Registration No. 33-25087
811-5678
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 14 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 15 X
SMITH BARNEY PRINCIPAL RETURN FUND
(formerly Smith Barney Shearson Brothers Principal Return Fund)
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 723-9218
Christina T. Sydor
Secretary
Smith Barney Principal Return Fund
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent of Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
on _____________ pursuant to Rule 485(b)
X 75 days after filing pursuant to Rule 485(a)
on _____________ pursuant to Rule 485(a)
___________________________________________________________________________
_
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. No Rule 24f-2 notice will be filed for
Zeros and Appreciation Series 1996, Zeros and Appreciation Series 1998 and
Zeros Plus Emerging Growth Series 2000 for the fiscal year ended November
30, 1994 due to the fact that no shares were sold during that period.
SMITH BARNEY PRINCIPAL RETURN FUND
FORM N-IA
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
The Fund's Expenses
3. Condensed Financial
Information
Not Applicable
4. General Description of
Registrant
Cover Page; Investment Objective
and Management Policies;
Distributor; Additional
Information
5. Management of the Fund
The Fund's Expenses; Management of
the Trust; Distributor; Additional
Information; Annual Report
6. Capital Stock and Other
Securities
Investment Objectives and
Management Policies; Dividends,
Distributions and Taxes;
Additional Information
7. Purchase of Securities Being
Offered
Purchase of Shares; Valuation of
Shares; Redemption of Shares;
Exchange Privilege
8. Redemption or Repurchase
Purchase of Shares; Redemption of
Shares; Exchange Privilege
9. Legal Proceedings
Not Applicable
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover Page
11. Table of Contents
Contents
12. General Information and
History
Investment Objectives and
Management Policies; Distributor
Organization of the Trust
13. Investment Objectives and
Policies
Investment Objective and
Management Policies
14. Management of the Fund
Management of the Trust; and
Distributor
15. Control Persons and Principal
Holders of Securities
Management of the Trust; and
Distributor
16. Investment Advisory and Other
Services
Management of the Trust; Custodian
and Transfer Agent; and
Distributor
17. Brokerage Allocation and
other Practices
Investment Objectives and
Management Policies
18. Capital Stock and Other
Securities
Investment Objectives and
Management Policies; Taxes;
Management of the Trust
19. Purchase, Redemption and
Pricing of
Securities Being Offered
Management of the Trust;
Redemption of Shares;
Valuation of Shares; Exchange
Privilege
20. Tax Status
Taxes
21. Underwriters
see Prospectus "Purchase of
Shares"
22. Calculations of Performance
Data
Determination of Performance
23. Financial Statements
Financial Statements
Smith Barney Principal Return Fund -
SMITH BARNEY SECURITY AND GROWTH SERIES
388 Greenwich Street
New York, New York 10013
(212) 723-9218
March , 1995
PROSPECTUS
This Prospectus describes the Smith Barney Security and Growth Series
(the "Fund"), a series of
Smith Barney Principal Return Fund (the "Trust"). The investment
objectives of the Fund are (a) to return to
each shareholder on the March 31, 2005 (the "Maturity Date") the principal
amount of the shareholder's
original investment (including any sales charge paid) through investment of
a portion of its assets in zero
coupon securities and (b) to the extent consistent with that objective, to
provide long-term appreciation of
capital through investment of the balance of its assets primarily in equity
securities. There can be no
assurance that the Fund's investment objectives will be achieved.
The Fund may not be appropriate for investors that do not intend to
reinvest dividends and
distributions or expect to redeem any of their shares prior to the Maturity
Date. The net asset value per
share of the Fund prior to the Maturity Date can be expected to fluctuate
substantially owing to changes in
prevailing interest rates that will affect the current value of the Fund's
other holdings. The Fund does not
anticipate engaging in a continuous offering of shares after the
termination of the subscription period and,
thus, will not benefit from an inflow of new capital investments. In
addition, the Fund may experience
redemptions and capital losses prior to the Maturity Date (or in
preparation for the Fund's possible
liquidation at the Maturity Date) and will pay dividends and distributions
in cash to shareholders who so
elect. A diminution of its assets resulting from losses, redemptions and
dividends and distributions paid in
cash could make the Fund's investment objectives unachievable; thus the
accomplishment of the Fund's
investment objectives in respect of remaining shareholders that reinvest
dividends and distributions could
depend in part on the investment decisions of other shareholders. See
"Investment Objectives and
Management Policies - Risk Factors and Other Special Considerations."
Shares of the Fund will be sold to the public in an initial offering
at a maximum offering price of $8
per share, which includes the maximum sales charge of 4.00% (4.17% of the
net amount invested). Smith
Barney Inc. ("Smith Barney"), the Fund's distributor, will solicit
subscriptions for shares during a period
scheduled to end on May , 1995, subject to extension by agreement between
the Fund and Smith Barney.
The minimum subscription is 125 shares, except for IRA's and other
retirement plans, for which the minimum
is 25 shares.
This Prospectus sets forth concisely information about the Trust and
the Fund, including sales
charges, shareholder servicing fees and expenses. Investors are encouraged
to read this Prospectus carefully
and retain it for future reference.
Additional information about the Trust and the Fund is contained in a
Statement of Additional
Information dated March , 1995, as amended or supplemented from time to
time, which is available upon
request and without charge by calling or writing the Trust at the telephone
number or address set forth above
or by contacting your Smith Barney Financial Consultant. The Statement of
Additional Information has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INTRODUCTION
The investment objectives of the Fund are (a) to return to each
shareholder on the Maturity Date the
principal amount of the shareholder's original investment (including any
sales charge paid) through
investment of a portion of its assets in zero coupon securities and (b) to
the extent consistent with that
objective, to provide long-term appreciation of capital through investment
of the balance of its assets
primarily in equity securities. There can be no assurance that the Fund's
investment objectives will be
achieved.
As with most mutual funds, the Fund employs various organizations to
perform necessary functions
and to provide services to their shareholders. These organizations are
carefully selected on behalf of the
Fund by the Trust's Board of Trustees, which regularly reviews the quality
and scope of their performance.
The names of the organizations and the services that they perform on behalf
of the Fund and its shareholders
are listed below:
SMITH BARNEY INC
("Smith Barney") Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
("Manager") Investment Adviser
BOSTON SAFE DEPOSIT AND TRUST COMPANY
("Boston Safe") Custodian
THE SHAREHOLDER SERVICES GROUP, INC.
("TSSG"), a subsidiary of First Data
Corporation Transfer Agent
More detailed information regarding these organizations and the
functions they perform is provided in
this Prospectus as well as in the Statement of Additional Information.
TABLE OF CONTENTS
Introduction 3
The Fund's Expenses 4
Financial Highlights 5
Investment Objectives and Management 9
Policies
Management of the Trust 17
Purchase of Shares 18
Redemption of Shares 18
Valuation of Shares 20
Exchange Privilege 20
Dividends, Distributions and Taxes 24
The Fund's Performance 25
Custodian and Transfer Agent 26
Distributor 26
Additional Information 27
THE FUND'S EXPENSES
The following expense table lists the costs and expenses that an
investor will incur, either directly or
indirectly, as a shareholder of the Fund, based upon the sales charge that
may be incurred at the time of
purchase and upon the Fund's projected operating expenses:
Shareholder Transaction Expenses
Sales charge imposed on purchases
(as a percentage of offering price)........ 4.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees........................... 0.50%
Shareholder servicing fees................ 0.25%
Other expenses............................. 0.27%
Total Fund Operating Expenses........... 1.02%
The nature of the services for which the Fund pays management fees is
described under "Management
of the Trust." "Other expenses" in the above table include fees for
transfer agent services, custodial fees,
legal and accounting fees, printing costs and registration fees.
Example*
The following example is intended to assist an investor in
understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly.
These amounts are based upon (a)
payment by an investor of the initial 5% sales charge, (b) payment by the
Fund of operating expenses at the
levels set forth in the table above and (c) the following assumptions:
1 YEAR
3 YEARS
5 YEARS MATURITY
DATE
A shareholder would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period $57
$73 $91 $110
A shareholder would pay the following
expenses on the same investment, assuming
the same annual return and no redemption. $
$ $
$
The example also provides a means for the investor to compare wxpense
levels of funds with different fee
structures over varying investment periods. To facilitate such comparison,
all funds are required to utilize a
5.00% assumption. This example should not be considered a representation
of past or future expenses
and actual expenses may be greater or less than those shown. Moreover,
while this table assumes a 5%
annual return, the Fund's actual performance will vary and may result in an
actual return greater or less than
5%.
_
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
In General
The investment objectives of the Fund is (a) to return to each
shareholder on the Maturity Date the
principal amount of the shareholder's original investment (including any
sales charge paid) through
investment of a portion of its assets in zero coupon securities (the
"Repayment Objective") and (b) to the
extent consistent with that objective, to provide long-term appreciation of
capital through investment of the
balance of its assets primarily in equity securities. The investment
objectives of the Fund are fundamental and
may not be changed without the approval of the holders of a majority of the
outstanding voting securities of
the Fund, as defined under the Investment Company Act of 1940, as amended
(the "1940 Act").
Although the Manager believes that the Fund's investment strategies
should be sufficient to
accomplish the Fund's investment objectives, there can be no assurance that
they will be achieved. Moreover,
although the Trust is structured as an open-end investment company and
shareholders may redeem their
shares at any time and may elect to receive dividends and distributions in
cash, in order to help assure the
return of the full amount of an original investment, shareholders should
plan to hold their shares until the
Maturity Date and to reinvest all dividends and distributions in additional
shares. In addition, while the
amount sought to be returned on the Maturity Date to shareholders may equal
or exceed the amount
originally invested, the present value of that amount may be substantially
less. Shareholders also should be
aware that the amount returned as taxable on the Maturity Date represents
accretion of interest on the Fund's
zero coupon securities and will have been taxable as ordinary income over
the term of the Fund.
Proposed Operations of the Fund
Based on interest rates prevailing in the date of this Prospectus,
the Manager estimates that zero
coupon securities are expected initially to represent approximately 50% of
the Fund's assets, with the balance
of the Fund's assets invested in equity securities and other instruments as
described below. Changes in
prevailing interest rates between that date and the time that the Fund
commences investment operations,
anticipated to be April --, 1995 (See "Purchase of Shares"), may cause the
Manager to adjust the proportion
of the Fund's assets invested in zero coupon securities. The Fund's zero
coupon securities will mature within
one year before the Maturity Date and their aggregate stated principal
amount is expected to be sufficient to
meet the Repayment Objective; the Fund will not receive any payments with
resect to a zero coupon security
prior to the maturity of that security. The Fund may hold zero coupon
securities in excess of those required
to meet the Repayment Objective to the extent that the Manager deems it
appropriate. As the Fund's zero
coupon securities mature, the proceeds will be invested in direct
obligations of the United States Government
with remaining maturities of one year or less and, in any case, maturing on
or prior to the Maturity Date. On
the Maturity Date, unless the Board of Trustees and the shareholders of the
Fund approve the continuance of
the Fund, the Fund's remaining equity investments will be sold and other
investments will mature, the
liabilities of the Fund will be discharged or provisions made therefore,
the Fund's shares will be mandatorily
redeemed and, within seven days thereafter, the proceeds will be
distributed to shareholders and the Fund
thereafter will be terminated. These arrangements may require the
disposition of the Fund's equity securities
at a time when it is otherwise disadvantageous to do so and may involve
selling securities at a substantial
loss. Before the Maturity Date, the Trust's Board of Trustees may consider
and, if necessary, propose for
shareholder approval, such action other than the termination of the Fund as
the Board deems appropriate and
in the best interests of the Fund and its shareholders, including
continuing to operate the Fund with different
investment objectives.
The Fund's portfolio may be visualized as consisting of two portions:
one, its zero coupon securities,
is expected to increase in value, by reason of accretion of interest, to
equal at maturity an amount sufficient
to meet the Repayment Objective; the other, its equity securities and all
other investments, represent a
variable portion of the Fund's assets depending on the performance of those
investments, the Fund's
expenses, the level of dividend reinvestment and the level of redemptions
over time. In order to facilitate the
management of the Fund's portfolios, shareholders are urged to reinvest
dividends and distributions in
additional shares; these amounts will be paid in cash only at the specific
election of a shareholder.
Zero Coupon Securities
A zero coupon security is a debt obligation that does not entitle the
holder to any periodic payments
of interest prior to maturity and therefore is issued and traded at a
discount from its face amount. Zero
coupon securities may be created by separating the interest and principal
components of securities issued or
guaranteed by the United States government or one of its agencies or
instrumentalities ("Government
Securities") or issued by private corporate issuers. The Fund, however,
invests only in zero coupon securities
that are direct obligations of the United States Treasury. The discount
from face value at which zero coupon
securities are purchased varies depending on the time remaining until
maturity, prevailing interest rates and
the liquidity of the security. Because the discount from face value is
known at the time of investment,
investors holding zero coupon securities until maturity know the total
amount of their investment return at
the time of investment. In contrast, a portion of the total realized
return from conventional interest-paying
obligations comes from the reinvestment of periodic interest. Because the
rate to be earned on these
reinvestments may be higher or lower than the rate quoted on the interest-
paying obligations at the time of
the original purchase, the investor's return on reinvestments is uncertain
even if the securities are held to
maturity. This uncertainty is commonly referred to as reinvestment risk.
