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. 17
X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 18
X
SMITH BARNEY PRINCIPAL RETURN FUND
(formerly Smith Barney Shearson Brothers Principal Return Fund)
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 723-9218
Christina T. Sydor
Secretary
Smith Barney Principal Return Fund
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent of Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
on April 1, 1995_______ 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
SMITH BARNEY PRINCIPAL RETURN FUND
388 Greenwich Street
New York, New York 10013
(212) 723-9218
April 1, 1995
PROSPECTUS
This Prospectus describes Smith Barney Principal Return
Fund (the "Trust") and the following series (each, a "Series"
and collectively, the "Series").
* Zeros and Appreciation Series 1996 ("Series 1996")
seeks (a) to return to each shareholder on March 1, 1996 (the
"Series 1996 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 Series 1996's
investment objectives will be achieved.
* Zeros and Appreciation Series 1998 ("Series 1998")
seeks (a) to return to each shareholder on August 31, 1998 (the
"Series 1998 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 Series 1998's
investment objectives will be achieved.
* Zeros Plus Emerging Growth Series 2000 ("Series 2000")
seeks (a) to return to each shareholder on February 28, 2000
(the "Series 2000 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 issued by "emerging growth companies," which are
small - to medium-sized companies that are believed by the
Series' investment adviser to show a prospect of achieving
significant profit and gain in a relatively short period of
time. There can be no assurance that Series 2000's investment
objectives will be achieved.
When used herein, the term Maturity Date shall refer to
the "Series 1996 Maturity Date," the "Series 1998 Maturity
Date," and the "Series 2000 Maturity Date," as applicable.
FD0266 C5
SHARES OF SERIES 1996, SERIES 1998, AND SERIES 2000 ARE
NOT CURRENTLY BEING OFFERED FOR SALE TO NEW INVESTORS. THE NET
ASSET VALUE PER
SHARE OF EACH SERIES PRIOR TO THE MATURITY DATE CAN BE EXPECTED
TO FLUCTUATE SUBSTANTIALLY OWING TO CHANGES IN PREVAILING
INTEREST RATES THAT WILL AFFECT THE CURRENT VALUE OF EACH
SERIES' HOLDINGS OF ZERO COUPON SECURITIES, AS WELL AS CHANGES
IN THE VALUE OF EACH SERIES' OTHER HOLDINGS. BECAUSE THE SERIES
ARE NOT CURRENTLY ENGAGED IN A CONTINUOUS OFFERING OF SHARES,
THEY ARE NOT BENEFITING FROM AN INFLOW OF NEW CAPITAL. IN
ADDITION, EACH SERIES MAY EXPERIENCE REDEMPTIONS AND CAPITAL
LOSSES PRIOR TO THE MATURITY DATE (OR IN PREPARATION FOR EACH
SERIES' LIQUIDATION AT THE MATURITY DATE) AND WILL PAY DIVIDENDS
AND DISTRIBUTIONS IN CASH TO SHAREHOLDERS WHO SO ELECT. A
DIMINUTION OF ITS ASSETS RESULTING FROM LOSSES, REDEMPTIONS AND
DIVIDENDS AND DISTRIBUTIONS PAID IN CASH COULD MAKE EACH SERIES'
INVESTMENT OBJECTIVES UNACHIEVABLE; THUS THE ACCOMPLISHMENT OF
EACH SERIES' INVESTMENT OBJECTIVES IN RESPECT TO REMAINING
SHAREHOLDERS THAT REINVEST DIVIDENDS AND DISTRIBUTIONS COULD
DEPEND IN PART ON THE INVESTMENT DECISIONS OF OTHER
SHAREHOLDERS. SEE "INVESTMENT OBJECTIVES AND MANAGEMENT
POLICIES."
This Prospectus sets forth concisely information about the
Trust and each Series, including sales charges, shareholder
servicing fees and expenses. Investors are encouraged to read
this Prospectus carefully and retain it for future reference.
Additional information about the Trust and each Series is
contained in a Statement of Additional Information dated April
1, 1995, as amended or supplemented from time to time, which is
available upon request and without charge by calling or writing
the Trust at the telephone number or address set forth above or
by contacting any Smith Barney Financial Consultant. The
Statement of Additional Information has been filed with the
Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INTRODUCTION
The investment objectives of Series 1996 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 Series 1996's
investment objectives will be achieved.
The investment objectives of Series 1998 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 Series 1998's
investment objectives will be achieved.
The investment objectives of Series 2000 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 issued by "emerging growth companies," which
are small- to medium-sized companies that are believed by the
Series' investment adviser to show a prospect of achieving
significant profit and gain in a relatively short period of
time. There can be no assurance that Series 2000's investment
objectives will be achieved.
As with most mutual funds, the Series employ various
organizations to perform necessary functions and to provide
services to their shareholders. These organizations are
carefully selected on behalf of each Series 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 each Series and its
shareholders are listed below:
Smith Barney Inc.
("Smith Barney") Distributor
Smith Barney Mutual Funds Management Inc. Investment
Adviser and
("SBMFM") Administrator
The Boston Company Advisors, Inc.
("Boston Advisors") Sub-Administrator
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data
Corporation Transfer Agent
More detailed information regarding these organizations
and the functions they perform is provided in this Prospectus as
well as in the Statement of Additional Information.
TABLE OF CONTENTS
Introduction 3
The Series' Expenses 4
Financial Highlights 5
Investment Objectives and Management 9
Policies
Management of the Trust 17
Purchase of Shares 18
Redemption of Shares 18
Minimum Account Size 20
Valuation of Shares 20
Exchange Privilege 20
Dividends, Distributions and Taxes 23
The Series' Performance 24
Custodian and Transfer Agent 25
Distributor 25
Additional Information 26
THE SERIES' EXPENSES
The following expense table lists the costs and expenses
that an investor will incur, either directly or indirectly, as a
shareholder of each Series, based upon the maximum sales charge
that was incurred at the time of purchase and upon each Series'
operating expenses for its most recent fiscal year:
Series Series Series
1996 1998 2000
Shareholder Transaction Expenses
Sales charge imposed on purchases
(as a percentage of offering price)....... 5.00% 5.00%
5.00%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees........................... 0.50% 0.50%
0.60%
Shareholder servicing fees................ N/A 0.25%
0.25%
Other expenses............................. 0.25% 0.26%
0.30%
Total Fund Operating Expenses........... 0.75% 1.01% 1.15%
Management fees paid by the Trust include investment
advisory fees paid monthly to Smith Barney on behalf of SBMFM at
an annual rate equal to a percentage of the value of the
relevant Series' average daily net assets, as follows: Series
1996 - .30%; Series 1998 - .30%; and Series 2000 - .40%, and
administration fees paid monthly to SBMFM at the annual rate of
.20% of the value of each Series' average daily net assets.
Series 1998 and Series 2000 also pay Smith Barney an annual
shareholder servicing fee equal to .25% of the value of their
respective daily net assets.
The nature of the services for which each Series pays
management fees is described under "Management of the Trust."
"Other expenses" in the above table include fees for transfer
agent services, custodial fees, legal and accounting fees,
printing costs and registration fees.
Example*
The following example demonstrates the projected dollar
amount of total cumulative expenses that would be incurred over
various periods with respect to a hypothetical investment in
each Series. These amounts are based upon (a) payment by an
investor of the initial 5% sales charge, (b) payment by the
Series of operating expenses at the levels set forth in the
table above and (c) the following assumptions:
1 YEAR
3 YEARS 5 YEARS MATURITY
DATE
A shareholder would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period
Series 1996. . . . . . . . . . . . . . . . . . . . . . . .
. . .$ 57 $ 73 $ 90 $ 108
Series 1998. . . . . . . . . . . . . . . . . . . . . . . .
. . .$ 60 $ 81 $ 103 $ 140
Series 2000. . . . . . . . . . . . . . . . . . . . . . . .
