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. 16
X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 17
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:
X immediately upon filing pursuant to Rule 485(b)
on ________________ pursuant to Rule 485(b)
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(b)
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
<PAGE>
SMITH BARNEY
Security and Growth Fund
PROSPECTUS_________________________________________________MARCH 23, 1995
- ---------------------------------------------------------------------------
- -----
388 Greenwich Street
New York, New York 10013
(212) 723-9218
This Prospectus describes the Smith Barney Security and Growth Fund (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
August 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
consis-
tent 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
Matu-
rity Date can be expected to fluctuate substantially owing to changes in
pre-
vailing interest rates that will affect the current value of the Fund's
hold-
ings of zero coupon securities, as well as changes in the 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
(Continued on
page 2)
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.
<PAGE>
SMITH BARNEY
Security and Growth Fund
PROSPECTUS (CONTINUED)
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
max-
imum offering price of $10 per share, which includes the maximum sales
charge
of 4.00% (4.17% of the net amount invested). Smith Barney Inc. ("Smith Bar-
ney"), the Fund's distributor, will solicit subscriptions for shares during
a
period scheduled to end on March 23, 1995, subject to extension by
agreement
between the Fund and Smith Barney. The minimum initial investment is
$1,000,
except for IRA's and other retirement plans, for which the minimum initial
investment is $250.
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
refer-
ence.
Additional information about the Fund is contained in a Statement of Addi-
tional Information dated March 23, 1995, as amended or supplemented from
time
to time, that is available upon request and without charge by calling or
writ-
ing the Fund at the telephone number or address set forth above or by
contact-
ing a Smith Barney Financial Consultant. The Statement of Additional
Informa-
tion has been filed with the Securities and Exchange Commission (the "SEC")
and
is incorporated by reference into this Prospectus in its entirety.
2
<PAGE>
SMITH BARNEY
Security and Growth Fund
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
orga-
nizations 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 Addi-
tional Information.
3
<PAGE>
SMITH BARNEY
Security and Growth Fund
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION 3
- --------------------------------------------------
THE FUND'S EXPENSES 5
- --------------------------------------------------
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES 6
- --------------------------------------------------
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS 12
- --------------------------------------------------
VALUATION OF SHARES 18
- --------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 19
- --------------------------------------------------
PURCHASE OF SHARES 20
- --------------------------------------------------
EXCHANGE PRIVILEGE 22
- --------------------------------------------------
REDEMPTION OF SHARES 25
- --------------------------------------------------
THE FUND'S PERFORMANCE 26
- --------------------------------------------------
MANAGEMENT OF THE FUND 27
- --------------------------------------------------
DISTRIBUTOR 28
- --------------------------------------------------
ADDITIONAL INFORMATION 29
- --------------------------------------------------
</TABLE>
No person has been authorized to give any information or to make any
repre-
sentations in connection with this offering other than those contained in
this
Prospectus and, if given or made, such other information and
representations
must not be relied upon as having been authorized by the Fund or the
Distribu-
tor. This Prospectus does not constitute an offer by the Fund or the
Distribu-
tor to sell or a solicitation of an offer to buy any of the securities
offered
hereby in any jurisdiction to any person to whom it is unlawful to make
such
offer or solicitation in such jurisdiction.
4
<PAGE>
SMITH BARNEY
Security and Growth Fund
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
<TABLE>
<S>
<C>
Sales charge imposed on purchases
(as a percentage of offering price).....................................
4.00%
- ---------------------------------------------------------------------------
- -----
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S>
<C>
(as a percentage of average net assets)
Management fees.........................................................
0.50%
Shareholder servicing fees..............................................
0.25%
Other expenses..........................................................
0.20%
- ---------------------------------------------------------------------------
- -----
Total Fund Operating Expenses..........................................
0.95%
</TABLE>
- ---------------------------------------------------------------------------
- -----
The nature of the services for which the Fund pays management fees is
described under "Management of the Fund." "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
ini-
tial 4.00% sales charge, (b) payment by the Fund of operating expenses at
the
levels set forth in the table above and (c) the following assumptions:
<TABLE>
<CAPTION>
YEAR ONE THREE FIVE
TEN
- ---------------------------------------------------------------------------
- ----
<S> <C> <C> <C>
<C>
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: ............. $49 $69 $90
$152
A shareholder would pay the following expenses on the same
investment, assuming the same annual return and no
redemption:............................................. $49 $69 $90
$152
</TABLE>
5
<PAGE>
SMITH BARNEY
Security and Growth Fund
THE FUND'S EXPENSES (CONTINUED)
The example also provides a means for the investor to compare expense
levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00%
annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN
THOSE SHOWN.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
IN GENERAL
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 (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 Fund 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,
share-
holders should plan to hold their shares until the Maturity Date and to
rein-
vest 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 on the date of this Prospectus, the
Manager
estimates that zero coupon securities are expected initially to represent
6
<PAGE>
SMITH BARNEY
Security and Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
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 March 30, 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 respect 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
accre-
tion of interest, to equal at maturity an amount sufficient to meet the
Repay-
ment 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
dis-
tributions in additional shares; these amounts will be paid in cash only at
the
specific election of a shareholder.
7
<PAGE>
SMITH BARNEY
Security and Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
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
invest-
ment, 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
obliga-
tions 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
origi-
nally 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
cou-
pon 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
experienc-
ing, 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
circumstanc-
es. This significant potential for growth is often achieved by small- or
medi-
um-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
com-
panies, it may also
8
<PAGE>
SMITH BARNEY
Security and Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
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
port-
folio 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
securi-
ties. 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 enter into
futures contracts, write call options and purchase put options (which are
sometimes referred to as "derivatives"), and invest in repurchase
agreements
and lend its portfolio securities 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
secu-
rities 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
Gov-
ernment 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
possi-
ble 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.
9
<PAGE>
SMITH BARNEY
Security and Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
Repurchase Agreements. The Fund may engage in repurchase agreement
transac-
tions 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 rela-
tively 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
incur-
ring 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
aggre-
gate 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
securi-
ties of foreign issuers. The Manager uses the same criteria for selecting
for-
eign securities as it uses for securities of domestic issuers. In addition,
in
selecting investments in foreign securities, the Manager will consider the
prospect of changes in the value of a country's currency and the liquidity
of
the investment in that country's securities market. Investing in foreign
secu-
rities involves certain risks, including those resulting from fluctuations
in
currency exchange rates, revaluation of currencies, future political or
eco-
nomic 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
report-
ing 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
10
<PAGE>
SMITH BARNEY
Security and Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
their prices more volatile than those of securities of comparable domestic
companies. In addition, with respect to certain foreign countries, the
possi-
bility 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
tempo-
rary 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
associa-
tions and other banking institutions having total assets in excess of $500
million); commercial paper rated no lower than A-2 by Standard & Poor's
Corpo-
ration 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
outstand-
ing, unsecured debt issue then rated within the three highest rating
catego-
ries; and repurchase agreements. At no time will the Fund's investments in
bank obligations, including time deposits, exceed 25% of its assets. In
addi-
tion, 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
pre-
sents 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
manda-
tory reserve requirements,
11
<PAGE>
SMITH BARNEY
Security and Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
loan limitations and accounting, auditing and financial record keeping
require
ments. 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 obliga-
tions 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
Smaller and Medium Sized Companies. Securities of smaller and medium sized
companies (companies with a capitalization of less than $1 billion) may be
subject to a limited liquidity and more volatility which could result in
sig-
nificant fluctuations in the price of their shares.
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
"premi-
um") 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
secu-
rities. 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
hav-
ing a value at least equal to the exercise price of the underlying
securities
or (b) continue to
12
<PAGE>
SMITH BARNEY
Security and Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
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
differ-
ence 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
pur-
chase 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
domes-
tic securities exchanges or in the over-the-counter market.
The Fund may also, for hedging purposes, purchase put options on
securities
traded on national securities exchanges as well as in the over-the-counter
market. The Fund may purchase put options on particular securities in order
to
protect against a decline in the market value of the underlying securities
below the exercise price less the premium paid for the option. Put options
on
individual securities are intended to protect against declines in market
value
which occurs prior to the option's expiration date. Prior to expiration,
most
options may be sold in a closing sale transaction. Profit or loss from such
a
sale will depend on whether the amount received is more or less than the
pre-
mium paid for the option plus the related transaction cost.
The Fund may purchase options in the over-the-counter market ("OTC
options")
to the same extent that it may engage in transactions in exchange traded
options. OTC options differ from exchange traded options in that they are
negotiated individually and terms of the contract are not standardized as
in
the case of exchange traded options. Moreover, because there is no clearing
corporation involved in an OTC option, there is a risk of non-performance
by
the counterparty to the option. However, OTC options are generally much
more
available for securities in a wider range of expiration dates and exercise
prices than exchange traded options. It is the current position of the
staff
of the SEC
13
<PAGE>
SMITH BARNEY
Security and Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
that OTC options (and securities underlying the OTC options) are illiquid
securities. Accordingly, the Fund will treat OTC options as subject to the
Fund's limitation on illiquid securities until such time as there is a
change
in the SEC's position. State securities laws also may impose further
limita-
tions.
Options on Broad-Based Domestic Stock Indexes. The Fund may, for hedging
pur-
poses only, write call options and purchase put options on broad-based
domes-
tic 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
clos-
ing level of the stock index upon which the option is based is "in the
money",
i.e. the closing level of the index is higher than the exercise price of
the
option. 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
move-
ments in the stock market generally rather than price movements in the
indi-
vidual 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
real-
izes 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. Addi-
tionally, because exercises of index options are settled in cash, a call
writer such as the Fund cannot determine the amount of the settlement
obliga-
tions 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
pro-
vides 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
14
<PAGE>
SMITH BARNEY
Security and Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
futures contract, as contrasted with the direct investment in a futures
con-
tract, 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
pur-
chaser 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 con-
tracts 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 or 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
pre-
vailing 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
matu-
rity and accretion of interest to date. The market prices of zero coupon
secu-
rities 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 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
pur-
chase price of those shares, including any sales charge paid. Although
15
<PAGE>
SMITH BARNEY
Security and Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
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
pur-
chased 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 origi-
nally 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
distribu-
tion requirements and other operational needs and to redeem its shares on
request, the Fund may be required to limit reinvestment of capital on the
dis-
position 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
disadvan-
tageous 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 securi- ties, the Fund may be required to liquidate a
dispropor-
tionate amount of its
16
<PAGE>
SMITH BARNEY
Security and Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
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
require-
ments 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 Fund has adopted certain fundamental investment restrictions that may
not
be changed without approval of a majority of the Fund's outstanding voting
securities, as defined under the 1940 Act. 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
Gov-
ernment 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
temporarily for 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
invest-
ments.
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.
17
<PAGE>
SMITH BARNEY
Security and Growth Fund
VALUATION OF SHARES
A further discussion of certain of the Fund's investment policies and
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
bro-
kers, 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
securi-
ties 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%.
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,
Memo-
rial 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
gener-
ally valued at the preceding closing values of the securities on their
respec-
tive 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
primar-
ily 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
cur-
rent 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
18
<PAGE>
SMITH BARNEY
Security and Growth Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES
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,
thereaf-
ter, 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.
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
distribu-
tions 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 OR LESS THAN THE ENTIRE AMOUNT OF HIS OR HER INVESTMENT AT THE
MATU-
RITY DATE.
TAXES
The Fund has qualified and intends to continue to qualify each year as a
reg-
ulated 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
dis-
tributes to shareholders, so long as it meets certain distribution require-
ments. 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 may 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
19
<PAGE>
SMITH BARNEY
Security and Growth Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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 and
not
paid until January of the following year 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.
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
sharehold-
ers 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
distribu-
tions 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
pre-
ceding 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
juris-
dictions may not treat income derived from the Fund's holdings of
Government
Securities as exempt from state and local income taxes.