With zero coupon securities,
however, there are no cash distributions to reinvest, so investors bear no
reinvestment risk if they hold the
zero coupon securities to maturity; holders of zero coupon securities,
however, forego the possibility of
reinvesting at a higher yield than the rate paid on the originally issued
security. With both zero coupon and
interest-paying securities there is no reinvestment risk on the principal
amount of the investment.
Equity Securities
The Fund attempts to achieve its investment objective of long-term
capital appreciation by investing
the portion of its assets not invested in zero coupon securities primarily
in equity securities that the Manager
believes have above-average potential for capital growth. In selecting
investments on behalf of the Fund, the
Manager will seek to identify companies that are experiencing, or have the
potential to experience, significant
growth in earnings due to any number of factors, including benefiting from
new products or services,
technological developments, management changes or other external
circumstances. This significant potential
for growth is often achieved by small- or medium-sized companies, but it
may also be achieved by large
seasoned companies. Although the Manager anticipates that the Fund's non-
zero coupon security portfolio
initially would primarily be invested in small- to medium-sized companies,
it may also be invested in the
equity securities of larger, established companies that the Manager
determines present particular
opportunities for capital growth.
Additional Investments and Investment Techniques
Although under normal circumstances the Fund's non-zero coupon
security portfolio will consist
primarily of common stocks, the Fund may also invest in Government
Securities, convertible securities,
preferred stocks and warrants when the Manager perceives an opportunity for
capital growth from such
securities. When the Manager believes that a temporary defensive
investment posture is warranted, the Fund
may invest in corporate and government bonds and notes and money market
instruments. The Fund may,
from time to time may invest in repurchase agreements, lend its portfolio
securities, enter into futures
contracts and write call options and purchase put options, all as discussed
below.
Warrants; Convertible Securities. A warrant is a security that gives
the holder the right, but not the
obligation, to subscribe for newly created securities of the issuer or a
related company at a fixed price either
at a certain date or during a set period. A convertible security is a
security that may be converted either at a
stated price or rate within a specified period of time into a specified
number of shares of common stock. In
investing in convertible securities, the Fund seeks the opportunity,
through the conversion feature, to
participate in the capital appreciation of the common stock into which the
securities are convertible.
Lending Securities. The Fund is authorized to lend securities it
holds to brokers, dealers and other
financial organizations. These loans, if and when made, may not exceed 33-
1/3% of the Fund's assets taken
at value. The Fund's loans of securities will be collateralized by cash,
letters of credit or Government
Securities that are maintained at all times in a segregated account with
the Trust's custodian in an amount at
least equal to the current market value of the loaned securities. By
lending its portfolio securities, the Fund
will seek to generate income by continuing to receive interest on the
loaned securities, by investing the cash
collateral in short-term instruments or by obtaining yield in the form of
interest paid by the borrower when
Government Securities are used as collateral. The risks in lending
portfolio securities, as with other
extensions of secured credit, consist of possible delays in receiving
additional collateral or in the recovery of
the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans will be
made to firms deemed by the Manager to be of good standing and will not be
made unless, in the judgment of
the Manager, the consideration to be earned from such loans would justify
the risk.
Repurchase Agreements. The Fund may engage in repurchase agreement
transactions with certain
banks which are the issuers of instruments acceptable for purchase by the
Fund and with certain dealers on
the Federal Reserve Bank of New York's list of reporting dealers. Under the
terms of a typical repurchase
agreement, the Fund would acquire an underlying debt obligation for a
relatively short period (usually not
more than seven days) subject to an obligation of the seller to repurchase,
and the Fund to resell, the
obligation at an agreed price and time, thereby determining the yield
during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's
holding period. The value of the underlying securities will be monitored
on an ongoing basis by the Manager
to ensure that the value is at least equal at all times to the total amount
of the repurchase obligation, including
interest. The Manager also will review on an ongoing basis the
creditworthiness of those banks and dealers
with which the Fund may enter into repurchase agreements to evaluate the
potential risks. The Fund bears a
risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the
Fund is delayed or prevented from exercising its rights to dispose of the
underlying securities, including the
risk of a possible decline in the value of the underlying securities during
the period in which the Fund seeks to
assert its rights to them, the risk of incurring expenses associated with
asserting those rights and the risk of
losing all or a part of the income from the agreement. At any one time,
the Fund's aggregate holdings of
repurchase agreements having a duration of more than five business days and
securities lacking readily
available market quotations will not exceed 10% of the Fund's total assets.
Foreign Securities The Fund may invest up to 10% of its net assets
in securities of foreign issuers.
Investing in foreign securities involves certain risks, including those
resulting from fluctuations in currency
exchange rates, revaluation of currencies, future political or economic
developments and the possible
imposition of restrictions or prohibitions on the repatriation of foreign
currencies or other foreign
governmental laws or restrictions, reduced availability of public
information concerning issuers, and,
typically, the lack of uniform accounting, auditing and financial reporting
standards or other regulatory
practices and requirements comparable to those applicable to domestic
companies. Moreover, securities of
many foreign companies may be less liquid and their prices more volatile
than those of securities of
comparable domestic companies. In addition, with respect to certain
foreign countries, the possibility exists
of expropriation, confiscatory taxation and limitations on the use or
removal of funds or other assets of the
Fund, including the withholding of dividends.
Money Market Instruments The Fund may hold at any time up to 10% of
the value of its assets in
cash and money market instruments in order to cover the Fund's expenses,
anticipated redemptions and cash
payments of dividends and distributions and to meet settlement requirements
for securities. In addition, when
the Manager believes that, with respect to its equity portfolio, a
temporary defensive investment posture is
warranted, the Fund may invest without limitation in cash and money market
instruments. To the extent that
it holds cash or invests in money market instruments, the Fund will not
achieve its investment objective of
long-term appreciation of capital. Money market instruments in which the
Fund may invest are: Government
Securities; bank obligations (including certificates of deposit, time
deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loan associations and other
banking institutions having total
assets in excess of $500 million); commercial paper rated no lower than A-2
by Standard & Poor's
Corporation or Prime-2 by Moody's Investors Service, Inc. or the equivalent
from another major rating
service or, if unrated, of an issuer having an outstanding, unsecured debt
issue then rated within the three
highest rating categories; and repurchase agreements. At no time will the
Fund's investments in bank
obligations, including time deposits, exceed 25% of its assets. In
addition, the Fund will not invest in time
deposits maturing in more than seven days if, as a result, its holdings of
those time deposits would exceed 5%
of the Fund.
The Fund will invest in an obligation of a foreign bank or foreign
branch of a United States bank only
if the Manager determines that the obligation presents minimal credit
risks. Obligations of foreign banks or
foreign branches of United States banks in which the Fund will invest may
be traded in the United States or
outside the United States, but will be denominated in U.S. dollars. These
obligations entail risks that are
different from those of investments in obligations of United States banks.
These risks include foreign
economic and political developments, foreign governmental restrictions that
may adversely affect payment of
principal and interest on the obligations, foreign exchange controls and
foreign withholding or other taxes on
income. Foreign branches of domestic banks are not necessarily subject to
the same or similar regulatory
requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations and
accounting, auditing and financial record keeping requirements. In
addition, less information may be publicly
available about a foreign branch of a domestic bank than about a domestic
bank.
Government Securities in which the Fund may invest include: direct
obligations of the United States
Treasury, and obligations issued or guaranteed by United States government,
its agencies and
instrumentalities, including instruments that are supported by the full
faith and credit of the United States;
instruments that are supported by the right of the issuer to borrow from
the United States Treasury; and
instruments that are supported solely by the credit of the instrumentality.
Risk Factors and Other Special Considerations
Covered Option Writing. The Fund may write covered call options with
respect to its portfolio
securities. The Fund realizes a fee (referred to as a "premium") for
granting the rights evidenced by the
options. A call option embodies the right of its purchaser to compel the
writer of the option to sell to the
option holder an underlying security at a specified price at any time
during the option period. Thus, the
purchaser of a call option written by the Fund has the right to purchase
from the Fund the underlying security
owned by the Fund at the agreed-upon price for a specified time period.
Upon the exercise of a call option written by the Fund, the Fund may
suffer a loss equal to the excess
of the security's market value at the time of the option exercise over the
Fund's cost of the security, less the
premium received for writing the option.
The Fund will write only covered options with respect to its
portfolio securities. Accordingly,
whenever the Fund writes a call option on its securities, it will continue
to own or have the present right to
acquire the underlying security for as long as it remains obligated as the
writer of the option. To support its
obligation to purchase the underlying security if a call option is
exercised, the Fund will either (a) deposit
with its custodian in a segregated account, cash, Government Securities or
other high grade debt obligations
having a value at least equal to the exercise price of the underlying
securities or (b) continue to own an
equivalent number of puts of the same "series" (that is, puts on the same
underlying security) with exercise
prices greater than those that it has written (or, if the exercise prices
of the puts that it holds are less than the
exercise prices of those that it has written, it will deposit the
difference with its custodian in a segregated
account).
The Fund may engage in a closing purchase transaction to realize a
profit, to prevent an underlying
security from being called or to unfreeze an underlying security (thereby
permitting its sale or the writing of a
new option on the security prior to the outstanding option's expiration).
To effect a closing purchase
transaction, the Fund would purchase, prior to the holder's exercise of an
option that the Fund has written, an
option of the same series as that on which the Fund desires to terminate
its obligation. The obligation of the
Fund under an option that it has written would be terminated by a closing
purchase transaction, but the Fund
would not be deemed to own an option as a result of the transaction. There
can be no assurances that the
Fund will be able to effect closing purchase transactions at a time when it
wishes to do so. To facilitate
closing purchase transactions, however, the Fund ordinarily will write
options only if a secondary market for
the options exists on domestic securities exchanges or in the over-the-
counter market.
Options on Broad-Based Domestic Stock Indexes. The Fund may, for
hedging purposes only, write
call options and purchase put options on broad-based domestic stock indexes
and enter into closing
transitions with respect to such options. Options on stock indexes are
similar to options on securities except
that, rather than having the right to take or make delivery of stock at the
specified exercise price, an option
on a stock index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the
closing level of the stock index upon which the option is based is "in the
money." This amount of cash is
equal to the difference between the closing level of the index and the
exercise price of the option, expressed
in dollars times a specified multiple. The writer of the option is
obligated, in return for the premium received,
to make delivery of this amount. Unlike stock options, all settlements are
in cash, and gain or loss depends
on price movements in the stock market generally rather than price
movements in the individual stocks.
The effectiveness of purchasing and writing puts and calls on stock
index options depends to a large
extent on the ability of the Manager to predict the price movement of the
stock index selected. Therefore,
whether the Fund realizes a gain or loss from the purchase of options on an
index depends upon movements
in the level of stock prices in the stock market generally. Additionally,
because exercises of index options are
settled in cash, a call writer such as the Fund cannot determine the amount
of the settlement obligations in
advance and it cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and
holding the underlying securities. When the Fund has written the call,
there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a
price which is fixed as of the closing
level of the index on the date of exercise, and the time the Fund is able
to exercise the closing transaction
with respect to the long call position it holds.
Futures Contracts and Options on Futures Contracts. A futures
contract provides for the future sale
by one party and the purchase by the other party of a certain amount of a
specified security at a specified
price, date, time and place. The Fund may enter into futures contracts to
sell securities when the manager
believes that the value of the Fund's securities will decrease. An option
on a futures contract, as contrasted
with the direct investment in a futures contract, gives the purchaser the
right, in return for the premium paid,
to assume a position in a futures contract at a specified exercise price at
any time prior to the expiration date
of the option. A call option gives the purchaser of the option the right
to enter into a futures contract to buy
and obliges the writer to enter into a futures contract to sell the
underlying securities. A put option gives a
purchaser the right to sell and obliges the writer to buy the underlying
contract. The Fund may enter into
futures contracts to purchase securities when the Manager anticipates
purchasing the underlying securities
and believes that prices will rise before the purchases will be made. When
the Fund enters into a futures
contract to purchase an underlying security, an amount of cash, Government
Securities or other high grade
debt securities, equal to the market value of the contract, will be
deposited in a segregated account with the
Fund's custodian to collateralize the position, thereby insuring that the
use of the contract is unleveraged.
The Fund will not enter into futures contracts for speculation and will
only enter into futures contracts that
are traded on a U.S. exchange to board of trade.
