, a company with broad
operations in cable and telephones; NYNEX; Bell Atlantic; and Grupo Televisa,
the largest producer of Spanish language programming in the world. We also
rebuilt a position in Merck, a core holding that has come down to attractive
levels because of health-care reform. We also like its acquisition of Medco
Containment. Finally, we continued to emphasize our retail holdings by
initiating a position in JC Penney in order to capitalize on their revitalized
operations, the attractiveness and success of their new private label
merchandise, and the strength and continued growth of their catalogue
operations.
Sales in the Fund resulted from both eliminations of positions and
rebalancing of the portfolio. Partial profits were realized in Avon, Mobil,
Royal Dutch, AT&T, Pepsi and Chemical Bank as stock appreciation had created
outsized holdings in the Fund. Full eliminations included Apple Computer
following its disappointing earnings forecast and Waste Management due to its
prolonged pricing difficulties.
While the economy has recently shown signs of improvement, particularly
in
housing and auto sales, job creation remains a problem. Many of the companies
in
the portfolio have taken steps to reduce costs, so that any improvement in
volume will result in better earnings. The dilemma for the economy, however,
is
that a lot of the cost-cutting is in the form of layoffs, early retirements,
or
hiring freezes. In such a fragile recovery, we believe the approach of owing
quality companies and proven managements remains valid.
<TABLE>
Thank you for your continued support of the Principal Return Fund --
Zeros
and Appreciation Series 1996.
Sincerely,
<S> <C> <C>
Heath B. McLendon Harry D. Cohen Harold L. Williamson, Jr.
Chairman of the Board Vice President and Vice President and
Investment Officer Investment Officer
</TABLE>
January 17, 1994
2
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
<TABLE>
- ------------------------------------------------------------------------------
- --
PORTFOLIO HIGHLIGHTS NOVEMBER 30, 1993
(UNAUDITED)
PORTFOLIO ALLOCATION
[INSERT PIE CHART]
[SET ON MAC]
DESCRIPTION OF PIE CHARTS IN SHAREHOLDER REPORT
Industry Breakdown
Pie chart depicting the allocation of the Principal Return Fund (Zeros and
Appreciation Series 1996) investment securities held at November 30, 1993 by
industry classification. The pie is broken in pieces representing industries
in the following percentages:
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Commercial Paper and Net Other
Assets and Liabilities 1.1%
U.S. Treasury Notes 56.9%
Common Stocks 42.0%
</TABLE>
<TABLE>
TOP TEN COMMON STOCK HOLDINGS
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
- ---------------------------------------------------------------------------
AMERICAN INTERNATIONAL GROUP, INC. 1.6%
XEROX CORPORATION 1.5
MINNESOTA MINING AND MANUFACTURING COMPANY 1.4
AMERICAN TELEPHONE AND TELEGRAPH COMPANY 1.4
PEPSICO, INC. 1.3
GENERAL ELECTRIC COMPANY 1.3
WAL-MART STORES, INC. 1.3
ITT CORPORATION 1.2
EASTMAN KODAK COMPANY 1.2
CHEMICAL BANKING CORPORATION 1.1
</TABLE>
3
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------
- --
HISTORICAL PERFORMANCE
<CAPTION>
YEAR ENDED NET ASSET VALUE CAPITAL GAINS DIVIDENDS
TOTAL
NOVEMBER 30, BEGINNING ENDING DISTRIBUTED PAID
RETURN**
<S> <C> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- ---------
1/16/89*-
11/30/89 $9.50 $11.38 $ -- $ --
19.79%
- ------------------------------------------------------------------------------
- ---------
1990 11.38 10.77 0.23 0.63
2.29
- ------------------------------------------------------------------------------
- ---------
1991 10.77 11.42 0.12 0.69
14.56
- ------------------------------------------------------------------------------
- ---------
1992 11.42 11.75 0.51 0.65
13.64
- ------------------------------------------------------------------------------
- ---------
1993 11.75 11.45 0.42 0.72
7.85
- ------------------------------------------------------------------------------
- ---------
TOTAL $1.28 $2.69
- ------------------------------------------------------------------------------
- ---------
CUMULATIVE TOTAL RETURN (1/16/89 - 11/30/93)
72.05%
- ------------------------------------------------------------------------------
- ---------
* The Fund commenced operations on January 16, 1989.
** Figures assume reinvestment of all dividends and capital gain distributions
at net asset value and do not
reflect deduction of the applicable front-end sales charge.
</TABLE>
<TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS ANNUALLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
AVERAGE ANNUAL TOTAL RETURN***
<CAPTION>
WITHOUT
WITH
SALES CHARGE
SALES CHARGE
<S> <C>
<C>
- ------------------------------------------------------------------------------
- ----------
YEAR ENDED 11/30/93 7.85%
2.46%
- ------------------------------------------------------------------------------
- ----------
INCEPTION 1/16/89 THROUGH 11/30/93 11.78
10.61
- ------------------------------------------------------------------------------
- ----------
*** All average annual total return figures shown reflect reinvestment of
dividends and capital gains at net asset value. Average annual total
return
figures shown for the period from inception (January 16, 1989) through
November 30, 1993 reflect deduction of the maximum 5% front-end sales
charge.
</TABLE>
4
<PAGE>
<TABLE>
GROWTH OF $10,000 INVESTED IN SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND -
ZEROS AND APPRECIATION SERIES 1996 VS. UNMANAGED INDICES +
JANUARY 16, 1989 - NOVEMBER 30, 1993
[SET ON MAC]
DESCRIPTION OF MOUNTAIN CHART IN SHEARSON COVERS
A line graph depiciting the total growth (including reinvestment of dividends
and capital gains) of a hypothetical investment of
$10,000 in Principal Return Fund (Zeros and Appreciation Series 1996) shares
on January 16, 1989 through November 30, 1993 as
compared with the growth of a $10,000 investment in teh Standard & Poor's 500
Index and the Lehman Brothers Intermediate Term
Government Bond Index. The plot point used to draw the line graph were as
follows:
<CAPTION>
GROWTH OF
$10,000
GROWTH OF $10,000 INVESTMENT
IN THE
GROWTH OF $10,000 INVESTMENT IN THE
INTERMEDIATE TERM
MONTH ENDED INVESTED IN SHARES STANDARD & POOR'S
GOVERNMENT BOND
OF THE FUND 500 INDEX
INDEX
<S> <C> <C> <C>
1/16/89 $9,500 -
- -
01/89 $9,690 $10,000
$10,000
02/89 $9,470 $9,751
$9,957
03/89 $9,630 $9,979
$10,004
06/89 $10,550 $10,858
$10,668
09/89 $11,140 $12,019
$10,789
12/89 $11,457 $12,266
$11,157
03/90 $11,198 $11,897
$11,142
06/90 $11,879 $12,643
$11,493
09/90 $11,176 $10,908
$11,715
12/90 $11,830 $11,885
$12,224
03/91 $12,600 $13,608
$12,493
06/91 $12,612 $13,575
$12,703
09/91 $13,231 $14,300
$13,307
12/91 $14,277 $15,497
$13,947
03/92 $13,941 $15,106
$13,800
06/92 $14,419 $15,393
$14,335
09/92 $15,013 $15,879
$14,963
12/92 $15,360 $16,676
$14,913
03/93 $15,860 $17,403
$15,471
06/93 $15,974 $17,487
$15,775
09/93 $16,245 $17,937
$16,108
11/93 $16,345 $18,134
$16,067
+ Hypothetical illustration of $10,000 invested at inception on January 16,
1989
through November 30, 1993 assuming deduction of the maximum 5% sales charge
at
the time of investment and reinvestment of dividends and capital gains at
Net
Asset Value through November 30, 1993.
The Lehman Brothers Intermediate Term Government Bond Index is comprised of
all publicly issued, non-convertible debt of the U.S. Government or any
agency
thereof, quasi-federal corporations, and corporate debt guaranteed by the
U.S.
Government with a maturity of between one and ten years.
The S&P 500 is an index composed of 500 widely held common stocks listed on
the New York Stock Exchange, American Stock Exchange and over-the-counter
market.
This period was one in which common stock prices fluctuated and the results
should not be considered as a representation of the dividend income or
capital
gain or loss which be be realized from an investment in the Fund today. No
adjustment has been made for shareholder tax liability on dividends or
capital
gains.
NOTE: All figures cited here and on the following pages represent past
performance of the Fund and do not guarantee future results.
</TABLE>
5
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
<TABLE>
- ------------------------------------------------------------------------------
- ---------
PORTFOLIO OF INVESTMENTS NOVEMBER 30,
1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C><C> <S>
<C>
- ------------------------------------------------------------------------------
- ---------
COMMON STOCKS - 42.0%
CONSUMER SERVICES - 7.5%
1,200 CBS, Inc. $
369,900
8,000 Comcast Corporation, Class A
272,000
16,000 Disney (Walt) Company
636,000
20,000 Donnelly (RR) & Sons
575,000
5,000 Gannett, Company
278,125
2,000 Grupo Televisa
118,000
6,000 Harcourt General, Inc.
244,500
15,666 Home Depot, Inc.
648,181
4,000 Penney (J.C.), Inc.
213,500
2,500 QVC Network, Inc.+
116,250
5,000 Reader's Digest Association, Inc., Class A
214,375
15,000 TeleCommunications, Inc., Class A+
451,875
15,000 Time Warner, Inc.
661,875
15,000 Toys "R" Us+
611,250
4,000 Tribune Company
223,000
1,000 Viacom, Inc. Class B+
44,125
40,000 Wal-Mart Stores, Inc.
1,145,000
- ------------------------------------------------------------------------------
- ---------
6,822,956
- ------------------------------------------------------------------------------
- ---------
FINANCIAL SERVICES - 6.7%
8,500 Aetna Life & Casualty Company
519,563
4,000 Allstate Corporation
118,000
16,500 American International Group, Inc.
1,421,063
4,000 Bank of New York, Inc.
222,000
5,000 Barnett Banks, Inc.
206,250
25,000 Chemical Banking Corporation
962,500
1,500 Chubb Corporation
120,750
5,000 CIGNA Corporation
316,250
15,000 Citicorp+
532,500
7,000 Federal National Mortgage Association
528,500
15,000 NationsBank Corporation
706,875
5,000 Society Corporation
143,750
7,000 UNUM Corporation
344,750
- ------------------------------------------------------------------------------
- ---------
6,142,751
- ------------------------------------------------------------------------------
- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
<TABLE>
- ------------------------------------------------------------------------------
- ----------
PORTFOLIO OF INVESTMENTS (CONTINUED) NOVEMBER 30,
1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C><C> <S> <C>
- ------------------------------------------------------------------------------
- ----------
COMMON STOCKS (CONTINUED)
CAPITAL GOODS - 4.2%
12,000 AlliedSignal, Inc. $
853,500
3,000 AMP Inc.
174,750
2,500 Caterpillar, Inc.
213,125
10,000 Cooper Industries, Inc.
506,250
12,000 General Electric Company
1,179,000
3,500 Grainger (W.W.), Inc.
204,750
7,000 Ingersoll-Rand Company
267,750
7,000 United Technologies Corporation
433,125
- ------------------------------------------------------------------------------
- ----------
3,832,250
- ------------------------------------------------------------------------------
- ----------
DIVERSIFIED CONGLOMERATES - 4.2%
17,500 Eastman Kodak Company
1,065,313
12,500 ITT Corporation
1,112,500
12,000 Minnesota Mining and Manufacturing Company
1,308,000
7,000 Tenneco, Inc.
336,875
- ------------------------------------------------------------------------------
- ----------
3,822,688
- ------------------------------------------------------------------------------
- ----------
ENERGY - 3.8%
6,500 Amerada Hess Corporation
303,063
4,000 Burlington Resources, Inc.
180,000
8,000 Exxon Corporation
502,000
6,000 Mobil Corporation
457,500
7,000 Royal Dutch Petroleum
707,000
8,000 Schlumberger Ltd.
460,000
13,000 Texaco, Inc.
835,250
- ------------------------------------------------------------------------------
- ----------
3,444,813
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
<TABLE>
- ------------------------------------------------------------------------------
- ----------
PORTFOLIO OF INVESTMENTS (CONTINUED) NOVEMBER 30,
1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C><C> <S>
<C>
- ------------------------------------------------------------------------------
- ----------
COMMON STOCKS (CONTINUED)
CONSUMER NON-DURABLES - 3.4%
9,000 Avon Products, Inc.
448,875
7,000 Crown Cork & Seal, Inc.+
276,500
10,000 Gillette Company
625,000
30,000 PepsiCo, Inc.
1,207,500
10,000 Procter & Gamble Company
567,500
- ------------------------------------------------------------------------------
- ----------
3,125,375
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
<TABLE>
- ------------------------------------------------------------------------------
- ----------
PORTFOLIO OF INVESTMENTS (CONTINUED) NOVEMBER 30,
1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C><C> <S>
<C>
- ------------------------------------------------------------------------------
- ----------
COMMON STOCKS (CONTINUED)
TECHNOLOGY - 3.2%
10,000 Intel Corporation $
615,000
9,000 Microsoft Corporation+
720,000
6,000 Pitney Bowes Inc.