PURCHASE OF SHARES
Shares of the Fund may be purchased through the Fund's distributor, 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
broker
age account through which an investor or an investment dealer in the
selling
group through which an investor purchases shares.
20
<PAGE>
SMITH BARNEY
Security and Growth Fund
PURCHASE OF SHARES (CONTINUED)
Smith Barney will solicit subscriptions for shares of the Fund during a
period scheduled to end on March 23, 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
or modify the initial offering of shares without notice and the 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 100 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
subsidi-
aries including Smith Barney, Trustees of the Trust and their spouse and
chil-
dren. The Fund reserves the right at any time to vary the initial and
subse-
quent 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 $9.60 per share, plus a sales charge of
4.00%
of the offering price.
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
employ-
ee, and retired Trustees or employees), or sales to any trust, pension,
prof-
it-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
connec-
tion with the combination of such company with the fund by merger,
acquisition
of
21
<PAGE>
SMITH BARNEY
Security and Growth Fund
EXCHANGE PRIVILEGE
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 com-
mencement 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 dis-
counts, the purchaser must provide sufficient information at the time of
pur-
chase to permit verification that the purchase would qualify for the
elimina-
tion of the sales charge.
Beginning one year 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
require-
ments of the fund into which exchanges are made and a sales charge
differential
may apply.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
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
22
<PAGE>
SMITH BARNEY
Security and Growth Fund
EXCHANGE PRIVILEGE (CONTINUED)
Taxable Fixed-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 Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt 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 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
23
<PAGE>
SMITH BARNEY
Security and Growth Fund
EXCHANGE PRIVILEGE (CONTINUED)
International Funds
Smith Barney Precious Metals and Minerals Fund
Smith Barney World Funds, Inc.-Emerging Markets Portfolio
Smith Barney World Funds, Inc.-European Portfolio
Smith Barney World Funds, Inc.-Global Government Bond Portfolio
Smith Barney World Funds, Inc.-International Balanced Portfolio
Smith Barney World Funds, Inc.-International Equity Portfolio
Smith Barney World Funds, Inc.-Pacific Portfolio
Money Market Funds
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
Shares of the Fund will be subject to the appropriate "sales charge
differen-
tial" upon the exchange of such shares for Class A shares of another fund
of
the Smith Barney Mutual Funds sold with a sales charge in excess of the
sales
charge imposed by the Fund. The "sales charge differential" is limited to a
percentage rate no greater than the excess of the sales charge rate
applicable
to purchases of shares of the fund being acquired in the exchange over the
sales charge rate actually paid on the fund shares relinquished in the
exchange. For purposes of the exchange privilege, shares obtained through
auto-
matic reinvestment of dividends and capital gains distributions are treated
as
having paid the same sales charges applicable to the shares on which the
divi-
dends or distributions were paid; however, if no sales charge was imposed
upon
the initial purchase of the shares, any shares obtained through automatic
rein-
vestment will be subject to a sales charge differential upon exchange.
Exchanges will be processed at the net asset value next determined, plus
any
applicable sales charge differential. 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
privi-
leges upon 60 days' prior notice to shareholders.
24
<PAGE>
SMITH BARNEY
Security and Growth Fund
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
regu-
latory 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
instruc-
tion 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
distri-
bution 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 Security and Growth Fund
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
25
<PAGE>
SMITH BARNEY
Security and Growth Fund
REDEMPTION OF SHARES (CONTINUED)
A written redemption request must (a) state the number or dollar amount of
shares to be redeemed, (b) identify the shareholder's account number and
(c) be
signed by each registered owner exactly as the shares are registered. If
the
shares to be redeemed were issued in certificate form, the certificates
must be
endorsed for transfer (or be accompanied by an endorsed stock power) and
must
be submitted to 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,
sav-
ings 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.
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
aver-
age 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
indi-
cate subtotals of the various components of total return (i.e., change in
value
of initial investment, income dividends and capital gains distributions).
26
<PAGE>
SMITH BARNEY
Security and Growth Fund
THE FUND'S PERFORMANCE (CONTINUED)
In reports or other communications to shareholders or in advertising
materi-
al, 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
serv-
ices which monitor the performance of mutual funds or other industry or
finan-
cial publications such as Barron's, Business Week, Forbes, Fortune,
Institu-
tional Investor, Investors Daily, Kiplinger's Personal Finance, Money,
Morn-
ingstar Mutual Fund Values, The New York Times, The Wall Street Journal, or
USA Today. Any given performance comparison should not be considered as
repre-
sentative 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.
MANAGEMENT OF THE FUND
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
serv-
ices 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
subsid-
iary of Smith Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of The Travelers Inc. ("Travelers"), a diversified financial
serv-
ices holding company engaged, through its subsidiaries, principally in four
business segments: Investment Services, Consumer Finance Services, Life
Insur-
ance Services and Property & Casualty Insurance Services. The Manager
renders
investment advice to investment companies that had aggregate assets under
man-
agement as of December 31, 1994 in excess of $50.4 billion.
27
<PAGE>
SMITH BARNEY
Security and Growth Fund
MANAGEMENT OF THE FUND (CONTINUED)
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
port-
folio managers and securities analysts who provide research services to the
Fund.
PORTFOLIO MANAGEMENT
John G. Goode, President and Chief Executive Officer of Davis Skaggs
Invest-
ment Management, a division 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.
Management's discussion and analysis, and additional performance
information
regarding the Fund during the fiscal year ending November 30, 1995 will be
included in the Annual Report dated November 30, 1995. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or
phone
number listed on page one of this Prospectus.
DISTRIBUTOR
DISTRIBUTOR AND SHAREHOLDER SERVICING AGENT--SMITH BARNEY
Smith Barney, which serves as the Trust's distributor and shareholder
servic-
ing agent for the Fund, is located at 388 Greenwich Street, New York, New
York
10013. 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
continu-
ing basis and in doing so consid
28
<PAGE>
SMITH BARNEY
Security and Growth Fund
ADDITIONAL INFORMATION
ers all relevant factors, including the nature, extent and quality of
services
generally provided to shareholders.
The Trust was organized on October 18, 1988 under the laws of the Common-
wealth 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
sub-
mitted 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.
Boston Safe, located at One Boston Place, Boston, Massachusetts 02108,
serves as custodian of the Fund's investments.
The Shareholder Services Group, Inc. serves as the Trust's transfer agent
and
is located at Exchange Place, Boston, Massachusetts, 02109.
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
con-
solidate 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.
29
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
- ---------------------------------------------------------------------------
- -----
SMITH
BARNEY
A member of
TravelersGroup[LOGO]
--------------
Smith Barney
Security
And
Growth Fund
388 Greenwich Street
New York, New York 10013
FD0861 B5
SMITH BARNEY PRINCIPAL RETURN FUND
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information
This Statement of Additional Information supplements the information
contained in the current Prospectus dated March 23 , 1995, as
amended or supplemented from time to time, of the Smith Barney
Security and Growth Fund (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 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 Trust
(See in the Prospectus "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 (age 56). 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 (age 71). Private investor. His address is
273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Alger B. Chapman, Trustee (age 65). Chairman and Chief Executive
Officer of the Chicago Board of Options Exchange. His address is Chicago
Board of Options Exchange, 400 South LaSalle Street, Chicago, Illinois
60605.
Dwight B. Crane, Trustee (age 57). Professor, Graduate School of
Business Administration, Harvard University; a Director of Peer Review
Analysis, Inc. His address is Graduate School of Business Administration,
Harvard University, Boston, Massachusetts 02163.
Frank G. Hubbard, Trustee (age 59). Corporate Vice President,
Materials of Huls America, Inc. His address is 80 Centennial Avenue P.O.
Box 456, Piscataway, New Jersey 08855-0456.
Allan R. Johnson, Trustee (age 80). 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
(age 63). He also performs this function for other mutual funds of
the Smith
Barney Mutual Funds. Managing Director of Smith Barney;
President of the Manager
; 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 (age 54). President of Young Stuff Apparel Group,
Inc. His address is 1407 Broadway, 6th Floor, New York, New York 10018.
John F. White, Trustee (age 79). 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.
Jessica M. Bibliowicz, President (age 35). She also performs this
function for other mutual funds of the Smith Barney Mutual Funds. Executive
Vice President of Smith Barney; prior to 1994, Director
of Sales and Marketing for
Prudential Mutual Funds; prior to 1990,
First Vice President of Asset Management
Division of Shearson Lehman Brothers. Her address is 388 Greenwich Street, New
York, New York 10013.
Harry D. Cohen, Vice President and Investment Officer (age 54).
Managing Director of Smith Barney; prior to July 1993,
Executive Vice President of
Shearson Lehman Brothers. His address is 388 Greenwich
Street, New York, New York
10013.
Susan C. Fulenwider, Vice President and Investment Officer (age 39).
Vice President of Smith Barney; 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 (age 41).
Managing Director of Smith Barney; 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 (age ).
President and Chief Executive Officer of Davis Skaggs Investment Management, a
division of the Manager ; prior to July 1993,
Vice President of Shearson Asset
Management. His address is 388 Greenwich Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer (age 37).
Managing Director of Smith Barney. His address is
388 Greenwich Street, New York,
New York 10013.
Christina T. Sydor, Secretary (age 43). 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 $4,000 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,
the Trustees were paid the following compensation:
Trustee*
Aggregate Compensation
from the Fund
Aggregate Compensation
from
the Smith Barney Mutual
Funds
Paul R. Ades (7)
5,000
42,750
Herbert Barg (17)
5,000
77,850
Alger B. Chapman (4)
---
34,125
Dwight B. Crane (23)
- ---
125,975
Frank G. Hubbard (4)
---
37,125
Allan R. Johnson (8)
5,000
72,750
Heath B. McLendon (29)
---
---
Ken Miller (8)
5,000
49,250
John F. White (8)
5,000
72,250
* Number of trusteeships/directorships held with other mutual funds in the
Smith Barney Mutual Funds family.
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.
KPMG Peat Marwick LLP, 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 Fund 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.
Options on Securities
The Fund may write covered call options and may also purchase put options
and enter into closing transactions.
The principal reason for writing covered call options on securities is to
attempt to realize, through the receipt of
premiums, a greater return than would
be realized on the securities alone. In return for a premium, the writer of a
covered call option forfeits the right to any appreciation in the value of the
underlying security above the strike price for
the life of the option (or until a
closing purchase transaction can be effected). Nevertheless, the call writer
retains the risk of a decline in the price of
the underlying security. Similarly,
the principal reason for writing covered put options
is to realize income in the
form of premiums. The writer of a covered put option accepts the risk of a
decline in the price of the underlying security. The size of the premiums the
Fund may receive amy be adversely affected as new or existing institutions,
including other investment companies, engage
in or increase their option-writing
activities.
Options written by the Fund will normally have expiration dates between one
and six months from the date written. The exercise price of the options may be
below, equal to, or above the current market
values of the underlying securities
at the times the options are written. In the case
of call options, these exercise
prices are referred to as "in-the-money," "at-the-money"
and "out-of-the-money,"
respectively.
The Fund may write (a) in-the-money call options when the Manager expects
the price of the underlying security to remain flat or
decline moderately during
the option period, (b) at-the-money call options when the Manager expects the
price of the underlying security to remain flat
or advance moderately during the
option period and (c) out-of-the-money call
options when the Manager expects that
the price of the security may increase but not
above a price equal to the sum of
the exercise price plus the premiums received from writing the call option. In
any of the preceding situations, if the market price of the underlying security
declines and the security is sold at this
lower price, the amount of any realized
loss will offset wholly or in part by the premium
received. Out-of-the-money, at-
the-money and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be utilized in the same market
environments as such call options are used in equivalent transactions.