Zero Coupon Securities. Zero coupon securities of the type held by
the Fund can be sold prior to
their due date in the secondary market at their then prevailing market
value which, depending on prevailing
levels of interest rates and the time remaining to maturity, may be more or
less than the securities' "accreted
value;" that is, their value based solely on the amount due at maturity and
accretion of interest to date. The
market prices of zero coupon securities are generally more volatile than
the market prices of securities that
pay interest periodically and, accordingly, are likely to respond to a
greater degree to changes in interest rates
than do non-zero coupon securities having similar maturities and yields. As
a result, the net asset value of
shares of the Fund may fluctuate over a greater range than shares of other
mutual funds that invest in
Government Securities having similar maturities and yields but that make
current distributions of interest.
The current net asset value of the Fund attributable to zero coupon
securities and other debt instruments held
by the Fund generally will vary inversely with changes in prevailing
interest rates.
As a series of an open-end investment company, the Fund is required
to redeem its shares upon the
request of any shareholder at the net asset value next determined after
receipt of the request. However,
because of the price volatility of zero coupon securities prior to
maturity, a shareholder who redeems shares
prior to the Maturity Date may realize an amount that is greater or less
than the purchase price of those
shares, including any sales charge paid. Although shares redeemed prior to
the Maturity Date would no
longer be subject to the possible achievement of the Repayment Objective,
the amount originally invested in
the shares not redeemed would remain subject to the possible achievement of
the Repayment Objective,
provided dividends and distributions with respect to these shares are
reinvested. Thus, if the Fund is
successful in achieving the Repayment Objective, the holder of those
remaining shares plus shares acquired
through reinvestment of dividends and distributions thereon ("Remaining
Shares") would receive at the
Maturity Date an amount that equals or exceeds the purchase price of those
shares. Nonetheless, the amount
received on the Maturity Date in respect of Remaining Shares, when combined
with the amount received in
respect of shares redeemed prior to the Maturity Date, may be more or less
than the aggregate purchase price
of all shares purchased in this offering.
Each year the Fund will be required to accrue an increasing amount of
income on its zero coupon
securities utilizing the effective interest method. To maintain its tax
status as a pass-through entity and also to
avoid imposition of excise taxes, however, the Fund will be required to
distribute dividends equal to
substantially all of its net investment income, including the accrued
income on its zero coupon securities for
which it receives no payments in cash prior to their maturity. Dividends of
the Funds's net investment income
and distributions of its short-term capital gains will be taxable to
shareholders as ordinary income for Federal
income tax purposes, whether received in cash or reinvested in additional
shares. See "Dividends,
Distributions and Taxes." However, a shareholder who elects to receive
dividends and distributions in cash,
instead of reinvesting these amounts in additional shares of the Fund, may
realize an amount that is less or
greater than the entire amount originally invested. Accordingly, the fund
may not be appropriate for
taxable investors that would require cash distributions from the fund in
order to meet their current
tax obligations resulting from their investment.
Other Considerations. In order to generate sufficient cash to meet
distribution requirements and
other operational needs and to redeem its shares on request, the Fund may
be required to limit reinvestment
of capital on the disposition of its non-zero coupon securities and may be
required to liquidate some or all of
its non-zero coupon securities over time. The Fund may be required to
effect these liquidations at a time
when it is otherwise disadvantageous to do so. If the Fund realizes
capital losses on dispositions of non-zero
coupon securities that are not offset by capital gains on the disposition
of other such securities, the Fund may
be required to liquidate a disproportionate amount of its zero coupon
securities or borrow money, in an
amount not exceeding 33-1/3% of the Fund's total assets, to satisfy the
distribution and redemption
requirements described above. The liquidation of zero coupon securities
and the expenses associated with
borrowing money in these circumstances could render the Fund unable to meet
the Repayment Objective.
Investment Restrictions
The Trust has adopted certain fundamental investment restrictions
that may not be changed without
approval of a majority of the Trust's outstanding voting securities.
Included among those fundamental
restrictions are the following:
1. The Fund will not purchase securities (other than Government
Securities) of any issuer if, as a
result of the purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities
of the issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to
this 5% limitation.
2. The Fund will not purchase more than 10% of the voting securities
of any one issuer, or more than
10% of the securities of any class of any one issuer, except that this
limitation is not applicable to the Fund's
investments in Government Securities, and up to 25% of the Funds' assets
may be invested without regard to
these 10% limitations.
3. The Fund will not borrow money, except that the Fund may borrow
from banks for temporary or
emergency (not leveraging) purposes, including the meeting of redemption
requests and cash payments of
dividends and distributions that might otherwise require the untimely
disposition of securities, in an amount
not to exceed 33-1/3% of the value of the Fund's total assets (including
the amount borrowed) valued at
market less liabilities (not including the amount borrowed) at the time the
borrowing is made. Whenever
borrowings exceed 5% of the value of the total assets of the Fund, the Fund
will not make any additional
investments.
4. The Fund will not lend money to other persons, except through
purchasing debt obligations,
lending portfolio securities and entering into repurchase agreements.
5. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any
one industry, except that this restriction does not apply to investments in
Government Securities.
Certain other investment restrictions adopted by the Fund are
described in the Statement of
Additional Information.
Portfolio Transactions and Turnover
Securities transactions on behalf of the Fund will be executed by a
number of brokers and dealers,
including Smith Barney and certain of its affiliated brokers, that are
selected by the Manager. The Fund may
use Smith Barney or a Smith Barney affiliated broker in connection with a
purchase or sale of securities when
the Manager believes that the charge for the transaction does not exceed
usual and customary levels.
The Trust cannot accurately predict the Fund's portfolio turnover
rate, but anticipates that its annual
turnover will not exceed 50%.
MANAGEMENT OF THE TRUST
Board of Trustees
Overall responsibility for management and supervision of the Trust
and the Fund rests with the Board
of Trustees. The Trustees approve all significant agreements between the
Trust and the persons or
companies that furnish services to the Trust and the Fund, including
agreements with its investment adviser,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to the Fund's investment
adviser. The Statement of Additional Information contains general
background information regarding each of
the Trust's Trustees and the executive officers of the Fund.
Manager
The Manager, located at 388 Greenwich Street, New York, New York
10013, serves as the Fund's
investment adviser. The Manager is a wholly owned subsidiary of Smith
Barney Holdings Inc. ("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. ("Travelers"),
a diversified financial services
holding company engaged, through its subsidiaries, principally in four
business segments: Investment
Services, Consumer Finance Services, Life Insurance Services and Property &
Casualty Insurance Services.
As of September 30, 1994, the Manager had aggregate assets under management
of approximately $9.5
billion.
Subject to the supervision and direction of the Trust's Board of
Trustees, the Manager manages the
Fund's portfolio in accordance with the Fund's stated investment objectives
and policies, makes investment
decisions for the Fund, places orders to purchase and sell securities, and
employs professional portfolio
managers and securities analysts who provide research services to the Fund.
Portfolio Management
John G. Goode, Vice President of the Manager, serves as Vice
President of the Fund and manages the
day to day operations of the Fund, including making all investment
decisions.
PURCHASE OF SHARES
Shares of the Fund may be made through the Fund's disributor, Smith
Barney, a broker that clears
securities transactions through Smith Barney on a fully disclosed basis (an
"Introducing Broker") or an
investment dealer in the selling group. No maintenance fee will be charged
in connection with a brokerage
account through which an investor or an investment dealer in the selling
group investor purchases shares.
Smith Barney will solicit subscriptions for shares of the Fund during
a period scheduled to end on
May , 1995 subject to change by agreement between the Trust and Smith
Barney (the "Subscription
Period"). On the fifth business day after termination of the Subscription
Period, or on such other day as may
be agreed by the Trust and Smith Barney, subscription for shares will be
payable, shares will be issued and
the Fund will commence investment operations. The Trust and Smith Barney
reserve the right to withdraw,
cancel of modify the initial offering of shares without notice and Trust
reserves the right to refuse any order
for shares in whole or in part. The Trust does not anticipate the Fund's
engaging in a continuous offering of
Fund shares after the termination of the Subscription Period, 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.
The minimum purchase during the Subscription Period is 125 shares
except for IRAs and other
retirement plans for which the minimum is 25 shares. There are no minimum
investment requirements for
employees of Travelers and its subsidiaries including Smith Barney,
Trustees of the Trust and their spouse
and children. The Fund reserves the right at any time to vary the initial
and subsequent investment
minimums. Shares certificates are issued only upon written request to the
Fund's transfer agent.
Shares of the Fund will be offered to investors during the
Subscription Period at a net asset value of
$7.60 per share, plus a sales charge of 4.00%.
Initial Sales Charge Waivers
Purchases of shares may be made at net asset value without a sales
charge in the following
circumstance: (a) sales of shares to Trustees of the Trust and employees of
Travelers and its subsidiaries, or
to the spouses and children of such persons (including the surviving spouse
of a deceased Trustee or
employee, and retired Trustees of employees), or sales to any trust,
pension, profit-sharing or other benefit
plan for such persons provided such sales are made upon the assurance of
the purchaser that the purchase is
made for investment purposes and that the securities will not be resold
except through redemption or
repurchase; (b) offers of shares to any other investment company in
connection with the combination of such
company with the fund by merger, acquisition of assets or otherwise; (c)
purchases of shares by any client of
a newly employed Smith Barney Financial Consultant (for a period up to 90
days from the commencement of
the Financial Consultant's employment with Smith Barney), on the condition
the purchase of shares is made
with the proceeds of the redemption of shares of a mutual fund which (i)
was sponsored by the Financial
Consultant's prior employer, (ii) was sold to the client by the Financial
Consultant and (iii) was subject to a
sales charge; and (d) accounts managed by registered investment advisory
subsidiaries of Travelers. In order
to obtain such discounts, the purchaser must provide sufficient information
at the time of purchase to permit
verification that the purchase would qualify for the elimination of the
sales charge.
REDEMPTION OF SHARES
Shareholders may redeem their shares without charge on any day that
the Fund calculates its net asset
value. See "Valuation of Shares." Redemption requests received in proper
form prior to the close of regular
trading on the NYSE are priced at the net asset value per share determined
on that day. Redemption requests
received after the close of regular trading on the NYSE are priced at the
net asset value as next determined.
Redemption proceeds will be remitted on or before the seventh day
following receipt of proper
tender. The Fund anticipates that, in accordance with regulatory changes,
beginning on or about June 1,
1995, payment will be made on the third business day after receipt of
proper tender. Generally, these funds
will not be invested for the shareholder's benefit without specific
instruction and Smith Barney will benefit
from the use of temporarily uninvested funds.
Although shares of the Fund may be redeemed as described above, a
shareholder who redeems prior
to the Maturity Date may realize an amount that is less or greater than the
entire amount of his or her
investment. See "Investment Objectives and Management Policies."
If the Fund's Board of Trustees determines that it would be
detrimental to the best interests of
remaining shareholders to make a redemption payment wholly in cash, the
Fund may pay any portion of a
redemption in excess of the lesser of $250,000 or 1% of the Fund's net
assets by distribution in kind of
securities from the Fund's portfolio in lieu of cash in conformity with SEC
rules. Portfolio securities issued in
a redemption in kind will be readily marketable, although a shareholder
that receives a distribution in kind of
securities may incur transaction costs in the disposition of those
securities and could experience a loss on the
securities between the time of such distribution and such disposition.
Shares held by Smith Barney as custodian must be redeemed by
submitting a written request to a
Smith Barney Financial Consultant. Shares other than those held by Smith
Barney as custodian may be
redeemed through an investor's Financial Consultant, Introducing Broker or
dealer in the selling group or by
submitting a written request to:
Smith Barney Principal Return Fund / Smith Barney Security and Growth
Fund
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the number of shares to
be redeemed, (b) identify the
shareholder's account number and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or
be accompanied by an endorsed stock power) and must be submitted to TSSG
together with the redemption
request. Any signature appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor institution, such as a domestic bank,
savings and loan institution,
domestic credit union, member bank of the Federal Reserve System or a
member firm of a national securities
exchange. TSSG may require additional supporting documents for redemptions
made by corporations,
executors, administrators, trustees or guardians. A redemption request will
not be deemed to be properly
received until the Trust's transfer agent receives all required documents
in proper form.
VALUATION OF SHARES
The Fund's net asset value per share is calculated on each day,
Monday through Friday, except on
days on which the NYSE is closed. The NYSE currently is scheduled to be
closed on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or
Sunday, respectively.