. . .$ 61 $ 85 $ 110 $ 167
* 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, a Series' actual return will vary and may
be greater or less than 5.00%. This example should not be
considered a representation of past or future expenses and
actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers &
Lybrand L.L.P., independent accountants, whose report thereon
appears in each Series' Annual Report for the fiscal year ended
November 30, 1994. The table should be read in conjunction with
the financial statements and related notes appearing in each
Series' Annual Report, which is incorporated by reference into
the Statement of Additional Information.
For a Series 1996 share outstanding throughout each year
Y
e
a
r
E
n
d
e
d
1
1
/
3
0
/
9
4
Y
e
a
r
E
n
d
e
d
1
1
/
3
0
/
9
3
+
+
Y
e
a
r
E
n
d
e
d
1
1
/
3
0
/
9
2
+
+
Y
e
a
r
E
n
d
e
d
1
1
/
3
0
/
9
1
Y
e
a
r
E
n
d
e
d
1
1
/
3
0
/
9
0
+
+
P
e
r
i
o
d
E
n
d
e
d
1
1
/
3
0
/
8
9
*
Net asset
value,
beginning of
year
$
1
1
.
4
5
$
1
1
.
7
5
$
1
1
.
4
2
$
1
0
.
7
7
$
1
1
.
3
8
$
9
.
5
0
Income From
Investment
Operations:
Net
investment
income
0
.
5
6
0
.
5
3
0
.
5
4
0
.
6
2
0
.
5
5
0
.
6
3
Net realized
and
unrealized
gain/
(loss) on
investments
(
0
.
5
3
)
0
.
3
1
0
.
9
5
0
.
8
4
(
0
.
3
0
)
1
.
2
5
Total from
investment
operations
0
.
0
3
0
.
8
4
1
.
4
9
1
.
4
6
0
.
2
5
1
.
8
8
Less
Distribution
s:
Distribution
s from net
investment
income
(
0
.
5
0
)
(
0
.
7
2
)
(
0
.
6
5
)
(
0
.
6
9
)
(
0
.
6
3
)
-
-
-
-
-
Distribution
s from net
realized
capital
gains
(
1
.
5
8
)
(
0
.
4
2
)
(
0
.
5
1
)
(
0
.
1
2
)
(
0
.
2
3
)
-
-
-
-
-
Total
distribution
s
(
2
.
0
8
)
(
1
.
1
4
)
(
1
.
1
6
)
(
0
.
8
1
)
(
0
.
8
6
)
0
.
0
0
Net asset
value, end
of year
$
9
.
4
0
$
1
1
.
4
5
$
1
1
.
7
5
$
1
1
.
4
2
$
1
0
.
7
7
$
1
1
.
3
8
Total
Return+++
0
.
1
0
%
7
.
8
5
%
1
3
.
6
4
%
1
4
.
5
6
%
2
.
2
9
%
1
9
.
7
9
%
Ratios/Suppl
emental Data
Net assets,
end of year
(in 000's)
$
7
2
,
5
3
2
$
9
1
,
1
5
3
$
1
0
9
,
0
1
1
$
1
1
5
,
3
5
6
$
1
2
1
,
4
9
3
$
1
6
2
,
8
6
7
Ratio of
expenses to
average net
assets
0
.
7
5
%
0
.
7
7
%
+
0
.
7
7
%
0
.
8
1
%
0
.
8
5
%
0
.
8
4
%
*
*
Ratio of net
investment
income to
average
net assets
5
.
2
7
%
4
.
7
6
%
4
.
8
5
%
5
.
2
6
%
5
.
2
1
%
5
.
7
9
%
*
*
Portfolio
turnover
rate
1
0
%
2
0
%
1
1
%
1
7
%
3
%
3
2
%
* Series 1996 commenced operations on January 16, 1989.
** Annualized.
+ The operating expense ratio excludes interest expenses. The
annualized ratio including interest expense was 0.78%.
++ The per share amounts have been calculated using the monthly
average share method, which more appropriately presents
the per share data for this year since use of the
undistributed net investment income method does not accord with results
of
operations.
+++ Total return represents aggregate total return for the periods
indicated.
For a Series 1998 share outstanding throughout each year
Year Ended Year Ended Year
Ended Period Ended
11/30/94 11/30/93+
11/30/92+ 11/30/91 *
Net asset value, beginning of year $9.38 $9.02 $8.40
$7.60
Income From Investment Operations:
Net investment income 0.41 0.38 0.37
0.39
Net realized and unrealized gain/
(loss) on investments (0.70) 0.48
0.68 0.41
Total from investment operations (0.29) 0.86 1.05
0.80
Less Distributions:
Distributions from net investment income (0.45) (0.40)
(0.43) --------
Distributions from net realized capital gains (0.89) (0.10)
-------- --------
Total distributions (1.34) (0.50)
(0.43) 0.00
Net asset value, end of year $7.75 $9.38
$9.02 $8.40
Total Return++ (3.69)% 9.99%
12.86% 10.53%
Ratios/Supplemental Data:
Net assets, end of year (in 000's) $101,388 $136,576
$166,077 $195,956
Ratio of expenses to average net assets 1.01% 0.97%
1.01% 1.05%**
Ratio of net investment income to
average net assets 4.47% 4.15%
4.39% 5.04%**
Portfolio turnover rate 10% 17%
4% 20%
* Series 1998 commenced operations on January 25, 1991.
** Annualized.
+ Per share amounts have been calculated using the monthly average
share method, which more appropriately presents
the per share data for this year since use of the
undistributed net investment income method does not accord with results
of operations.
++ Total return represents aggregate total return for the periods
indicated.
For a Series 2000 share outstanding throughout each year
Year Ended Year Ended Year
Ended Period Ended
11/30/94 11/30/93++
11/30/92++ 11/30/91 *
Net asset value, beginning of year $9.00 $8.16 $7.57
$7.60
Income From Investment Operations:
Net investment income 0.27 0.26 0.26
0.07
Net realized and unrealized gain/
(loss) on investments (0.28) 0.96
0.43 (0.10)
Total from investment operations (0.01) 1.22 0.69
(0.03)
Less Distributions:
Distributions from net investment income (0.34) (0.29)
(0.10) --------
Distributions from net realized capital gains (0.50) (0.09)
-------- --------
Total distributions (0.84) (0.38)
(0.10) 0.00
Net asset value, end of year $8.15 $9.00
$8.16 $7.57
Total Return+++ (0.20)% 15.72%
9.15% (0.39)%
Ratios/Supplemental Data:
Net assets, end of year (in 000's) $74,751 $96,865
$125,327 $157,425
Ratio of expenses to average net assets 1.15% 1.10%
1.15%+ 1.18%**
Ratio of net investment income to
average net assets 3.27% 3.12%
3.31% 3.56%**
Portfolio turnover rate 1% 0%
0% 2%
* Series 2000 commenced operations on August 30, 1991.
** Annualized.
+ The operating expense ratio excludes interest expenses. The
annualized ratio including interest expense is 1.16%.
++ The per share amounts have been calculated using the monthly
average share method, which more appropriately presents the per share
data for this year since use of the undistributed net investment company
method does not accord with results of
operations.
+++ Total return represents aggregate total return for the periods
indicated.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Set forth below is a description of the investment
objectives and policies of each Series. The investment
objectives of a Series are fundamental and may not be changed
without the approval of the holders of a majority of the
outstanding voting securities of that Series, as defined under
the Investment Company Act of 1940, as amended (the "1940 Act").
There can be no assurance that a Series will achieve its
investment objectives. Additional information about the Series'
investment strategies and investment policies appears in the
Statement of Additional Information.
In General
The investment objectives of each Series is (a) to return
to each shareholder on the Maturity Date the principal amount of
the shareholder's original investment (including any sales
charge paid) through investment of a portion of its assets in
zero coupon securities (the "Repayment Objective") and (b) to
the extent consistent with that objective, to provide long-term
appreciation of capital through investment of the balance of its
assets primarily in equity securities (in the case of Series
2000 - equity securities issued by "emerging growth companies").