252,000
16,500 Xerox Corporation
1,361,250
- ------------------------------------------------------------------------------
- ----------
2,948,250
- ------------------------------------------------------------------------------
- ----------
HEALTH CARE - 2.4%
5,000 Bristol-Meyers Squibb
299,375
22,000 Johnson & Johnson
959,750
9,000 Merck & Company, Inc.
308,250
10,000 Pfizer, Inc.
665,000
- ------------------------------------------------------------------------------
- ----------
2,232,375
- ------------------------------------------------------------------------------
- ----------
CONSUMER DURABLES - 2.2%
12,000 Chrysler Corporation
633,000
5,000 Ford Motor Company
303,750
12,000 General Motors Corporation
634,500
6,000 Goodyear Tire & Rubber Company
267,000
6,000 Pep Boys-Manny, Moe & Jack
154,500
- ------------------------------------------------------------------------------
- ----------
1,992,750
- ------------------------------------------------------------------------------
- ----------
BASIC INDUSTRIES - 2.0%
20,000 duPont (E.I.) deNemours & Company
952,500
10,000 International Paper Company
667,500
10,000 Praxair, Inc.
161,250
- ------------------------------------------------------------------------------
- ----------
1,781,250
- ------------------------------------------------------------------------------
- ----------
UTILITIES - 1.9%
23,000 American Telephone & Telegraph Company
1,256,375
3,000 Bell Atlantic Corporation
180,000
7,000 NYNEX Corporation
298,375
- ------------------------------------------------------------------------------
- ----------
1,734,750
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
<TABLE>
- ------------------------------------------------------------------------------
- ----------
PORTFOLIO OF INVESTMENTS (CONTINUED) NOVEMBER 30,
1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<S> <C>
<C>
- ------------------------------------------------------------------------------
- ----------
COMMON STOCKS (CONTINUED)
TRANSPORTATION - 0.5%
6,000 CSX Corporation $
498,000
- ------------------------------------------------------------------------------
- ----------
TOTAL COMMON STOCKS (Cost $28,645,738)
38,378,208
- ------------------------------------------------------------------------------
- ----------
FACE
VALUE
- ------------------------------------------------------------------------------
- ----------
U.S. TREASURY NOTES - 56.9% (Cost $46,709,676)
$57,000,000 U.S. Treasury Notes-Strips, Zero Coupon due 2/15/96++
51,827,242
- ------------------------------------------------------------------------------
- ----------
COMMERCIAL PAPER - 1.3% (Cost $1,158,000)
1,158,000 General Electric Capital Corporation, 3.150% due 12/1/93
1,158,000
- ------------------------------------------------------------------------------
- ----------
TOTAL INVESTMENTS (Cost $76,513,414*) 100.2%
91,363,450
OTHER ASSETS AND LIABILITIES (NET) (0.2)
(210,678)
- ------------------------------------------------------------------------------
- ----------
NET ASSETS 100.0%
$91,152,772
- ------------------------------------------------------------------------------
- ----------
<FN>
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
++ Effective yield is 8.991% (unaudited).
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
<TABLE>
- ------------------------------------------------------------------------------
- ----------
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER
30, 1993
<C> <S> <C>
<C>
ASSETS:
Investments, at value (Cost $76,513,414) (Note 1)
See accompanying schedule
$91,363,450
Receivable for investments sold
399,387
Dividends and interest receivable
128,603
Unamortized organization costs (Note 5)
8,303
- ------------------------------------------------------------------------------
- ----------
TOTAL ASSETS
91,899,743
- ------------------------------------------------------------------------------
- ----------
LIABILITIES:
Payable for investments purchased $477,415
Payable for Fund shares redeemed 163,182
Investment advisory fee payable (Note 2) 23,809
Administration fee payable (Note 2) 15,873
Transfer agent fees payable (Note 2) 12,200
Custodian fees payable (Note 2) 9,600
Due to custodian 453
Accrued expenses and other payables 44,439
- ------------------------------------------------------------------------------
- ----------
TOTAL LIABILITIES
746,971
- ------------------------------------------------------------------------------
- ----------
NET ASSETS
$91,152,772
- ------------------------------------------------------------------------------
- ----------
NET ASSETS CONSIST OF:
Undistributed net investment income
$3,739,426
Accumulated net realized gain on investments sold
12,394,022
Unrealized appreciation of investments
14,850,036
Par value
7,960
Paid-in capital in excess of par value
60,161,328
- ------------------------------------------------------------------------------
- ----------
TOTAL NET ASSETS
$91,152,772
- ------------------------------------------------------------------------------
- ----------
NET ASSET VALUE and redemption price per share
($91,152,772 / 7,960,279 shares of beneficial interest
outstanding)
$11.45
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
<TABLE>
- ------------------------------------------------------------------------------
- ----------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1993
<C> <S> <C>
<C>
INVESTMENT INCOME:
Interest
$4,674,242
Dividends (net of foreign withholding taxes of $2,158)
963,278
- ------------------------------------------------------------------------------
- ----------
TOTAL INVESTMENT INCOME
5,637,520
- ------------------------------------------------------------------------------
- ----------
EXPENSES:
Investment advisory fee (Note 2) $305,538
Sub-investment advisory and administration fee (Note 2) 203,692
Transfer agent fees (Note 2) 114,391
Amortization of organization costs (Note 5) 66,200
Legal and audit fees 35,013
Custodian fees (Note 2) 34,967
Trustees' fees and expenses (Note 2) 6,289
Other 21,985
- ------------------------------------------------------------------------------
- ----------
Total Operating Expenses Before Interest
788,075
- ------------------------------------------------------------------------------
- ----------
Interest expense (Note 6)
2,752
- ------------------------------------------------------------------------------
- ----------
TOTAL EXPENSES
790,827
- ------------------------------------------------------------------------------
- ----------
NET INVESTMENT INCOME
4,846,693
- ------------------------------------------------------------------------------
- ----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 3):
Net realized gain on investments during the year
12,532,076
Net unrealized depreciation of investments during the year
(9,529,809)
- ------------------------------------------------------------------------------
- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
3,002,267
- ------------------------------------------------------------------------------
- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$7,848,960
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
<TABLE>
- ------------------------------------------------------------------------------
- ---------
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
YEAR
YEAR
ENDED
ENDED
11/30/93
11/30/92
<S> <C>
<C>
Net investment income $4,846,693 $
5,505,758
Net realized gain on investments during the year 12,532,076
4,206,930
Net unrealized appreciation/(depreciation) of investments
during the year (9,529,809)
5,027,752
- ------------------------------------------------------------------------------
- ---------
Net increase in net assets resulting from operations 7,848,960
14,740,440
Distributions to shareholders from:
Net investment income (6,613,025)
(6,519,950)
Net realized capital gains on investments (3,896,983)
(5,065,501)
Net decrease in net assets from Fund share transactions
(Note 4) (15,196,729)
(9,500,834)
- ------------------------------------------------------------------------------
- ---------
Net decrease in net assets (17,857,777)
(6,345,845)
NET ASSETS:
Beginning of year 109,010,549
115,356,394
- ------------------------------------------------------------------------------
- ---------
End of year (including undistributed net investment
income of $3,739,426 and $4,935,039, respectively) $91,152,772
$109,010,549
- ------------------------------------------------------------------------------
- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
<TABLE>
- ------------------------------------------------------------------------------
- ------------
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<CAPTION>
YEAR YEAR YEAR YEAR
PERIOD
ENDED ENDED ENDED ENDED
ENDED
11/30/93++ 11/30/92++ 11/30/91
11/30/90++ 11/30/89*
<S> <C> <C> <C> <C>
<C>
Net asset value, beginning $11.75 $11.42 $10.77 $11.38
$ 9.50
- ------------------------------------------------------------------------------
- ------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.53 0.54 0.62 0.55
0.63
Net realized and unrealized
gains
and losses on investments 0.31 0.95 0.84
(0.30) 1.25
- ------------------------------------------------------------------------------
- ------------
Total from investment
operations 0.84 1.49 1.46 0.25
1.88
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.72) (0.65) (0.69 )
(0.63) --
Distributions from net
realized
capital gains (0.42) (0.51) (0.12 )
(0.23) --
- ------------------------------------------------------------------------------
- ------------
Total distributions (1.14) (1.16) (0.81 )
(0.86) 0.00
- ------------------------------------------------------------------------------
- ------------
Net asset value, end of year $11.45 $11.75 $11.42 $10.77
$11.38
- ------------------------------------------------------------------------------
- ------------
Total return+++ 7.85% 13.64% 14.56%
2.29% 19.79%
- ------------------------------------------------------------------------------
- ------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's) $ 91,153 $109,011 $115,356 $121,493
$162,867
Ratios of expenses to average
net
assets 0.77%+ 0.77% 0.81%
0.85% 0.84%**
Ratios of net investment
income to
average net assets 4.76% 4.85% 5.26%
5.21% 5.79%**
Portfolio turnover rate 20% 11% 17%
3% 32%
- ------------------------------------------------------------------------------
- ------------
* The Fund commenced operations on January 16, 1989.
** Annualized.
+ The operating expense ratio excludes interest expense. The annualized
ratio
including interest expense is .78%.
++ The per share amounts have been calculated using the monthly average
shares
method, which more appropriately presents per share data for this year
since
use of the undistributed method did not accord with results of operations.
+++ Total return represents aggregate total return for the periods indicated.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Principal Return Fund (the "Trust") was organized
on
October 18, 1988, under the laws of the Commonwealth of Massachusetts as a
"Massachusetts business trust." The Trust is a diversified, open-end
management
investment company registered with the Securities and Exchange Commission
under
the Investment Company Act of 1940, as amended. The Trust consists of four
series, the Zeros and Appreciation Series 1996, which commenced operations on
January 16, 1989, the Zeros and Appreciation Series 1998 which commenced
operations on January 25, 1991, the Zeros Plus Emerging Growth Series 2000,
which commenced operations on August 30, 1991, and the Zeros Plus European
Equities Series 1999 which has not yet commenced operations. The Zeros and
Appreciation Series 1996 (the "Fund") expects to terminate operations on March
1, 1996. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
Portfolio valuation: Listed securities traded on a national securities
exchange are valued at the last reported sales price; securities traded in the
over-the-counter market and listed securities for which no sale was reported
are
valued at the bid price or, in the absence of a recent bid price, at the bid
equivalent as obtained from one or more of the major market makers in the
securities. Investments in U.S. government securities (other than short-term
securities) are valued at the quoted bid price in the over-the-counter market.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Board of Trustees determines that amortized cost reflects
the
fair value of those investments. Investments in securities for which market
quotations are not available are valued at fair value as determined in good
faith by the Board of Trustees.
Repurchase agreements: The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund
takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding
period.
This arrangement results in a fixed rate of return that is not subject to
market
fluctuations during the Fund's holding period. The value of the collateral
held
by the Fund is at least equal at all times to the total amount of the
repurchase
obligations, including interest. In the event of counterparty default, the
Fund
has
15
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the right to use the collateral to offset losses incurred. There is potential
loss to the Fund in the event that the Fund is delayed or prevented from
exercising its rights to dispose of the collateral securities, including the
risk of a possible decline in the value of the underlying securities during
the
period while the Fund seeks to assert its rights. The Fund's investment
adviser,
acting under the supervision of the Board of Trustees, reviews the value of
the
collateral and the credit-worthiness of those banks and dealers with which the
Fund enters into repurchase agreements to evaluate potential risks.
Securities transactions and investment income: Securities transactions
are
recorded as of the trade date. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis (primarily from accretion of U.S. Treasury Notes).
Dividends and distributions to shareholders: Dividends from net
investment
income and distributions of net realized capital gains of the Fund, if any,
will
be distributed annually after the close of the fiscal year in which they are
earned. In addition, in order to avoid the application of a 4% nondeductible
excise tax on certain undistributed amounts of ordinary income and capital
gains, the Fund may make an additional distribution of any undistributed
ordinary income or capital gains shortly before December 31st of each year,
and
expects to pay any other dividends and distributions as are necessary to avoid
the application of this tax. Income distributions and capital gain
distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of
distributions
made by the Fund as a whole.
Federal income taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code of 1986, as amended, applicable to
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax provision
is required.
Reclassifications: During the current period, the Fund adopted Statement
of
Position 93-2 "Determination, Disclosure and Financial Statement Presentation
of
Income, Capital Gain, and Return of Capital Distributions by Investment
16
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Companies." Accordingly, certain reclassifications have been made to the
components of capital in the Statement of Net Assets to conform with the
accounting and reporting guidelines of this statement. Distributions in excess
of book basis accumulated realized gains or undistributed net investment
income
that were the result of permanent book and tax accounting differences have
been
reclassified to paid-in capital. Accordingly, amounts as of November 30, 1992
have been restated to reflect a decrease in accumulated net realized gains of
$682,498, an increase in undistributed net investment income of $570,719 and
an
increase in paid-in capital of $111,779. The Statement of Changes in Net
Assets
and Financial Highlights for prior periods have not been restated to reflect
this change in presentation. Net investment income, net realized gains, and
net
assets on a book and tax basis were not affected by this change.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS
Up to the close of business on July 30, 1993, the Trust had entered into
an
investment advisory agreement (the "Advisory Agreement") with Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers") on behalf of Shearson Asset
Management ("Asset Management"), a member of the Asset Management Group of
Shearson Lehman Brothers. Under the Advisory Agreement, the Fund paid a
monthly
fee at the annual rate of .30% of the value of its average daily net assets.