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE and
is computed by dividing the value of the Fund's net assets by the total
number of its shares outstanding.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value, at fair
value as determined by or under the direction of the Trust's Board of
Trustees. Securities that are primarily
traded on non-U.S. exchanges are generally valued at the preceding closing
values of the securities on their
respective exchanges, except that when an occurrence subsequent to the time
that a non-U.S. security is
valued is likely to have changed the value, then the fair value of those
securities will be determined by
consideration of other factors by or under the direction of the Board of
Trustees. A security that is primarily
traded on a U.S. or non-U.S. stock exchange is valued at the last sale
price on that exchange or, if there were
no sales during the day, at the current quoted bid price. In cases in
which securities are traded on more than
one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of
Trustees as the primary market. Unlisted non-U.S. securities are valued at
the mean between the last
available bid and offer price prior to the time of valuation. U.S. over-
the-counter securities will be valued on
the basis of the bid price at the close of business on each day. Any
assets or liabilities initially expressed in
terms of non-U.S. currencies will be converted into U.S. dollar values
based on a formula prescribed by the
Trust or, if the information required by the formula is unavailable, as
determined in good faith by the Board
of Trustees. Investments in 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 (which involves valuing an investment at its cost
initially and, thereafter, assuming a
constant amortization to maturity of any discount or premium, regardless of
the effect of fluctuating interest
rates on the market value of the investment) when the Board of Trustees
determines that amortized cost
reflects fair value of the investment. In carrying out the Board's
valuation policies, the Manager may consult
with an independent pricing service retained by the Trust. Further
information regarding the Fund's valuation
policies is contained in the Statement of Additional Information.
EXCHANGE PRIVILEGE
Beginning four years after the date on which shares of the Fund were
originally purchased,
shareholders of the Fund may exchange their shares for Class A shares in
the following funds of the Smith
Barney Mutual Funds, to the extent shares are offered for sale in the
shareholder's state of residence.
Exchanges of shares are subject to minimum investment requirements and any
other requirements of the fund
into which exchanges are made.
Fund Name
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney European Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.-Capital Appreciation Portfolio
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc.-Emerging Markets Portfolio
Smith Barney World Funds, Inc.-European Portfolio
Smith Barney World Funds, Inc.-International Equity Portfolio
Smith Barney World Funds, Inc.-Pacific Portfolio
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.-Income and Growth Portfolio
Smith Barney Funds, Inc.-Utility Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Smith Barney World Funds, Inc.-International Balanced Portfolio
Income Funds
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney Funds, Inc.-Income Return Account Portfolio
Smith Barney Funds, Inc.-Monthly Payment Government Portfolio
Smith Barney Funds, Inc.-Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc.-U.S. Government Securities Portfolio
Smith Barney Global Bond Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Limited Maturity Treasury Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney World Funds, Inc.-Global Government Bond Portfolio
Municipal Bond Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds-California Limited Term Portfolio
Smith Barney Muni Funds-California Portfolio
Smith Barney Muni Funds-Florida Limited Term Portfolio
Smith Barney Muni Funds-Florida Portfolio
Smith Barney Muni Funds-Georgia Portfolio
Smith Barney Muni Funds-Limited Term Portfolio
Smith Barney Muni Funds-National Portfolio
Smith Barney Muni Funds-New Jersey Portfolio
Smith Barney Muni Funds-New York Portfolio
Smith Barney Muni Funds-Ohio Portfolio
Smith Barney Muni Funds-Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
Money Market Funds
Smith Barney Exchange Reserve Fund
Smith Barney Money Funds, Inc.-Cash Portfolio
Smith Barney Money Funds, Inc.-Government Portfolio
Smith Barney Money Funds, Inc.-Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds-California Money Market Portfolio
Smith Barney Muni Funds-New York Money Market Portfolio
Exchanges will be processed at the net asset value next determined.
Redemption procedures
discussed below are also applicable for exchanging shares, and exchanges
will be made upon receipt of all
supporting documents in proper form. If the account registration of the
shares of the fund being acquired is
identical to the registration of the shares of the fund exchanged, no
signature guarantee is required. A capital
gain or loss for tax purposes will be realized upon the exchange, depending
upon the cost or other basis of
shares redeemed. Before exchanging shares, investors should read the
current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60
days' prior notice to shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
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.
Dividends and distributions will be reinvested automatically for each
shareholder's account at net asset value
in additional shares of the Fund, unless the shareholder instructs the Fund
to pay all dividends and
distributions in cash and to credit the amounts to his or her Smith Barney
brokerage account. A shareholder
who elects to receive dividends and distributions in cash may realize an
amount that is greater of less
than the entire amount of the his or her investment.
Taxes
The Fund has qualified and intends to continue to qualify each year
as a regulated investment
company for Federal income tax purposes. The requirements for qualification
may cause the Fund to restrict
the extent of its short-term trading. If the Fund so qualifies, it will not
be subject to Federal income tax on its
net investment income and net realized capital gains that it distributes to
shareholders, so long as it meets
certain distribution requirements. See "Investment Objectives and
Management Policies." In addition, the
Fund is subject to a nondeductible excise tax of 4% of the amount by which
the Fund fails to distribute
specified percentages of its investment income and capital gains. The Fund
intends to pay dividends and
distributions more frequently than stated above in order to avoid
application of the excise tax, if the
additional distributions are otherwise determined to be in the best
interests of the Fund's shareholders.
Dividends declared by the Fund in October, November or December of any
calendar year and payable to
shareholders of record on a specified date in such a month are deemed to
have been received by each
shareholder on December 31 of such calendar year and to have been paid by
the Fund not later than such
December 31, provided that such dividend is actually paid by the Fund
during January of the following year.
Dividends of the Fund's investment income and distributions of its
short-term capital gains will be
taxable to shareholders as ordinary income for Federal income tax purposes,
whether received in cash or
reinvested in additional shares. Distributions of long-term capital gains
will be taxable to shareholders as
such, whether received in cash or reinvested, and regardless of how long a
shareholder has held shares of the
Fund. In general, only dividends that represent the dividends received
from U.S. corporations may, subject
to certain limitations, qualify for the Federal dividends-received
deduction for corporate shareholders.
Statements as to the tax status of each shareholder's dividends and
distributions will be mailed
annually. These statements will set out the amount of the Fund's dividends
eligible for the dividends-received
deduction for corporate shareholders. Furthermore, shareholders will
receive, as appropriate, various written
notices after the close of the Fund's taxable year regarding the tax status
of certain dividends and distributions
that were paid (or that are treated as having been paid) by the Fund to its
shareholders during the preceding
taxable year, including the amount of dividends that represent interest
derived from Government Securities.
Shareholders should consult their own tax advisors as to the state
and local tax consequences of
investing in the Fund and should be aware that some jurisdictions may not
treat income derived from the
Fund's holdings of Government Securities as exempt from state and local
income taxes.
THE FUND'S PERFORMANCE
From time to time, the Trust may advertise the Fund's "average annual
total return" over various
periods of time. Such total return figures show the average percentage
change in value of an investment in
the Fund from the beginning date of the measuring period to the end of the
measuring period. These figures
reflect changes in the price of the Fund's shares and assume that any
income dividends and/or capital gains
distributions made by the Fund during the period were reinvested in shares
of the Fund. Figures will be given
for the recent one-, and five-year periods, or for the life of the Fund to
the extent that it has not been in
existence for any such periods, and may be given for other periods as well,
such as on a year-by-year basis.
When considering average annual total return figures for periods longer
than one year, it is important to note
that the Fund's average annual total return for any one year in the period
might have been greater or less than
the average for the entire period. The series also may use "aggregate"
total return figures for various
periods, representing the cumulative change in value of an investment in
the Fund for the specific period
(again reflecting changes in the Fund's share prices and assuming
reinvestment of dividends and
distributions). Aggregate total return may be calculated either with or
without the effect of the maximum
4.00% sales charge and may be shown by means of schedules, charts or
graphs, and may indicate subtotals of
the various components of total return (i.e., change in value of initial
investment, income dividends and
capital gains distributions).
In reports or other communications to shareholders or in advertising
material, the Trust may compare
the Fund's performance with the Standard & Poor's Index of 500 Common
Stocks, the Russell 2000 Index,
the Dow Jones Industrial Average, the Value-Line Composite Geometric Index;
or with that of other mutual
funds as listed in the rankings prepared by Lipper Analytical Services,
Inc., with studies prepared by
independent organizations such as Ibbotson Associates or Wilshire
Associates Incorporated, or similar
independent services which monitor the performance of mutual funds or other
industry or financial
publications such as Barron's, Business Week, Forbes, Fortune,
Institutional Investor, Investors Daily,
Kiplinger's Personal Finance, Money, Morningstar Mutual Fund Values, The
New York Times,
The Wall Street Journal, or USA Today. Any given performance comparison
should not be considered as
representative of the Fund's performance for any future period. The
Statement of Additional Information
contains a description of the methods used to determine total return.
Shareholders may make inquiries
regarding the Fund, including total return figures, to their Smith Barney
Financial Consultant.
CUSTODIAN AND TRANSFER AGENT
Boston Safe Deposit and Trust Company, located at One Boston Place,
Boston, Massachusetts
02108, serves as custodian of the Trust's investments. Boston Safe is an
indirect wholly owned subsidiary of
Mellon Bank Corporation.
The Shareholder Services Group, Inc. serves as the Trust's transfer
agent and is located at Exchange
Place, Boston, Massachusetts, 02109.
DISTRIBUTOR
Distributor and Shareholder Servicing Agent--Smith Barney
Smith Barney, which serves as the Trust's distributor and shareholder
servicing agent for the Fund, is
located at 388 Greenwich Street, New York, New York 10013, and is one of
the leading full-line investment
firms serving the U.S. and foreign securities and commodities markets.
Pursuant to a Shareholder Services
Plan (the "Plan") adopted with respect to the Fund, by vote of a majority
of the Trust's Board of Trustees,
including a majority of the Trustees who are not interested persons of the
Trust as defined in the 1940 Act
and who have no direct or indirect financial interest in the operation of
the Plan or any agreement relating to
it, as well as by the Fund's sole shareholder prior to the Fund's initial
public offering, Smith Barney, as
shareholder servicing agent, is paid an annual fee by the Fund. The fee
will be calculated at the annual rate of
0.25% of the value of the average daily net assets of the Fund and is used
by Smith Barney to cover
payments to Smith Barney Financial Consultants who provide support services
to shareholders of the Fund,
including, but not limited to, office space and equipment, telephone
facilities, responding to routine inquiries
regarding the Fund and its operations, processing shareholder transactions,
forwarding and collecting proxy
materials, dividend payment elections and providing any other shareholder
services not otherwise provided by
TSSG. The Board of Trustees evaluates the appropriateness of the Plan and
its payment terms on a
continuing basis and in doing so considers all relevant factors, including
the nature, extent and quality of
services generally provided to shareholders.
ADDITIONAL INFORMATION
The Trust was organized on October 18, 1988 under the laws of the
Commonwealth of
Massachusetts and is an entity commonly known as a "Massachusetts business
trust." On November 18,
1988, August 27, 1990 and July 30, 1993, the Trust changed its name from
SLH Secured Capital Fund to
SLH Principal Return Fund, Shearson Lehman Brothers Principal Return Fund
and Smith Barney Shearson
Principal Return Fund, respectively. The Trust offers shares of beneficial
interest of the Fund having a $.001
per share par value. When matters are submitted for shareholder vote,
shareholders of the Fund will have
one vote for each full share owned and a proportionate, fractional vote for
any fractional share held.
Generally shares of the Trust vote by individual series on all matters
except (a) matters affecting only the
interests of one or more of the series, in which case only shares of the
affected series would be entitled to
vote or (b) when the 1940 Act requires that shares of the series be voted
in the aggregate. There normally
will be no annual meetings of shareholders for the purpose of electing
Trustees unless and until such time as
less than a majority of the Trustees holding office have been elected by
shareholders. Shareholders of record
of no less than two-thirds of the outstanding shares of the Trust may
remove a Trustee through a declaration
in writing or by vote cast in person or by proxy at a meeting called for
that purpose. A meeting will be called
for the purpose of voting on the removal of a Trustee at the written
request of holders of 10% of the Trust's
outstanding shares and the Trust will assist shareholders in calling such a
meeting as required by the 1940
Act.
The Trust sends its shareholders a semi-annual report and an audited
annual report, each of which
includes a listing of the investment securities held by the Fund at the end
of the period covered. In an effort
to reduce the Fund's printing and mailing costs, the Fund plans to
consolidate the mailing of its semi-annual
and annual reports by household. This consolidation means that a household
having multiple accounts with
the identical address of record will receive a single copy of each report.
In addition, the Fund also plans to
consolidate the mailing of its Prospectus so that a shareholder having
multiple accounts will receive a single
Prospectus annually. Any shareholder who does not want this consolidation
to apply to his or her account
should contact his or her Financial Consultant or the Trust's transfer
agent. Shareholders may make inquiries
regarding the Trust to their Smith Barney Financial Consultant.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN
THE TRUST'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF
THE TRUST'S SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN
WHICH, OR TO ANY PERSON TO WHOM, THE OFFER MAY NOT LAWFULLY BE MADE.
- -2-
SMITH BARNEY PRINCIPAL RETURN FUND
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information
March , 1995
This Statement of Additional Information supplements the information
contained in the current Prospectus dated March , 1995, as amended or
supplemented from time to time, of the Security and Growth Series (the
"Fund"), a series of Smith Barney Principal Return Fund (the "Trust"), and
should be read in conjunction with that Prospectus. The Prospectus may be
obtained from your Smith Barney Shearson Financial Consultant or by writing
or
calling the Trust at the address or telephone number set forth above. This
Statement of Additional Information, although not in itself a prospectus,
is
incorporated by reference into the Prospectus in its entirety.