Although SBMFM believes that the Series' investment
strategies should be sufficient to accomplish their investment
objectives, there can be no assurance that they will be
achieved. Moreover, although the Trust is structured as an open-
end investment company and shareholders may redeem their shares
at any time and may elect to receive dividends and distributions
in cash, in order to help assure the return of the full amount
of an original investment, shareholders should plan to hold
their shares until the Maturity Date and to reinvest all
dividends and distributions in additional shares. In addition,
while the amount sought to be returned on the Maturity Date to
shareholders may equal or exceed the amount originally invested,
the present value of that amount may be substantially less.
Shareholders also should be aware that the amount returned as
taxable on the Maturity Date represents accretion of interest on
each Series' zero coupon securities and will have been taxable
as ordinary income over the term of the Series.
Operations of the Series
As of February 28, 1995, zero coupon securities
represented approximately 63.28%, 62.80% and 57.76% of Series
1996's, Series 1998's and Series 2000's net assets,
respectively, with the balance of each Series' net assets
invested in equity (in the case of Series 2000 - equity
securities of emerging growth companies) and other securities as
described below. The Series' 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 Series will not receive any payments
with respect to a zero coupon security prior to the maturity of
that security. The Series may hold zero coupon securities in
excess of those required to meet the Repayment Objective to the
extent SBMFM deems appropriate. As each Series' 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, each Series'
remaining equity investments will be sold and other investments
will mature, the liabilities of each Series will be discharged
or provision made therefor, each Series' shares will be
mandatorily redeemed and, within seven days thereafter, the
proceeds will be distributed to shareholders and each Series'
thereafter will be terminated. These arrangements may require
the disposition of the Series' equity securities at a time when
it is otherwise disadvantageous to do so and may involve selling
securities at a substantial loss. The liquidation and
termination of each Series is conditioned on the Trust's receipt
of an opinion of its counsel that all actions have been taken
that are necessary to effect these transactions in accordance
with the then current position of the SEC regarding a change in
the nature of the business of a registered investment company,
including (as is required under current SEC policy) the approval
by the holders of a majority of the Trust's outstanding voting
securities, as defined in the 1940 Act. If shareholder approval
is solicited but not obtained, the Board of Trustees would
consider and, if necessary, propose for shareholder approval,
such other action as it deems appropriate and in the best
interests of the Trust and its shareholders. The estimated
expenses of liquidation and termination of each Series will be
accrued ratably over the entire term of the Series and will be
charged to income. These expenses are not expected to affect
materially the ordinary annual operating expenses of the Series
and, accordingly, should have no effect on the Series' ability
to meet the Repayment Objective.
Each Series may satisfy redemption requests and cash
payments of dividends and distributions by liquidating a portion
of its holdings of zero coupon securities, as well as other
investments, provided that the Series would have sufficient zero
coupon securities remaining to meet the Repayment Objective.
Thus, each Series' portfolio may be visualized as
consisting of two portions: one, its zero coupon securities,
which are expected to increase in value by reason of accretion
of interest to equal at maturity an amount sufficient to meet
the Repayment Objective; the other, its equity securities and
all other investments (in the case of Series 2000 - holdings of
emerging growth securities), which represent a variable portion
of the Series' assets depending on the performance of those
investments, the Series' expenses, the level of dividend
reinvestment and the level of redemptions over time. In order
to facilitate the management of the Series' portfolios,
shareholders are urged to reinvest dividends and distributions
in additional shares; these amounts will be paid in cash only at
the specific election of a shareholder.
Zero Coupon Securities
A zero coupon security is a debt obligation that does not
entitle the holder to any periodic payments of interest prior to
maturity and therefore is issued and traded at a discount from
its face amount. Zero coupon securities may be created by
separating the interest and principal components of securities
issued or guaranteed by the United States government or one of
its agencies or instrumentalities ("U.S. government securities")
or issued by private corporate issuers. The Series, however,
invest only in zero coupon securities that are direct
obligations of the United States Treasury. The discount from
face value at which zero coupon securities are purchased varies
depending on the time remaining until maturity, prevailing
interest rates and the liquidity of the security. Because the
discount from face value is known at the time of investment,
investors holding zero coupon securities until maturity know the
total amount of their investment return at the time of
investment. In contrast, a portion of the total realized return
from conventional interest-paying obligations comes from the
reinvestment of periodic interest. Because the rate to be
earned on these reinvestments may be higher or lower than the
rate quoted on the interest-paying obligations at the time of
the original purchase, the investor's return on reinvestments is
uncertain even if the securities are held to maturity. This
uncertainty is commonly referred to as reinvestment risk. With
zero coupon securities, however, there are no cash distributions
to reinvest, so investors bear no reinvestment risk if they hold
the zero coupon securities to maturity; holders of zero coupon
securities, however, forego the possibility of reinvesting at a
higher yield than the rate paid on the originally issued
security. With both zero coupon and interest-paying securities,
there is no reinvestment risk on the principal amount of the
investment.
Emerging Growth Securities (Series 2000)
Series 2000 attempts to achieve its investment objective
of long-term capital appreciation by investing the portion of
its assets not invested in zero coupon securities primarily in
equity securities issued by "emerging growth companies" based in
the United States, which are small - to medium-sized companies
that are believed by SBMFM to show a prospect of achieving
significant profit and gains within two to three years after
their securities are acquired by Series 2000. Although Series
2000 is not subject to a limitation on the market capitalization
of the companies in which it will invest, the emerging growth
companies in which Series 2000 will typically invest, will have
market capitalizations of less than $1 billion. A company's
stock market capitalization is calculated by multiplying the
total number of shares of its common stock outstanding by the
market price per share of its stock.
In selecting investments on behalf of Series 2000, SBMFM
will seek to identify emerging growth companies that it believes
are undervalued in the marketplace or have earnings that may be
expected to grow faster than the U.S. economy in general. These
companies typically would possess one or more of a variety of
characteristics, including high quality management, new
technologies, techniques, products or services or cost-reducing
measures that give them a leading or dominant position in a
major product line, a sound financial position and a relatively
high rate of return on invested capital so that future growth
can be financed from internal sources. Series 2000 also may
invest in companies, typically called "special situation
companies," that offer the possibility of accelerating earnings
growth because of management changes, capitalization or asset
deployment, governmental regulations or other external
circumstances. Although SBMFM anticipates that Series 2000's
non-zero coupon security portfolio primarily will be invested in
smaller companies, it may also be invested to a lesser degree in
the equity securities of medium or larger, established
companies, including those involved in special situations, that
SBMFM determines present particular opportunities for capital
growth.
Series 2000's non-zero coupon security portfolio has been
designed to provide investors with significant opportunities for
long-term capital appreciation that SBMFM believes are presented
by the equity securities of small capitalization companies.
SBMFM believes that these securities are undervalued as
compared, on a relative historical basis, with equity securities
of larger capitalization companies, and have tended over time to
outperform securities of larger capitalization companies.
Statistical studies have been published recently indicating that
the historical long-term returns on investments in common stocks
of companies with smaller capitalizations have been higher than
the returns on those companies with larger capitalizations. One
such study, for example, compared the performance of the 2,500
largest companies, as measured by market capitalization, whose
securities are traded on the New York Stock Exchange, Inc. (the
"NYSE"), the American Stock Exchange and on the U.S. over-the-
counter market. The study, which divided these 2,500 companies
into five groups on the basis of market capitalization, measured
their performance for the 17-year period from December 31, 1973
to December 31, 1990 and concluded that the companies with
smaller capitalizations had greater total returns for the period
than did larger capitalization companies, although acknowledging
that larger company securities had outperformed smaller company
securities over the past five years.