So long as the obligation of the Fund as the writer of an option continues,
the Fund may be assigned an exercise notice by
the broker-dealer through which the
option was sold, requiring it to deliver, in the case
of a call, or take delivery
of, in the case of a put, the underlying security
against payment of the exercise
price. This obligation terminates when the option expires
or the Fund effects a
closing purchase transaction. The Fund can no longer effect a closing purchase
transaction with respect to an option once it has been assigned an exercise
notice. To secure its obligation to deliver the underlying security when it
writes a call option, or to pay for the
underlying security when it writes a put
option, the Fund will be required to deposit in
escrow the underlying security or
to other assets in accordance with the rules
of the Options Clearing Corporation
("Clearing Corporation") or similar clearing corporation and the securities
exchange on which the option is written.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a
recognized securities exchanges or in
the over-the-counter market. The Fund expects to wirte
options only on national
securities exchanges or in the over-th-counter market.
The Fund may purchase put
options issued by the clearing Corporation or in the over-the-counter market.
The Fund may realize a profit or loss upon entering into a closing
transaction. In cases in which the Fund has written
an option, it will realize a
profit if the cost of the closing purchase transaction is less than the premium
received upon writing the original option and will
incur a loss if the cost of the
closing purchase transaction exceeds the premium received upon writing the
original option. Similarly, when the Fund has
purchased an option and engages in
a closing sale transaction, whether it recognizes a profit or loss will depend
upon whether the amount received in the closing
sale transaction is more or less
than the premium the Fund initially paid for the
original option plus the related
transaction costs.
Although the Fund generally will purchase or write only those options for
which the Manager believes there is an active
secondary market so as to facilitate
closing transactions, there is no assurance that sufficient trading interest to
create a liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market
in an option may cease to
exist for a variety of reasons. In the past, for example,
higher than anticipated
trading activity or order flow, or other unforeseen events,
have at times rendered
certain of the facilities of the Clearing Corporation and national securities
exchanges inadequate and resulted in the institution
of special procedures, such
as trading rotations, restrictions on certain types of
orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options.
If, as a covered call option
writer, the Fund is unable to effect a closing
purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
Securities exchanges generally have established limitations governing the
maximum number of calls and puts of each class which may be held or written, or
exercised within certain periods, by an investor
or group of investors acting in
concert (regardless of whether the options are written ont he same or different
securities exchanges or are held, written or
exercised in one or more accounts or
through one or more brokers). It is possible that
the Fund and other clients of
the Manager and certain of their affiliates may be
considered to be such a group.
A securities exchange may order the liquidation of positions found to be in
violation of these limits, and it may impose certain other sanctions.
In the case of options written by the Fund that are deemed covered by virtue
of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert for
exchange and obtain physical delivery
of the underlying common stocks with respect to which
the Fund has written options
may exceed the time within which the Fund must make
delivery in accordance with an
exercise notice. In these instances, the Fund may
purchase or temporarily borrow
the underlying securities for purposes of physical delivery. By so doing, the
fund will not bear any market risk because the
Fund will have the absolute right
to receive from the issuer of the underlying security
an equal number of shares to
replace the borrowed stock, but the Fund may incur additional
transaction costs or
interest expenses in connection with any such purchase or borrowing.
Although the Manager will attempt to take appropriate measures to minimize
the risks relating to the Fund's writing of call
options and purchasing of put and
call options, there can be no assurance that the Fund
will succeed in its option-
writing program.
Stock Index Options
The Fund may purchase put and call options and write call options on
domestic stock indexes listed on domestic exchanges in order to realize its
investment objective of capital appreciation or for the purpose of hedging its
portfolio. A stock index fluctuates with changes in the market values of the
stocks included in the index. Some stock index options are based on a broad
marked index such as the New York Stock Exchange Composite Index o the Canadian
Market Portfolio Index, or a narrower market index
such as the Standard & Poor's
100. indexes also are based on an industry or
market segment such as the American
Stock Exchange Oil and Gas Index or the Computer and Business Equipment Index.
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different.
Instead of giving the right to take
or make delivery of stock at a specified price,
an option on a stock index gives
the right to receive a cash "exercise settlement
amount" equal to (a) the amount,
if any, by which the fixed exercise price of the
option exceeds (in the case of a
put) or is less than (in the case of a call) the
closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon
the closing level of the stock index
upon which the option is based being greater than,
in the case of a call, or less
than, in the case of a put, the exercise price
of the option. The amount of cash
received will be equal to such difference between
the closing price of the index
and the exercise price of the option expressed in
dollars or a foreign currency,
as the case may be, times a specified multiple. The writer of the option is
obligated, in return for the premium received,
to make delivery of this amount.
The writer may offset its position in stock
index options prior to expiration by
entering into a closing transaction on an exchange
or it may let the option expire
unexercised.
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to
which price movements in the portion of
the securities portfolio of the Fund correlate
with price movements of the stock
index selected. Because the value of an index option depends upon movements in
the level of the index rather than the of a particular stock, whether the Fund
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock
prices in the stock market generally
or, int he case of certain indexes, in an
industry or market segment, rather than
movements in the price of a particular stock.
Accordingly, successful use by the
Fund of options on stock indexes will be subject to the Manager's ability to
predict correctly movements int he direction of the stock market
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
temporarily for 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 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, including securities exempt
from registration pursuant
to Rule 144A of the 1933 Act ("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 one year 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.
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,
plus any applicable sales charge differential , 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 SERVICING AGENT -
SMITH BARNEY
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 Fund'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 Fund 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.
SMITH BARNEY PRINCIPAL RETURN FUND
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
None
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 Fund is filed herewith.
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 and Administration Agreement between
the Registrant and Smith Barney Mutual Funds Management Inc. relating to
Security and Growth Fund is filed herewith.
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.
9(a) Administration Agreements dated April 21, 1994 between the
Registrant and Smith Barney Advisers, Inc. relating to Series 1996, Series
1998 and Series 2000 are filed herewith.
(b) Sub-Administration Agreement dated April 21, 1994 between the
Registrant and The Boston Company Advisors, Inc. dated April 21, 1994 are
filed herewith.
(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 Fund is filed herewith.
10 Not Applicable
11 Not Applicable.
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
Fund is filed herewith.
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
(v) Security and Growth Series
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders by Class
Title of Class as of February 23, 1995
Shares representing
beneficial interests,
par value .001 per share
(i) Zeros and Appreciation
Series 1996 8,170
(ii) Zeros and Appreciation
Series 1998 12,522
(iii) Zeros Plus Emerging
Equities Series 2000 9,304
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 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. On June 1, 1994, Smith Barney Shearson 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 Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(3) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(4) Boston Safe Deposit and Trust Company
One Cabot Road
Medford, Massachusetts 02155
(5) 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, certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933, 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 March, 1995.
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 03/23/95
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Treasurer (Chief Financial
03/23/95
Lewis E. Daidone and Accounting Officer)
/s/ Paul R. Ades* Trustee 03/23/95
Paul R. Ades
Herbert Barg* Trustee
03/23/95
Herbert Barg
/s/ Alger B. Chapman* Trustee 03/23/95
Alger B. Chapman
/s/ Dwight B. Crane* Trustee 03/23/95
Dwight B. Crane
/s/ Frank Hubbard* Trustee 03/23/95
Frank Hubbard
/s/ Allan R. Johnson* Trustee 03/23/95
Allan R. Johnson
/s/ Ken Miller* Trustee 03/23/95
Ken Miller
/s/ John F. White* Trustee 03/23/95
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 pea16
SMITH BARNEY PRINCIPAL RETURN FUND
AMENDMENT NO. 8 TO THE MASTER TRUST AGREEMENT
The undersigned, Assistant Secretary of Smith Barney
Principal Return Fund (the "Fund"), does hereby certify that
pursuant to Article IV, Section 4.2 and Article VII, Section
7.3 of the Master Trust Agreement dated October 18, 1988, as
amended, the following votes were duly adopted by the Board
of Trustees at a Regular Meeting of the Board held on
January 26, 1995:
VOTED: That the Master Trust Agreement is hereby
amended so as to establish and designate a new Sub-Trust of
the Trust, such Sub-Trust to be known as the "Smith Barney
Security and Growth Fund" and the number of shares of such
Sub-Trust which the Trust is authorized to issue is an
unlimited number of shares of beneficial interest, with a
par value of $.001, relative rights and preferences as are
set forth in the Master Trust Agreement for separate Sub-
Trusts;
FURTHER
VOTED: That the appropriate officers of the Trust be,
and each hereby is, authorized to execute and file with the
Secretary of State of the Commonwealth of Massachusetts and
the Boston City Clerk an Amendment to the Trust's Master
Trust Agreement reflecting the foregoing changes, and to
execute and file all requisite certificates, documents and
instruments and to take such other actions required to cause
said amendment to become effective and to pay all requisite
fees and expenses incident thereto.
IN WITNESS WHEREOF, the undersigned has hereunto
set his hand this 7th day of March , 1995.
_________________________________
Robert A. Vegliante
Assistant Secretary
shared/domestic/clients/shearson/funds/prtn/amend8.doc
FORM OF INVESTMENT ADVISORY AND ADMINISTRATION
AGREEMENT
March [ ], 1995
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, NY 10013
Dear Sirs:
This Investment Advisory and Administration
Agreement (the "Agreement") is made on this -- day
of March, 1995, by and between Smith Barney
Principal Return Fund, a business trust organized
under the laws of the Commonwealth of Massachusetts
(the "Trust"), on behalf of the Smith Barney
Security and Growth Fund, a separate series of the
Trust (the "Fund"), and Smith Barney Mutual Funds
Management Inc. ("SBMFM") as follows:
1. Investment Description; Appointment
The Trust, on behalf of the Fund, desires to
employ its capital by investing and reinvesting in
investments of the kind and in accordance with the
limitations specified in its: (i) Master Trust
Agreement, as amended from time to time (the "Master
Trust Agreement"); (ii) Prospectus of the Fund (the
"Prospectus"); and (iii) Statement of Additional
Information of the Fund (the "Statement") filed with
the Securities and Exchange Commission (the "SEC")
as part of the Trust's Registration Statement on
Form N-lA, as amended from time to time, and in such
manner and to such extent as may from time to time
be approved by the Board of Trustees of the Trust
(the "Board"). Copies of the Fund's Prospectus, the
Statement and the Master Trust Agreement have been
or will be submitted to SBMFM. The Fund desires to
employ and hereby appoints SBMFM to act as its
investment adviser and administrator. SBMFM accepts
the appointment and agrees to furnish the services
for the compensation set forth below. SBMFM is
hereby authorized to retain third parties and is
hereby authorized to delegate some or all of its
duties and obligations hereunder to such persons,
provided such persons shall remain under the general
supervision of SBMFM.
2. Services as Investment Adviser
Subject to the supervision and direction of
the Board, SBMFM will: (a) manage the Fund's
portfolio in accordance with the Fund's investment
objective and policies as stated in the Prospectus
and the Statement; (b) make investment decisions for
the Fund; (c) place purchase and sale orders for
portfolio transactions for the Fund; and (d) employ
professional portfolio managers and securities
analysts to provide research services to the Fund.
In providing those services, SBMFM will conduct a
continual program of investment, evaluation and, if
appropriate, sale and reinvestment of the Fund's
assets.
3. Services as Administrator
Subject to the supervision and direction of
the Board, SBMFM will: (a) assist in supervising all
aspects of the Fund's operations; (b) supply the
Fund with office facilities (which may be in SBMFM's
own offices), statistical and research data, data
processing services, clerical, accounting and
bookkeeping services, including, but not limited to,
the calculation of (i) the net asset value of shares
of the Fund, (ii) applicable contingent deferred
sales charges and similar fees and charges, and
(iii) distribution fees, internal auditing and legal
services, internal executive and administrative
services, and stationary and office supplies; and
(c) prepare reports to shareholders of the Fund, tax
returns and reports to and filings with the SEC and
state blue sky authorities.