- ------------------------------------------------------------------
CONTENTS
For ease of reference, the same section headings are used in both the
Prospectus and the Statement of Additional Information, except where noted
below.
Management of the Fund 2
Investment Objectives and Management Policies 5
Purchase of Shares 13 Redemption of Shares 13
Valuation of Shares 14
Exchange Privilege 14
Determination of Performance 15
(See in the Prospectus "The Fund's Performance")
Taxes 16
(See in the Prospectus "Dividends, Distributions and Taxes")
Distributor 18
Custodian and Transfer Agent
(See in the Prospectus "Additional Information") 19
Organization of the Trust 19
Financial Statements 20
MANAGEMENT OF THE TRUST
The executive officers of the Trust are employees of certain of the
organizations that provide services to the Fund. These organizations are
as
follows:
Name Service
Smith Barney Inc.
("Smith Barney") Distributor
Smith Barney Mutual Funds Management Inc.
(the "Manager") Investment Adviser
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc.("TSSG"), a
subsidiary of First Data Corporation Transfer Agent
These organizations and the functions that they perform for the Fund
are
discussed in the Prospectus and in this Statement of Additional
Information.
Trustees and Executive Officers of the Trust
The names of the Trustees and executive officers of the Trust,
together
with information as to their principal business occupations for the past
five
years, are set forth below. Each Trustee who is an "interested person" of
the
Trust, as defined in the Investment Company Act of 1940, as amended (the
"1940
Act"), is indicated by an asterisk.
Trustees
Paul R. Ades, Trustee. Partner in the law firm of Murov & Ades. His
address is 272 South Wellwood Avenue, P.O. Box 504, Lindenhurst, New York
11757.
Herbert Barg, Trustee. Private investor. His address is 273
Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
Allan R. Johnson, Trustee. Retired. former Chairman, Retail Division
of
BATUS, Inc., and Chairman and Chief Executive Officer of Saks Fifth Avenue,
Inc. His address is 2 Sutton Place South, New York, New York 10022.
* Heath B. McLendon, Chairman of the Board and Investment Officer.
Executive Vice President of Smith Barney; Chairman of Smith Barney Strategy
Advisers Inc.; prior to July 1993, Senior Executive Vice President of
Shearson
Lehman Brothers Inc. ("Shearson Lehman Brothers"); Vice Chairman of
Shearson Asset
Management, a member of the Asset Management Group of Shearson Lehman
Brothers; a
Director of PanAgora Asset Management, Inc. and PanAgora Asset Management
Limited.
His address is 388 Greenwich Street, New York, New York 10013.
Ken Miller, Trustee. President of Young Stuff Apparel Group, Inc.
His
address is 1407 Broadway, 6th Floor, New York, New York 10018.
John F. White, Trustee. President Emeritus of The Cooper Union for
the
Advancement of Science and Art; Special Assistant to the President of the
Aspen
Institute. His address is Crows Nest Road, P. O. Box 754, Tuxedo Park, New
York,
New York 10987.
Stephen J. Treadway, President. Executive Vice President and
Director of
Smith Barney; Director and President of Mutual Management Corp. and Smith
Barney
Mutual Funds Management Inc. ("SBMFM") and Trustee of Corporate Realty
Income
Trust I. His address is 388 Greenwich Street, New York, New York 10013.
Richard P. Roelofs, Executive Vice President. Managing Director of
Smith
Barney and President of Smith Barney Strategy Advisers Inc.; prior to July
1993,
Senior Vice President of Shearson Lehman Brothers; Vice President of
Shearson
Lehman Investment Strategy Advisors Inc., an investment advisory affiliate
of
Shearson Lehman Brothers. His address is 388 Greenwich Street, New York,
New York
10013.
Harry D. Cohen, Vice President and Investment Officer. Vice President
of
SBMFM; prior to July 1993, Executive Vice President of Shearson Lehman
Brothers.
His address is 388 Greenwich Street, New York, New York 10013.
Harold L. Williamson, Jr., Vice President and Investment Officer.
Vice
President of SBMFM; prior to July 1993, Vice Chairman and a Director of
Shearson
Asset Management. His address is 388 Greenwich Street, New York, New York
10013.
Susan C. Fulenwider, Vice President and Investment Officer. Vice
President
of SBMFM; prior to July 1993, Vice President of Shearson Asset Management.
Her
address is 388 Greenwich Street, New York, New York 10013.
Richard A. Freeman, Vice President and Investment Officer. Vice
President
of SBMFM; prior to July 1993, Executive Vice President of Shearson Asset
Management. His address is 388 Greenwich Street, New York, New York 10013.
John C. Goode, Vice President and Investment Officer. Vice President
of
SBMFM; prior to July 1993, Vice President of Shearson Asset Management.
His
address is 388 Greenwich Street, New York, New York 10013.
Lewis E. Daidone, Treasurer. Managing Director of Smith Barney. His
address is 388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary. Managing Director of Smith Barney.
Her
address is 388 Greenwich Street, New York, New York 10013.
Each of the Trustees serves as a trustee, general partner and/or
director of
other mutual funds for which Smith Barney serves as distributor. As of
January
30, 1995, Trustees and officers of the Fund, as a group, owned less than 1%
of the
outstanding shares of beneficial interest of the Fund.
No director, officer or employee of Smith Barney, the Manager or any
of
their affiliates will receive any compensation from the Trust for serving
as an
officer or Trustee. The Trust pays each Trustee who is not a director,
officer or
employee of Smith Barney or any of its affiliates a fee of $2,000 per annum
plus
$500 per meeting attended and reimburses them for travel and out-of-pocket
expenses. For the fiscal year ended November 30, 1994, such fees and
expenses for
the Trust totalled $------.
Investment Adviser and Administrator
The Manager serves as the Fund's investment adviser under the terms
of a
written agreement with the Trust (the "Advisory Agreement") which will
become
effective on the date that the Fund commences operations. The Manager is a
wholly
owned subsidiary of Smith Barney Holdings Inc. ("Holdings"), which is in
turn a
wholly owned subsidiary of The Travelers Inc. ("Travelers"). The Advisory
Agreement for the Fund was first approved by the Board of Trustees,
including a
majority of the Trustees who are not "interested persons" of the Trust or
Smith
Barney on January 26, 1995. Certain of the services provided to, and fees
paid by,
the Fund under the Advisory Agreement are described in the Prospectus. The
Manager pays the salaries of all officers and employees who are employed by
both
it and the Trust and maintains office facilities for the Trust. The
Manager bears
all expenses in connection with the performance of its services under the
Advisory
Agreements. In addition to providing investment advisory services, the
Manager,
pursuant to the Advisory Agreement, furnishes the Fund with statistical and
research data, clerical help and accounting, data procissing, bookkeeping,
internal auditing and legal services and certain other services required by
the
Fund; prepares reports to the Fund's shareholders; and prepares tax returns
and
reports to and filings with the Securities and Exchange Commission (the
"SEC") and
state Blue Sky authorities.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Trust. Stroock &
Stroock
& Lavan serves as counsel to the Trustees who are not "interested persons"
of the
Trust.
Coopers & Lybrand, independent accountants, One Post Office Square,
Boston,
Massachusetts 02109, have been selected as auditors of the Trust and render
an
opinion on the Trust's financial statements annually.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectus discusses the investment objectives of the Fund and
the
policies to be employed to achieve those objectives. Set forth below is
supplemental information concerning certain of the securities and other
instruments in which the Fund may invest, the investment policies and
portfolio
strategies that the Fund may utilize and certain risks involved with those
investments, policies and strategies.
Zero Coupon Securities
There are currently two basic types of zero coupon securities, those
created
by separating the interest and principal components of a previously issued
interest-paying security and those originally issued in the form of a face
amount
only security paying no interest. Zero coupon securities of the United
States
government and certain of its agencies and instrumentalities and of private
corporate issuers are currently available, although the Series will
purchase only
those that represent direct obligations of the United States government.
Zero coupon securities of the United States government that are
currently
available are called Separate Trading of Registered Interest and Principal
of
Securities ("STRIPS") or Coupon Under Book-Entry Safekeeping ("CUBES").
STRIPS and
CUBES are issued under programs introduced by the United States Treasury
and are
direct obligations of the United States government. The United States
government
does not issue zero coupon securities directly. The STRIPS program, which
is
ongoing, is designed to facilitate the secondary market stripping of
selected
treasury notes and bonds into individual interest and principal components.
Under
the program, the United States Treasury continues to sell its notes and
bonds
through its customary auction process. However, a purchaser of those notes
and
bonds who has access to a book-entry account at a Federal Reserve Bank (the
"Federal Reserve") may separate the specified treasury notes and bonds into
individual interest and principal components. The selected treasury
securities may
thereafter be maintained in the book-entry system operated by the Federal
Reserve
in a manner that permits the separate trading and ownership of the interest
and
principal payments. The Federal Reserve does not charge a fee for this
service;
however, the book-entry transfer of interest or principal components is
subject to
the same fee schedule generally applicable to the transfer of treasury
securities.
Under the program, in order for a book-entry treasury security to be
separated into its component parts, the face amount of the security must be
an
amount which, based on the stated interest rate of the security, will
produce a
semi-annual interest payment of $1,000 or a multiple of $1,000. Once a
book-entry
security has been separated, each interest and principal component may be
maintained and transferred in multiples of $1,000 regardless of the face
amount
initially required for separation of the resulting amount required for each
interest payment.
CUBES, like STRIPS, are direct obligations of the United States
government.
CUBES are coupons that have previously been physically stripped from
treasury
notes and bonds, but which were deposited with the Federal Reserve and are
now
carried and transferable in book-entry form only. Only stripped treasury
coupons
maturing on or after January 15, 1988, that were stripped prior to January
5,
1987, were eligible for conversion to book-entry form under the CUBES
program.
Investment banks may also strip treasury securities and sell them under
proprietary names. These securities may not be as liquid as STRIPS and
CUBES and
the Series have no present intention of investing in these instruments.
STRIPS and CUBES are purchased at a discount from $1,000. Absent a
default
by the United States government, a purchaser will receive face value for
each of
the STRIPS and CUBES provided that the STRIPS and CUBES are held to their
due
date. While STRIPS and CUBES can be purchased on any business day, they
all
currently come due on February 15, May 15, August 15 or November 15 in any
given
year.
Money Market Instruments
As noted in the Prospectus, the Fund may hold at any time up to 10%
of the
value of its assets in cash and money market instruments. In addition,
when the
Manager believes that opportunities for capital appreciation do not appear
attractive, the Fund may, notwithstanding its investment objective, take a
temporary defensive posture with respect to its equity securities and
invest
without limitation in cash and money market instruments. Among the money
market
instruments in which the Fund may invest are obligations of the United
States
government and its agencies and instrumentalities ("U.S. government
securities");
certain bank obligations; commercial paper; and repurchase agreements
involving
U.S. government securities.
U. S. government securities. U.S. government securities include debt
obligations of varying maturities issued or guaranteed by the United States
government or its agencies or instrumentalities. Direct obligations of the
United
States Treasury include a variety of securities that differ in their
interest
rates, maturities and dates of issuance.
U.S government securities include not only direct obligations of the
United
States Treasury, but also include securities issued or guaranteed by the
Federal
Housing Administration, Federal Financing Bank, Export-Import Bank of the
United
States, Small Business Administration, Government National Mortgage
Association,
General Services Administration, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association, Maritime
Administration, Tennessee Valley Authority, Resolution Trust Corporation,
District
of Columbia Armory Board, Student Loan Marketing Association and various
institutions that previously were or currently are part of the Farm Credit
System
(which has been undergoing a reorganization since 1987). Because the United
States
government is not obligated by law to provide support to an instrumentality
that
it sponsors, the Fund will invest in obligations issued by such an
instrumentality
only if the Manager determines that the credit risk with respect to the
instrumentality does not make its securities unsuitable for investment by
the
Fund.
Repurchase Agreements
The Fund may enter into repurchase agreements with certain banks
which are
the issuers of instruments acceptable for purchase by the Fund and with
certain
dealers on the Federal Reserve Bank of New York's list of reporting
dealers. A
repurchase agreement is a contract under which the buyer of a security
simultaneously commits to resell the security to the seller at an agreed
price on
an agreed date. Under each repurchase agreement, the selling institution
will be
required to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price. Repurchase agreements
could
involve certain risks in the event of default or insolvency of the seller,
including possible delays or restrictions on the Fund's ability to dispose
of the
underlying securities, the risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to assert
its
rights to them, the risk of incurring expenses associated with asserting
these
rights and the risk of losing all or part of the income from the agreement.