As of the close of business on July 30, 1993, The Travelers Inc. (which
at
the time was known as Primerica Corporation ("Travelers") and Smith Barney,
Harris Upham & Co. Incorporated completed the acquisition of substantially all
of the domestic retail brokerage and asset management businesses of Shearson
Lehman Brothers and Smith Barney, Harris Upham & Co. Incorporated was renamed
Smith Barney Shearson Inc. ("Smith Barney Shearson").
As of the close of business on July 30, 1993, Smith Barney Shearson Asset
Management, a division of Smith, Barney Advisers, Inc., which is controlled by
Smith Barney Shearson Holdings Inc. ("Holdings"), succeeded Shearson Asset
Management as the Fund's investment adviser. Holdings is a wholly owned
subsidiary of Travelers. The new investment advisory agreement with Smith
Barney
Shearson Asset Management (the "Advisory Agreement") contains terms and
conditions substantially similar to the investment advisory agreement with
17
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the predecessor investment adviser and provides for the payment of fees at the
same rate as was paid to such predecessor investment adviser.
The Trust has also entered into an administration agreement (the
"Administration Agreement") dated May 21, 1993, with The Boston Company
Advisors, Inc. ("Boston Advisors"), an indirect wholly owned subsidiary of
Mellon Bank Corporation ("Mellon"). Under the Administration Agreement, the
Fund
pays a monthly fee at the annual rate of .20% of the value of its average
daily
net assets. Prior to May 21, 1993, Boston Advisors served as sub-investment
adviser and administrator to the Fund.
For the year ended November 30, 1993, the Fund incurred total brokerage
commissions of $56,490 of which $7,080 was paid to Smith Barney Shearson.
No officer, director or employee of Smith Barney Shearson, Boston
Advisors
or any parent or subsidiary of those corporations receives any compensation
from
the Trust for serving as a Trustee or officer of the Trust. The Trust pays
each
Trustee who is not an officer, director or employee of Smith Barney Shearson,
Boston Advisors or any of their affiliates $2,000 per annum plus $500 per
meeting attended and reimburses each Trustee for travel and out-of-pocket
expenses.
Boston Safe Deposit and Trust Company ("Boston Safe"), an indirect wholly
owned subsidiary of Mellon, serves as the Fund's custodian. The Shareholder
Services Group, Inc., a subsidiary of First Data Corporation, serves as the
Trust's transfer agent.
3. PURCHASES AND SALES OF SECURITIES
Purchases and proceeds from sales of securities, excluding U.S.
government
securities and short-term investments, aggregated $19,577,039 and $32,496,648,
respectively, for the year ended November 30, 1993. There were no purchases of
long-term U.S. government securities for the year ended November 30, 1993.
Proceeds from sales of long-term U.S. government securities aggregated
$13,394,930 for the year ended November 30, 1993.
At November 30, 1993, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$15,099,838,
and aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $249,802.
18
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
4. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest
of
the Fund with a par value of $.001 per share. The Fund, the Zeros and
Appreciation Series 1998, the Zeros Plus European Equities Series 1999 and the
Zeros Plus Emerging Growth Series 2000 each constitutes a sub-trust under the
Master Trust Agreement. Changes in shares of beneficial interest of the Fund
were as follows:
<CAPTION>
YEAR ENDED YEAR
ENDED
NOVEMBER 30, 1993 NOVEMBER
30, 1992
Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -----------
Issued as reinvestment of
dividends 960,816 $ 10,396,024 1,046,003
$11,464,205
Redeemed (2,281,849) (25,592,753) (1,866,243)
(20,965,039)
- ------------------------------------------------------------------------------
- -----------
Net decrease (1,321,033) $(15,196,729) (820,240)
$(9,500,834)
- ------------------------------------------------------------------------------
- -----------
</TABLE>
Shares of the Fund are not currently being offered for sale to new
investors, although the Fund, upon at least 30 days' notice to shareholders,
may
commence a continuous offering if the Board of Trustees determines it to be in
the best interests of the Fund and its shareholders.
5. ORGANIZATION COSTS
The Fund bears all costs in connection with its organization including
the
fees and expenses of registering and qualifying its shares for distribution
under Federal and state securities regulations. All such costs are being
amortized on the straight-line method over a period of five years from the
commencement of operations of the Fund. In the event that any of the initial
shares of the Fund are redeemed during such amortization period, the Fund will
be reimbursed for any unamortized costs in the same proportion as the number
of
shares redeemed bears to the number of initial shares outstanding at the time
of
redemption.
6. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million
line
of credit provided by Continental Bank N.A. under an Amended and Restated Line
of Credit Agreement (the "Agreement") dated April 30, 1992, primarily for
temporary or emergency purposes, including the meeting of redemption requests
that otherwise might require the untimely disposition of securities. Under
this
Agreement, the Fund may borrow up to the lesser of $25 million or 20% of its
19
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
net assets. Interest is payable either at the bank's Money Market Rate or the
London Interbank Offered Rate (LIBOR) plus .375% on an annualized basis. The
Fund and the other affiliated entities are charged an aggregate commitment fee
of $125,000 which is allocated equally among each of the participants. The
Agreement requires, among other provisions, each participating fund to
maintain
a ratio of net assets (not including funds borrowed pursuant to the Agreement)
to aggregate amount of indebtedness pursuant to the Agreement of no less than
5
to 1. During the year ended November 30, 1993, the Fund had an average
outstanding daily balance of $76,438 with interest rates ranging from 3.3125%
to
4.375%. Interest expense totalled $2,752 for the year ended November 30, 1993.
At November 30, 1993 the Fund had no outstanding borrowings under this
Agreement.
20
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
- ------------------------------------------------------------------------------
- --
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND:
We have audited the accompanying statement of assets and liabilities of
the
Zeros and Appreciation Series 1996 of Smith Barney Shearson Principal Return
Fund, including the schedule of portfolio investments, as of November 30,
1993,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended,
and
the financial highlights for each of the four years in the period then ended
and
for the period from January 16, 1989 (commencement of operations) to November
30, 1989. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1993 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred
to above present fairly, in all material respects, the financial position of
the
Zeros and Appreciation Series 1996 of Smith Barney Shearson Principal Return
Fund as of November 30, 1993, the results of operations for the year then
ended,
the changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the four years in the period then
ended
and for the period from January 16, 1989 (commencement of operations) to
November 30, 1989, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND
Boston, Massachusetts
January 7, 1994
21
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
- ------------------------------------------------------------------------------
- --
TAX INFORMATION (UNAUDITED)
Of the distributions made by the Fund, during the fiscal year ended
November 30, 1993, 15.34% qualify for the dividends-received deduction
available
to corporate shareholders.
The amount of long-term capital gain paid for the fiscal year ended
November 30, 1993 was $3,896,983 for the Fund.
22
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1996
TRUSTEES
Paul R. Ades
Herbert Barg
Allan R. Johnson
Heath B. McLendon
Ken Miller
John F. White
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT
Harry D. Cohen
VICE PRESIDENT AND
INVESTMENT OFFICER
Harold L. Williamson, Jr.
VICE PRESIDENT AND
INVESTMENT OFFICER
Susan C. Fulenwider
VICE PRESIDENT AND
INVESTMENT OFFICER
Vincent Nave
TREASURER
Francis J. McNamara, III
SECRETARY
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Smith Barney Shearson
Asset Management
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
23
<PAGE>
THE SMITH 1. PERSONAL SERVICE The Smith Barney
BARNEY SHEARSON Shearson Financial Consultant (FC) is
APPROACH TO highly trained and deeply committed to
MUTUAL FUND client service. Your FC works with you
INVESTING to establish a relationship based on
one-to-one communication and the
highest standards of quality.
2. ANALYZING YOUR NEEDS Defining your
needs and establishing specific goals
is the first step toward any successful
investment program. The Smith Barney
Shearson Strategic Asset Allocator - a
sophisticated financial planning tool -
can help you and your Financial
Consultant evaluate your resources and
objectives. This groundwork then
becomes the basis for a strategy
designed specifically for you. Your FC
can use the Strategic Asset Allocator
on a periodic basis to ensure that your
investment strategy is keeping pace
with your changing needs and goals.
3. A UNIQUE MUTUAL FUND INVESTMENT
PROGRAM Your Smith Barney Shearson
Financial Consultant offers a number of
mutual fund assessment tools that are
unmatched in the financial services
industry. Smith Barney Shearson FCs
have access to a proprietary mutual
fund research database that provides
information at their fingertips on more
than 2,100 funds. In addition, working
with a proprietary system known as the
Mutual Fund Evaluation Service, your FC
can help guide you through the complex
mutual fund maze.
Specifically, the Evaluation Service
can provide a clear picture of the past
performance of mutual funds you currently
own. Presented in both graphic and
numerical form, this illustration provides
a
wealth of easily understood data on
more than 2,100 funds. This complimentary
service allows you to judge whether
your mutual funds has helped meet
your investment needs.
25
<PAGE>
4. LOOKING AHEAD Selecting a mutual
fund should not be a one-event process
that ends with the purchase of shares.
You can count on the expertise of your
Financial Consultant as he or she
continues to monitor and evaluate your
funds, to suggest new strategies and to
listen. That, in our opinion, is how to
use mutual funds to help achieve your
financial goals.
26
<PAGE>
- ------------------------------------------------------------------------------
- --
THIS REPORT IS SUBMITTED FOR
THE GENERAL INFORMATION OF THE
SHAREHOLDERS OF THE SMITH BARNEY
SHEARSON PRINCIPAL RETURN FUND --
ZEROS AND APPRECIATION SERIES 1996.
IT IS NOT A PROSPECTUS, CIRCULAR OR
REPRESENTATION INTENDED FOR USE IN
THE PURCHASE OR SALE OF SHARES OF
THE FUND OR OF ANY SECURITIES
MENTIONED IN THE REPORT.
SMITH BARNEY SHEARSON
PRINCIPAL RETURN
FUND --
ZEROS AND
APPRECIATION
SERIES 1996
Two World Trade Center
New York, New York 10048
Fund 123
FD0304 A4
<PAGE>
- ------------------------------------------------------------------------------
- --
ANNUAL REPORT November 30, 1993
SMITH BARNEY SHEARSON
Principal
Return
Fund --
Zeros and
Appreciation
Series 1998
[LOGO]
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
DEAR SHAREHOLDER:
We are pleased to be reporting to you, our shareholders, at the end of
another fiscal year. As we had hoped at the inception of this Fund, the
combination of zero coupon United States Treasury notes and a managed
portfolio
of our favorite stocks has provided consistent returns with excellent downside
protection. For the fiscal year ended November 30, 1993, the Fund's total
return
was 9.99%. This compares to returns of the Standard & Poor's Daily Price Index
of 500 Common Stocks ("S&P 500") (an unmanaged index which tracks the movement
of common stock prices) of 10.9% and Lehman Brothers Intermediate Term
Government Bond Index (an unmanaged index comprised of all publicly issued
non-convertible debt of the U.S. Government or any agency thereof, quasi-
federal
corporations, and corporate debt guaranteed by the U.S. Government with a
maturity of between one and ten years) of 9.13%. Since the Fund's inception on
January 25, 1991, an original investment of $10,000 has grown from $9,500 to
$13,033 representing an average annual total return of 9.74%. These
performance
figures represent the total of the dividend and interest income from the
Fund's
investments, as well as the appreciation of the stocks and zero coupon bonds
held in the portfolio.
Since our last letter to you, the financial markets have continued to
inch
ahead, fueled as much by the diversion of funds from maturing certificates of
deposit into stocks as from an improving economy. Interestingly, the flow of
new
money into mutual funds is being matched, almost dollar for dollar, by an
increasing supply of new equity offerings. With no net inflows, the volatility
of stocks and groups within the overall market has increased dramatically, as
money managers try to either catch the newest hot, or avoid the disappointing,
areas.
Our investment philosophy has always been to own a core of growth
companies
and build certain themes around that core. This year the themes we have
highlighted, such as "Telecommunications in the 1990's," entertainment and
entertainment software, and "restructuring" stocks are working well. On the
other hand, stocks of the growth companies have struggled for most of the year
although their performance has improved recently. More importantly, it has
been
our observation over the years that fashions may move out of vogue in this
business, but history has shown that the scientific way to lose money is to
try
to chase those stocks that are currently in vogue, while ignoring the sound
investments that might be temporarily out of favor. We think that through
these
core holdings and themes we have a portfolio of good values in the Fund which
Continued
1
<PAGE>
will help us to continue to meet our goal of earning consistent and positive
returns for you.
Over the past six months, we have increased our holdings in some of our
attractive themes by initiating positions in Comcast, a company with broad
operations in cable and telephones; NYNEX; Bell Atlantic; and Grupo Televisa,
the largest producer of Spanish language programming in the world. We also
rebuilt a position in Merck, a core holding that has come down to attractive
levels because of health-care reform. Finally, we continued to emphasize our
retail holdings by initiating a position in JC Penney in order to capitalize
on
its revitalized operations, the attractiveness and success of their new
private
label merchandise, and the strength and continued growth of their catalogue
operations.