4. Compensation
In consideration of the services rendered
pursuant to this Agreement, the Fund will pay SBMFM,
on the first business day of each month, a fee,
calculated daily, for the previous month at an
annual rate of one half of one percent (0.50%) of
the Fund's average daily net assets. The fee for
the period from the date the Fund commences its
investment operations to the end of the month during
which the Fund commences its investment operations
shall be pro-rated according to the proportion that
such period bears to the full monthly period. Upon
any termination of this Agreement before the end of
any month, the fee for such part of that month shall
be pro-rated according to the proportion that such
period bears to the full monthly period and shall be
payable upon the date of termination of this
Agreement. For the purpose of determining fees
payable to SBMFM, the value of the Fund's net assets
shall be computed at the times and in the manner
specified in the Fund's Prospectus and/or the
Statement, as from time to time in effect.
5. Expenses
SBMFM will bear all expenses in connection
with the performance of its services under this
Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including:
investment advisory and administration fees; charges
of custodians and transfer and dividend disbursing
agents; fees for necessary professional services,
such as the Fund's and Board members' proportionate
share of insurance premiums, professional
associations, dues and/or assessments; and brokerage
services, including taxes, interest and commissions;
costs of preparing and printing prospectuses and
statements of additional information for regulatory
purposes and for distribution to existing
shareholders; the costs of regulatory compliance,
such as SEC fees and state blue sky qualifications
fees; outside auditing and legal expenses and costs
associated with maintaining the Fund's legal
existence; costs of shareholders' reports and
meetings of the officers or Board; fees of the
members of the Board who are not officers, directors
or employees of Smith Barney Inc. or its affiliates
or any person who is an affiliate of any person to
whom duties may be delegated hereunder.
6. Reimbursement to the Fund
If in any fiscal year the aggregate expenses
of the Fund (including fees pursuant to this
Agreement, but excluding distribution fees,
interest, taxes, brokerage and, if permitted by
state securities commissions, extraordinary
expenses) exceed the expense limitations of any
state having jurisdiction over the Fund, SBMFM will
reimburse the Fund for that excess expense to the
extent required by state law in the same proportion
as its respective fees bear to the combined fees for
investment advice and administration. The expense
reimbursement obligation of SBMFM will be limited to
the amount of its fees hereunder. Such expense
reimbursement, if any, will be estimated, reconciled
and paid on a monthly basis.
7. Brokerage
In selecting brokers or dealers to execute
transactions on behalf of the Fund, SBMFM will
seek the best overall terms available. In assessing
the best overall terms available for any
transaction, SBMFM will consider factors it deems
relevant, including, but not limited to, 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
selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall
terms available, SBMFM is authorized to consider the
brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange
Act of 1934, as amended) provided to the Fund and/or
other accounts over which SBMFM or its affiliates
exercise investment discretion.
8. Information Provided to the Fund
SBMFM will keep the Fund informed of
developments materially affecting the Fund's
portfolio, and will, on its own initiative, furnish
the Fund from time to time with whatever information
SBMFM believes is appropriate for this purpose.
9. Standard of Care
SBMFM shall exercise its best judgment in
rendering the services listed in paragraphs 2 and 3
above. SBMFM shall not be liable for any error of
judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which
this Agreement relates, provided that nothing in
this Agreement shall be deemed to protect or purport
to protect SBMFM against any liability to the Fund
or to its shareholders to which SBMFM would
otherwise be subject by reason of willful
malfeasance, bad faith or gross negligence on its
part in the performance of its duties or by reason
of SBMFM's reckless disregard of its obligations and
duties under this Agreement.
10. Services to Other Companies or Accounts
The Fund understands that SBMFM now acts, will
continue to act and may act in the future as:
investment adviser to fiduciary and other managed
accounts, as well as to other investment companies;
and acts as administrator to one or more other
investment companies, and the Fund has no objection
to SBMFM's so acting, provided that whenever the
Fund and one or more other investment companies
advised by SBMFM have available funds for
investment, investments suitable and appropriate for
each will be allocated in accordance with a formula
believed to be equitable to each company. The Fund
recognizes that in some cases this procedure may
adversely affect the size of the position obtainable
for the Fund. In addition, the Fund understands
that the persons employed by SBMFM to assist in the
performance of SBMFM's duties under this Agreement
will not devote their full time to such service and
nothing contained in this Agreement shall be deemed
to limit or restrict the right of SBMFM or any
affiliate of SBMFM to engage in and devote time and
attention to other businesses or to render services
of whatever kind or nature.
11. Term of Agreement
This Agreement shall become effective as of
the date the Fund commences its investment
operations and continue for an initial two-year term
and shall continue thereafter so long as such
continuance is specifically approved at least
annually by (i) the Board or (ii) a vote of a
"majority" (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act") of the Fund's
outstanding voting securities, provided that in
either event the continuance is also approved by a
majority of the Board who are not "interested
persons" (as defined in the 1940 Act) of any party
to this Agreement, by vote cast in person or by
proxy at a meeting called for the purpose of voting
on such approval. This Agreement is terminable,
without penalty, on 60 days' written notice, by the
Board or by vote of holders of a majority of the
Fund's shares, or upon 90 days' written notice, by
SBMFM. This Agreement will also terminate
automatically in the event of its assignment (as
defined in the 1940 Act).
12. Representation by the Fund
The Fund represents that a copy of the Master
Trust Agreement is on file with the Secretary of the
Commonwealth of Massachusetts and with the City of
Boston.
13. Indemnification
The Fund agrees to indemnify SBMFM and its
officers, directors, employees, affiliates,
controlling persons, agents (including persons to
whom responsibilities are delegated hereunder)
against any loss, claim, expense or cost of any kind
(including reasonable attorney's fees) resulting or
arising in connection with this Agreement, or from
the performance or failure to perform any act
hereunder, provided that no such indemnification
shall be available if the indemnitee violated the
standard of care in paragraph 8 above. This
indemnification shall be limited by the 1940 Act and
relevant state law. Each indemnitee shall be
entitled to advance of its expenses in accordance
with the requirements of the 1940 Act and the rules,
regulations and interpretations thereof as in effect
from time to time.
14. Limitation of Liability
The Fund and SBMFM agree that the obligations
of the Fund under this Agreement shall not be
binding upon any of the Board members, shareholders,
nominees, officers, employees or agents, whether
past, present or future, of the Fund individually,
but are binding only upon the assets and property of
the Fund, as provided in the Master Trust Agreement.
The execution and delivery of this Agreement have
been duly authorized by the Fund and SBMFM, and
signed by an authorized officer of each, acting as
such. Neither the authorization by the Board members
of the Fund, nor the execution and delivery by the
officer of the Fund shall be deemed to have been
made by any of them individually or to impose any
liability on any of them personally, but shall bind
only the assets and property of the Fund as provided
in the Master Trust Agreement.
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance
hereof by signing and returning the enclosed copy of
this Agreement to us.
Very truly yours,
Smith Barney Principal
Return Fund, on behalf
of the Security and
Growth Fund
By:
Title:
Accepted:
Smith Barney Mutual Funds Management Inc.
By:
Title:
SECGRO.AGR
ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND
April 21, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Smith Barney Shearson Principal Return Fund (the "Trust"), a business
trust organized under the laws of the Commonwealth of Massachusetts,
confirms its agreement with Smith, Barney Advisors, Inc. ("SBA") and its
sub-trust Zeros and Appreciation Series 1996 ( the "Fund") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Amended and Restated Master Trust Agreement
dated November 5, 1992, as amended from time to time (the "Master Trust
Agreement"), in its Prospectus and Statement of Additional Information as
from time to time in effect and in such manner and to such extent as may
from time to time be approved by the Board of Trustees of the Fund (the
"Board"). Copies of the Fund's Prospectus, Statement of Additional
Information and Master Trust Agreement have been or will be submitted to
SBA. Smith Barney Shearson Asset Management ("Asset Management") serves as
the Fund's investment adviser and the Fund desires to employ and hereby
appoints SBA to act as its administrator. SBA accepts this appointment and
agrees to furnish the services to the Fund for the compensation set forth
below. SBA is hereby authorized to retain third parties and is hereby
authorized to delegate some or all of its duties and obligations hereunder
to such persons provided that such persons shall remain under the general
supervision of SBA.
2. Services as Administrator
Subject to the supervision and direction of the Board, SBA
will: (a) assist in supervising all aspects of the Fund's operations except
those performed by the Fund's investment adviser under its investment
advisory agreement; (b) supply the Fund with office facilities (which may
be in SBA's own offices), statistical and research data, data processing
services, clerical, accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of shares of the
Fund, (ii) applicable contingent deferred sales charges and similar fees
and charges and (iii) distribution fees, internal auditing and legal
services, internal executive and administrative services, and stationary
and office supplies; and (c) prepare reports to shareholders of the Fund,
tax returns and reports to and filings with the Securities and Exchange
Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay SBA on the first business day of each month a
fee for the previous month at an annual rate of .20 of 1.00% of the Fund's
average daily net assets. The fee for the period from the date the Fund's
initial registration statement is declared effective by the SEC to the end
of the month during which the initial registration statement is declared
effective shall be prorated according to the proportion that such period
bears to the full monthly period. Upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be
prorated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. For the purpose of determining fees payable to SBA, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and Statement of Additional Information
as from time to time in effect.
4. Expenses
SBA will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of the members of the Board of
the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc. or its affiliates or any person who is an affiliate of any
person to whom duties may be delegated hereunder; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement (s), but excluding distribution fees, interest, taxes,
brokerage and, if permitted by state securities commissions, extraordinary
expenses) exceed the expense limitations of any state having jurisdiction
over the Fund, SBA will reimburse the Fund for that excess expense to the
extent required by state law in the same proportion as its respective fees
bear to the combined fees for investment advice and administration. The
expense reimbursement obligation of SBA will be limited to the amount of
its fees hereunder. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in rendering the services
listed in paragraph 2 above, and SBA shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect SBA against
liability to the Fund or to its shareholders to which SBA would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or by reason of SBA's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts, will continue to act
and may act in the future as administrator to one or more other investment
companies, and the Fund has no objection to SBA so acting. In addition,
the Fund understands that the persons employed by SBA or its affiliates to
assist in the performance of its duties hereunder will not devote their
full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of SBA or its affiliates to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its officers, directors,
employees, affiliates, controlling persons, agents (including persons to
whom responsibilities are delegated hereunder) ("indemnitees") against any
loss, claim, expense or cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this Agreement or from the
performance or failure to perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee violated the standard
of care in paragraph 6 above. This indemnification shall be limited by the
1940 Act, and relevant state law. Each indemnitee shall be entitled to
advancement of its expenses in accordance with the requirements of the 1940
Act and the rules, regulations and interpretations thereof as in effect
from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Master Trust
Agreement and Bylaws. The execution and delivery of this Agreement has
been duly authorized by the Fund, SBA and Boston Advisors, and signed by an
authorized officer of each, acting as such. Neither the authorization by
the Board members of the Fund, nor the execution and delivery by the
officer of the Fund shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Fund as provided in the
Master Trust Agreement and Bylaws.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by singing and returning to us the enclosed
copy hereof.
Very truly yours,
Smith Barney Shearson Principal Return
Fund -
Zeros and Appreciation Series 1996
By: /s/ Heath B. McLendon________
Name: Heath B. McLendon
Title: Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
By: /s/ Christina Sydor____________
Name: Christina Sydor
Title: Secretary
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliations - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution Funds - Calculate income on purchase and sales, calculate
change in income due to variable rate change, combine all daily income
less expenses to arrive at net income, calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian records;
Pricing - Determine N.A.V. for Fund using market value of
all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent- N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio managers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board members, tax authorities, statistical and performance
reporting companies and the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages, including expense pro
forma; prepare amortization schedules for premium and discount bonds
based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios supplied by Fund's
treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual,
semi-annual and quarterly portfolio of investments and financial
statements included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting
(for money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.)