In
evaluating these potential risks, the Manager, acting under the supervision
of the
Board of Trustees, and on an ongoing basis, monitors (a) the value of the
collateral underlying each repurchase agreement to ensure that the value is
at
least equal to the total amount of the purchase obligation, including
interest,
and (b) the creditworthiness of the banks and dealers with which the Fund
enters
into repurchase agreements.
Warrants
Because a warrant does not carry with it the right to dividends or
voting
rights with respect to securities that the warrant holder is entitled to
purchase,
and because it does not represent any rights to the assets of the issuer, a
warrant may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily
change with
the value of the underlying securities and a warrant ceases to have value
if it is
not exercised by its expiration date.
Convertible Securities
Convertible securities are fixed-income securities that may be
converted at
either a stated price or stated rate into underlying shares of common
stock.
Convertible securities have general characteristics similar to both fixed-
income
and equity securities. Although to a lesser extent than with fixed-income
securities generally, the market value of convertible securities tends to
decline
as interest rates increase and, conversely, tends to increase as interest
rates
decline. In addition, because of the conversion feature, the market value
of
convertible securities tends to vary with fluctuations in the market value
of the
underlying common stocks and, therefore, also will react to variations in
the
general market for equity securities. A unique feature of convertible
securities
is that as the market price of the underlying common stock declines,
convertible
securities tend to trade increasingly on a yield basis, and so may not
experience
market value declines to the same extent as the underlying common stock.
When the
market price of the underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the value of the
underlying
common stock. While no securities investments are without risk,
investments in
convertible securities generally entail less risk than investments in
common stock
of the same issuer.
As fixed-income securities, convertible securities are investments
that
provide for a stable stream of income with generally higher yields than
common
stocks. Of course, like all fixed-income securities, there can be no
assurance of
current income because the issuers of the convertible securities may
default on
their obligations. Convertible securities, however, generally offer lower
interest or dividend yields than non-convertible securities of similar
quality
because of the potential for capital appreciation. A convertible security,
in
addition to providing fixed income, offers the potential for capital
appreciation
through the conversion feature, which enables the holder to benefit from
increases
in the market price of the underlying common stock. There can be no
assurance of
capital appreciation, however, because securities prices fluctuate.
Convertible securities generally are subordinated to other similar
but non-
convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all
equity
securities, and convertible preferred stock is senior to common stock, of
the same
issuer. Because of the subordination feature, however, convertible
securities
typically have lower ratings than similar non-convertible securities.
Preferred Stock
Preferred stocks, like debt obligations, are generally fixed-income
securities. Shareholders of preferred stocks normally have the right to
receive
dividends at a fixed rate when and as declared by the issuer's board of
directors,
but do not participate in other amounts available for distribution by the
issuing
corporation. Dividends on the preferred stock may be cumulative, and all
cumulative dividends usually must be paid prior to common shareholders
receiving
any dividends. Preferred stock dividends must be paid before common stock
dividends and, for that reason, preferred stocks generally entail less risk
than
common stocks. Upon liquidation, preferred stocks are entitled to a
specified
liquidation preference, which is generally the same as the par or stated
value,
and are senior in right of payment to common stock. Preferred stocks are,
however, equity securities in the sense that they do not represent a
liability of
the issuer and, therefore, do not offer as great a degree of protection of
capital
or assurance of continued income as investments in corporate debt
securities. In
addition, preferred stocks are subordinated in right of payment to all debt
obligations and creditors of the issuer, and convertible preferred stocks
may be
subordinated to other preferred stock of the same issuer.
Lending Portfolio Securities
Although the Fund is authorized to lend its securities to brokers,
dealers
and other financial organizations, it will not lend securities to its
distributor,
Smith Barney, or its affiliates unless the Fund applies for and receive
specific
authority to do so from the SEC. These loans, if and when made, may not
exceed
33-1/3% of the Fund's assets taken at value. The Fund's loans of
securities will
be collateralized by cash, letters of credit or U.S government securities
that
will be maintained at all times in an amount at least equal to the current
market
value of the loaned securities. From time to time, the Fund may pay a part
of the
interest earned from the investment of collateral received for securities
loaned
to: (a) the borrower and/or (b) a third party that is unaffiliated with the
Fund
and that is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to
receive interest on the loaned securities as well as by either investing
the cash
collateral in short-term instruments or obtaining yield in the form of
interest
paid by the borrower when U.S. government securities are used as
collateral.
Requirements of the SEC, which may be subject to future modifications,
currently
provide that the following conditions must be met whenever the Fund's
portfolio
securities are loaned: (a) the Fund must receive at least 100% cash
collateral or
equivalent securities from the borrower; (b) the borrower must increase
such
collateral whenever the market value of the securities rises above the
level of
such collateral; (c) the Fund must be able to terminate the loan at any
time; (d)
the Fund must receive reasonable interest on the loan, as well as an amount
equal
to any dividends, interest or other distributions on the loaned securities
and any
increase in market value; (e) the Fund may pay only reasonable custodian
fees in
connection with the loan; and (f) voting rights on the loaned securities
may pass
to the borrower; however, if a material event adversely affecting the
investment
in the loaned securities occurs, the Board of Trustees must terminate the
loan and
regain the Fund's right to vote the securities.
Investment Restrictions
The investment restrictions recited in the Prospectus and those
numbered 1
through 8 below have been adopted by the Trust as fundamental policies.
Under the
1940 Act, a fundamental policy may not be changed without the vote of a
majority
of the outstanding voting securities of the Fund, as defined in the 1940
Act.
"Majority" means the lesser of (a) 67% or more of the shares present at a
meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present
or represented by proxy, or (b) more than 50% of the outstanding shares.
Investment restrictions 9 through 19 may be changed by vote of a majority
of the
Board of Trustees at any time.
Under the investment restrictions adopted by the Fund:
1. The Fund will not purchase securities (other than U. S.
government
securities) of any issuer if, as a result of the purchase, more than 5% of
the
value of the Fund's total assets would be invested in the securities of the
issuer, except that up to 25% of the value of the Fund's total assets may
be
invested without regard to this 5% limitation.
2. The Fund will not purchase more than 10% of the voting
securities of
any one issuer, or more than 10% of the securities of any class of any one
issuer,
except that this limitation is not applicable to the Fund's investments in
U. S.
government securities, and up to 25% of the Fund's assets may be invested
without
regard to these 10% limitations.
3. The Fund will not borrow money, except that it may borrow from
banks
for temporary or emergency (not leveraging) purposes, including the meeting
of
redemption requests and cash payments of dividends and distributions that
might
otherwise require the untimely disposition of securities, in an amount not
to
exceed 33-1/3% of the value of the Fund's total assets (including the
amount
borrowed) at the time the borrowing is made. Whenever borrowings exceed 5%
of the
value of its total assets, the Fund will not make any additional
investments.
4. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities and entering into
repurchase agreements.
5. The Fund will invest no more than 25% of the value of its total
assets
in securities of issuers in any one industry, except that this restriction
does
not apply to investments in U. S. government securities.
6. The Fund will not underwrite the securities of other issuers,
except
insofar as the Fund may be deemed to be an underwriter under the Securities
Act of
1933, as amended, (the "1933 Act") in disposing of its portfolio
securities.
7. The Fund will not purchase or sell real estate, interests in
real
estate limited partnerships or interests in real estate, except that the
Fund may
purchase and sell securities that are secured by real estate and may
purchase
securities issued by companies that invest or deal in real estate.
8. The Fund will not purchase or sell commodities or commodities
futures
contracts.
9. The Fund will not sell securities short.
10. The Fund will not purchase securities on margin, except that
the Fund
may obtain any short-term credits necessary for the clearance of purchases
and
sales of securities.
11. The Fund will not pledge, hypothecate, mortgage or encumber in
any
other way more than 10% of its assets.
12. The Fund will not invest in oil, gas, mineral leases or other
mineral
exploration or development programs, except that the Fund may invest in the
securities of companies that invest in or sponsor those programs.
13. The Fund will not invest in securities of other investment
companies
registered or required to be registered under the 1940 Act, except as the
securities may be acquired as part of a merger, consolidation,
reorganization,
acquisition of assets or an offer of exchange.
14. The Fund will not write or sell put options, naked call
options,
straddles or combinations of those options, except that the Fund may, for
hedging
purposes only, (i) write call options and purchase put options on broad-
based
domestic stock indexes and enter into closing transactions with respect to
such
options; and (ii) write or purchase options on futures contracts.
15. The Fund will not purchase any security, except U.S. government
securities, if as a result of the purchase, the Fund would then have more
than 5%
of its total assets invested in securities of companies (including
predecessor
companies) that have been in continuous operation for fewer than three
years. (For
purposes of this limitation, issuers include predecessors, sponsors,
controlling
persons, general partners, guarantors and originators of underlying assets
which
may have less than three years of continuous operation or relevant business
experience.)
16. The Fund will not make investments for the purpose of
exercising
control or management of any other issuer.
17. The Fund will not purchase or retain securities of any company,
if to
the knowledge of the Trust, any of the Trust's officers or Trustees, or any
officer or director of the Manager, individually owns more than .5% of the
outstanding securities of the company and together they own beneficially
more than
5% of the securities.
18. The Fund will not invest in warrants, if as a result, more than
2% of
the value of the Fund's net assets would be invested in warrants that are
not
listed on a recognized United States stock exchange, or more than 5% of the
Fund's
net assets would be invested in warrants regardless of whether they are
listed on
such an exchange.
19. The Fund will not invest in time deposits maturing in more than
seven
days, enter into repurchase agreements having a duration of more than seven
days,
purchase securities that may not be sold without first being registered
under the
1933 Act, as amended ("restricted securities"), or purchase instruments
lacking
readily available market quotations ("illiquid instruments"), if as a
result of
the purchase the Fund's aggregate holdings of time deposits maturing in
more than
seven days, repurchase agreements having a duration of more than seven
days,
restricted securities and illiquid instruments exceed 10% of the Fund's net
assets.
The Trust may make commitments more restrictive than the restrictions
listed
above so as to permit the sale of its shares in certain states. Should the
Trust
determine that any commitment is no longer in the best interests of the
Trust and
its shareholders, the Trust will revoke the commitment by terminating the
sale of
shares in the relevant state. The percentage limitations set forth above
apply at
the time of purchase of securities.
Portfolio Turnover
The Fund intends not to seek profits through short-term trading of
its
securities. Nevertheless, the Fund will not consider portfolio turnover
rate a
limiting factor in making investment decisions. The Fund cannot accurately
predict its portfolio turnover rate, but anticipate that its annual
turnover rates
will not exceed 50%. The turnover rates would be 100% if all of the Fund's
securities that are included in the computation of turnover were replaced
once
during a period of one year. The Fund's turnover rate is calculated by
dividing
the lesser of purchases or sales of portfolio securities for the year by
the
monthly average value of portfolio securities. Securities with remaining
maturities of one year or less on the date of acquisition are excluded from
the
calculation.
Portfolio Transactions
Decisions to buy and sell securities for the Fund are made by the
Manager,
subject to the overall review of the Trust's Board of Trustees. Although
investment decisions for the Fund are made independently from those of the
other
accounts managed by the Manager, investments of the type made by the Fund
also may
be made by those accounts. When the Fund and one or more other accounts
managed
by the Manager are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be
allocated in a
manner believed by the Manager to be equitable to each. In some cases,
this
procedure may adversely affect the price paid or received by the Fund or
the size
of the position obtained or disposed of by the Fund.
Transactions on United States stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. No
stated
commission is generally applicable to securities traded in over-the-counter
markets, but the prices of those securities include undisclosed commissions
or
mark-ups. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the
prices at
which securities are purchased from and sold to dealers include a dealer's
mark-up
or mark-down. U. S. government securities are generally purchased from
underwriters or dealers, although certain newly issued U. S government
securities
may be purchased directly from the United States Treasury or from the
issuing
agency or instrumentality.
The Manager seeks the best overall terms available in selecting
brokers or
dealers to execute transactions on behalf of the Fund. In assessing the
best
overall terms available for any transaction, the Manager will consider
factors it
deems relevant, including the breadth of the market in the security, the
price of
the security, the financial condition and execution capability of the
broker or
dealer and the reasonableness of the commission, if any, for the specific
transaction and on a continuing basis. In addition, the Manager is
authorized in
selecting brokers or dealers to execute a particular transaction and in
evaluating
the best overall terms available to consider the brokerage and research
services
(as those terms are defined in Section 28(e) of the Securities Exchange Act
of
1934) provided to the Fund and/or other accounts over which the Manager or
its
affiliates exercise investment discretion. The fees under the Fund's
Advisory
Agreement are not reduced by reason of the Manager receiving brokerage and
research services. The Fund's Board of Trustees will periodically review
the
commissions paid by the Fund to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits
inuring
to the Fund.