Additional Investments and Investment Techniques (Series 2000)
Although under normal circumstances Series 2000's non-zero
coupon security portfolio will consist primarily of common
stocks of emerging growth companies based in the United States,
Series 2000 may also invest in warrants to purchase common
stocks, convertible bonds, preferred stocks and securities of
foreign issuers. When SBMFM believes that a temporary defensive
investment posture is warranted, Series 2000 may invest in
corporate and government bonds and notes and money market
instruments, and from time to time may invest in repurchase
agreements and lend its portfolio securities as discussed below.
Warrants; Convertible Securities. (Series 2000) A warrant
is a security that gives the holder the right, but not the
obligation, to subscribe for newly created securities of the
issuer or a related company at a fixed price either at a certain
date or during a set period. A convertible security is a
security that may be converted either at a stated price or rate
within a specified period of time into a specified number of
shares of common stock. In investing in convertible securities,
Series 2000 seeks the opportunity, through the conversion
feature, to participate in the capital appreciation of the
common stock into which the securities are convertible.
Foreign Securities. (Series 2000) Series 2000 may invest
up to 10% of its net assets in securities of foreign issuers.
Investing in foreign securities involves certain risks,
including those resulting from fluctuations in currency exchange
rates, revaluation of currencies, future political or economic
developments and the possible imposition of restrictions or
prohibitions on the repatriation of foreign currencies or other
foreign governmental laws or restrictions, reduced availability
of public information concerning issuers, and, typically, the
lack of uniform accounting, auditing and financial reporting
standards or other regulatory practices and requirements
comparable to those applicable to domestic companies. Moreover,
securities of many foreign companies may be less liquid and
their prices more volatile than those of securities of
comparable domestic companies. In addition, with respect to
certain foreign countries, the possibility exists of
expropriation, confiscatory taxation and limitations on the use
or removal of funds or other assets of Series 2000, including
the withholding of dividends.
Risk Factors and Other Special Considerations
Zero coupon securities of the type held by each Series can
be sold prior to their due date in the secondary market at their
then prevailing market value which, depending on prevailing
levels of interest rates and the time remaining to maturity, may
be more or less than the securities' "accreted value;" that is,
their value based solely on the amount due at maturity and
accretion of interest to date. The market prices of zero coupon
securities are generally more volatile than the market prices of
securities that pay interest periodically and, accordingly, are
likely to respond to a greater degree to changes in interest
rates than do non-zero coupon securities having similar
maturities and yields. As a result, the net asset value of
shares of each Series may fluctuate over a greater range than
shares of other mutual funds that invest in U.S. government
securities having similar maturities and yields but that make
current distributions of interest. The current net asset value
of each Series attributable to zero coupon securities and other
debt instruments held by each Series generally will vary
inversely with changes in prevailing interest rates.
As a series of an open-end investment company, each Series
is required to redeem its shares upon the request of any
shareholder at the net asset value next determined after receipt
of the request. However, because of the price volatility of zero
coupon securities prior to maturity, a shareholder who redeems
shares prior to the Maturity Date may realize an amount that is
greater or less than the purchase price of those shares,
including any sales charge paid. Although shares redeemed prior
to the Maturity Date would no longer be subject to the possible
achievement of the Repayment Objective, the amount originally
invested in the shares not redeemed would remain subject to the
possible achievement of the Repayment Objective, provided
dividends and distributions with respect to these shares are
reinvested. Thus, if each Series is successful in achieving the
Repayment Objective, the holder of those remaining shares plus
shares acquired through reinvestment of dividends and
distributions thereon ("Remaining Shares") would receive at the
Maturity Date an amount that equals or exceeds the purchase
price of those shares. Nonetheless, the amount received on the
Maturity Date in respect of Remaining Shares, when combined with
the amount received in respect of shares redeemed prior to the
Maturity Date, may be more or less than the aggregate purchase
price of all shares purchased in this offering.
Each year the Series will be required to accrue an
increasing amount of income on their 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, each Series 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 each Series' 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 Series, may realize an
amount that is less or greater than the entire amount originally
invested. ACCORDINGLY, THE SERIES MAY NOT BE APPROPRIATE FOR
TAXABLE INVESTORS THAT WOULD REQUIRE CASH DISTRIBUTIONS FROM THE
SERIES IN ORDER TO MEET THEIR CURRENT TAX OBLIGATIONS RESULTING
FROM THEIR INVESTMENT.
Emerging Growth Securities (Series 2000). Securities of
the kinds of companies in which Series 2000 will invest may be
subject to significant price fluctuation and above-average risk.
In addition, companies achieving a high earnings growth rate
tend to reinvest their earnings rather than distribute them. As
a result, Series 2000 is not likely to receive significant
dividend income on its portfolio of equity securities; an
investment in Series 2000 should, thus, not be considered as a
complete investment program and may not be appropriate for all
investors.
Other Considerations. In order to generate sufficient
cash to meet distribution requirements and other operational
needs and to redeem its shares on request, the Series may be
required to limit reinvestment of capital on the disposition of
its non-zero coupon securities and may be required to liquidate
some or all of its non-zero coupon securities over time. The
Series may be required to effect these liquidations at a time
when it is otherwise disadvantageous to do so. If a Series
realizes capital losses on dispositions of non-zero coupon
securities that are not offset by capital gains on the
disposition of other such securities, the Series may be required
to liquidate a disproportionate amount of its zero coupon
securities or borrow money, in an amount not exceeding 33-1/3%
of the Series' total assets, to satisfy the distribution and
redemption requirements described above. The liquidation of
zero coupon securities and the expenses associated with
borrowing money in these circumstances could render the Series
unable to meet the Repayment Objective.
Equity Securities (Series 1996 and Series 1998)
Series 1996 and Series 1998 attempt to achieve their
investment objective of long-term appreciation of capital by
investing the portion of their assets not invested in zero
coupon securities primarily in equity securities, as described
in the following paragraph, that are believed to afford
attractive opportunities for investment appreciation. It is
expected that Series 1996's and Series 1998's equity investments
will be in domestic companies, generally with market
capitalizations in excess of $100 million. Most of Series
1996's and Series 1998's equity investments will be listed for
trading on stock exchanges, although Series 1996 and Series 1998
may purchase securities traded in the over-the-counter market.
SBMFM will cause Series 1996 and Series 1998 to invest in the
securities of companies whose earnings they expect to increase,
companies whose securities prices are lower than they believe
justified in relation to their underlying assets or earning
power or companies in which changes that it anticipates would
result in improved operations or profitability. Series 1996's
and Series 1998's equity holdings are broadly invested among
different industries. In analyzing securities for investment,
SBMFM considers many different factors, including past growth
records, management capability, future earnings prospects and
technological innovation, as well as general market and economic
factors that can influence the price of securities.
Under normal market conditions, the bulk of Series 1996's
and Series 1998's non-zero coupon security portfolios consist of
common stocks, but they also may contain other equity
securities, limited to preferred stocks and debt securities
convertible into common stocks. However, when SBMFM believes
that a temporary defensive investment posture is warranted,
Series 1996 and Series 1998 may invest in debt obligations,
preferred securities or short-term money market instruments and
may engage in repurchase agreement transactions with respect to
money market instruments. Series 1996 and Series 1998 do not
intend to purchase warrants or rights but may receive these
securities as part of a unit distributed to holders of a class
of securities held by Series 1996 and Series 1998. Preferred
securities and convertible securities will be selected on the
basis of their equity characteristics, and ratings by
statistical rating organizations generally will not be a factor
in the selection process.
Lending Securities
Each Series 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 each Series'
assets taken at value. A Series' loans of securities will be
collateralized by cash, letters of credit or U.S government
securities that are maintained at all times in a segregated
account with the Trust's custodian in an amount at least equal
to the current market value of the loaned securities. By
lending its portfolio securities, a Series 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 U. S. government securities are used as
collateral. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible delays
in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will be made to firms
deemed by SBMFM to be of good standing and will not be made
unless, in the judgment of SBMFM, the consideration to be earned
from such loans would justify the risk.