Publications
Coordinate the printing and mailing process with
outside printers for annual and semi-annual reports, prospectuses,
statements of additional information, proxy statements and special
letters or supplements;
Provide graphics and design assistance relating to the
creation of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide a Treasurer and Assistant Treasurer for the
Fund;
Determine expenses properly chargeable to the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's
Board (e.g., Rule 2a-7, 10f-3, 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities transactions);
Recommend dividends to be voted by the Fund's Board;
Monitor mark-to-market comparisons for money market
funds;
Recommend valuation to be used for securities which
are not readily saleable;
Function as a liaison with the Fund's outside auditors
and arrange for audits;
Provide accounting, financial and tax support relating
to portfolio management and any contemplated changes in the Fund's
structure or operations;
Prepare and file forms with the Internal Revenue
Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and
related regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with
the appropriate regulatory agencies;
Prepare and file proxy statements;
Review marketing material for SEC and NASD clearance;
Provide legal assistance for shareholder
communications.
Corporate and Secretarial Services
Provide a Secretary and an Assistant Secretary for the
Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder
meetings;
Maintain Master Trust Agreement and By-Laws of the
Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and
procedures to improve overall compliance by the Fund and its various
agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine Fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing
compliance manuals, conducting seminars for fund accounting and advisory
personnel and performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with prospectus
guidelines and limitations, 1940 Act requirements and Internal Revenue
Code requirements. The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully
automated environment using blue sky registration software developed by
Price Waterhouse. In addition to being responsible for the initial and
on-going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND
April 21, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Smith Barney Shearson Principal Return Fund (the "Trust"), a
business trust organized under the laws of the Commonwealth of
Massachusetts, confirms its agreement with Smith, Barney Advisors, Inc.
("SBA") and its sub-trust Zeros and Appreciation Series 1998 ( the
"Fund") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Amended and Restated Master Trust Agreement
dated November 5, 1992, as amended from time to time (the "Master Trust
Agreement"), in its Prospectus and Statement of Additional Information
as from time to time in effect and in such manner and to such extent as
may from time to time be approved by the Board of Trustees of the Fund
(the "Board"). Copies of the Fund's Prospectus, Statement of Additional
Information and Master Trust Agreement have been or will be submitted to
SBA. Smith Barney Shearson Asset Management ("Asset Management") serves
as the Fund's investment adviser and the Fund desires to employ and
hereby appoints SBA to act as its administrator. SBA accepts this
appointment and agrees to furnish the services to the Fund for the
compensation set forth below. SBA is hereby authorized to retain third
parties and is hereby authorized to delegate some or all of its duties
and obligations hereunder to such persons provided that such persons
shall remain under the general supervision of SBA.
2. Services as Administrator
Subject to the supervision and direction of the Board, SBA
will: (a) assist in supervising all aspects of the Fund's operations
except those performed by the Fund's investment adviser under its
investment advisory agreement; (b) supply the Fund with office
facilities (which may be in SBA's own offices), statistical and research
data, data processing services, clerical, accounting and bookkeeping
services, including, but not limited to, the calculation of (i) the net
asset value of shares of the Fund, (ii) applicable contingent deferred
sales charges and similar fees and charges and (iii) distribution fees,
internal auditing and legal services, internal executive and
administrative services, and stationary and office supplies; and (c)
prepare reports to shareholders of the Fund, tax returns and reports to
and filings with the Securities and Exchange Commission (the "SEC") and
state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay SBA on the first business day of each month
a fee for the previous month at an annual rate of .20 of 1.00% of the
Fund's average daily net assets. The fee for the period from the date
the Fund's initial registration statement is declared effective by the
SEC to the end of the month during which the initial registration
statement is declared effective shall be prorated according to the
proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for
such part of a month shall be prorated according to the proportion which
such period bears to the full monthly period and shall be payable upon
the date of termination of this Agreement. For the purpose of
determining fees payable to SBA, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Fund's
Prospectus and Statement of Additional Information as from time to time
in effect.
4. Expenses
SBA will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear
certain other expenses to be incurred in its operation, including:
taxes, interest, brokerage fees and commissions, if any; fees of the
members of the Board of the Fund who are not officers, directors or
employees of Smith Barney Shearson Inc. or its affiliates or any person
who is an affiliate of any person to whom duties may be delegated
hereunder; SEC fees and state blue sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; the Fund's and
Board members' proportionate share of insurance premiums, professional
association dues and/or assessments; outside auditing and legal
expenses; costs of maintaining the Fund's existence; costs attributable
to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports
and meetings of the officers or Board and any extraordinary expenses.
In addition, the Fund will pay all distribution fees pursuant to a
Distribution Plan adopted under Rule 12b-1 of the Investment Company Act
of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement (s), but excluding distribution fees, interest,
taxes, brokerage and, if permitted by state securities commissions,
extraordinary expenses) exceed the expense limitations of any state
having jurisdiction over the Fund, SBA will reimburse the Fund for that
excess expense to the extent required by state law in the same
proportion as its respective fees bear to the combined fees for
investment advice and administration. The expense reimbursement
obligation of SBA will be limited to the amount of its fees hereunder.
Such expense reimbursement, if any, will be estimated, reconciled and
paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in rendering the
services listed in paragraph 2 above, and SBA shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to
protect SBA against liability to the Fund or to its shareholders to
which SBA would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its
duties or by reason of SBA's reckless disregard of its obligations and
duties under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically for successive
annual periods, provided such continuance is specifically approved at
least annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts, will continue to act
and may act in the future as administrator to one or more other
investment companies, and the Fund has no objection to SBA so acting.
In addition, the Fund understands that the persons employed by SBA or
its affiliates to assist in the performance of its duties hereunder will
not devote their full time to such service and nothing contained herein
shall be deemed to limit or restrict the right of SBA or its affiliates
to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its officers,
directors, employees, affiliates, controlling persons, agents (including
persons to whom responsibilities are delegated hereunder)
("indemnitees") against any loss, claim, expense or cost of any kind
(including reasonable attorney's fees) resulting or arising in
connection with this Agreement or from the performance or failure to
perform any act hereunder, provided that no such indemnification shall
be available if the indemnitee violated the standard of care in
paragraph 6 above. This indemnification shall be limited by the 1940
Act, and relevant state law. Each indemnitee shall be entitled to
advancement of its expenses in accordance with the requirements of the
1940 Act and the rules, regulations and interpretations thereof as in
effect from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree that the obligations
of the Fund under this Agreement shall not be binding upon any of the
Board members, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Fund individually, but are
binding only upon the assets and property of the Fund, as provided in
the Master Trust Agreement and Bylaws. The execution and delivery of
this Agreement has been duly authorized by the Fund, SBA and Boston
Advisors, and signed by an authorized officer of each, acting as such.
Neither the authorization by the Board members of the Fund, nor the
execution and delivery by the officer of the Fund shall be deemed to
have been made by any of them individually or to impose any liability on
any of them personally, but shall bind only the assets and property of
the Fund as provided in the Master Trust Agreement and Bylaws.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by singing and returning to us the
enclosed copy hereof.
Very truly yours,
Smith Barney Shearson Principal
Return Fund -
Zeros and Appreciation Series 1998
By: /s/ Heath B. McLendon________
Name: Heath B. McLendon
Title: Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
By: /s/ Christina Sydor____________
Name: Christina Sydor
Title: Secretary
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliations - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution Funds - Calculate income on purchase and sales, calculate
change in income due to variable rate change, combine all daily income
less expenses to arrive at net income, calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian records;
Pricing - Determine N.A.V. for Fund using market value of
all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent- N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio managers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board members, tax authorities, statistical and performance
reporting companies and the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages, including expense pro
forma; prepare amortization schedules for premium and discount bonds
based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios supplied by Fund's
treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual,
semi-annual and quarterly portfolio of investments and financial
statements included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting
(for money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.)
Publications
Coordinate the printing and mailing process with
outside printers for annual and semi-annual reports, prospectuses,
statements of additional information, proxy statements and special
letters or supplements;
Provide graphics and design assistance relating to the
creation of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide a Treasurer and Assistant Treasurer for the
Fund;
Determine expenses properly chargeable to the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's
Board (e.g., Rule 2a-7, 10f-3, 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities transactions);
Recommend dividends to be voted by the Fund's Board;
Monitor mark-to-market comparisons for money market
funds;
Recommend valuation to be used for securities which
are not readily saleable;
Function as a liaison with the Fund's outside auditors
and arrange for audits;
Provide accounting, financial and tax support relating
to portfolio management and any contemplated changes in the Fund's
structure or operations;
Prepare and file forms with the Internal Revenue
Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and
related regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with
the appropriate regulatory agencies;
Prepare and file proxy statements;
Review marketing material for SEC and NASD clearance;
Provide legal assistance for shareholder
communications.
Corporate and Secretarial Services
Provide a Secretary and an Assistant Secretary for the
Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder
meetings;
Maintain Master Trust Agreement and By-Laws of the
Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and
procedures to improve overall compliance by the Fund and its various
agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine Fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing
compliance manuals, conducting seminars for fund accounting and advisory
personnel and performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with prospectus
guidelines and limitations, 1940 Act requirements and Internal Revenue
Code requirements. The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully
automated environment using blue sky registration software developed by
Price Waterhouse. In addition to being responsible for the initial and
on-going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND
April 21, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Smith Barney Shearson Principal Return Fund (the "Trust"), a
business trust organized under the laws of the Commonwealth of
Massachusetts, confirms its agreement with Smith, Barney Advisors, Inc.
("SBA") and its sub-trust Zeros Plus Emerging Growth Series 2000 ( the
"Fund") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Amended and Restated Master Trust Agreement
dated November 5, 1992, as amended from time to time (the "Master Trust
Agreement"), in its Prospectus and Statement of Additional Information
as from time to time in effect and in such manner and to such extent as
may from time to time be approved by the Board of Trustees of the Fund
(the "Board"). Copies of the Fund's Prospectus, Statement of Additional
Information and Master Trust Agreement have been or will be submitted to
SBA. Smith Barney Shearson Asset Management ("Asset Management") serves
as the Fund's investment adviser and the Fund desires to employ and
hereby appoints SBA to act as its administrator. SBA accepts this
appointment and agrees to furnish the services to the Fund for the
compensation set forth below. SBA is hereby authorized to retain third
parties and is hereby authorized to delegate some or all of its duties
and obligations hereunder to such persons provided that such persons
shall remain under the general supervision of SBA.
2. Services as Administrator
Subject to the supervision and direction of the Board, SBA
will: (a) assist in supervising all aspects of the Fund's operations
except those performed by the Fund's investment adviser under its
investment advisory agreement; (b) supply the Fund with office
facilities (which may be in SBA's own offices), statistical and research
data, data processing services, clerical, accounting and bookkeeping
services, including, but not limited to, the calculation of (i) the net
asset value of shares of the Fund, (ii) applicable contingent deferred
sales charges and similar fees and charges and (iii) distribution fees,
internal auditing and legal services, internal executive and
administrative services, and stationary and office supplies; and (c)
prepare reports to shareholders of the Fund, tax returns and reports to
and filings with the Securities and Exchange Commission (the "SEC") and
state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay SBA on the first business day of each month
a fee for the previous month at an annual rate of .20 of 1.00% of the
Fund's average daily net assets. The fee for the period from the date
the Fund's initial registration statement is declared effective by the
SEC to the end of the month during which the initial registration
statement is declared effective shall be prorated according to the
proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for
such part of a month shall be prorated according to the proportion which
such period bears to the full monthly period and shall be payable upon
the date of termination of this Agreement. For the purpose of
determining fees payable to SBA, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Fund's
Prospectus and Statement of Additional Information as from time to time
in effect.