In accordance with Section 17(e) of the 1940 Act and Rule 17e-1 under
the
1940 Act, the Trust's Board of Trustees has determined that transactions
for the
Fund may be executed through Smith Barney and other affiliated broker-
dealers if,
in the judgment of the Manager, the use of an affiliated broker-dealer is
likely
to result in price and execution at least as favorable as those of other
qualified
broker-dealers and if, in the transaction, the affiliated broker-dealer
charges
the Fund a rate consistent with that charged to comparable unaffiliated
customers
in similar transactions. In addition, under the rules recently adopted by
the SEC,
Smith Barney may directly execute such transactions for the Fund on the
floor of
any national securities exchange, provided: (a) the Board of Trustees has
expressly authorized Smith Barney to effect such transactions; and (b)
Smith
Barney annually advises the Fund of the aggregate compensation it earned on
such
transactions.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment
postponed
(a) for any period during which the New York Stock Exchange, Inc. (the
"NYSE") is
closed (other than for customary weekend and holiday closings), (b) when
trading
in markets the Fund normally utilizes is restricted, or an emergency as
determined
by the SEC exists, so that disposal of the Fund's investments or
determination of
its net asset value is not reasonably practicable or (c) for such other
periods as
the SEC by order may permit for protection of the Fund's shareholders.
VALUATION OF SHARES
As noted in the Prospectus, the Fund's net asset value will not be
calculated on certain holidays. On those days, securities held by the Fund
may
nevertheless be actively traded, and the value of the Fund's shares could
be
significantly affected.
EXCHANGE PRIVILEGE
Beginning four years after the date on which shares of the Fund were
purchased, shareholders of the Fund may exchange their shares for Class A
shares
of certain other funds of the Smith Barney Mutual Funds, as indicated in
the
Prospectus, to the extent such shares are offered for sale in the
shareholder's
state of residence.
Except as noted below, shareholders of any fund of the Smith Barney
Mutual
Funds may exchange all or part of their shares for shares of the same class
of
other funds of the Smith Barney Mutual Funds, as listed in the Prospectus,
on the
basis of relative net asset value per share at the time of exchange as
follows:
A. Class A shares of any fund purchased with a sales charge may be
exchanged for shares of any of the other funds and the sales charge
differential,
if any, will be applied. Class A shares of any fund may be exchanged
without a
sales charge for shares of the funds that are offered without a sales
charge.
Class A shares of any fund purchased without a sales charge may be
exchanged for
shares sold with a sales charge, and the appropriate sales charge
differential
will be applied.
B. Class A shares of any fund acquired by a previous exchange of
shares
purchased with a sales charge may be exchanged for Class A shares of any of
the
funds, and the sales charge differential, if any, will be applied.
A shareholder who has redeemed shares of the Fund, through the
exchange
privilege or otherwise, will not be able to purchase new shares in the
Fund.
The exchange privilege enables shareholders in any of the funds of
the Smith
Barney Mutual Funds to acquire shares in a fund with a different investment
objective when they believe that a shift between funds is an appropriate
investment decision. This privilege is available to shareholders residing
in any
state in which the fund's shares being acquired may legally be sold. Prior
to any
exchange, the investor should obtain and review a copy of the current
prospectus
of each fund into which an exchange is to be made. Prospectuses may be
obtained
from your Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents,
shares submitted for exchange are redeemed at the then-current net asset
value and
the proceeds are immediately invested, at a price as described above, in
shares of
the fund being acquired. Smith Barney reserves the right to reject any
exchange
request. The exchange privilege may be modified or terminated at any time
after
notice to shareholders.
DETERMINATION OF PERFORMANCE
From time to time, the Trust may quote a Fund's performance in terms
of its
total return in reports or other communications to shareholders. The
Fund's
performance will vary from time to time depending upon market conditions,
the
composition of its portfolio and its operating expenses.
Average Total Return
The Fund's "average annual total return" figures are computed
according to a
formula prescribed by the SEC. The formula can be expressed as follows:
P(1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV= Ending Redeemable Value of a hypothetical $1,000
investment made
at the beginning of a 1-, 5- or 10-year period at the end of the 1-, 5- or
10-
year period (or fractional portion thereof), assuming reinvestment of all
dividends and distributions
Aggregate Total Return
The Fund's aggregate total return figures represent the cumulative
change in
the value of an investment in the Fund for a specified period and are
computed by
the following formula:
ERV-P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment made at the beginning of the
1-, 5- or 10-year period at the end of
the 1-, 5- or 10 year period (or fractional
portion thereof), assuming reinvestment of
all dividends and distributions.
The Fund's performance will vary from time to time depending upon
market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the
future.
In addition, because performance will fluctuate, it may not provide a basis
for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing the Fund's performance with that of other mutual funds should
give
consideration to the quality and maturity of the respective investment
companies'
portfolio securities.
TAXES
The following is a summary of certain Federal income tax
considerations that
may affect the Trust and its shareholders. The summary is not intended as
a
substitute for individual tax planning, and investors are urged to consult
their
own tax advisors as to the Federal, state and local income tax consequences
of an
investment in the Fund.
Tax Status of the Trust and its Shareholders
The Fund has qualified and intends to continue to qualify each year
as a
regulated investment company under the Internal Revenue Code of 1986, as
amended
(the "Code"). To qualify as a regulated investment company, the Fund must
meet
certain requirements set forth in the Code. The Fund is required to earn
at least
90% of its gross income from (a) interest, (b) dividends, (c) payments with
respect to securities loans, (d) gains from the sale or other disposition
of stock
or securities and (e) other income derived with respect to the Fund's
business of
investing in stock or securities. The Fund also must earn less than 30% of
its
gross income from the sale or other disposition of stock or securities held
for
less than three months. Legislation currently pending before the U.S.
Congress
would repeal the requirement that a regulated investment company must
derive less
than 30% of its gross income from the sale or other disposition of assets
described above that are held for less than three months. However, it is
impossible to predict whether this legislation will become law and, if it
is so
enacted, what form it will eventually take.
Dividends of net investment income and distributions of net realized
short-
term capital gains will be taxable to shareholders as ordinary income for
Federal
income tax purposes, whether received in cash or reinvested in additional
shares
of the Fund. Distributions of long-term capital gains will be taxable to
shareholders as long-term gain, whether paid in cash or reinvested in
additional
shares, and regardless of the length of time that the shareholder has held
his or
her shares of the Fund.
Dividends of investment income (but not distributions of capital
gain) from
the Fund generally will qualify for the Federal dividends-received
deduction for
corporate shareholders to the extent that the dividends do not exceed the
aggregate amount of dividends received by the Fund from domestic
corporations. If
securities held by the Fund are considered to be "debt-financed"
(generally,
acquired with borrowed funds) or are held by the Fund for less than 46 days
(91
days in the case of certain preferred stock), the portion of the dividends
paid by
the Fund that corresponds to the dividends paid with respect to the debt-
financed
securities or securities that have not been held for the requisite period
will not
be eligible for the corporate dividends-received deduction.
Foreign countries may impose withholding and other taxes on dividends
and
interest paid to the Fund with respect to investments in foreign
securities.
Certain foreign countries, however, have entered into tax conventions with
the
United States to reduce or eliminate such taxes.
If the Fund is the holder of record of any stock on the record date
for any
dividends payable with respect to the stock, the dividends are included in
the
Fund's gross income not as of the date received but as of the later of (a)
the
date on which the stock became ex-dividend with respect to the dividends
(that is
the date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date on which the Fund acquired
the
stock.
Capital Gains. In general, a shareholder who redeems or exchanges
his or
her Fund shares will recognize long-term capital gain or loss if the shares
have
been held for more than one year, and will recognize short-term capital
gain or
loss if the shares have been held for one year or less. If a shareholder
receives
a distribution taxable as long-term capital gain with respect to shares of
the
Fund and redeems or exchanges the shares before he or she has held them for
more
than six months, however, any loss on the redemption or exchange that is
less than
or equal to the amount of the distribution will be treated as a long-term
capital
loss.
Backup Withholding. If a shareholder fails to furnish a correct
taxpayer
identification number, fails to report fully dividend or interest income,
or fails
to certify that he or she has provided a correct taxpayer identification
number
and that he or she is not subject to "backup withholding," then the
shareholder
may be subject to a 31% backup withholding tax with respect to (a)
dividends and
distributions and (b) the proceeds of any redemptions of the Fund's shares.
An
individual's taxpayer identification number is his or her social security
number.
The backup withholding tax is not an additional tax and may be credited
against a
shareholder's regular Federal income tax liability.
Taxation of the Fund's Investments
Zero Coupon Securities. The Fund will invest in zero coupon
securities
having an original issue discount (that is, the discount represented by the
excess
of the stated redemption price at maturity over the issue price). Each
year, the
Fund will be required to accrue as income a portion of this original issue
discount even though the Fund will receive no cash payment of interest with
respect to these securities. In addition, if the Fund acquires a security
at a
discount that resulted from fluctuations in prevailing interest rates
("market
discount"), the Fund may elect to include in income each year a portion of
this
market discount.
The Fund will be required to distribute substantially all of its
income
(including accrued original issue and market discount) in order to qualify
for
"pass-through" Federal income tax treatment and also in order to avoid the
imposition of the 4% excise tax described in the Prospectus. Therefore,
the Fund
may be required in some years to distribute an amount greater than the
total cash
income the Fund actually receives. In order to make the required
distribution in
such a year, the Fund may be required to borrow or to liquidate securities.
The
amount of actual cash that the Fund would have to distribute, and thus the
degree
to which securities would need to be liquidated, would depend upon the
number of
shareholders who chose not to have their dividends reinvested. Capital
losses
resulting from the liquidation of securities can only be used to offset
capital
gains and cannot be used to reduce the Fund's ordinary income. These
capital
losses may be carried forward for eight years.
Capital Gains Distributions. Gain or loss on the sale of a security
by the
Fund will generally be long-term capital gain or loss if the Fund has held
the
security for more than one year. Gain or loss on the sale of a security
held for
one year or less will generally be short-term capital gain or loss.
Generally, if
the Fund acquires a debt security at a discount, any gain on the sale or
redemption of the security will be taxable as ordinary income to the extent
that
the gain reflects accrued market discount.
DISTRIBUTOR AND SHAREHOLDER DISTRIBUTOR SERVICING AGENT -
SMITH BARNEY SHEARSON
Smith Barney serves as the Fund's distributor pursuant to a written
agreement (the "Distribution Agreement") with the Trust. To compensate
Smith
Barney for the services it provides and for the expenses it bears, the
Trust has
adopted a Shareholder Services Plan (the "Plan"). Under the Plan, the
Trust pays
Smith Barney, with respect to the Fund, a fee, accrued daily and paid
monthly,
calculated at the annual rate of 0.25% of the value of the Fund's average
daily
net assets. Under its terms, the Plan continues from year to year,
provided that
its continuance is approved annually by vote of the Trust's Board of
Trustees,
including a majority of the Trustees who are not interested persons of the
Trust
and who have no direct or indirect financial interest in the operation of
the Plan
(the "Independent Trustees"). The Plan may not be amended to increase
materially
the amount to be spent for the services provided by Smith Barney without
shareholder approval, and all material amendments of the Plan also must be
approved by the Trustees in the manner described above. The Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent
Trustees or by a vote of a majority of the outstanding voting securities
(as
defined in the 1940 Act) of the Fund on not more than 30 days' written
notice to
any other party to the Plan. Pursuant to the Plan, Smith Barney will
provide the
Board of Trustees periodic reports of amounts expended under the Plan and
the
purpose for which such expenditures were made.
CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc.,
is
located at One Boston Place, Boston, Massachusetts 02108, and serves as the
custodian of the Trust pursuant to a custodian agreement. Under the
custodian
agreement, Boston Safe holds the Trust's portfolio securities and keeps all
necessary accounts and records. For its services, Boston Safe receives a
monthly
fee based upon the month-end market value of securities held in custody and
also
receives securities transaction charges. The assets of the Trust are held
under
bank custodianship in compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and
serves
as the Trust's transfer agent. Under the transfer agency agreement, TSSG
maintains the shareholder account records for the Trust, handles certain
communications between shareholders and the Trust, distributes dividends
and
distributions payable by the Trust and produces statements with respect to
account
activity for the Trust and its shareholders. For these services, TSSG
receives a
monthly fee computed on the basis of the number of shareholder accounts
TSSG
maintains for the Trust during the month and is reimbursed for out-of-
pocket
expenses.
ORGANIZATION OF THE TRUST
The Trust is organized as an unincorporated business trust under the
laws of
the Commonwealth of Massachusetts pursuant to a Master Trust Agreement
dated
October 18, 1988, as amended (the "Trust Agreement"). Under the Trust
Agreement,
the Trustees have authority to issue an unlimited number of shares of
beneficial
interest with a par value of $.001 per share.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
The
Trust has been structured, and will be operated in such a way, so as to
ensure as
much as possible, that shareholders will not be liable for obligations of
the
Fund. The Trust Agreement disclaims shareholder liability for acts or
obligations
of the Trust, and requires that notice of the disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust
or a
Trustee. The Trust Agreement also provides for indemnification from the
Trust's
property for all losses and expenses of any shareholder held personally
liable for
the obligations of the Trust. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to
circumstances in
which the Trust would be unable to meet its obligations, a possibility that
the
Trust's management believes is remote. Upon payment of any liability
incurred by
the Trust, the shareholder paying the liability will be entitled to
reimbursement
from the general assets of the Trust. The Trustees intend to conduct the
operations of the Trust and each of its series in such a way so as to
avoid, as
far as possible, ultimate liability of the shareholders for liabilities of
the
Trust.