Sales in the Fund resulted from both eliminations of positions and
rebalancing of the portfolio. Partial profits were realized in Avon, Mobil,
Royal Dutch, AT&T, Pepsi and Chemical Bank as stock appreciation had created
outsized holdings in the Fund. Full eliminations included Apple Computer
following its disappointing earnings forecast and Waste Management due to its
prolonged pricing difficulties.
While the economy has recently shown signs of improvement, particularly
in
housing and auto sales, job creation remains a problem. Many of the companies
in
the portfolio have taken steps to reduce costs, so that any improvement in
volume will result in better earnings. The dilemma for the economy, however,
is
that a lot of the cost-cutting is in the form of layoffs, early retirements,
or
hiring freezes. In such a fragile recovery, we believe the approach of owning
quality companies and proven managements remains valid.
Thank you for your continued support of the Principal Return Fund --
Zeros
and Appreciation Series 1998.
<TABLE>
Sincerely,
<S> <C> <C>
/s/Heath B. McLendon /s/Harry D. Cohen /s/Harold L. Williamson, Jr.
Heath B. McLendon Harry D. Cohen Harold L. Williamson, Jr.
Chairman of the Board Vice President and Vice President and
Investment Officer Investment Officer
</TABLE>
January 17, 1994
2
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
- ------------------------------------------------------------------------------
- --
PORTFOLIO HIGHLIGHTS NOVEMBER 30, 1993 (UNAUDITED)
<TABLE>
PORTFOLIO ALLOCATION
DESCRIPTION OF PIE CHARTS IN SHAREHOLDER REPORT
Industry Breakdown
Pie chart depicting the allocation of the Principal Return Fund (Zeros and
Appreciation Series 1988) investment
securities held at November 30, 1993 by industry classification. The pie is
broken in pieces representing
industries in the following percentages:
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Commercial Paper and Net Other
Assets and Liabilities 1.4%
U.S. Treasury Notes 60.3%
Common Stocks 38.3%
</TABLE>
<TABLE>
TOP TEN COMMON STOCK HOLDINGS
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
- ---------------------------------------------------------------------------
UNUM CORPORATION 1.3%
PEPSICO, INC. 1.2
MINNESOTA MINING AND MANUFACTURING COMPANY 1.2
EASTMAN KODAK COMPANY 1.1
XEROX CORPORATION 1.0
DISNEY (WALT) COMPANY 0.8
AMERICAN TELEPHONE & TELEGRAPH COMPANY 0.8
SEARS ROEBUCK & COMPANY 0.8
ITT CORPORATION 0.8
CHRYSLER CORPORATION 0.8
</TABLE>
3
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------
- --
HISTORICAL PERFORMANCE
<CAPTION>
YEAR ENDED NET ASSET VALUE CAPITAL GAINS DIVIDENDS
TOTAL
NOVEMBER 30, BEGINNING ENDING DISTRIBUTED PAID
RETURN**
<S> <C> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- ------------
1/25/91* - $7.60 $8.40 -- --
10.53%
11/30/91
- ------------------------------------------------------------------------------
- ------------
1992 8.40 9.02 -- $0.43
12.86
- ------------------------------------------------------------------------------
- ------------
1993 9.02 9.38 $0.09 0.41
9.99
- ------------------------------------------------------------------------------
- ------------
TOTAL $0.09 $0.84
- ------------------------------------------------------------------------------
- ------------
CUMULATIVE TOTAL RETURN (1/25/91 THROUGH 11/30/93)
37.19%
- ------------------------------------------------------------------------------
- ------------
<FN>
* The Fund commenced operations on January 25, 1991.
** Figures assume reinvestment of all dividends and capital gain
distributions at net asset value and do not reflect deduction of the
applicable front-end sales charge.
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS ANNUALLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
<TABLE>
AVERAGE ANNUAL TOTAL RETURN***
<CAPTION>
WITHOUT SALES CHARGE WITH SALES
CHARGE
<S> <C> <C>
- ------------------------------------------------------------------------------
- -
YEAR ENDED 11/30/93 9.99%
4.49%
- ------------------------------------------------------------------------------
- -
INCEPTION 1/25/91 THROUGH 11/30/93 11.74%
9.74%
- ------------------------------------------------------------------------------
- -
<FN>
*** All average annual total return figures shown reflect reinvestment of
dividends and capital gains at net asset value. Average annual total
return figures shown for the period from inception (January 25, 1991)
through November 30, 1993 reflect deduction of the maximum 5% front-end
sales charge.
</TABLE>
4
<PAGE>
<TABLE>
GROWTH OF $10,000 INVESTED IN SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND
-- ZEROS AND APPRECIATION SERIES 1998 VS. UNMANAGED INDICES
JANUARY 25, 1991-NOVEMBER 30, 1993
DESCRIPTION OF MOUNTAIN CHART IN SEARSON COVERS
A line graph depicting the total growth (including reinvestment of dividends
and capital gains) of a hypothetical
investment of $10,000 in Principal Return Fund (Zeros and Appreciation Series
1988) shares on January 25,
1991 through November 30, 1993 as compared with the growth of a $10,000
investment in the Standard &
Poor's 500 Index and the Lehman Brothers Intermediate Term Government Bond
Index. The plot points used to
draw the line graph were as follows:
<CAPTION>
GROWTH OF $10,000
INVESTMENT IN THE
GROWTH OF $10,000
LEHMAN BROTHERS
GROWTH OF $10,000 INVESTMENT IN THE
INTERMEDIATE TERM
INVESTED IN SHARES STANDARD & POOR'S
GOVERNMENT BOND
MONTH ENDED OF THE FUND 500 INDEX
INDEX
<S> <C> <C>
<C>
1/25/91 $ 9,500 -
- -
01/91 $ 9,550 $10,000
$10,000
02/91 $ 9,738 $10,714
$10,061
03/91 $ 9,763 $10,973
$10,116
06/91 $ 9,825 $10,947
$10,286
09/91 $10,463 $11,531
$10,775
12/91 $11,233 $12,497
$11,293
03/92 $10,799 $12,182
$11,174
06/92 $11,167 $12,413
$11,608
09/92 $11,850 $12,805
$12,116
12/92 $11,991 $13,448
$12,075
03/93 $12,533 $14,034
$12,527
06/93 $12,700 $14,101
$12,773
09/93 $13,033 $14,465
$13,043
11/93 $13,033 $14,623
$13,010
<FN>
+ Hypothetical illustration of $10,000 invested at inception on January 25,
1991
through November 30, 1993 assuming deduction of the maximum 5% sales charge
at
the time of investment and reinvestment of dividends and capital gains at
Net
Asset Value through November 30, 1993.
</TABLE>
The Lehman Brothers Intermediate Term Government Bond Index is comprised of
all publicly issued, non-convertible debt of the U.S. government or any
agency
thereof, quasi-federal corporations, and corporate debt guaranteed by the
U.S.
government with a maturity of between one and ten years.
The S&P 500 is an index composed of 500 widely held common stocks listed on
the New York Stock Exchange, American Stock Exchange and over-the-counter
market.
This period was one in which common stock prices fluctuated and the results
should not be considered as a representation of the dividend income or
capital
gain or loss which may be realized from an investment in the Fund today. No
adjustment has been made for shareholders' tax liability on dividends or
capital gains.
NOTE: All figures cited here and on the following pages represent past
performance of the Fund and do not guarantee future results.
5
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
<TABLE>
- ------------------------------------------------------------------------------
- --
PORTFOLIO OF INVESTMENTS NOVEMBER 30,
1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
---------------------------------------------------------------------------
- ----------
COMMON STOCKS - 38.3%
<C> <S>
<C>
CONSUMER SERVICES - 7.5%
1,500 CBS, Inc. $
462,375
12,000 Comcast Corporation, Class A
408,000
28,000 Disney (Walt) Company
1,113,000
25,000 Donnelly (RR) & Sons
718,750
7,000 Gannett, Company
389,375
3,500 Grupo Televisa
206,500
8,000 Harcourt General, Inc.
326,000
20,000 Home Depot, Inc.
827,500
5,500 Penney (J.C.), Inc.
293,563
3,500 QVC Network, Inc.+
162,750
15,000 Reader's Digest Association, Inc., Class A
643,125
20,000 Sears Roebuck & Company
1,087,500
22,000 Tele-Communications, Inc., Class A+
662,750
20,000 Time Warner, Inc.
882,500
20,000 Toys "R" Us+
815,000
6,000 Tribune Company
334,500
1,500 Viacom Inc., Class B+
66,188
30,000 Wal-Mart Stores, Inc.
858,750
---------------------------------------------------------------------------
- ----------
10,258,126
---------------------------------------------------------------------------
- ----------
FINANCIAL SERVICES - 6.0%
10,000 Aetna Life & Casualty Company
611,250
6,000 Allstate Corporation
177,000
4,500 American International Group, Inc.
387,563
6,000 Bank of New York, Inc.
333,000
9,000 Barnett Banks, Inc.
371,250
6,000 Chase Manhattan Corporation
201,000
20,000 Chemical Banking Corporation
770,000
3,000 Chubb Corporation
241,500
7,000 CIGNA Corporation
442,750
20,000 Citicorp+
710,000
9,000 Federal National Mortgage Association
679,500
7,000 NationsBank Corporation
329,875
10,000 Republic New York Corporation
456,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
<TABLE>
- ------------------------------------------------------------------------------
- --
PORTFOLIO OF INVESTMENTS (CONTINUED) NOVEMBER 30,
1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C> <S>
<C>
---------------------------------------------------------------------------
- ----------
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
7,000 Society Corporation $
201,250
35,000 UNUM Corporation
1,723,750
5,000 Wells Fargo & Company
588,750
---------------------------------------------------------------------------
- ----------
8,224,688
---------------------------------------------------------------------------
- ----------
CONSUMER NON-DURABLES - 3.7%
14,000 Avon Products, Inc.
698,250
18,000 Crown Cork & Seal+
711,000
14,000 Gillette Company
875,000
5,000 International Flavors & Fragrances, Inc.
547,500
14,000 Newell Company
563,500
40,000 PepsiCo, Inc.
1,610,000
---------------------------------------------------------------------------
- ----------
5,005,250
---------------------------------------------------------------------------
- ----------
ENERGY - 3.6%
8,000 Amerada Hess Corporation
373,000
9,000 Burlington Resources, Inc.
405,000
13,000 Exxon Corporation
815,750
10,000 Mobil Corporation
762,500
10,000 Royal Dutch Petroleum
1,010,000
11,000 Schlumberger Ltd.
632,500
15,000 Texaco, Inc.
963,750
---------------------------------------------------------------------------
- ----------
4,962,500
---------------------------------------------------------------------------
- ----------
DIVERSIFIED CONGLOMERATES - 3.4%
25,000 Eastman Kodak Company
1,521,875
12,000 ITT Corporation
1,068,000
14,500 Minnesota Mining and Manufacturing Company
1,580,500
9,500 Tenneco, Inc.
457,188
---------------------------------------------------------------------------
- ----------
4,627,563
---------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
<TABLE>
- ------------------------------------------------------------------------------
- --
PORTFOLIO OF INVESTMENTS (CONTINUED) NOVEMBER 30,
1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C> <S>
<C>
---------------------------------------------------------------------------
- ----------
COMMON STOCKS (CONTINUED)
CAPITAL GOODS - 3.3%
12,000 AlliedSignal, Inc. $
853,500
4,500 AMP Inc.
262,125
2,000 Caterpillar Inc.
170,500
20,000 Cooper Industries, Inc.
1,012,500
7,000 Emerson Electric Company
395,500
10,000 General Electric Company
982,500
9,000 Ingersoll-Rand Company
344,250
9,000 United Technologies Corporation
556,875
---------------------------------------------------------------------------
- ----------
4,577,750
---------------------------------------------------------------------------
- ----------
TECHNOLOGY - 3.0%
13,000 Intel Corporation
799,500
12,000 Microsoft Corporation+
960,000
25,000 Pitney Bowes, Inc.
1,050,000
16,500 Xerox Corporation
1,361,250
---------------------------------------------------------------------------
- ----------
4,170,750
---------------------------------------------------------------------------
- ----------
CONSUMER DURABLES - 2.1%
20,000 Chrysler Corporation
1,055,000
8,000 Ford Motor Company
486,000
14,000 General Motors Corporation
740,248
8,000 Goodyear Tire & Rubber Company
356,000
7,000 Pep Boys-Manny, Moe & Jack
180,250
---------------------------------------------------------------------------
- ----------
2,817,498
---------------------------------------------------------------------------
- ----------
HEALTH CARE - 2.0%
6,000 Bristol-Meyers Squibb
359,250
17,000 Johnson & Johnson
741,625
10,000 Merck & Company, Inc.
342,500
15,000 Pfizer, Inc.