Money Market Instruments
Each Series 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 Series' expenses, anticipated redemptions, cash
payments of dividends and distributions and to meet settlement
requirements for securities. In addition, when SBMFM believes
that, with respect to its equity portfolio, a temporary
defensive investment posture is warranted, a Series may invest
without limitation in cash and money market instruments. To the
extent that it holds cash or invests in money market
instruments, a Series will not achieve its investment objective
of long-term appreciation of capital. Money market instruments
in which the Series may invest are: U.S. government securities;
bank obligations (including certificates of deposit, time
deposits and bankers' acceptances of domestic or foreign banks,
domestic savings and loan associations and other banking
institutions having total assets in excess of $500 million);
commercial paper rated no lower than A-2 by Standard & Poor's
Corporation or Prime-2 by Moody's Investors Service, Inc. or the
equivalent from another major rating service or, if unrated, of
an issuer having an outstanding, unsecured debt issue then rated
within the three highest rating categories; and repurchase
agreements. At no time will a Series' investments in bank
obligations, including time deposits, exceed 25% of its assets.
In addition, a Series 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 Series 1996's and Series 1998's
net assets and 10% of Series 2000's net assets.
A Series will invest in an obligation of a foreign bank or
foreign branch of a United States bank only if SBMFM determines
that the obligation presents minimal credit risks. Obligations
of foreign banks or foreign branches of United States banks in
which a Series will invest may be traded in the United States or
outside the United States, but will be denominated in U.S.
dollars. These obligations entail risks that are different from
those of investments in obligations of United States banks.
These risks include foreign economic and political developments,
foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding or other taxes on
income. Foreign branches of domestic banks are not necessarily
subject to the same or similar regulatory requirements that
apply to domestic banks, such as mandatory reserve requirements,
loan limitations and accounting, auditing and financial
recordkeeping requirements. In addition, less information may
be publicly available about a foreign branch of a domestic bank
than about a domestic bank.
U.S. government securities in which a Series may invest
include: direct obligations of the United States Treasury, and
obligations issued or guaranteed by the 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.
Repurchase Agreements
Each Series may engage in repurchase agreement
transactions with certain banks which are the issuers of
instruments acceptable for purchase by the Fund and with certain
dealers on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase
agreement, a Series would acquire an underlying debt obligation
for a relatively short period (usually not more than seven days)
subject to an obligation of the seller to repurchase, and the
Series to resell, the obligation at an agreed price and time,
thereby determining the yield during the Series' holding period.
This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Series' holding
period. The value of the underlying securities will be
monitored on an ongoing basis by SBMFM or Boston Advisors to
ensure that the value is at least equal at all times to the
total amount of the repurchase obligation, including interest.
Boston Advisors or SBMFM also will review on an ongoing basis
the creditworthiness of those banks and dealers with which the
Series may enter into repurchase agreements to evaluate the
potential risks. The Series bear a risk of loss in the event
that the other party to a repurchase agreement defaults on its
obligations and the Series 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 Series
seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of
losing all or a part of the income from the agreement. At any
one time, Series 2000's aggregate holdings of repurchase
agreements having a duration of more than five business days and
securities lacking readily available market quotations will not
exceed 10% of Series 2000's total assets.
Investment Restrictions
The Trust has adopted certain fundamental investment
restrictions that may not be changed without approval of a
majority of the Trust's outstanding voting securities. Included
among those fundamental restrictions are the following:
1. A Series 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 Series' total assets
would be invested in the securities of the issuer, except that
up to 25% of the value of the Series' total assets may be
invested without regard to this 5% limitation.
2. A Series 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 a Series' investments in U.S. government
securities, and up to 25% of a Series' assets may be invested
without regard to these 10% limitations.
3. A Series will not borrow money, except that a Series
may borrow from banks for temporary or emergency (not
leveraging) purposes, including the meeting of redemption
requests and cash payments of dividends and distributions that
might otherwise require the untimely disposition of securities,
in an amount not to exceed 33-1/3% of the value of the Series'
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 Series, the Series will not
make any additional investments.
4. A Series will not lend money to other persons, except
through purchasing debt obligations, lending portfolio
securities and entering into repurchase agreements.
5. A Series 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.
Certain other investment restrictions adopted by the
Series are described in the Statement of Additional Information.
Portfolio Transactions and Turnover
Securities transactions on behalf of the Series will be
executed by a number of brokers and dealers, including Smith
Barney and certain of its affiliated brokers, that are selected
by SBMFM. The Series may use Smith Barney or a Smith Barney
affiliated broker in connection with a purchase or sale of
securities when SBMFM believes that the charge for the
transaction does not exceed usual and customary levels.
The Trust cannot accurately predict any Series' portfolio
turnover rate, but anticipates that its annual turnover will not
exceed 50%.
MANAGEMENT OF THE TRUST
Board of Trustees
Overall responsibility for management and supervision of
the Trust and the Series rests with the Trust's Board of
Trustees. The Trustees approve all significant agreements
between the Trust and the persons or companies that furnish
services to the Trust and the Series, including agreements with
its investment adviser, administrator, custodian and transfer
agent. The day-to-day operations of the Series are delegated to
the Series' investment adviser, administrator and sub-
administrator. The Statement of Additional Information contains
general background information regarding each of the Trust's
Trustees and the executive officers of each Series.
Investment Adviser--SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York
10013, serves as the Fund's investment adviser. SBMFM (through
its predecessors) has been in the investment counseling business
since 1940 and renders investment advice to a wide variety of
individual, institutional and investment company clients and has
aggregate assets under management as of February 28, 1995, in
excess of $52.4 billion.
Subject to the supervision and direction of the Trust's
Board of Trustees, SBMFM manages each Series' portfolio in
accordance with the Series' stated investment objectives and
policies, makes investment decisions for the Series, places
orders to purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide research
services to the Series.
Portfolio Management
Harry D. Cohen, President and Director of Smith Barney
Investment Advisors, a division of SBMFM, has served as Vice
President and Investment Officer of Series 1996 and Series 1998
since the Series' commencement of operations, and manages the
day-to-day operations of Series 1996 and Series 1998, including
making all investment decisions.
Richard Freeman, Managing Director of Smith Barney
Investment Advisors, a division of SBMFM, has served as Vice
President and Investment Officer of Series 2000 since the
Series' commencement of operations, and manages the day-to-day
operations of Series 2000, including making all investment
decisions.
Management's discussion and analysis, and additional
performance information regarding each Series during the fiscal
year ended November 30, 1994, are included in the Series' Annual
Report dated November 30, 1994. A copy of each Series' Annual
Report may be obtained upon request 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.
Administrator--SBMFM
SBMFM also serves as the Trust's administrator and
oversees all aspects of the Trust's administration and
operation.
Sub-Administrator--Boston Advisors
Boston Advisors, located at One Boston Place, Boston,
Massachusetts 02108, serves as the Fund's sub-administrator.
Boston Advisors provides investment management, investment
advisory and/or administrative services to investment companies
which had aggregate assets under management as of February 28,
1995 in excess of $69.7 billion.
Boston Advisors calculates the net asset value of the
Series' shares and generally assists SBMFM in all aspects of the
Series' administration and operation. Under the sub-
administration agreements, Boston Advisors is paid a portion of
the administration fee paid by the Trust to SBMFM at a rate
agreed upon from time to time between Boston Advisors and SBMFM.
PURCHASE OF SHARES
Shares of the Series are not currently being offered for
sale to new investors, although each Series, upon at least 30
days' notice to shareholders, may commence a continuous offering
if the Board of Trustees determines it to be in the best
interests of that Series and its shareholders.
REDEMPTION OF SHARES
The Trust is required to redeem shares of a Series
tendered to it, as described below, at a redempiton price equal
to their net asset value per share next determined after receipt
of a written request in proper form. Redemption requests
received after the close of regular trading on the NYSE are
priced at the net asset value per share next determined.
The Series normally transmit redemption proceeds for
credit to the shareholder's account at Smith Barney or to a
broker that clears securities transactions through Smith Barney
on a fully disclosed basis (an "Introducing Broker") at no
charge within seven days after receipt of a redemption request.