2
SMITH BARNEY PRINCIPAL RETURN FUND
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
None
Included in Part C:
None
(b) Exhibits
Exhibit No. Description of Exhibit
All references are to the Registrant's registration Statement on Form N-1A
as filed with the Securities Exchange Commission (the "SEC"). (File Nos.
33-25087 and 811-5678).
1 Registrant's Master Trust Agreement and Amendments to the Master
Trust Agreement dated October 18, 1988, November 18, 1988, August 24, 1990,
October 5, 1990, February 26, 1991, May 1, 1991, and July 30, 1993, is
incorporated by reference to the Registrant's Registration Statement filed
with the SEC on January 28, 1994 ("Post-Effective Amendment No. 13").
(b) Amendment to Master Trust Agreement with respect to Security and
Growth Series shall be filed by amendment.
2 By-Laws are incorporated by reference to Registrant's Registration
Statement filed with the SEC on October 19, 1988 (the "Registration
Statement").
3 Not Applicable.
4 Not Applicable.
5 Investment Advisory Agreement between the Registrant and Smith
Barney Shearson Asset Management ("Asset Management") relating to Series
1996, Series 1998 and Series 2000 are incorporated by reference to Post-
Effective Amendment No. 13.
(b) Investment Advisory Agreement between the Registrant and Smith
Barney Mutual Funds Management Inc. relating to Security and Growth Series
shall be filed by amendment.
6 Distribution Agreement between the Registrant and Smith Barney
Shearson Inc. ("Smith Barney Shearson") is incorporated by reference to
Post-Effective Amendment No. 13.
7 Not Applicable.
8(a) Form of Custodian Agreement is incorporated by reference to Pre-
Effective Amendment No. 1.
(b) Supplement to Custody Agreement relating to Series 1998 is
incorporated by reference to Post-Effective Amendment No. 9.
(c) Form of Supplement to Custodian Agreement relating to Series 1999 is
incorporated by reference to Post-Effective Amendment No. 6.
(d) Supplement to Custodian Agreement relating to Series 2000 is
incorporated by reference to Post-Effective Amendment No. 10.
(e) Supplement to Custodian Agreement relating to Security and Growth
Series shall be filed by amendment.
9(a) Administration Agreement dated June 4, 1994 between the
Registrant and Smith Barney Advisers, Inc. relating to Series 1996, Series
1998 and Series 2000 shall be filed by amendment.
(b) Sub-Administration Agreement between the Registrant and The Boston
Company Advisors, Inc. dated June 4, 1994 shall be filed by amendment
(c) Transfer Agency Agreement between the Registrant and The
Shareholder Services Group, Inc. dated August 2, 1993 is incorporated by
reference to Post-Effective Amendment No. 13.
(d) Shareholder Services Plan between the Registrant and Smith Barney
Shearson relating to Series 1998 is incorporated by reference to Post-
Effective Amendment No. 13.
(e) Shareholder Services Plan between the Registrant and Smith Barney
Shearson relating to Series 2000 is incorporated by reference to Post-
Effective Amendment No. 13.
(f) Shareholder Services Plan between the Registrant and Smith Barney
relating to Security & Growth Series shall be filed by amendment.
10 Not Applicable
11 Consent of Independent Accountants shall be filed by amendment.
12 Not Applicable.
13(a) Purchase Agreement relating to Series 1996 Incorporated by reference
to Post-Effective Amendment No. 7.
(b) Purchase Agreement relating to Series 1998 is incorporated by
reference to Post-Effective Amendment No. 9.
(c) Form of Purchase Agreement relating to Series 1999 is
incorporated by reference to Post-Effective Amendment No. 6.
(d) Form of Purchase Agreement relating to Series 2000 is
incorporated by reference to Post-Effective Amendment No. 8.
(e) Form of Purchase Agreement relating to Security and Growth
Series shall be filed by amendment.
14 Not Applicable.
15 Not Applicable.
16 Performance Data is incorporated by reference to Post-Effective
Amendment No. 2 filed with the SEC on April 2, 1990.
Item 25. Persons Controlled by or under Common Control with Registrant
(i) Zeros and Appreciation Series 1996
None
(ii) Zeros and Appreciation Series 1998
None
(iii) Zeros Plus European Equities Series 1999
All of the outstanding shares of beneficial interest
relating to Series 1999 on the date Registrant's Post-Effective Amendment
No. 6 became effective were owned by Shearson Lehman Brothers Inc. (now
known as Lehman Brothers Inc.), a corporation formed under Delaware law.
Lehman Brothers Inc. is a wholly owned subsidiary of Lehman Brothers
Holdings Inc. ("Holdings"). All of the issued and outstanding common stock
(representing of 92% of the voting stock) of Holdings is held by American
Express Company.
(iv) Zeros Plus Emerging Growth Series 2000
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders by Class
Title of Class as of December 16, 1994
Shares representing
beneficial interests,
par value .001 per share
(i) Zeros and Appreciation
Series 1996 8,508
(ii) Zeros and Appreciation
Series 1998 13,046
(iii) Zeros Plus Emerging
Equities Series 2000 9,586
Item 27. Indemnification
The response to this item is incorporated by reference to
Registrant's Pre-Effective Amendment No. 1.
Item 28(a). Business and Other Connections of Investment
Adviser
Investment Adviser - - Smith Barney Mutual Funds Management, Inc.
Smith Barney Mutual Funds Management, Inc. ("SBMFM"), formerly
known as Smith, Barney Advisers, Inc.,) was incorporated in
December 1968 under the laws of the State of Delaware. SBMFM is a
wholly owned subsidiary of Smith Barney Holdings Inc. (formerly
known as Smith Barney Shearson Holdings Inc.), which in turn is a
wholly owned subsidiary of The Travelers Inc. (formerly known as
Primerica Corporation) ("Travelers"). SBMFM is registered as an
investment adviser under the Investment Advisers Act of 1940 (the
"Advisers Act").
The list required by this Item 28 of officers and directors of
SBMFM together with information as to any other business,
profession, vocation or employment of a substantial nature engaged
in by such officers and directors during the past two years, is
incorporated by reference to Schedules A and D of FORM ADV filed by
SBA pursuant to the Advisers Act (SEC File No. 801-8314).
Smith Barney Asset Management, Inc., ("SBAM") through its
predecessors, has been in the investment counseling business since
1940 and was a division of SBMFM. SBMFM was incorporated in 1968
under the laws of the state of Delaware. SBMFM is a wholly owned
subsidiary of Smith Barney Holdings Inc. (formerly known as Smith
Barney Shearson Holdings Inc.), which is in turn a wholly owned
subsidiary of The Travelers Inc. (formerly know as Primerica
Corporation) ("Travelers").
The list required by this Item 28 of officers and directors of
SBMFM, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged
in by such officers and directors during the past two fiscal years,
is incorporated by reference to Schedules A and D of FORM ADV filed
by SBMFM pursuant to the Advisers Act (SEC File No. 801-8314).
Prior to the close of business on July 30, 1993 (the "Closing"),
Shearson Asset Management, a member of the Asset Management Group
of Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"),
served as the Registrant's investment adviser. On the Closing,
Travelers and Smith Barney Inc. (formerly known as Smith Barney
Shearson Inc.) acquired the domestic retail brokerage and asset
management business of Shearson Lehman Brothers which included the
business of the Registrant's prior investment adviser. Shearson
Lehman Brothers was a wholly owned subsidiary of Shearson Lehman
Brothers Holdings Inc. ("Shearson Holdings"). All of the issued
and outstanding common stock of Shearson Holdings (representing 92%
of the voting stock) was held by American Express Company.
Information as to any past business vocation or employment of a
substantial nature engaged in by officers and directors of Shearson
Asset Management can be located in Schedules A and D of FORM ADV
filed by Shearson Lehman Brothers on behalf of Shearson Asset
Management prior to July 30, 1993. (SEC FILE NO. 801-3701)
11/4/94
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as distributor for Smith
Barney Managed Municipals Fund Inc., Smith Barney New York Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Global Opportunities Fund,
Smith Barney Aggressive Growth Fund Inc., Smith Barney Appreciation Fund
Inc., Smith Barney Principal Return Fund, Smith Barney Shearson Municipal
Money Market Fund Inc., Smith Barney Daily Dividend Fund Inc., Smith Barney
Government and Agencies Fund Inc., Smith Barney Managed Governments Fund
Inc., Smith Barney New York Municipal Money Market Fund, Smith Barney
California Municipal Money Market Fund, Smith Barney Income Funds, Smith
Barney Equity Funds, Smith Barney Investment Funds Inc., Smith Barney
Precious Metals and Minerals Fund Inc., Smith Barney Telecommunications
Trust, Smith Barney Arizona Municipals Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., The USA High Yield Fund N.V., Garzarelli Sector
Analysis Portfolio N.V., The Advisors Fund L.P., Smith Barney Fundamental
Value Fund Inc., Smith Barney Series Fund, Consulting Group Capital Markets
Funds, Smith Barney Income Trust, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Florida Municipals Fund, Smith Barney Oregon
Municipals Fund, Smith Barney Funds, Inc., Smith Barney Muni Funds, Smith
Barney World Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney Tax
Free Money Fund, Inc., Smith Barney Variable Account Funds, Smith Barney
U.S. Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited, (Bermuda), Smith Barney International Fund (Luxembourg)
and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney Holdings
Inc. (formerly known as Smith Barney Holdings Inc.), which in turn is a
wholly owned subsidiary of The Travelers Inc. (formerly known as Primerica
Corporation) ("Travelers"). On June 1, 1994, Smith Barney changed its
name from Smith Barney Inc. to its current name. The information required
by this Item 29 with respect to each director, officer and partner of Smith
Barney is incorporated by reference to Schedule A of FORM BD filed by Smith
Barney pursuant to the Securities Exchange Act of 1934 (SEC File No. 812-
8510).
11/4/94
Item 30. Location of Accountants and Record
(1) Smith Barney Principal Return Fund
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Asset Management
388 Greenwich Street
New York, New York 10013
(3) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(4) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(5) Boston Safe Deposit and Trust Company
One Cabot Road
Medford, Massachusetts 02155
(6) The Shareholders Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Registrant undertakes to call a meeting of the
shareholders for the purpose of voting upon the question of removal of
trustee or trustees when requested in writing to do so by the holders of at
least 10% of Registrant's outstanding Shares and, in connection worth such
meeting, to comply with the provisions of Section 16(c) of the Investment
Company Act of 1940, as amended, relating to communications with the
shareholders of certain common-law trusts.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant, SMITH BARNEY PRINCIPAL
RETURN FUND, has duly caused this Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
all in the City of New York, State of New York on the 23rd day of December,
1994.
SMITH BARNEY PRINCIPAL RETURN FUND
By:/s/ Heath B.
McLendon *
Heath B. McLendon, Chief Executive Officer
We, the undersigned, hereby severally constitute and appoint Heath B.
McLendon, Christina T. Sydor and Lee D. Augsburger and each of them singly,
our true and lawful attorneys, with full power to them and each of them to
sign for us, and in our hands and in the capacities indicated below, any
and all Amendments to this Registration Statement and to file the same,
with all exhibits thereto, and other documents therewith, with the
Securities and Exchange Commission, granting unto said attorneys, and each
of them, acting alone, full authority and power to do and perform each and
every act and thing requisite or necessary to be done in the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys or any of them may
lawfully do or cause to be done by virtue thereof.
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Heath B. McLendon* Chairman of the Board 12/23/94
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Treasurer (Chief Financial
12/23/94
Lewis E. Daidone and Accounting Officer)
/s/ Paul R. Ades* Trustee 12/23/94
Paul R. Ades
Herbert Barg* Trustee
12/23/94
Herbert Barg
/s/ Alger B. Chapman* Trustee 12/23/94
Alger B. Chapman
/s/ Dwight B. Crane* Trustee 12/23/94
Dwight B. Crane
/s/ Frank Hubbard* Trustee 12/23/94
Frank Hubbard
/s/ Allan R. Johnson* Trustee 12/23/94
Allan R. Johnson
/s/ Ken Miller* Trustee 12/23/94
Ken Miller
/s/ John F. White* Trustee 12/23/94
John F. White
*Signed by Lee D. Augsburger, their
duly authorized attorney-in-fact, pursuant
to power of attorney dated December 23, 1994
/s/ Lee D. Augsburger
Lee D. Augsburger
funds prtn pea14