997,500
3,000 Schering-Plough Corporation
200,625
---------------------------------------------------------------------------
- ----------
2,641,500
---------------------------------------------------------------------------
- ----------
BASIC INDUSTRIES - 1.7%
22,000 duPont (E.I.) deNemours & Company
1,047,750
10,000 International Paper Company
667,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
<TABLE>
- ------------------------------------------------------------------------------
- ----------
PORTFOLIO OF INVESTMENTS (CONTINUED) NOVEMBER 30,
1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C> <S> <C>
- ------------------------------------------------------------------------------
- ----------
COMMON STOCKS (CONTINUED)
BASIC INDUSTRIES (CONTINUED)
12,000 Nalco Chemical Company $
448,500
10,000 Praxair, Inc.
161,250
- ------------------------------------------------------------------------------
- ----------
2,325,000
- ------------------------------------------------------------------------------
- ----------
UTILITIES - 1.3%
20,000 American Telephone & Telegraph Company
1,092,500
4,000 Bell Atlantic Corporation
240,000
10,000 NYNEX Corporation
426,250
- ------------------------------------------------------------------------------
- ----------
1,758,750
- ------------------------------------------------------------------------------
- ----------
TRANSPORTATION - 0.7%
6,000 CSX Corporation
498,000
7,000 Union Pacific Corporation
444,500
- ------------------------------------------------------------------------------
- ----------
942,500
- ------------------------------------------------------------------------------
- ----------
TOTAL COMMON STOCKS (Cost $41,900,314)
52,311,875
- ------------------------------------------------------------------------------
- ----------
</TABLE>
<TABLE>
<CAPTION>
FACE
VALUE
<C> <S>
<C>
- ------------------------------------------------------------------------------
- ----------
U.S. TREASURY NOTES - 60.3% (Cost $72,097,983)
$105,000,000 U.S. Treasury Notes - Strips, Zero Coupon due 8/15/98++
82,353,589
- ------------------------------------------------------------------------------
- ----------
COMMERCIAL PAPER - 1.3% (Cost $1,828,000)
1,828,000 General Electric, 3.15% due 12/1/93
1,828,000
- ------------------------------------------------------------------------------
- ----------
TOTAL INVESTMENTS (Cost $115,826,297*) 99.9%
136,493,464
OTHER ASSETS AND LIABILITIES (NET) 0.1
82,299
- ------------------------------------------------------------------------------
- ----------
NET ASSETS 100.0%
$136,575,763
- ------------------------------------------------------------------------------
- ----------
<FN>
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
++ Effective yield is 8.056% (unaudited).
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
<TABLE>
- ------------------------------------------------------------------------------
- --
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30,
1993
<S> <C>
<C>
ASSETS:
Investments, at value (Cost $115,826,297) (Note 1)
See accompanying schedule
$136,493,464
Cash
440
Receivable for investments sold
664,948
Dividends and interest receivable
170,261
Unamortized organization costs (Note 5)
51,528
- ------------------------------------------------------------------------------
- ----------
TOTAL ASSETS
137,380,641
- ------------------------------------------------------------------------------
- ----------
LIABILITIES:
Payable for investments purchased $539,885
Payable for Fund shares redeemed 123,335
Investment advisory fee payable (Note 2) 34,048
Shareholder servicing fees payable (Note 2) 28,373
Administration fee payable (Note 2) 22,699
Transfer agent fees payable (Note 2) 15,206
Custodian fees payable (Note 2) 10,000
Accrued expenses and other payables 31,332
- ------------------------------------------------------------------------------
- ----------
TOTAL LIABILITIES
804,878
- ------------------------------------------------------------------------------
- ----------
NET ASSETS
$136,575,763
- ------------------------------------------------------------------------------
- ----------
NET ASSETS CONSIST OF:
Undistributed net investment income $
6,371,220
Accumulated net realized gain on investments sold
12,854,126
Unrealized appreciation of investments
20,667,167
Par value
14,566
Paid-in capital in excess of par value
96,668,684
- ------------------------------------------------------------------------------
- ----------
TOTAL NET ASSETS
$136,575,763
- ------------------------------------------------------------------------------
- ----------
NET ASSET VALUE and redemption price per share
($136,575,763 / 14,566,412 shares of beneficial interest
outstanding)
$9.38
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
<TABLE>
- ------------------------------------------------------------------------------
- --
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1993
<S> <C>
<C>
INVESTMENT INCOME:
Interest $
6,552,844
Dividends
1,323,153
- ------------------------------------------------------------------------------
- ----------
TOTAL INVESTMENT INCOME
7,875,997
- ------------------------------------------------------------------------------
- ----------
EXPENSES:
Investment advisory fee (Note 2) $461,542
Shareholder servicing fees (Note 2) 384,618
Sub-investment advisory and administration fee (Note 2) 307,695
Transfer agent fees (Note 2) 204,089
Custodian fees (Note 2) 45,150
Legal and audit fees 34,013
Amortization of organization costs (Note 5) 23,959
Trustees' fees and expenses (Note 2) 8,796
Other 25,486
- ------------------------------------------------------------------------------
- ----------
TOTAL EXPENSES
1,495,348
- ------------------------------------------------------------------------------
- ----------
NET INVESTMENT INCOME
6,380,649
- ------------------------------------------------------------------------------
- ----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 3):
Net realized gain on investments during the year
12,854,126
Net unrealized depreciation of investments during the year
(4,191,417)
- ------------------------------------------------------------------------------
- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
8,662,709
- ------------------------------------------------------------------------------
- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$15,043,358
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
- ------------------------------------------------------------------------------
- --
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR
YEAR
ENDED
ENDED
11/30/93
11/30/92
<S> <C> <C>
Net investment income $ 6,380,649 $
7,967,886
Net realized gain on investments during the year 12,854,126
2,078,687
Net unrealized appreciation/(depreciation) of investments
during the year (4,191,417)
12,450,206
- ------------------------------------------------------------------------------
- ----------
Net increase in net assets resulting from operations 15,043,358
22,496,779
Distributions to shareholders from:
Net investment income (7,173,390)
(9,903,129)
Net realized gain on investments (1,915,783)
- --
Net decrease in net assets from Fund share transactions
(Note 4) (35,454,961)
(42,472,747)
- ------------------------------------------------------------------------------
- ----------
Net decrease in net assets (29,500,776)
(29,879,097)
NET ASSETS:
Beginning of year 166,076,539
195,955,636
- ------------------------------------------------------------------------------
- ----------
End of year (including undistributed net investment
income of $6,371,220 and $7,163,961, respectively) $136,575,763
$166,076,539
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
<TABLE>
- ------------------------------------------------------------------------------
- --
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
YEAR YEAR
PERIOD
ENDED ENDED
ENDED
11/30/93+ 11/30/92+
11/30/91*
<S> <C> <C>
<C>
Net asset value, beginning of year $ 9.02 $ 8.40
$ 7.60
- ------------------------------------------------------------------------------
- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.38 0.37
0.39
Net realized and unrealized gains on investments 0.48 0.68
0.41
- ------------------------------------------------------------------------------
- ----------
Total from investment operations 0.86 1.05
0.80
LESS DISTRIBUTIONS:
Distributions from net investment income (0.40) (0.43)
- --
Distributions from capital gains (0.10) --
- --
- ------------------------------------------------------------------------------
- ----------
Total distributions (0.50) (0.43)
0.00
- ------------------------------------------------------------------------------
- ----------
Net asset value, end of year $ 9.38 $ 9.02
$ 8.40
- ------------------------------------------------------------------------------
- ----------
Total return++ 9.99% 12.86%
10.53%
- ------------------------------------------------------------------------------
- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $136,576 $166,077
$195,956
Ratio of expenses to average net assets 0.97% 1.01%
1.05%**
Ratio of net income to average net assets 4.15% 4.39%
5.04%**
Portfolio turnover rate 17% 4%
20%
- ------------------------------------------------------------------------------
- ----------
<FN>
* The Fund commenced operations on January 25, 1991.
** Annualized.
+ The per share amounts have been calculated using the monthly average
shares
method, which more appropriately presents per share data for this year
since
use of the undistributed method did not accord with results of operations.
++ Total return represents aggregate total return for the periods indicated.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Principal Return Fund (the "Trust") was organized
on
October 18, 1988, under the laws of the Commonwealth of Massachusetts as a
"Massachusetts business trust." The Trust is a diversified, open-end
management
investment company registered with the Securities and Exchange Commission
under
the Investment Company Act of 1940, as amended. The Trust consists of four
series, the Zeros and Appreciation Series 1996, which commenced operations on
January 16, 1989, the Zeros and Appreciation Series 1998 which commenced
operations on January 25, 1991, the Zeros Plus Emerging Growth Series 2000,
which commenced operations on August 30, 1991 and the Zeros Plus European
Equities Series 1999 which has not yet commenced operations. The Zeros and
Appreciation Series 1998 (the "Fund") expects to terminate operations on
August
31, 1998. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
Portfolio valuation: Listed securities traded on a national securities
exchange are valued at the last reported sales price; securities traded in the
over-the-counter market and listed securities for which no sale was reported
are
valued at the bid price or, in the absence of a recent bid price, at the bid
equivalent as obtained from one or more of the major market makers in the
securities. Investments in U.S. government securities (other than short-term
securities) are valued at the quoted bid price in the over-the-counter market.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Board of Trustees determines that amortized cost reflects
the
fair value of those investments. Investments in securities for which market
quotations are not available are valued at fair value as determined in good
faith by the Board of Trustees.
Repurchase agreements: The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund
takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding
period.
This arrangement results in a fixed rate of return that is not subject to
market
fluctuations during the Fund's holding period. The value of the collateral
held
by the Fund is at least equal at all times to the total amount of the
repurchase
obligations, including interest. In the event of counterparty default, the
Fund
has
14
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the right to use the collateral to offset losses incurred. There is potential
loss to the Fund in the event that the Fund is delayed or prevented from
exercising its rights to dispose of the collateral securities, including the
risk of a possible decline in the value of the underlying securities during
the
period while the Fund seeks to assert its rights. The Fund's investment
adviser,
acting under the supervision of the Board of Trustees, reviews the value of
the
collateral and the creditworthiness of those banks and dealers with which the
Fund enters into repurchase agreements to evaluate potential risks.
Securities transactions and investment income: Securities transactions
are
recorded as of the trade date. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis (primarily from accretion of U.S. Treasury Notes).
Dividends and distributions to shareholders: Dividends from net
investment
income of the Fund and distributions of net realized capital gains of the
Fund,
if any, will be distributed annually after the close of the fiscal year in
which
they are earned. In addition, in order to avoid the application of a 4%
nondeductible excise tax on certain undistributed amounts of ordinary income
and
capital gains, the Fund may make an additional distribution of any
undistributed
ordinary income or capital gains shortly before December 31st of each year,
and
expects to pay any other dividends and distributions as are necessary to avoid
the application of this tax. Income distributions and capital gain
distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of
distributions
made by the Fund as a whole.
Federal income taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code of 1986, as amended, applicable to
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax provision
is required.
15
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS
Up to the close of business on July 30, 1993, the Trust had entered into
an
investment advisory agreement (the "Advisory Agreement") with Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers") on behalf of Shearson Asset
Management ("Asset Management"), a member of the Asset Management Group of
Shearson Lehman Brothers. Under the Advisory Agreement, the Fund paid a
monthly
fee at the annual rate of .30% of the value of its average daily net assets.
As of the close of business on July 30, 1993, The Travelers Inc. (which
at
the time was known as Primerica Corporation) ("Travelers") and Smith Barney,
Harris Upham & Co. Incorporated completed the acquisition of substantially all
of the domestic retail brokerage and asset management businesses of Shearson
Lehman Brothers and Smith Barney, Harris Upham & Co. Incorporated was renamed
Smith Barney Shearson Inc. ("Smith Barney Shearson").
As of the close of business on July 30, 1993, Smith Barney Shearson Asset
Management, a division of Smith, Barney Advisers, Inc., which is controlled by
Smith Barney Shearson Holdings Inc. ("Holdings"), succeeded Shearson Asset
Management as the Fund's investment adviser. Holdings is a wholly owned
subsidiary of Travelers. The new investment advisory agreement with Smith
Barney
Shearson Asset Management (the "Advisory Agreement") contains terms and
conditions substantially similar to the investment advisory agreement with the
predecessor investment adviser and provides for the payment of fees at the
same
rates as were paid to such predecessor investment adviser.
The Trust has also entered into an administration agreement (the
"Administration Agreement") dated May 21, 1993, with The Boston Company
Advisors, Inc. ("Boston Advisors"), an indirect wholly owned subsidiary of
Mellon Bank Corporation. Under the Administration Agreement, the Fund pays a
monthly fee at the annual rate of .20% of the value of its average daily net
assets. Prior to May 21, 1993, Boston Advisors served as Sub-Investment
Advisor
and Administrator to the Trust and received 20% of the value of the Fund's
average daily net assets for its services.
Smith Barney Shearson serves as shareholder servicing agent and is paid
an
annual fee at the rate of .25% of the value of the Fund's average daily net
assets for certain activities not provided by the Fund's transfer agent. For
the
year
16
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ended November 30, 1993, the Fund incurred $384,618 in shareholder servicing
fees.
For the year ended November 30, 1993, the Fund incurred total brokerage
commissions of $82,248 of which $11,268 was paid to Smith Barney Shearson.