The Trust anticipates that, in accordance with regulatory
changes, beginning on or about June 1, 1995, payment will be
made on the third business day after receipt of proper tender.
Generally, these funds will not be invested for the
shareholder's benefit without specific instruction and Smith
Barney will benefit from the use of temporarily uninvested
funds.
Although shares of the Series 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, a Series may pay
any portion of a redemption in excess of the lesser of $250,000
or 1% of the Series' net assets by distribution in kind of
securities from a Series' portfolio in lieu of cash in
conformity with SEC rules. Portfolio securities issued in a
redemption in kind will be readily marketable, although a
shareholder that receives a distribution in kind of securities
may incur transaction costs in the disposition of those
securities and could experience a loss on the securities between
the time of such distribution and such disposition.
A Series' shares may be redeemed in one of the following
ways:
Redemption Through Smith Barney
Redemption requests may be made through Smith Barney or an
Introducing Broker. A shareholder desiring to redeem Series
shares represented by certificates must present the certificates
to Smith Barney or an Introducing Broker endorsed for transfer
(or accompanied by an endorsed stock power), signed exactly as
the shares are registered.
Redemption By Mail
Shares may be redeemed by submitting a written request for
redemption to:
Smith Barney Principal Return Fund
(specify the Series)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to the Trust's transfer agent
must (a) state the number of shares to be redeemed, (b) identify
the Series from which the shares are to be redeemed (c) identify
the shareholder's account number and (d) be signed by each
registered owner exactly as the shares are registered. If the
shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by
an endorsed stock power) and must be submitted to the Trust's
transfer agent together with a redemption request. Any
signature appearing on a redemption request, share certificate
or stock power must be guaranteed by an eligible guarantor
institution such as a domestic bank, savings and loan
institution, domestic credit union, member bank of the Federal
Reserve System or a member firm of a national securities
exchange. The Trust's transfer agent 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.
MINIMUM ACCOUNT SIZE
The Trust reserves the right to involuntarily liquidate
any shareholder's account in a Series if aggregate net asset
value of the shares held in the Series' account is less than
$500. (If a shareholder has more than one account in the Trust,
each account must satisfy the minimum account size.) The Trust,
however, will not redeem shares based solely on market
reductions in net asset value. Before the Trust exercises such
right, shareholders will receive written notice and will be
permitted 60 days to bring accounts up to the minimum to avoid
automatic redemption.
VALUATION OF SHARES
A Series' net asset value per share is determined as of
the close of regular trading on the NYSE on each day the NYSE is
open and is computed by dividing the value of the Series' net
assets by the total number of its shares outstanding.
Generally, the Series' investments are valued at market
value or, in the absence of a market value, at fair value as
determined by or under the direction of the Trust's Board of
Trustees. Securities that are primarily traded on non-U.S.
exchanges are generally valued at the preceding closing values
of the securities on their respective exchanges, except that
when an occurrence subsequent to the time that a non-U.S.
security is valued is likely to have changed the value, then the
fair value of those securities will be determined by
consideration of other factors by or under the direction of the
Board of Trustees. A security that is primarily traded on a
U.S. or non-U.S. stock exchange is valued at the last sale price
on that exchange or, if there were no sales during the day, at
the current quoted bid price. In cases in which securities are
traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board
of Trustees as the primary market. Unlisted non-U.S. securities
are valued at the mean between the last available bid and offer
price prior to the time of valuation. U.S. over-the-counter
securities will be valued on the basis of the bid price at the
close of business on each day. Any assets or liabilities
initially expressed in terms of non-U.S. currencies will be
converted into U.S. dollar values based on a formula prescribed
by the Trust or, if the information required by the formula is
unavailable, as determined in good faith by the Board of
Trustees. Investments in U.S. government securities (other than
short-term securities) are valued at the quoted bid price in the
over-the-counter market. Short-term investments that mature in
60 days or less are valued at amortized cost (which involves
valuing an investment at its cost initially and, thereafter,
assuming a constant amortization to maturity of any discount or
premium, regardless of the effect of fluctuating interest rates
on the market value of the investment) when the Board of
Trustees determines that amortized cost reflects fair value of
the investment. In carrying out the Board's valuation policies,
SBMFM or Boston Advisors, may consult with an independent
pricing service retained by the Trust. Further information
regarding the Series' valuation policies is contained in the
Statement of Additional Information.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of the Trust may
be exchanged at the net asset value next determined 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 Trust shares are subject to
minimum investment requirements and to the other requirements of
the fund into which exchanges are made and a sales charge
differential may apply.
Fund Name
Growt
h
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. -- Utilities Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
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
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
International
Funds
Smith Barney Precious Metals and Minerals Fund Inc.
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 Muni Funds -- California Money Market Portfolio
Smith Barney Muni Funds -- New York Money Market Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Exchanges. Class A shares of the Smith Barney Mutual
Funds sold without a sales charge or with a maximum sales charge
of less than the maximum charged by other Smith Barney Mutual
Funds will be subject to the appropriate "sales charge
differential" upon the exchange of their shares for Class A
shares of a fund sold with a higher sales charge. 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 mutual fund being acquired in the exchange over
the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those
shares. For purposes of the exchange privilege, shares obtained
through automatic reinvestment of dividends and capital gain
distributions, are treated as having paid the same sales charges
applicable to the shares on which the dividends were paid;
however, if no sales charge was imposed upon the initial
purchase of the shares, any shares obtained through automatic
reinvestment will be subject to a sales charge differential upon
exchange.
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit,
excessive exchange transactions can be detrimental to a Series'
performance and its shareholders. SBMFM may determine that a
pattern of frequent exchanges is excessive and contrary to the
best interests of a Series' other shareholders. In this event,
SBMFM will notify Smith Barney and Smith Barney may, at its
discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination, Smith
Barney will provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the exchange
privilege and during the 15 day period the shareholder will be
required to (a) redeem his or her shares in a Series or (b)
remain invested in the Series or exchange into any of the funds
of the Smith Barney Mutual Funds ordinarily available, which
position the shareholder would be expected to maintain for a
significant period of time. All relevant factors will be
considered in determining what constitutes an abusive pattern of
exchanges.
Exchanges will be processed at the net asset value next
determined, plus any applicable sales charge differential.
Redemption procedures discussed above 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 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 Trust reserves the right to
modify or discontinue exchange privileges upon 60 days' prior
notice to shareholders.
A SHAREHOLDER WHO EXCHANGES SHARES 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." MOREOVER, BECAUSE EACH SERIES IS NOT
ENGAGING IN A CONTINUOUS OFFERING OF SHARES, A SHAREHOLDER WHO
EXCHANGES HIS OR HER SERIES SHARES WILL NOT BE ABLE TO EFFECT A
FURTHER EXCHANGE BACK INTO THAT SERIES.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
Dividends from net investment income of each Series and
distributions of net realized capital gains of each Series, if
any, will be distributed annually after the close of the fiscal
year in which they are earned. Dividends and distributions will
be reinvested automatically for each shareholder's account at
net asset value in additional shares of a Series, unless the
shareholder instructs the Series 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.
Taxes
Each Series of the Trust has qualified and intends to
continue to qualify each year as a regulated investment company
for Federal income tax purposes. The requirements for
qualification may cause a Series to restrict the extent of its
short-term trading. If a Series so qualifies, it will not be
subject to Federal income tax on its net investment income and
net realized capital gains that it distributes to shareholders,
so long as it meets certain distribution requirements. See
"Investment Objectives and Management Policies." In addition,
each Series is subject to a nondeductible excise tax of 4% of
the amount by which the Series fails to distribute specified
percentages of its investment income and capital gains. The
Series intend to pay dividends and distributions more frequently
than stated above in order to avoid application of the excise
tax, if the additional distributions are otherwise determined to
be in the best interests of the Series' shareholders. Dividends
declared by a Series in October, November or December of any
calendar year and payable to shareholders of record on a
specified date in such a month are deemed to have been received
by each shareholder on December 31 of such calendar year and to
have been paid by a Series not later than such December 31,
provided that such dividend is actually paid by the Series
during January of the following year.