4. Expenses
SBA will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear
certain other expenses to be incurred in its operation, including:
taxes, interest, brokerage fees and commissions, if any; fees of the
members of the Board of the Fund who are not officers, directors or
employees of Smith Barney Shearson Inc. or its affiliates or any person
who is an affiliate of any person to whom duties may be delegated
hereunder; SEC fees and state blue sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; the Fund's and
Board members' proportionate share of insurance premiums, professional
association dues and/or assessments; outside auditing and legal
expenses; costs of maintaining the Fund's existence; costs attributable
to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports
and meetings of the officers or Board and any extraordinary expenses.
In addition, the Fund will pay all distribution fees pursuant to a
Distribution Plan adopted under Rule 12b-1 of the Investment Company Act
of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement (s), but excluding distribution fees, interest,
taxes, brokerage and, if permitted by state securities commissions,
extraordinary expenses) exceed the expense limitations of any state
having jurisdiction over the Fund, SBA will reimburse the Fund for that
excess expense to the extent required by state law in the same
proportion as its respective fees bear to the combined fees for
investment advice and administration. The expense reimbursement
obligation of SBA will be limited to the amount of its fees hereunder.
Such expense reimbursement, if any, will be estimated, reconciled and
paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in rendering the
services listed in paragraph 2 above, and SBA shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to
protect SBA against liability to the Fund or to its shareholders to
which SBA would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its
duties or by reason of SBA's reckless disregard of its obligations and
duties under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically for successive
annual periods, provided such continuance is specifically approved at
least annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts, will continue to act
and may act in the future as administrator to one or more other
investment companies, and the Fund has no objection to SBA so acting.
In addition, the Fund understands that the persons employed by SBA or
its affiliates to assist in the performance of its duties hereunder will
not devote their full time to such service and nothing contained herein
shall be deemed to limit or restrict the right of SBA or its affiliates
to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its officers,
directors, employees, affiliates, controlling persons, agents (including
persons to whom responsibilities are delegated hereunder)
("indemnitees") against any loss, claim, expense or cost of any kind
(including reasonable attorney's fees) resulting or arising in
connection with this Agreement or from the performance or failure to
perform any act hereunder, provided that no such indemnification shall
be available if the indemnitee violated the standard of care in
paragraph 6 above. This indemnification shall be limited by the 1940
Act, and relevant state law. Each indemnitee shall be entitled to
advancement of its expenses in accordance with the requirements of the
1940 Act and the rules, regulations and interpretations thereof as in
effect from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree that the obligations
of the Fund under this Agreement shall not be binding upon any of the
Board members, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Fund individually, but are
binding only upon the assets and property of the Fund, as provided in
the Master Trust Agreement and Bylaws. The execution and delivery of
this Agreement has been duly authorized by the Fund, SBA and Boston
Advisors, and signed by an authorized officer of each, acting as such.
Neither the authorization by the Board members of the Fund, nor the
execution and delivery by the officer of the Fund shall be deemed to
have been made by any of them individually or to impose any liability on
any of them personally, but shall bind only the assets and property of
the Fund as provided in the Master Trust Agreement and Bylaws.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by singing and returning to us the
enclosed copy hereof.
Very truly yours,
Smith Barney Shearson Principal
Return Fund -
Zeros Plus Emerging Growth Series
2000
By: /s/ Heath B. McLendon________
Name: Heath B. McLendon
Title: Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
By: /s/ Christina Sydor____________
Name: Christina Sydor
Title: Secretary
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliations - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution Funds - Calculate income on purchase and sales, calculate
change in income due to variable rate change, combine all daily income
less expenses to arrive at net income, calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian records;
Pricing - Determine N.A.V. for Fund using market value of
all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent- N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio managers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board members, tax authorities, statistical and performance
reporting companies and the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages, including expense pro
forma; prepare amortization schedules for premium and discount bonds
based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios supplied by Fund's
treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual,
semi-annual and quarterly portfolio of investments and financial
statements included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting
(for money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.)
Publications
Coordinate the printing and mailing process with
outside printers for annual and semi-annual reports, prospectuses,
statements of additional information, proxy statements and special
letters or supplements;
Provide graphics and design assistance relating to the
creation of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide a Treasurer and Assistant Treasurer for the
Fund;
Determine expenses properly chargeable to the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's
Board (e.g., Rule 2a-7, 10f-3, 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities transactions);
Recommend dividends to be voted by the Fund's Board;
Monitor mark-to-market comparisons for money market
funds;
Recommend valuation to be used for securities which
are not readily saleable;
Function as a liaison with the Fund's outside auditors
and arrange for audits;
Provide accounting, financial and tax support relating
to portfolio management and any contemplated changes in the Fund's
structure or operations;
Prepare and file forms with the Internal Revenue
Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and
related regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with
the appropriate regulatory agencies;
Prepare and file proxy statements;
Review marketing material for SEC and NASD clearance;
Provide legal assistance for shareholder
communications.
Corporate and Secretarial Services
Provide a Secretary and an Assistant Secretary for the
Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder
meetings;
Maintain Master Trust Agreement and By-Laws of the
Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and
procedures to improve overall compliance by the Fund and its various
agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine Fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing
compliance manuals, conducting seminars for fund accounting and advisory
personnel and performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with prospectus
guidelines and limitations, 1940 Act requirements and Internal Revenue
Code requirements. The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully
automated environment using blue sky registration software developed by
Price Waterhouse. In addition to being responsible for the initial and
on-going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
shared\domestic\clients\shearson\funds/prtn/safe/admin1
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SUB-ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND
April 21, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02210
Dear Sirs:
Smith Barney Shearson Principal Return Fund (the "Trust"), a
business trust organized under the laws of the Commonwealth of
Massachusetts and Smith, Barney Advisers, Inc. ("SBA") confirm their
agreement with The Boston Company Advisors, Inc. ("Boston Advisors") and
its sub-trust Zeros and Appreciation Series 1996 as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Amended and Restated Master Trust Agreement
dated November 5, 1992, as amended from time to time (the "Master Trust
Agreement"), in its Prospectus and Statement of Additional Information as
from time to time in effect, and in such manner and to such extent as may
from time to time be approved by the Board of Trustees of the Fund (the
"Board"). Copies of the Fund's Prospectus, Statement of Additional
Information and Master Trust Agreement have been or will be submitted to
you. The Fund employs SBA as its administrator, and the Fund and SBA
desire to employ and hereby appoint Boston Advisors as the Fund's sub-
administrator. Boston Advisors accepts this appointment and agrees to
furnish the services to the Fund, for the compensation set forth below,
under the general supervision of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction of the Board and SBA,
Boston Advisors will: (a) assist in supervising all aspects of the Fund's
operations except those performed by the Fund's investment adviser under
the Fund's investment advisory agreement; (b) supply the Fund with office
facilities (which may be in Boston Advisor's own offices), statistical and
research data, data processing services, clerical, accounting and
bookkeeping services, including, but not limited to, the calculation of (i)
the net asset value of shares of the Fund, (ii) applicable contingent
deferred sales charges and similar fees and changes and (iii) distribution
fees, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; and (c)
prepare reports to shareholders of the Fund, tax returns and reports to and
filings with the Securities and Exchange Commission (the "SEC") and state
blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, SBA will pay Boston Advisors on the first business day of each
month a fee for the previous month calculated in accordance with the terms
set forth in Appendix B, and as agreed to from time to time by the Fund,
SBA and Boston Advisors. Upon any termination of this Agreement before the
end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly
period and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to Boston Advisors, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and Statement of Additional Information
as from time to time in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear
certain other expenses to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of the Board members
of the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc., Boston Advisors of their affiliates; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and its Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement(s) and administration agreement, but excluding
distribution fees, interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston Advisory
will reimburse the Fund for that excess expense to the extent required by
state law in the same proportion as its respective fees bear to the
combined fees for investment advice and administration. The expense
reimbursement obligation of Boston Advisors will be limited to the amount
of its fees hereunder. Such expense reimbursement, if any, will be
estimated, reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in rendering
the services listed in paragraph 2 above. Boston Advisors shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which this Agreement
relates, provided that nothing herein shall be deemed to protect or purport
to protect Boston Advisors against liability to the Fund or to its
shareholders to which Boston Advisors would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of Boston Advisor's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This agreement shall continue automatically for successive
annual periods, provided that it may be terminated by 90 days' written
notice to the other parties by any of the Fund, SBA or Boston Advisors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however,
that this agreement may not be assigned, transferred or amended without the
written consent of all the parties hereto.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will
continue to act and may act in the future as administrator to one or more
other investment companies, and the Fund has no objection to Boston
Advisors so acting. In addition, the Fund understands that the persons
employed by Boston Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of Boston
Advisors or its affiliates to engage in and devote time and attention to
other businesses or to render services of whatever kind of nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors and its officers,
directors, employees, affiliates, controlling persons and agents
("indemnitees") to the extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and its indemnitees,
against any loss, claim, expenses or cost of any kind (including reasonable
attorney's fees) resulting or arising in connection with this Agreement or
from the performance or failure to perform any act hereunder, provided that
not such indemnification shall be available if the indemnitee violated the
standard of care in paragraph 6 above. This indemnification shall be
limited by the 1940 Act, and relevant state law. Each indemnitee shall be
entitled to advancement of its expenses in accordance with the requirements
of the 1940 Act and the rules, regulations and interpretations thereof as
in effect from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Master Trust
Agreement and Bylaws. The execution and delivery of this Agreement has
been duly authorized by the Fund, SBA and Boston Advisors, and signed by an
authorized officer of each, acting as such. Neither the authorization by
the Board Members of the Fund, nor the execution and delivery by the
officer of the Fund shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Fund as provided in the
Master Trust Agreement.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us the
enclosed copy hereof.
Very truly yours,
Smith Barney Shearson Principal Return Fund -
Zeros and Appreciation Series 1996
By: /s/ Heath B McLendon______
Name: Heath B. McLendon
Title: Chairman of the Board
Smith, Barney Advisers, Inc.
By: /s/ Christina T. Sydor________
Name: Christina Sydor
Title: Secretary
Accepted:
The Boston Company Advisors, Inc.
By: /s/ Francis J. McNamara, III______
Name: Francis J. McNamara, III
Title Senior Vice President
Appendix A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act" ), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
- Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
- Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
- Formal Reconciliation - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
- Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
- Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
- Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
- Calculate Net Income, Mil Rate and Yield for Daily
Distribution
Funds - Calculate income on purchases and sales, calculate
change in income due to variable rate change; combine all daily income
less expenses to arrive at net income; calculate mil rate and yields (1
day, 7 day and 30 day);
- Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
- Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian reports;
- Pricing - Determine N.A.V. for the Fund using market value
of all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
- Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
- System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
- Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
- Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
- Reporting of Price to Transfer Agent - N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio mangers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board, tax authorities, statistical and performance reporting
companies and the Fund's auditors; interface with Fund's auditors;
prepare monthly reconciliation packages, including expense pro forma;
prepare amortization schedules for premium and discount bonds based on
the effective yield method; prepare vault reconciliation reports to
indicate securities currently "out-for-transfer;" and calculate daily
expenses based on expense ratios supplied by Fund's treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
- Coordinate the preparation and review of the annual, semi-
annual and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
- Total return reporting;
- SEC 30-day yield reporting and 7-day yield reporting (for
money market funds);
- Prepare dividend summary;
- Prepare quarter-end reports;
- Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.).
Publications
- Coordinate the printing and mailing process with outside
printers for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Treasury. The following is a summary of the treasury services available
to the Fund:
- Provide an Assistant Treasurer for the Fund;
- Authorize payment of bills for expenses of the Fund;
- Establish and monitor the rate of expense accruals;
- Prepare financial materials for review by the Fund's Board
(e.g., Rule 2a-7, 10f-3 17a-7 and 17e-1 reports, repurchase agreement
dealer lists, securities transactions);
- Monitor mark-to-market comparisons for money market funds;
- Recommend valuations to be used for securities which are not
readily saleable;
- Function as a liaison with the Fund's outside auditors and
arrange for audits;
- Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the fund's
structure or operations;
- Prepare and file forms with the Internal Revenue Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
- File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
- File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
- Prepare and file proxy statements;
- Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
- Provide an Assistant Secretary for the Fund;
- Maintain general corporate calendar;
- Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
- Organize, attend and keep minutes of shareholder meetings;
- Maintain Articles of Incorporation or Master Trust
Agreements and By-Laws of the Fund.