No officer, director or employee of Smith Barney Shearson, Boston
Advisors
or any parent or subsidiary of those corporations receives any compensation
from
the Trust for serving as a Trustee or officer of the Trust. The Trust pays
each
Trustee who is not an officer, director or employee of Smith Barney Shearson,
Boston Advisors, or any of their affiliates $2,000 per annum plus $500 per
meeting attended and reimburses each Trustee for travel and out-of-pocket
expenses.
Boston Safe Deposit and Trust Company ("Boston Safe"), an indirect wholly
owned subsidiary of Mellon Bank Corporation, serves as the Fund's custodian.
The
Shareholder Services Group, Inc., a subsidiary of First Data Corporation,
serves
as the Trust's transfer agent.
3. PURCHASES AND SALES OF SECURITIES
Purchases and proceeds from sales of securities, excluding U.S.
government
securities and short-term investments, aggregated $26,316,594 and $44,965,532,
respectively, for the year ended November 30, 1993. There were no purchases of
U.S. government securities for the year ended November 30, 1993. Proceeds from
sales of U.S. government securities aggregated $26,590,990 for the year ended
November 30, 1993.
At November 30, 1993, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $21,070,205
and aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $403,038.
17
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
4. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest
of
the Fund with a par value of $.001 per share. The Fund, the Zeros and
Appreciation Series 1996, the Zeros Plus European Equities Series 1999 and the
Zeros Plus Emerging Growth Series 2000 each constitutes a sub-trust under the
Master Trust Agreement. Changes in shares of beneficial interest of the Fund
were as follows:
<CAPTION>
YEAR ENDED YEAR
ENDED
NOVEMBER 30, 1993 NOVEMBER
30, 1992
Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- ------------
Issued as reinvestment of
dividends 1,039,356 $ 9,021,620 1,167,293 $
9,840,290
Redeemed (4,880,410) (44,476,581) (6,099,566)
(52,313,037)
- ------------------------------------------------------------------------------
- ------------
Net decrease (3,841,054) $(35,454,961) (4,932,273)
$(42,472,747)
- ------------------------------------------------------------------------------
- ------------
</TABLE>
Shares of the Fund are not currently being offered for sale to new
investors, although the Fund, upon at least 30 days' notice to shareholders,
may
commence a continuous offering if the Board of Trustees determines it to be in
the best interests of the Fund and its shareholders.
5. ORGANIZATION COSTS
The Fund bears all costs in connection with its organization including
the
fees and expenses of registering and qualifying its shares for distribution
under Federal and state securities regulations. All such costs are being
amortized on the straight-line method over a period of five years from the
commencement of operations of the Fund. In the event that any of the initial
shares of the Fund are redeemed during such amortization period, the Fund will
be reimbursed for any unamortized costs in the same proportion as the number
of
shares redeemed bears to the number of initial shares outstanding at the time
of
redemption.
6. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million
line
of credit provided by Continental Bank N.A. under an Amended and Restated Line
of Credit Agreement (the "Agreement") dated April 30, 1992, primarily for
temporary or emergency purposes, including the meeting of redemption requests
that otherwise might require the untimely disposition of securities. Under
this
18
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Agreement, the Fund may borrow up to the lesser of $25 million or 20% of its
net
assets. Interest is payable either at the bank's Money Market Rate or the
London
Interbank Offered Rate (LIBOR) plus .375% on an annualized basis. The Fund and
the other affiliated entities are charged an aggregate commitment fee of
$125,000 which is allocated equally among each of the participants. The
Agreement requires, among other provisions, each participating fund to
maintain
a ratio of net assets (not including funds borrowed pursuant to the Agreement)
to aggregate amount of indebtedness pursuant to the Agreement of no less than
5
to 1. During the year ended November 30, 1993, the Fund had an average
outstanding daily balance of $51,507 with interest rates ranging from 3.3125%
to
4.0625%. Interest expense totalled $1,834 which has been included in other
expenses on the Statement of Operations for the year ended November 30, 1993.
At
November 30, 1993, the Fund had no outstanding borrowings under this
Agreement.
19
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
- ------------------------------------------------------------------------------
- --
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND:
We have audited the accompanying statement of assets and liabilities of
the
Zeros and Appreciation Series 1998 of Smith Barney Shearson Principal Return
Fund, including the schedule of portfolio investments, as of November 30,
1993,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended,
and
the financial highlights for each of the two years then ended and for the
period
from January 25, 1991 (commencement of operations) to November 30, 1991. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1993 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred
to above present fairly, in all material respects, the financial position of
the
Zeros and Appreciation Series 1998 of Smith Barney Shearson Principal Return
Fund as of November 30, 1993, the results of operations for the year then
ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the two years in the period
then
ended and for the period from January 25, 1991 (commencement of operations) to
November 30, 1991, in conformity with generally accepted accounting
principles.
Coopers & Lybrand
Boston, Massachusetts
January 7, 1994
20
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
- ------------------------------------------------------------------------------
- --
TAX INFORMATION (UNAUDITED)
Of the distributions made by the Fund, during the fiscal year ended
November 30, 1993, 15.85% qualify for the dividends-received deduction
available
to corporate shareholders.
The amount of long term capital gain paid for the fiscal year ended
November 30, 1993 was $1,915,783 for the Fund.
21
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 1998
TRUSTEES
Paul R. Ades
Herbert Barg
Allan R. Johnson
Heath B. McLendon
Ken Miller
John F. White
OFFICERS
Heath B. McLendon
Chairman of the Board
Stephen J. Treadway
President
Richard P. Roelofs
Executive Vice President
Harry D. Cohen
Vice President and
Investment Officer
Harold L. Williamson, Jr.
Vice President and
Investment Officer
Susan C. Fulenwider
Vice President and
Investment Officer
Vincent Nave
Treasurer
Francis J. McNamara, III
Secretary
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Smith Barney Shearson
Asset Management
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
22
<PAGE>
THE SMITH 1. PERSONAL SERVICE The Smith Barney
BARNEY SHEARSON Shearson Financial Consultant (FC) is
APPROACH TO highly trained and deeply committed to
MUTUAL FUND client service. Your FC works with you
INVESTING to establish a relationship based on
one-to-one communication and the
highest standards of quality.
2. ANALYZING YOUR NEEDS Defining your
needs and establishing specific goals
is the first step toward any successful
investment program. The Smith Barney
Shearson Strategic Asset Allocator - a
sophisticated financial planning tool -
can help you and your Financial
Consultant evaluate your resources and
objectives. This groundwork then
becomes the basis for a strategy
designed specifically for you. Your FC
can use the Strategic Asset Allocator
on a periodic basis to ensure that your
investment strategy is keeping pace
with your changing needs and goals.
3. A UNIQUE MUTUAL FUND INVESTMENT
PROGRAM Your Smith Barney Shearson
Financial Consultant offers a number of
mutual fund assessment tools that are
unmatched in the financial services
industry. Smith Barney Shearson FCs
have access to a proprietary mutual
fund research database that provides
information at their fingertips on more
than 2,100 funds. In addition, working
with a proprietary system known as the
Mutual Fund Evaluation Service, your FC
can help guide you through the complex
mutual fund maze.
Specifically, the Evaluation Service
can provide a clear picture of the past
performance of mutual funds you currently
own. Presented in both graphic and
numerical
form, this illustration provides a
wealth of
23
<PAGE>
easily understood data on more than
2,100 funds. This complimentary service
allows you to judge whether your mutual
funds has helped meet your investment
needs.
4. LOOKING AHEAD Selecting a mutual
fund should not be a one-event process
that ends with the purchase of shares.
You can count on the expertise of your
Financial Consultant as he or she
continues to monitor and evaluate your
funds, to suggest new strategies and to
listen. That, in our opinion, is how to
use mutual funds to help achieve your
financial goals.
24
<PAGE>
- ------------------------------------------------------------------------------
- --
THIS REPORT IS SUBMITTED FOR
THE GENERAL INFORMATION OF THE
SHAREHOLDERS OF THE SMITH BARNEY
SHEARSON PRINCIPAL RETURN FUND --
ZEROS AND APPRECIATION SERIES 1998.
IT IS NOT A PROSPECTUS, CIRCULAR OR
REPRESENTATION INTENDED FOR USE IN
THE PURCHASE OR SALE OF SHARES OF
THE FUND OR OF ANY SECURITIES
MENTIONED IN THE REPORT.
SMITH BARNEY SHEARSON
Principal Return
Fund --
Zeros and
Appreciation
Series 1998
Two World Trade Center
New York, New York 10048
Fund 137
FD0306 A4
<PAGE>
- ------------------------------------------------------------------------------
- --
ANNUAL REPORT November 30, 1993
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus
Emerging
Growth
Series 2000
[LOGO]
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
DEAR SHAREHOLDER:
We are pleased to report that the Smith Barney Shearson Principle Return
Fund -- Zeros Plus Emerging Growth Series 2000 enjoyed strong relative
performance in the recently completed fiscal year end. For the second half of
our fiscal year ended November 30, 1993, the net asset value of the Fund
advanced 10.16%. This compared with a gain of 4.01% for the Standard & Poors
Daily Price Index of 500 Common Stocks ("S&P 500"). The Value Line Index,
which
represents a better measure of performance for the kinds of securities held in
the Fund, advanced 2.25% in the same six-month period. These unmanaged indices
track the movement of common stock prices. For the fiscal year ended November
30, 1993, the total return of the Fund advanced 15.72% compared with gains of
10.10% and 10.13% for the S&P 500 and Value Line indices, respectively.
Approximately 60% of the net assets of the Fund are invested in Zero Coupon
U.S.
Treasury Notes maturing in the year 2000. The balance of the assets are
invested
in emerging growth stocks.
The Fund is most heavily weighted towards biotechnology,
telecommunications
and technology companies. While volatility was still evident in health care
securities, during the past six months, several biotechnology stocks, led by
Chiron and Genentech witnessed strong performances. In July, Chiron received
approval from the FDA to market its drug Betaseron, used in the treatment of
multiple sclerosis. Genentech enjoyed two very favorable developments in the
recent six-month period. The first one was the August 9 approval by an FDA
advisory panel of its drug D-NASE to be used in the treatment of cystic
fibrosis
and the second one, the favorable results of a major international study
comparing its clot dissolving drug TPA, used in the treatment of heart
attacks,
versus a cheaper alternative. Lotus Development, through its proprietary
communications related software called NOTES, and fully integrated office
product called Smartsuite, has seen a significant increase in its growth rate.
California Microwave, a leading supplier of communications infrastructure
equipment, is benefiting from strong growth in wireless communications. C-COR
Electronics, a supplier of equipment to cable television operators, is
expected
to become a major participant in the construction of the information highway
during the rest of the decade.
In our opinion, the outlook for the stock market remains favorable,
notwithstanding that most major averages are trading near their all-time
highs.
While short-term interest rates have remained at low levels all year, the
recent
back-up in long term rates has concerned some market participants. To put the
Continued
1
<PAGE>
recent movement in perspective, the interest rate on 30-year U.S. Government
Bonds declined about 100 basis points from the time of the Presidential
election
in November 1992 to a low of under 5.8%. Since reaching that level this
summer,
long term rates have traded between 5.75% to 6.45%, a range we feel will hold
for at least the foreseeable future. The rate of inflation is still quite low
and the recent sharp break in the price of crude oil should keep it contained
in
the 3% area allowing interest rates to remain low. We believe that the economy
may be strong enough to generate employment growth, yet not strong enough to
threaten the current interest rate structure. We would not be surprised to see
some moderation in the pace of the expansion in the first quarter of 1994 as
the
impact of higher tax rates work their way through the economy. Moderate growth
is the best tonic for the stock market. Companies able to grow their earnings
at
a faster rate than the economy (through increased unit sales rather than
higher
prices) should continue to be strong stock market performers.
Thank you for your continued support of the Principal Return Fund --
Zeros
Plus Emerging Growth Series 2000.
Sincerely,
<TABLE>
<S> <C>
/s/ Heath B. McLendon /s/Richard A. Freeman
Heath B. McLendon Richard A. Freeman
Chairman of the Board Vice President and
Investment Officer
</TABLE>
January 17, 1994
2
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
<TABLE>
- ------------------------------------------------------------------------------
- --
PORTFOLIO HIGHLIGHTS NOVEMBER 30, 1993
(UNAUDITED)
PORTFOLIO ALLOCATION
DESCRIPTION OF PIE CHARTS IN SHAREHOLDER REPORT
Industry Breakdown
Pie chart depicting the allocation of the Principal Return Fund (Zeros Plus
Emerging Growth Series 2000) investment securities held at ZNovember 30, 1993
by industry classification. The pie is broken in pieces representing
industries
in the following percentages:
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Commercial Paper and Net Other
Assets and Liabilities 0.3%
U.S. Treasury Notes 60.2%
Common Stocks 39.5%
</TABLE>
<TABLE>
TOP TEN COMMON STOCK HOLDINGS
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
- ---------------------------------------------------------------------------
CHIRON CORPORATION 4.8%
GENENTECH, INC. 4.5
TECH-SYM CORPORATION 3.8
LOTUS DEVELOPMENT CORPORATION 3.8
CALIFORNIA MICROWAVE, INC. 3.6
VERTEX PHARMACEUTICALS, INC. 3.1
VLSI TECHNOLOGY, INC. 2.5
GENZYME CORPORATION 2.0
C-COR ELECTRONICS, INC. 1.6
TYCO LABORATORIES, INC. 1.6
</TABLE>
3
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------
- --
HISTORICAL PERFORMANCE
<CAPTION>
YEAR ENDED NET ASSET VALUE CAPITAL GAINS DIVIDENDS
TOTAL
NOVEMBER 30, BEGINNING ENDING DISTRIBUTED PAID
RETURN**
<S> <C> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- ----------
8/30/91* - $7.60 $7.57 -- --
(0.39)%
11/30/91
- ------------------------------------------------------------------------------
- ----------
1992 7.57 8.16 -- $0.10
9.15
- ------------------------------------------------------------------------------
- ----------
1993 8.16 9.00 $0.09 0.29
15.72
- ------------------------------------------------------------------------------
- ----------
TOTAL -- -- $0.09 $0.39
- --
- ------------------------------------------------------------------------------
- ----------
CUMULATIVE TOTAL RETURN (8/30/91 THROUGH 11/30/93)
25.81%
- ------------------------------------------------------------------------------
- ----------
<FN>
* The Fund commenced operations on August 30, 1991.