Dividends of each Series' 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.
Distributions of long-term capital gains will be taxable to
shareholders as such, whether received in cash or reinvested,
and regardless of how long a shareholder has held shares of the
Series. In general, only dividends that represent the dividends
received from U.S. corporations may, subject to certain
limitations, qualify for the Federal dividends-received
deduction for corporate shareholders.
Statements as to the tax status of each shareholder's
dividends and distributions will be mailed annually. These
statements will set out the amount of each Series' dividends
eligible for the dividends-received deduction for corporate
shareholders. Furthermore, shareholders will receive, as
appropriate, various written notices after the close of the
Series' taxable year regarding the tax status of certain
dividends and distributions that were paid (or that are treated
as having been paid) by the Series to its shareholders during
the preceding taxable year, including the amount of dividends
that represent interest derived from U.S. government securities.
Shareholders should consult their own tax advisors as to
the state and local tax consequences of investing in a Series
and should be aware that some jurisdictions may not treat income
derived from a Series' holdings of U.S. government securities as
exempt from state and local income taxes.
THE SERIES' PERFORMANCE
From time to time, the Trust may advertise each Series'
"average annual total return" over various periods of time.
Such total return figures show the average percentage change in
value of an investment in a Series from the beginning date of
the measuring period to the end of the measuring period. These
figures reflect changes in the price of the Series' shares and
assume that any income dividends and/or capital gains
distributions made by a Series during the period were reinvested
in shares of the Series. Figures will be given for the recent
one-, and five-year periods, or for the life of the Series 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 Series' average annual total return for any one
year in the period might have been greater or less than the
average for the entire period. A Series also may use
"aggregate" total return figures for various periods,
representing the cumulative change in value of an investment in
a Series for the specific period (again reflecting changes in
the Series' share prices and assuming reinvestment of dividends
and distributions). Aggregate total return may be calculated
either with or without the effect of the maximum 5.00% sales
charge and may be shown by means of schedules, charts or graphs,
and may indicate subtotals of the various components of total
return (i.e., change in value of initial investment, income
dividends and capital gains distributions).
In reports or other communications to shareholders or in
advertising material, the Trust may compare the Series'
performance with the Standard & Poor's Daily Price Index of 500
Common Stocks, the Russell 2000 Index, the Dow Jones Industrial
Average, the Value-Line Composite Geometric Index or with that
of other mutual funds as listed in the rankings prepared by
Lipper Analytical Services, Inc., with studies prepared by
independent organizations such as Ibbotson Associates or
Wilshire Associates Incorporated, or similar independent
services which monitor the performance of mutual funds or other
industry or financial publications such as Barron's,
Business Week, Forbes, Fortune, Institutional Investor,
Investors Daily, Kiplinger's Personal Finance, Money,
Morningstar Mutual Fund Values, The New York Times,
The Wall Street Journal, or USA Today. Any given performance
comparison should not be considered as representative of the
Series' 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 Series, including total return figures, to their
Smith Barney Financial Consultant.
CUSTODIAN AND TRANSFER AGENT
Boston Safe, located at One Boston Place, Boston,
Massachusetts 02108, serves as custodian of the Trust's
investments. Boston Safe is an indirect wholly owned subsidiary
of Mellon Bank Corporation.
TSSG serves as the Trust's transfer agent and is located
at Exchange Place, Boston, Massachusetts, 02109.
DISTRIBUTOR
Distributor and Shareholder Servicing Agent--Smith Barney
Smith Barney, which serves as the Trust's distributor and
shareholder servicing agent for Series 1998 and Series 2000, is
located at 388 Greenwich Street, New York, New York 10013.
Smith Barney is a wholly owned subsidiary of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of The Travelers Inc. ("Travelers"), a diversified
financial services holding company engaged through its
subsidiaries principally in four business segments: Investment
Services, Consumer Finance Services, Life Insurance Services &
Casualty Insurance Services. Pursuant to a Shareholder Services
Plan (the "Plan") adopted with respect to the Series 1998 and
Series 2000, 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 Series' sole shareholder prior to Series 1998 and
Series 2000's initial public offering, Smith Barney, as
shareholder servicing agent, is paid an annual fee by the
respective Series. The annual fee will be calculated at the
annual rate of .25% of the value of the average daily net assets
of the respective Series and is used by Smith Barney to cover
payments to Smith Barney Financial Consultants who provide
support services to shareholders of the Series, including, but
not limited to, office space and equipment, telephone
facilities, responding to routine inquiries regarding the Series
and its operations, processing shareholder transactions,
forwarding and collecting proxy materials, dividend payment
elections and providing any other shareholder services not
otherwise provided by the Trust's transfer agent. The Board of
Trustees evaluates the appropriateness of the Plan and its
payment terms on a continuing basis and in doing so considers
all relevant factors, including the nature, extent and quality
of services generally provided to shareholders.
ADDITIONAL INFORMATION
The Trust was organized on October 18, 1988 under the laws
of the Commonwealth of Massachusetts and is an entity commonly
known as a "Massachusetts business trust." The Trust offers
shares of beneficial interest of each Series having a $.001 per
share par value. When matters are submitted for shareholder
vote, shareholders of each Series 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.
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 Series at the end of the
period covered. In an effort to reduce each Series' printing
and mailing costs, each Series 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, each Series also plans to
consolidate the mailing of its Prospectus so that a shareholder
having multiple accounts will receive a single Prospectus
annually. Any shareholder who does not want this consolidation
to apply to his or her account should contact his or her
Financial Consultant or the Trust's transfer agent.
Shareholders may make inquiries regarding the Trust to any Smith
Barney Financial Consultant.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND IN THE TRUST'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE TRUST'S SHARES, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH,
OR TO ANY PERSON TO WHOM, THE OFFER MAY NOT LAWFULLY BE MADE.
shared/domestic/clients/shearson/funds/prtn/pros1995
-4-
SMITH BARNEY PRINCIPAL RETURN FUND
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information
April 1, 1995
This Statement of Additional Information supplements the
information contained in the current Prospectus dated April 1,
1995, as amended or supplemented from time to time, of the Zeros
and Appreciation Series 1996 ("Series 1996"), Zeros and
Appreciation Series 1998 ("Series 1998") and Zeros Plus Emerging
Growth Series 2000 ("Series 2000"), (collectively the "Series"),
of Smith Barney Principal Return Fund (the "Trust"), and should
be read in conjunction with that Prospectus. The Prospectus may
be obtained from any 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 2
Investment Objectives and Management Policies 6
Redemption of Shares 14
Valuation of Shares 14
Exchange Privilege 15
Determination of Performance 15
(See in the Prospectus "The Series' Performance")
Taxes 17
(See in the Prospectus "Dividends, Distributions and Taxes")
Distributor 19
Custodian and Transfer Agent (See in the Prospectus "Additional
Information") 20
Organization of the Trust 20
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 Series.
These organizations are as follows:
Name Service
Smith Barney Inc.
("Smith Barney ") Distributor
Smith Barney Mutual Funds Management Inc. Investment
Adviser and
("SBMFM") Administrator
The Boston Company Advisors, Inc.
("Boston Advisors") Sub-Administrator
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 Series 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 54). 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 (Age 63). Chairman and Chief Executive Officer
of the Chicago Board of Options Exchange.
Dwight B. Crane (Age 57). Professor, Graduate School of Business
Administration, Harvard University and a Director of Peer Review
Analysis, Inc.
Frank Hubbard (Age 57). Corporate Vice President, Materials
Management and Marketing Services of Huls American, Inc.