Legal Consultation and Business Planning
- Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
- Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
- Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
- Manage Fund litigation matters and assume full
responsibility for the handling of routine fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel
and performing on-going testing of the Fund's portfolio to assist the
Fund's investment adviser in complying with prospectus guidelines and
limitations, 1940 Act requirements and Internal Revenue Code
requirements. The Department may also act as liaison to the SEC during
its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully automated
environment using blue sky registration software development by Price
Waterhouse. In addition to being responsible for the initial and on-
going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
Schedule B
Fee
SUB-ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND
April 21, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02210
Dear Sirs:
Smith Barney Shearson Principal Return Fund (the "Trust"), a
business trust organized under the laws of the Commonwealth of
Massachusetts and Smith, Barney Advisers, Inc. ("SBA") confirm their
agreement with The Boston Company Advisors, Inc. ("Boston Advisors") and
its sub-trust Zeros and Appreciation Series 1998 as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Amended and Restated Master Trust Agreement
dated November 5, 1992, as amended from time to time (the "Master Trust
Agreement"), in its Prospectus and Statement of Additional Information
as from time to time in effect, and in such manner and to such extent as
may from time to time be approved by the Board of Trustees of the Fund
(the "Board"). Copies of the Fund's Prospectus, Statement of Additional
Information and Master Trust Agreement have been or will be submitted to
you. The Fund employs SBA as its administrator, and the Fund and SBA
desire to employ and hereby appoint Boston Advisors as the Fund's sub-
administrator. Boston Advisors accepts this appointment and agrees to
furnish the services to the Fund, for the compensation set forth below,
under the general supervision of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction of the Board and
SBA, Boston Advisors will: (a) assist in supervising all aspects of the
Fund's operations except those performed by the Fund's investment
adviser under the Fund's investment advisory agreement; (b) supply the
Fund with office facilities (which may be in Boston Advisor's own
offices), statistical and research data, data processing services,
clerical, accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of shares of the
Fund, (ii) applicable contingent deferred sales charges and similar fees
and changes and (iii) distribution fees, internal auditing and legal
services, internal executive and administrative services, and stationery
and office supplies; and (c) prepare reports to shareholders of the
Fund, tax returns and reports to and filings with the Securities and
Exchange Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, SBA will pay Boston Advisors on the first business day of
each month a fee for the previous month calculated in accordance with
the terms set forth in Appendix B, and as agreed to from time to time
by the Fund, SBA and Boston Advisors. Upon any termination of this
Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to
the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees
payable to Boston Advisors, the value of the Fund's net assets shall be
computed at the times and in the manner specified in the Fund's
Prospectus and Statement of Additional Information as from time to time
in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with
the performance of its services under this Agreement. The Fund will
bear certain other expenses to be incurred in its operation, including:
taxes, interest, brokerage fees and commissions, if any; fees of the
Board members of the Fund who are not officers, directors or employees
of Smith Barney Shearson Inc., Boston Advisors of their affiliates; SEC
fees and state blue sky qualification fees; charges of custodians and
transfer and dividend disbursing agents; the Fund's and its Board
members' proportionate share of insurance premiums, professional
association dues and/or assessments; outside auditing and legal
expenses; costs of maintaining the Fund's existence; costs attributable
to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports
and meetings of the officers or Board and any extraordinary expenses.
In addition, the Fund will pay all distribution fees pursuant to a
Distribution Plan adopted under Rule 12b-1 of the Investment Company Act
of 1940, as amended (the "1940 Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement(s) and administration agreement, but excluding
distribution fees, interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston
Advisory will reimburse the Fund for that excess expense to the extent
required by state law in the same proportion as its respective fees bear
to the combined fees for investment advice and administration. The
expense reimbursement obligation of Boston Advisors will be limited to
the amount of its fees hereunder. Such expense reimbursement, if any,
will be estimated, reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in
rendering the services listed in paragraph 2 above. Boston Advisors
shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which
this Agreement
relates, provided that nothing herein shall be deemed to protect or
purport to protect Boston Advisors against liability to the Fund or to
its shareholders to which Boston Advisors would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence on its part
in the performance of its duties or by reason of Boston Advisor's
reckless disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This agreement shall continue automatically for successive
annual periods, provided that it may be terminated by 90 days' written
notice to the other parties by any of the Fund, SBA or Boston Advisors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however,
that this agreement may not be assigned, transferred or amended without
the written consent of all the parties hereto.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will
continue to act and may act in the future as administrator to one or
more other investment companies, and the Fund has no objection to Boston
Advisors so acting. In addition, the Fund understands that the persons
employed by Boston Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right
of Boston Advisors or its affiliates to engage in and devote time and
attention to other businesses or to render services of whatever kind of
nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors and its officers,
directors, employees, affiliates, controlling persons and agents
("indemnitees") to the extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and its indemnitees,
against any loss, claim, expenses or cost of any kind (including
reasonable attorney's fees) resulting or arising in connection with this
Agreement or from the performance or failure to perform any act
hereunder, provided that not such indemnification shall be available if
the indemnitee violated the standard of care in paragraph 6 above. This
indemnification shall be limited by the 1940 Act, and relevant state
law. Each indemnitee shall be entitled to advancement of its expenses
in accordance with the requirements of the 1940 Act and the rules,
regulations and interpretations thereof as in effect from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree that the obligations
of the Fund under this Agreement shall not be binding upon any of the
Board members, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Fund individually, but are
binding only upon the assets and property of the Fund, as provided in
the Master Trust Agreement and Bylaws. The execution and delivery of
this Agreement has been duly authorized by the Fund, SBA and Boston
Advisors, and signed by an authorized officer of each, acting as such.
Neither the authorization by the Board Members of the Fund, nor the
execution and delivery by the officer of the Fund shall be deemed to
have been made by any of them individually or to impose any liability on
any of them personally, but shall bind only the assets and property of
the Fund as provided in the Master Trust Agreement.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us
the enclosed copy hereof.
Very truly yours,
Smith Barney Shearson Principal Return
Fund -
Zeros and Appreciation Series 1998
By: /s/ Heath B McLendon______
Name: Heath B. McLendon
Title: Chairman of the Board
Smith, Barney Advisers, Inc.
By: /s/ Christina T. Sydor________
Name: Christina Sydor
Title: Secretary
Accepted:
The Boston Company Advisors, Inc.
By: /s/ Francis J. McNamara, III______
Name: Francis J. McNamara, III
Title Senior Vice President
Appendix A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act" ), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
- Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
- Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
- Formal Reconciliation - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
- Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
- Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
- Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
- Calculate Net Income, Mil Rate and Yield for Daily
Distribution
Funds - Calculate income on purchases and sales, calculate
change in income due to variable rate change; combine all daily income
less expenses to arrive at net income; calculate mil rate and yields (1
day, 7 day and 30 day);
- Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
- Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian reports;
- Pricing - Determine N.A.V. for the Fund using market value
of all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
- Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
- System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
- Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
- Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
- Reporting of Price to Transfer Agent - N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio mangers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board, tax authorities, statistical and performance reporting
companies and the Fund's auditors; interface with Fund's auditors;
prepare monthly reconciliation packages, including expense pro forma;
prepare amortization schedules for premium and discount bonds based on
the effective yield method; prepare vault reconciliation reports to
indicate securities currently "out-for-transfer;" and calculate daily
expenses based on expense ratios supplied by Fund's treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
- Coordinate the preparation and review of the annual, semi-
annual and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
- Total return reporting;
- SEC 30-day yield reporting and 7-day yield reporting (for
money market funds);
- Prepare dividend summary;
- Prepare quarter-end reports;
- Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.).
Publications
- Coordinate the printing and mailing process with outside
printers for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Treasury. The following is a summary of the treasury services available
to the Fund:
- Provide an Assistant Treasurer for the Fund;
- Authorize payment of bills for expenses of the Fund;
- Establish and monitor the rate of expense accruals;
- Prepare financial materials for review by the Fund's Board
(e.g., Rule 2a-7, 10f-3 17a-7 and 17e-1 reports, repurchase agreement
dealer lists, securities transactions);
- Monitor mark-to-market comparisons for money market funds;
- Recommend valuations to be used for securities which are not
readily saleable;
- Function as a liaison with the Fund's outside auditors and
arrange for audits;
- Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the fund's
structure or operations;
- Prepare and file forms with the Internal Revenue Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
- File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
- File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
- Prepare and file proxy statements;
- Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
- Provide an Assistant Secretary for the Fund;
- Maintain general corporate calendar;
- Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
- Organize, attend and keep minutes of shareholder meetings;
- Maintain Articles of Incorporation or Master Trust
Agreements and By-Laws of the Fund.
Legal Consultation and Business Planning
- Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
- Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
- Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
- Manage Fund litigation matters and assume full
responsibility for the handling of routine fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel
and performing on-going testing of the Fund's portfolio to assist the
Fund's investment adviser in complying with prospectus guidelines and
limitations, 1940 Act requirements and Internal Revenue Code
requirements. The Department may also act as liaison to the SEC during
its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully automated
environment using blue sky registration software development by Price
Waterhouse. In addition to being responsible for the initial and on-
going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
Schedule B
Fee
SUB-ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON PRINCIPAL RETURN FUND
April 21, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02210
Dear Sirs:
Smith Barney Shearson Principal Return Fund (the "Trust"), a
business trust organized under the laws of the Commonwealth of
Massachusetts and Smith, Barney Advisers, Inc. ("SBA") confirm their
agreement with The Boston Company Advisors, Inc. ("Boston Advisors") and
its sub-trust Zeros Plus Emerging Growth Series 2000 as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Amended and Restated Master Trust Agreement
dated November 5, 1992, as amended from time to time (the "Master Trust
Agreement"), in its Prospectus and Statement of Additional Information
as from time to time in effect, and in such manner and to such extent as
may from time to time be approved by the Board of Trustees of the Fund
(the "Board"). Copies of the Fund's Prospectus, Statement of Additional
Information and Master Trust Agreement have been or will be submitted to
you. The Fund employs SBA as its administrator, and the Fund and SBA
desire to employ and hereby appoint Boston Advisors as the Fund's sub-
administrator. Boston Advisors accepts this appointment and agrees to
furnish the services to the Fund, for the compensation set forth below,
under the general supervision of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction of the Board and
SBA, Boston Advisors will: (a) assist in supervising all aspects of the
Fund's operations except those performed by the Fund's investment
adviser under the Fund's investment advisory agreement; (b) supply the
Fund with office facilities (which may be in Boston Advisor's own
offices), statistical and research data, data processing services,
clerical, accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of shares of the
Fund, (ii) applicable contingent deferred sales charges and similar fees
and changes and (iii) distribution fees, internal auditing and legal
services, internal executive and administrative services, and stationery
and office supplies; and (c) prepare reports to shareholders of the
Fund, tax returns and reports to and filings with the Securities and
Exchange Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, SBA will pay Boston Advisors on the first business day of
each month a fee for the previous month calculated in accordance with
the terms set forth in Appendix B, and as agreed to from time to time
by the Fund, SBA and Boston Advisors. Upon any termination of this
Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to
the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees
payable to Boston Advisors, the value of the Fund's net assets shall be
computed at the times and in the manner specified in the Fund's
Prospectus and Statement of Additional Information as from time to time
in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with
the performance of its services under this Agreement. The Fund will
bear certain other expenses to be incurred in its operation, including:
taxes, interest, brokerage fees and commissions, if any; fees of the
Board members of the Fund who are not officers, directors or employees
of Smith Barney Shearson Inc., Boston Advisors of their affiliates; SEC
fees and state blue sky qualification fees; charges of custodians and
transfer and dividend disbursing agents; the Fund's and its Board
members' proportionate share of insurance premiums, professional
association dues and/or assessments; outside auditing and legal
expenses; costs of maintaining the Fund's existence; costs attributable
to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports
and meetings of the officers or Board and any extraordinary expenses.