** Figures assume reinvestment of all dividends and capital gain
distributions at net asset value and do not reflect deduction of the
applicable front-end sales charge.
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS ANNUALLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
<TABLE>
AVERAGE ANNUAL TOTAL RETURN*** --
<CAPTION>
WITHOUT
WITH
SALES CHARGE SALES
CHARGE
<S> <C> <C>
- ------------------------------------------------------------------------------
- ----------
YEAR ENDED 11/30/93 15.72%
9.93%
- ------------------------------------------------------------------------------
- ----------
INCEPTION 8/30/91 THROUGH 11/30/93 10.73%
8.23%
- ------------------------------------------------------------------------------
- ----------
<FN>
*** All average annual total return figures shown reflect reinvestment of
dividends and capital gains at net asset value. Average annual total
return figures for the period from inception (August 30, 1991) through
November 30, 1993 reflect deduction of the maximum 5% front-end sales
charge.
</TABLE>
4
<PAGE>
<TABLE>
GROWTH OF $10,000 INVESTED IN SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND --
ZEROS PLUS EMERGING GROWTH SERIES 2000 VS. VALUE LINE INDEX AUGUST 30, 1991 -
- -
NOVEMBER 30, 1993 +
DESCRIPTION OF MOUNTAIN CHART IN SHEARSON COVERS
A line graph depicting the total (including reinvestment of dividends and
capital gains of a hypothetical investment of $10,000 in Principal Retunr Fund
(Zeros Plus Emerging Browth Series 2000) shares on August 30, 1991 through
November 30, 1993 as compared with the growth of a $10,000 investment in the
Value Line Index. The plot points used to draw the line graph were as follows:
<CAPTION>
GROWTH OF $10,000 GROWTH OF $10,000
INVESTED IN SHARES INVESTMENT IN THE
MONTH ENDED OF THE FUND VALUE FUND INDEX
<S> <C> <C>
08/91 $ 9,500 $10,000
09/91 $ 9,763 $ 9,862
12/91 $10,265 $10,154
03/92 $ 9,809 $10,477
06/92 $ 9,632 $10,032
09/92 $10,214 $10,054
12/92 $10,464 $10,860
03/93 $10,424 $11,404
06/93 $11,115 $11,333
09/93 $11,912 $11,270
11/93 $11,951 $11,673
<FN>
+ Hypothetical illustration of $10,000 invested at inception on August 30,
1991
through November 30, 1993 compared to the Value Line Index. Investment
assumes
deduction of the maximum 5% sales charge at the time of investment and
reinvestment of dividends and capital gains at Net Asset Value through
November 30, 1993.
</TABLE>
The Value Line Composite Index (geometric), composed of approximately 1,700
stocks, is a geometric average of the daily price percentage change in each
stock covering both large and small capitalized companies.
This period was one in which common stock prices fluctuated and the results
should not be considered as a representation of the dividend income or
capital
gain or loss which may be realized from an investment in the Fund today. No
adjustment has been made for shareholder tax liability on dividends or
capital
gains.
NOTE: All figures cited here and on the following pages represent past
performance of the Fund and do not guarantee future results.
5
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
<TABLE>
- ------------------------------------------------------------------------------
- --
PORTFOLIO OF INVESTMENTS NOVEMBER 30,
1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C> <S>
<C>
- ------------------------------------------------------------------------------
- ----------
COMMON STOCKS - 39.5%
HEALTH CARE - 16.8%
70,000 Biomatrix, Inc.+ $
630,000
56,000 Chiron Corporation+
4,662,000
50,000 Cor Therapeutics, Inc.+
687,500
125,000 Fischer Imaging Corporation+
906,250
91,000 Genentech, Inc.+
4,345,250
63,000 Genzyme Corporation+
1,953,000
10,000 IDEC Pharmaceuticals Corporation+
60,000
85,000 TSI Inc+
95,625
185,000 Vertex Pharmaceuticals, Inc.+
2,960,000
- ------------------------------------------------------------------------------
- ----------
16,299,625
- ------------------------------------------------------------------------------
- ----------
TECHNOLOGY - 11.5%
93,525 C-COR Electronics, Inc.+
1,589,925
20,000 Cirrus Logic, Inc.+
687,500
79,000 Lotus Development Corporation+
3,634,000
160,000 Network System Corporation+
1,320,000
100,000 Quantum Corporation+
1,425,000
170,000 VLSI Technology, Inc.+
2,465,000
- ------------------------------------------------------------------------------
- ----------
11,121,425
- ------------------------------------------------------------------------------
- ----------
DEFENSE/TELECOMMUNICATIONS - 7.3%
147,500 California Microwave, Inc.+
3,466,250
180,000 Tech-Sym Corporation+
3,645,000
- ------------------------------------------------------------------------------
- ----------
7,111,250
- ------------------------------------------------------------------------------
- ----------
CAPITAL GOODS - 1.6%
33,000 Tyco Laboratories, Inc.
1,567,500
- ------------------------------------------------------------------------------
- ----------
ENVIRONMENTAL - 1.2%
62,000 Wellman, Inc.
1,092,750
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
<TABLE>
- ------------------------------------------------------------------------------
- --
PORTFOLIO OF INVESTMENTS (CONTINUED) NOVEMBER 30,
1993
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C> <S>
<C>
- ------------------------------------------------------------------------------
- ----------
COMMON STOCKS (CONTINUED)
CONSUMER NON-DURABLES - 1.1%
135,000 Topps Company $
1,029,375
- ------------------------------------------------------------------------------
- ----------
TOTAL COMMON STOCKS (Cost $34,022,796)
38,221,925
- ------------------------------------------------------------------------------
- ----------
<CAPTION>
FACE
VALUE
<C> <S>
<C>
- ------------------------------------------------------------------------------
- ----------
U.S. TREASURY NOTES - 60.2% (Cost $50,272,852)
$82,000,000 U.S. Treasury Notes-Strips, Zero Coupon due 02/15/00++
58,346,272
- ------------------------------------------------------------------------------
- ----------
COMMERCIAL PAPER - 0.6% (Cost $566,000)
566,000 General Electric Capital Corporation, 3.15% due 12/1/93
566,000
- ------------------------------------------------------------------------------
- ----------
TOTAL INVESTMENTS (Cost $84,861,648*) 100.3%
97,134,197
OTHER ASSETS AND LIABILITIES (NET) (0.3)
(269,013)
- ------------------------------------------------------------------------------
- ----------
NET ASSETS 100.0%
$96,865,184
- ------------------------------------------------------------------------------
- ----------
<FN>
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
++ Effective yield is 7.832% (unaudited).
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SHEARSON LEHMAN BROTHERS
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
<TABLE>
- ------------------------------------------------------------------------------
- --
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30,
1993
<S> <C>
<C>
ASSETS:
Investments, at value (Cost $84,861,648)(Note 1)
See accompanying schedule
$97,134,197
Cash
81
Unamortized organization costs (Note 5)
71,072
Dividends and interest receivable
3,149
- ------------------------------------------------------------------------------
- ----------
TOTAL ASSETS
97,208,499
- ------------------------------------------------------------------------------
- ----------
LIABILITIES:
Payable for Fund shares redeemed $189,937
Investment advisory fee payable (Note 2) 32,304
Payable for investments purchased 30,000
Accrued legal and audit fees 23,500
Shareholder servicing agent fees payable (Note 2) 20,190
Administration fee payable (Note 2) 16,152
Transfer agent fees payable (Note 2) 13,100
Custodian fees payable (Note 2) 7,500
Accrued expenses and other payables 10,632
- ------------------------------------------------------------------------------
- ----------
TOTAL LIABILITIES
343,315
- ------------------------------------------------------------------------------
- ----------
NET ASSETS
$96,865,184
- ------------------------------------------------------------------------------
- ----------
NET ASSETS CONSIST OF:
Undistributed net investment income $
3,401,931
Accumulated net realized gain on investments sold
4,554,244
Unrealized appreciation of investments
12,272,549
Par value
10,766
Paid-in capital in excess of par value
76,625,694
- ------------------------------------------------------------------------------
- ---------
TOTAL NET ASSETS
$96,865,184
- ------------------------------------------------------------------------------
- ----------
NET ASSET VALUE and redemption price per share
($96,865,184 / 10,765,755 shares of beneficial interest outstanding) $
9.00
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
<TABLE>
- ------------------------------------------------------------------------------
- --
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1993
<S> <C>
<C>
INVESTMENT INCOME:
Interest
$4,521,183
Dividends
87,560
- ------------------------------------------------------------------------------
- ----------
TOTAL INVESTMENT INCOME
4,608,743
- ------------------------------------------------------------------------------
- ----------
- ------------------------------------------------------------------------------
- -------
EXPENSES:
Investment advisory fee (Note 2) $436,813
Shareholder servicing fees (Note 2) 273,008
Sub-investment advisory and administration fee (Note 2) 218,406
Transfer agent fees (Note 2) 156,170
Legal and audit fees 35,013
Custodian fees (Note 2) 32,382
Amortization of organization costs (Note 5) 25,845
Trustees' fees and expenses (Note 2) 9,750
Other 14,957
- ------------------------------------------------------------------------------
- ----------
TOTAL EXPENSES
1,202,344
- ------------------------------------------------------------------------------
- ----------
NET INVESTMENT INCOME
3,406,399
- ------------------------------------------------------------------------------
- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 3):
Net realized gain on investments during the year
4,834,559
Net unrealized appreciation of investments during the year
7,293,854
- ------------------------------------------------------------------------------
- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
12,128,413
- ------------------------------------------------------------------------------
- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$15,534,812
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
<TABLE>
- ------------------------------------------------------------------------------
- --
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
YEAR
YEAR
ENDED
ENDED
11/30/93
11/30/92
<S> <C>
<C>
Net investment income $ 3,406,399 $
4,738,236
Net realized gain on investments during the year 4,834,559
1,105,612
Net unrealized appreciation of investments during the
year 7,293,854
7,316,289
- ------------------------------------------------------------------------------
- ----------
Net increase in net assets resulting from operations 15,534,812
13,160,137
Distributions to shareholders from:
Net investment income (4,426,224)
(2,066,079)
Net realized capital gains on investments (1,385,927)
- --
Net decrease in net assets from Fund share transactions
(Note 4) (38,184,100)
(43,192,535)
- ------------------------------------------------------------------------------
- ----------
Net decrease in net assets (28,461,439)
(32,098,477)
NET ASSETS:
Beginning of year 125,326,623
157,425,100
- ------------------------------------------------------------------------------
- ----------
End of year (including undistributed net investment income of
$3,401,931 and $4,154,614, respectively) $96,865,184
$125,326,623
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
<TABLE>
- ------------------------------------------------------------------------------
- --
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
YEAR YEAR
PERIOD
ENDED ENDED
ENDED
11/30/93++ 11/30/92++
11/30/91*
<S> <C> <C>
<C>
Net asset value, beginning of year $8.16 $7.57
$7.60
- ------------------------------------------------------------------------------
- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.26 0.26
0.07
Net realized and unrealized gains and losses
on
investments 0.96 0.43
(0.10)
- ------------------------------------------------------------------------------
- -------
Total from investment operations 1.22 0.69
(0.03)
LESS DISTRIBUTIONS:
Distributions from net investment income (0.29) (0.10)
- --
Distributions from net realized capital gains (0.09) --
- --
- ------------------------------------------------------------------------------
- -------
Total distributions (0.38) (0.10)
0.00
- ------------------------------------------------------------------------------
- -------
Net asset value, end of year $9.00 $8.16
$7.57
- ------------------------------------------------------------------------------
- -------
Total return+++ 15.72% 9.15%
(0.39)%
- ------------------------------------------------------------------------------
- -------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $96,865 $125,327
$157,425
Ratio of operating expenses to average net
assets 1.10% 1.15%+
1.18%**
Ratio of net investment income to average net
assets 3.12% 3.31%
3.56%**
Portfolio turnover rate 0% 0%
2%
- ------------------------------------------------------------------------------
- -------
<FN>
* The Fund commenced operations on August 30, 1991.
** Annualized.
+ The operating expense ratio excludes interest expense. The operating
expense
ratio including interest expense is 1.16%.
++ The per share amounts have been calculated using the monthly average
shares
method, which more appropriately presents per share data for this year
since
use of the undistributed method did not accord with results of operations.
+++ Total return represents aggregate total return for the periods indicated.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Principal Return Fund (the "Trust") was organized
on
October 18, 1988, under the laws of the Commonwealth of Massachusetts as a
"Massachusetts business trust." The Trust is a diversified, open-end
management
investment company registered with the Securities and Exchange Commission
under
the Investment Company Act of 1940, as amended. The Trust consists of four
series, the Zeros and Appreciation Series 1996, which commenced operations on
January 16, 1989, the Zeros and Appreciation Series 1998 which commenced
operations on January 25, 1991, the Zeros Plus Emerging Growth Series 2000
which
commenced operations on August 30, 1991 and the Zeros Plus European Equities
Series 1999, which has not yet commenced operations. The Zeros Plus Emerging
Growth Series 2000 (the "Fund") expects to terminate operations on February
28,
2000. The following is a summary of significant accounting policies
consistently
followed by the Fund in the preparation of its financial statements.
Portfolio valuation: Listed securities traded on a national securities
exchange are valued at the last reported sales price; securities traded in the
over-the-counter market and listed securities for which no sale was reported
are
valued at the bid price or, in the absence of a recent bid price, at the bid
equivalent as obtained from one or more of the major market makers in the
securities. Investments in U.S. government securities (other than short-term
securities) are valued at the quoted bid price in the over-the-counter market.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Board of Trustees determines that amortized cost reflects
the
fair value of those investments. Investments in securities for which market
quotations are not available are valued at fair value as determined in good
faith by the Board of Trustees.
Repurchase agreements: The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund
takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding
period.
This arrangement results in a fixed rate of return that is not subject to
market
fluctuations during the Fund's holding period. The value of the collateral
held
by the Fund is at least equal at all times to the total amount of the
repurchase
obligations, including interest. In the event of counterparty default, the
Fund
has
12
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the right to use the collateral to offset losses incurred. There is potential
loss to the Fund in the event that the Fund is delayed or prevented from
exercising its rights to dispose of the collateral securities, including the
risk of a possible decline in the value of the underlying securities during
the
period while the Fund seeks to assert its rights. The Fund's investment
adviser,
acting under the supervision of the Trust's Board of Trustees, reviews the
value
of the collateral and the creditworthiness of those banks and dealers with
which
the Fund enters into repurchase agreements to evaluate potential risks.
Securities transactions and investment income: Securities transactions
are
recorded as of the trade date. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis.
Dividends and distributions to shareholders: Dividends from net
investment
income of the Fund and distributions of net realized capital gains of the
Fund,
if any, will be distributed annually after the close of the fiscal year in
which
they are earned. In addition, in order to avoid the application of a 4%
nondeductible excise tax on certain undistributed amounts of ordinary income
and
capital gains, the Fund may make an additional distribution of any
undistributed
ordinary income or capital gains shortly before December 31st of each year,
and
expects to pay any other dividends and distributions as are necessary to avoid
the application of this tax. Income distributions and capital gain
distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of
distributions
made by the Fund as a whole.
Reclassifications: During the current period, the Fund adopted Statement
of
Position 93-2 "Determination, Disclosure and Financial Statement Presentation
of
Income, Capital Gain, and Return of Capital Distributions by Investment
Companies." Accordingly, certain reclassifications have been made to the
components of capital in the Statement of Net Assets to conform with the
accounting and reporting guidelines of this statement. Distributions in excess
of book basis accumulated realized gains or undistributed net investment
income
that were the result of permanent book and tax accounting differences have
been
reclassified to paid-in capital. Accordingly, amounts as of November 30, 1992
have been restated to reflect a decrease in accumulated net realized gain and
an
13
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
increase in undistributed net investment income of $267,142. The Statement of
Changes in Net Assets and Financial Highlights for prior periods have not been
restated to reflect this change in presentation. Net investment income, net
realized gains, and net assets on a book and tax basis were not affected by
this
change.
Federal income taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code of 1986, as amended, applicable to
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax provision
is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS
Up to the close of business on July 30, 1993, the Trust had entered into
an
investment advisory agreement (the "Advisory Agreement") with Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers") on behalf of Shearson Asset
Management ("Asset Management"), a member of the Asset Management Group of
Shearson Lehman Brothers. Under the Advisory Agreement, the Fund paid a
monthly
fee at the annual rate of .40% of the value of its average daily net assets.
As of the close of business on July 30, 1993, The Travelers Inc. (which
at
the time was known as Primerica Corporation ("Travelers") and Smith Barney,
Harris Upham & Co. Incorporated completed the acquisition of substantially all
of the domestic retail brokerage and asset management businesses of Shearson
Lehman Brothers and Smith Barney, Harris Upham & Co. Incorporated was renamed
Smith Barney Shearson Inc. ("Smith Barney Shearson").
As of the close of business on July 30, 1993, Smith Barney Shearson Asset
Management, a division of Smith, Barney Advisers Inc., which is controlled by
Smith Barney Shearson Holdings Inc. ("Holdings"), succeeded Shearson Asset
Management as the Fund's investment adviser. Holdings is a wholly owned
subsidiary of Travelers. The new investment advisory agreement with Smith
Barney
Shearson Asset Management (the "Advisory Agreement") contains terms and
conditions substantially similar to the investment advisory agreement with the
predecessor investment adviser and provides for the payment of fees at the
same
rate as was paid to such predecessor investment adviser.
14
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Trust has also entered into an administration agreement (the
"Administration Agreement") dated May 21, 1993, with The Boston Company
Advisors, Inc. ("Boston Advisors"), an indirect wholly owned subsidiary of
Mellon Bank Corporation ("Mellon"). Under the Administration Agreement, the
Fund
pays a monthly fee at the annual rate of .20% of the value of its average
daily
net assets. Prior to May 21, 1993, Boston Advisors served as sub-investment
adviser and administrator to the Trust.
Smith Barney Shearson serves as shareholder servicing agent and is paid
an
annual fee at the rate of .25% of the value of the Fund's average daily net
assets for certain activities not provided by the Fund's transfer agent. For
the
year ended November 30, 1993, the Fund incurred $273,008 for shareholder
servicing fees.
For the year ended November 30, 1993, the Fund incurred total brokerage
commissions of $30,396 of which $10,056 was paid to Smith Barney Shearson.
No officer, director or employee of Smith Barney Shearson, Boston
Advisors
or any parent or subsidiary of those corporations receives any compensation
from
the Trust for serving as a Trustee or officer of the Trust. The Trust pays
each
Trustee who is not an officer, director or employee of Smith Barney Shearson,
Boston Advisors or any of their affiliates $2,000 per annum plus $500 per
meeting attended and reimburses each Trustee for travel and out-of-pocket
expenses.
Boston Safe Deposit and Trust Company ("Boston Safe"), an indirect wholly
owned subsidiary of Mellon, serves as the Fund's custodian. The Shareholder
Services Group, Inc., a subsidiary of First Data Corporation, serves as the
Trust's transfer agent.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding U.S.
government securities and short-term investments, aggregated $30,000 and
$18,511,424, respectively, for the year ended November 30, 1993. There were no
purchases of U.S. government securities for the year ended November 30, 1993.
Proceeds from sales of long-term U.S. government securities aggregated
$27,090,988 for the year ended November 30, 1993.
At November 30, 1993, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$17,483,962,
15
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
and aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $5,211,413.
<TABLE>
4. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest
of
the Fund with a par value of $.001 per share. The Fund, the Zeros and
Appreciation Series 1996, the Zeros and Appreciation Series 1998 and the Zeros
Plus European Equities Series 1999 each constitute a sub-trust under the
Master
Trust Agreement. Changes in shares of beneficial interest of the Fund were as
follows:
<CAPTION>
YEAR ENDED
YEAR ENDED
NOVEMBER 30, 1993
NOVEMBER 30, 1992
Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- ------------------
Issued as reinvestment of
dividends 734,363 $ 5,757,650 257,392
$ 2,046,264
Redeemed (5,324,977) (43,941,750)
(5,704,844) (45,238,799)
- ------------------------------------------------------------------------------
- ------------------
Net decrease (4,590,614) $(38,184,100)
(5,447,452) $(43,192,535)
- ------------------------------------------------------------------------------
- ------------------
</TABLE>
Shares of the Fund are not currently being offered for sale to new
investors, although the Fund, upon at least 30 days' notice to shareholders,
may
commence a continuous offering if the Trust's Board of Trustees determines it
to
be in the best interests of the Fund and its shareholders.
5. ORGANIZATION COSTS
The Fund bears all costs in connection with its organization including
the
fees and expenses of registering and qualifying its shares for distribution
under Federal and state securities regulations. All such costs are being
amortized on the straight-line method over a period of five years from the
commencement of operations of the Fund. In the event that any of the initial
shares of the Fund are redeemed during such amortization period, the Fund will
be reimbursed for any unamortized costs in the same proportion as the number
of
shares redeemed bears to the number of initial shares outstanding at the time
of
redemption.
6. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million
line
of credit provided by Continental Bank N.A. under an Amended and Restated Line
of Credit Agreement (the "Agreement") dated April 30, 1992, primarily for
16
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
temporary or emergency purposes, including the meeting of redemption requests
that otherwise might require the untimely disposition of securities. Under
this
Agreement, the Fund may borrow up to the lesser of $25 million or 20% of its
net
assets. Interest is payable either at the bank's Money Market Rate or the
London
Interbank Offered Rate (LIBOR) plus .375% on an annualized basis. The Fund and
the other affiliated entities are charged an aggregate commitment fee of
$125,000 which is allocated equally among each of the participants. The
Agreement requires, among other provisions, each participating fund to
maintain
a ratio of net assets (not including funds borrowed pursuant to the Agreement)
to aggregate amount of indebtedness pursuant to the Agreement of no less than
5
to 1. During the year ended November 30, 1993, the Fund had an average
outstanding daily balance of $179,726 with interest rates ranging from 3.3125%
to 4.125%. Interest expense totalled $6,253 which has been included in other
expenses on the Statement of Operations for the year ended November 30, 1993.
At
November 30, 1993, the Fund had no outstanding borrowings under this
Agreement.
17
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
- ------------------------------------------------------------------------------
- --
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND:
We have audited the accompanying statement of assets and liabilities of
the
Zeros Plus Emerging Growth Series 2000 of Smith Barney Shearson Principal
Return
Fund, including the schedule of portfolio investments, as of November 30,
1993,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended,
and
the financial highlights for each of the two years in the period then ended
and
for the period from August 30, 1991 (commencement of operations) to November
30,
1991. These financial statements and financial highlights are the
responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1993 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred
to above present fairly, in all material respects, the financial position of
the
Zeros Plus Emerging Growth Series 2000 of Smith Barney Shearson Principal
Return
Fund as of November 30, 1993, the results of operations for the year then
ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the two years in the period
then
ended and for the period from August 30, 1991 (commencement of operations) to
November 30, 1991, in conformity with generally accepted accounting
principles.
Coopers & Lybrand
Boston, Massachusetts
January 7, 1994
18
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros Plus Emerging Growth Series 2000
- ------------------------------------------------------------------------------
- --
TAX INFORMATION (UNAUDITED)
Of the distributions made by the Fund, during the fiscal year ended
November 30, 1993, 1.78% qualify for the dividends-received deduction
available
to corporate shareholders.
The amount of long term capital gain paid for the fiscal year ended
November 30, 1993 was $522,641 for the Fund.
19
<PAGE>
SMITH BARNEY SHEARSON
Principal Return Fund --
Zeros and Appreciation Series 2000
TRUSTEES
Paul R. Ades
Herbert Barg
Allan R. Johnson
Heath B. McLendon
Ken Miller
John F. White
OFFICERS
Heath B. McLendon
Chairman of the Board
Stephen J. Treadway
President
Richard P. Roelofs
Executive Vice President
Richard A. Freeman
Vice President and
Investment Officer
Susan C. Fulenwider
Vice President and
Investment Officer
Vincent Nave
Treasurer
Francis J. McNamara, III
Secretary
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Smith Barney Shearson
Asset Management
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
20
<PAGE>
- ------------------------------------------------------------------------------
- --
THIS REPORT IS SUBMITTED FOR
THE GENERAL INFORMATION OF THE
SHAREHOLDERS OF THE SMITH BARNEY
SHEARSON PRINCIPAL RETURN FUND --
ZEROS PLUS EMERGING GROWTH SERIES
2000. IT IS NOT A PROSPECTUS,
CIRCULAR OR REPRESENTATION INTENDED
FOR USE IN THE PURCHASE OR SALE OF
SHARES OF THE FUND OR OF ANY
SECURITIES MENTIONED IN THIS REPORT.
SMITH BARNEY SHEARSON
Principal Return
Fund --
Zeros Plus
Emerging Growth
Series 2000
Two World Trade Center
New York, New York 10048
Fund 141
FD0305 A4