In addition, the Fund will pay all distribution fees pursuant to a
Distribution Plan adopted under Rule 12b-1 of the Investment Company Act
of 1940, as amended (the "1940 Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement(s) and administration agreement, but excluding
distribution fees, interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston
Advisory will reimburse the Fund for that excess expense to the extent
required by state law in the same proportion as its respective fees bear
to the combined fees for investment advice and administration. The
expense reimbursement obligation of Boston Advisors will be limited to
the amount of its fees hereunder. Such expense reimbursement, if any,
will be estimated, reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in
rendering the services listed in paragraph 2 above. Boston Advisors
shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which
this Agreement
relates, provided that nothing herein shall be deemed to protect or
purport to protect Boston Advisors against liability to the Fund or to
its shareholders to which Boston Advisors would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence on its part
in the performance of its duties or by reason of Boston Advisor's
reckless disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This agreement shall continue automatically for successive
annual periods, provided that it may be terminated by 90 days' written
notice to the other parties by any of the Fund, SBA or Boston Advisors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however,
that this agreement may not be assigned, transferred or amended without
the written consent of all the parties hereto.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will
continue to act and may act in the future as administrator to one or
more other investment companies, and the Fund has no objection to Boston
Advisors so acting. In addition, the Fund understands that the persons
employed by Boston Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right
of Boston Advisors or its affiliates to engage in and devote time and
attention to other businesses or to render services of whatever kind of
nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors and its officers,
directors, employees, affiliates, controlling persons and agents
("indemnitees") to the extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and its indemnitees,
against any loss, claim, expenses or cost of any kind (including
reasonable attorney's fees) resulting or arising in connection with this
Agreement or from the performance or failure to perform any act
hereunder, provided that not such indemnification shall be available if
the indemnitee violated the standard of care in paragraph 6 above. This
indemnification shall be limited by the 1940 Act, and relevant state
law. Each indemnitee shall be entitled to advancement of its expenses
in accordance with the requirements of the 1940 Act and the rules,
regulations and interpretations thereof as in effect from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree that the obligations
of the Fund under this Agreement shall not be binding upon any of the
Board members, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Fund individually, but are
binding only upon the assets and property of the Fund, as provided in
the Master Trust Agreement and Bylaws. The execution and delivery of
this Agreement has been duly authorized by the Fund, SBA and Boston
Advisors, and signed by an authorized officer of each, acting as such.
Neither the authorization by the Board Members of the Fund, nor the
execution and delivery by the officer of the Fund shall be deemed to
have been made by any of them individually or to impose any liability on
any of them personally, but shall bind only the assets and property of
the Fund as provided in the Master Trust Agreement.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us
the enclosed copy hereof.
Very truly yours,
Smith Barney Shearson Principal Return
Fund -
Zeros Plus Emerging Growth Series 2000
By: /s/ Heath B McLendon______
Name: Heath B. McLendon
Title: Chairman of the Board
Smith, Barney Advisers, Inc.
By: /s/ Christina T. Sydor________
Name: Christina Sydor
Title: Secretary
Accepted:
The Boston Company Advisors, Inc.
By: /s/ Francis J. McNamara, III______
Name: Francis J. McNamara, III
Title Senior Vice President
Appendix A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act" ), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
- Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
- Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
- Formal Reconciliation - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
- Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
- Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
- Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
- Calculate Net Income, Mil Rate and Yield for Daily
Distribution
Funds - Calculate income on purchases and sales, calculate
change in income due to variable rate change; combine all daily income
less expenses to arrive at net income; calculate mil rate and yields (1
day, 7 day and 30 day);
- Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
- Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian reports;
- Pricing - Determine N.A.V. for the Fund using market value
of all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
- Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
- System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
- Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
- Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
- Reporting of Price to Transfer Agent - N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio mangers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board, tax authorities, statistical and performance reporting
companies and the Fund's auditors; interface with Fund's auditors;
prepare monthly reconciliation packages, including expense pro forma;
prepare amortization schedules for premium and discount bonds based on
the effective yield method; prepare vault reconciliation reports to
indicate securities currently "out-for-transfer;" and calculate daily
expenses based on expense ratios supplied by Fund's treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
- Coordinate the preparation and review of the annual, semi-
annual and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
- Total return reporting;
- SEC 30-day yield reporting and 7-day yield reporting (for
money market funds);
- Prepare dividend summary;
- Prepare quarter-end reports;
- Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.).
Publications
- Coordinate the printing and mailing process with outside
printers for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Treasury. The following is a summary of the treasury services available
to the Fund:
- Provide an Assistant Treasurer for the Fund;
- Authorize payment of bills for expenses of the Fund;
- Establish and monitor the rate of expense accruals;
- Prepare financial materials for review by the Fund's Board
(e.g., Rule 2a-7, 10f-3 17a-7 and 17e-1 reports, repurchase agreement
dealer lists, securities transactions);
- Monitor mark-to-market comparisons for money market funds;
- Recommend valuations to be used for securities which are not
readily saleable;
- Function as a liaison with the Fund's outside auditors and
arrange for audits;
- Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the fund's
structure or operations;
- Prepare and file forms with the Internal Revenue Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
- File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
- File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
- Prepare and file proxy statements;
- Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
- Provide an Assistant Secretary for the Fund;
- Maintain general corporate calendar;
- Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
- Organize, attend and keep minutes of shareholder meetings;
- Maintain Articles of Incorporation or Master Trust
Agreements and By-Laws of the Fund.
Legal Consultation and Business Planning
- Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
- Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
- Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
- Manage Fund litigation matters and assume full
responsibility for the handling of routine fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel
and performing on-going testing of the Fund's portfolio to assist the
Fund's investment adviser in complying with prospectus guidelines and
limitations, 1940 Act requirements and Internal Revenue Code
requirements. The Department may also act as liaison to the SEC during
its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully automated
environment using blue sky registration software development by Price
Waterhouse. In addition to being responsible for the initial and on-
going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
Schedule B
Fee
shared\domestic\clients\shearson\funds/prtn/safe/admin1
A-1
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shared\domestic\clients\shearson\funds/prtn/saf2/admin1
A-5
shared\domestic\clients\shearson\funds/prtn/saf2/admin1
shared\domestic\clients\shearson\funds/prtn/saf3/admin1
A-3
shared\domestic\clients\shearson\funds/prtn/saf3/admin1
shared\domestic\clients\shearson\funds/prtn/safe/admin1
FORM OF SHAREHOLDER SERVICE PLAN
Principal and Return Fund - Smith Barney Security and
Growth Fund
This Shareholder Service Plan (the "Plan") is
adopted in accordance with Rule 12b-1 (the "Rule")
under the Investment Company Act of 1940, as amended
(the "1940 Act"), by Smith Barney Principal Return
Fund, a business trust organized under the laws of the
Commonwealth of Massachusetts (the "Trust"), on behalf
of the Smith Barney Security and Growth Fund (the
"Fund"), a series of the Trust, subject to the
following terms and conditions:
Section 1. Annual Fee.
(a) Service Fee. The Fund will pay to the
distributor of its shares, Smith Barney, Inc. a
corporation organized under the laws of the State of
Delaware (the "Distributor"), a service fee under the
Plan at the annual rate of 0.25% of the average daily
net assets of the Fund (the "Service Fee").
(b) Payment of Fees. The Service Fee will be
calculated daily and paid monthly by the Fund at the
annual rate indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by the Fund,
it's Service Fee may be used for: (1) compensation to
Financial Consultants whose clients are shareholders
of the Fund; (2) the pro rata share of other
employment costs of such Financial Consultants based
on their gross production credits (e.g. FICA, employee
benefits, etc.); (3) employment expenses of home
office personnel primarily responsible for providing
service to shareholders of the Fund; (4) the pro rata
share of branch office fixed expenses (including
branch overhead allocations); and (5) payments to
other Broker/Dealers. In addition, for purposes of
Section 1 hereof, shareholder servicing expenses and
the activities of the Distributor carried out in
respect thereof shall be interpreted in a manner
consistent with Section 26(d) of the Rules of Fair
Practice of the National Association of Securities
Dealers, Inc.
Section 3. Approval of the Plan
The Plan will take effect upon its execution by
an authorized officer of the respective parties to the
Plan (the "Effective Date"), following approval of the
Plan by a vote of at least a majority of the
outstanding voting securities of the Fund. The Plan
will be deemed to have been approved by the Fund so
long as a majority of the outstanding voting
securities of the Fund votes for the approval of the
Plan, notwithstanding that the Plan has not been
approved by a majority of the outstanding voting
securities of the Fund.
Section 4. Continuance of the Plan.
The Plan will continue for one year after the
Effective Date and thereafter for successive twelve-
month periods; provided, however, that such
continuance is specifically approved at least annually
by the Trustees of the Trust and by 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 or in any agreements
relating to it (the "Qualified Trustees").
Section 5. Termination.
The Plan may be terminated at any time: (i) by
the Fund, without the payment of any penalty, by the
vote of a majority of the outstanding voting
securities of the Fund; or (ii) by a vote of the
Qualified Trustees.
Section 6. Amendments.
The Plan may not be amended so as to increase
materially the amounts of the fees described in
Section 1 above, unless the amendment is approved by a
vote of the holders of at least a majority of the
outstanding voting securities of the Fund. No
material amendment to the Plan may be made unless
approved by the Trust's Board of Trustees in the
manner described in Section 4 above.
Section 7. Selection of Certain Trustees.
While the Plan is in effect, the selection and
nomination of the Trust's Trustees who are not
interested persons of the Trust will be committed to
the discretion of the Trustees then in office who are
not interested persons of the Trust.
Section 8. Written Reports
In each year during which the Plan remains in
effect, a person authorized to direct the disposition
of monies paid or payable by the Fund pursuant to the
Plan or any related agreement will prepare and furnish
to the Trust's Board of Trustees and the Board will
review, at least quarterly, written reports, complying
with the requirements of the Rule, which sets out the
amounts expended under the Plan and the purposes for
which those expenditures were made.
Section 9. Preservation of Materials.
The Trust will preserve copies of the Plan, any
agreement relating to the Plan and any report made
pursuant to Section 8 above, for a period of not less
than six years (the first two years in an easily
accessible place) from the date of the Plan, agreement
or report.
Section 10. Meanings of Certain Terms.
As used in the Plan, the terms "interested
person" and "majority of the outstanding voting
securities" will be deemed to have the same meaning
that those terms have under the 1940 Act by the
Securities and Exchange Commission.
Section 11. Limitation of Liability.
It is expressly agreed that the obligations of
the Fund hereunder shall not be binding upon any of
the Trustees, shareholders, nominees, officers,
employees or agents, whether past, present or future,
of the Trust, individually, but are binding only upon
the assets and property of the Fund, as provided in
the Master Trust Agreement of the Trust. The execution
and delivery of this Plan has been authorized by the
Trustees and by shareholders of the Fund holding at
least a majority of the outstanding voting securities
and signed by an authorized officer of the Trust,
acting as such, and neither such authorization by such
Trustees and shareholders nor such execution and
delivery by such officer shall be deemed to have been
made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust
property of the Trust as provided in its Master Trust Agreement.
IN WITNESS WHEREOF, the Trust, on behalf of the Fund
executed the Plan as of March --, 1995.
SMITH BARNEY
PRINCIPAL RETURN FUND,
on behalf of Smith Barney
Security and Growth Fund
By:
Heath B. McLendon
Chairman of the Board
SMITH BARNEY, INC.
By:
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