Allan R. Johnson, Trustee (Age 78). 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 61). Managing Director of Smith Barney, Chairman of
Smith Barney Strategy Advisers Inc. and President of SBMFM; prior
to July 1993, Senior Executive Vice President of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"); Vice Chairman of
Asset Management, a division 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 53). President of Young Stuff Apparel
Group, Inc. His address is 1407 Broadway, 6th Floor, New York,
New York 10018.
John F. White, Trustee (Age 77). 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). 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. Ms. Bibliowicz also serves as President of 25 other
mutual funds of the Smith Barney Mutual Funds. Her address is
388 Greenwich Street, New York, New York 10013.
Harry D. Cohen, Vice President and Investment Officer (Age 54).
President and Director of Smith Barney Investment Advisors, a
division of SBMFM; Executive Vice President of Smith Barney;
prior to July 1993, President of Asset Management Division of
Shearson Lehman Brothers. Mr. Cohen also serves as Vice
President and Investment Officer of 5 other mutual funds of the
Smith Barney Mutual Funds. His 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 Investment Advisors, a
division of SBMFM; prior to July 1993, First Executive Vice
President of Shearson Asset Management; prior to July 1993,
Executive Vice President of Shearson Asset Management. Mr.
Freeman also serves as Vice President and Investment Officer of
one other mutual fund of the Smith Barney Mutual Funds. 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; Chief Financial Officer of
Smith Barney Mutual Funds; Director and Senior Vice President of
SBMFM. Mr. Daidone also serves as Senior Vice President and
Treasurer of 41 other mutual funds of the Smith Barney Mutual
Funds. His address is 388 Greenwich Street, New York, New York
10013.
Christina T. Sydor, Secretary (Age 44). Managing Director of
Smith Barney; General Counsel and Secretary of SBMFM. Ms. Sydor
also serves as Secretary of 41 other mutual funds of the Smith
Barney Mutual Funds. Her address is 388 Greenwich Street, New
York, New York 10013.
Each Trustee also serves as a trustee, general partner
and/or director of other mutual funds for which Smith Barney
serves as distributor. As of February 28, 1995, Trustees and
officers of the Series, as a group, owned less than 1% of the
outstanding shares of beneficial interest of each Series.
No director, officer or employee of Smith Barney or any of
its affiliates will receive any compensation from the Trust for
serving as an officer or Trustee. The Trust pays each Trustee who
is not a director, officer or employee of Smith Barney or any of
its affiliates a fee of $2,000 per annum plus $500 per meeting
attended and reimburses them for travel and out-of-pocket
expenses. For the fiscal year ended November 30, 1994, such fees
and expenses for the Trust totaled $27,276.
For the calendar year ended December 31, 1994, the Trustees
of the Trust 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 - SBMFM
SBMFM (formerly known as Smith, Barney Advisers, Inc.)
serves as the Series' investment adviser under the terms of a
written agreement for each Series (the "Advisory Agreements").
SBMFM 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 Agreements for all
Series were last approved by the Board of Trustees, including a
majority of the Trustees who are not "interested persons" of the
Trust or Smith Barney on April 7, 1994. Certain of the services
provided to, and fees paid by, the Series under the Advisory and
administration Agreements are described in the Prospectus under
"Management of the Trust." SBMFM pays the salaries of all
officers and employees who are employed by both it and the Trust
and maintains office facilities for the Trust. SBMFM bears all
expenses in connection with the performance of its services under
the Advisory Agreements.
As compensation for investment advisory services rendered
to Series 1996, Series 1998 and Series 2000, each Fund pays SBMFM
a fee computed daily and paid monthly at the annual rates of
0.30%, 0.30% and 0.40%, respectively, of the value of their
average daily net assets.
SBMFM also serves as the administrator of the Series
pursuant to a written agreement for each Series dated April 21,
1994 (the "Administration Agreements"). The Administration
Agreements were most recently approved for all Series by the
Board of Trustees, including a majority of the Trustees who are
not "interested persons" of the Series or Smith Barney, on July
21, 1994. The services provided by SBMFM under the Administration
Agreements are described in the Prospectus under "Management of
the Trust." SBMFM pays the salaries of all officers and
employees who are employed by both it and the Trust, maintains
office facilities for the Trust and bears all expenses in
connection with the performance of its services. Prior to April
21, 1994, Boston Advisors served as the Trust's administrator.
As compensation for administrative services rendered to
each Series, SBMFM receives a fee computed daily and paid monthly
at the annual rate of 0.20% of the value of its average daily net
assets.
For the fiscal years ended November 30, 1994, 1993 and
1992, the Series paid investment advisory and sub-investment
advisory and/or administration fees to SBMFM and Boston Advisors
as follows:
Series 1996
Series 1998* Series 2000**
Fiscal Year Ended
Fiscal Year Ended Fiscal Year Ended
1994 1993 1992
1994 1993 1992 1994 1993
1992
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* Series 1998 commenced operations on January 25, 1991.
** Series 2000 commenced operations on August 30, 1991.
Sub-Administrator - Boston Advisors
Boston Advisors serves as sub-administrator of the Series
pursuant to a written agreement for each Series dated April 21,
1994 (the "Sub-Administration Agreements"). The Sub-
Administration Agreements were most recently approved for all
Series by the Board of Trustees, including a majority of the
Trustees who are not "interested persons" of the Series or Boston
Advisors, on April 21, 1994. Boston Advisors is paid a portion of
the administration fee paid by the Series to SBMFM at a rate
agreed upon from time to time between Boston Advisors and SBMFM.
Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC"), a financial services holding company,
which in turn is a wholly owned subsidiary of Mellon Bank
Corporation ("Mellon").
Certain of the services provided to the Series by Boston
Advisors pursuant to the Sub-Administration Agreements are
described in the Prospectus under "Management of the Trust." In
addition to those services, Boston Advisors pays the salaries of
all officers and employees who are employed by both it and the
Trust, maintains office facilities for the Trust, furnishes the
Trust with statistical and research data, clerical help and
accounting, data processing, bookkeeping, internal auditing and
legal services and certain other services required by the Trust,
prepares reports to the Trust's shareholders and prepares tax
returns, reports to and filings with the Securities and Exchange
Commission (the "SEC") and state Blue Sky authorities. Boston
Advisors bears all expenses in connection with the performance of
its services.
The Trust bears expenses incurred in its operation,
including taxes, interest, brokerage fees and commissions, if
any; fees of Trustees who are not officers, directors,
shareholders or employees of Smith Barney; SEC fees and state
Blue Sky qualification fees; charges of custodians; transfer and
dividend disbursing agent's fees; certain insurance premiums;
outside auditing and legal expenses; costs of maintenance of
corporate existence; investor services (including allocated
telephone and personnel expenses); and costs of preparation and
printing of prospectuses for regulatory purposes and for
distribution to existing shareholders; cost of shareholders'
reports and shareholder meetings and meetings of the officers or
Board of Trustees of the Trust.
SBMFM and Boston Advisors have agreed that if in any fiscal
year the aggregate expenses of a Series (including fees payable
pursuant to the Advisory Agreements, but excluding interest,
taxes, brokerage and extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Series,
SBMFM and Boston Advisors will reduce its fees from the Series by
the proportion of the excess expense equal to the proportion that
their respective fees bear to the aggregate of fees paid by the
Series for investment advice and administration, to the extent
required by state law. A fee reduction, if any, will be estimated
and reconciled on a monthly basis. The most restrictive state
expense limitation applicable to each Series would require a
reduction of fees in any year in which expenses subject to the
limitation exceed 2.5% of a Series' first $30 million of average
daily net assets, 2.0% of the next $70 million of average daily
net assets and 1.5% of the remaining average daily net assets. No
such fee reductions were required for the 1994, 1993 and 1992
fiscal years.
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 ("KPMG Peat Marwick"), independent
accountants, 345 Park Avenue, New York, New York 10154, serve as
auditors of the Fund and will render an opinion on the Fund's
financial statement annually beginning with the fiscal year
ending November 30, 1995. Prior to KPMG Peat Marwick's
appointment, Coopers & Lybrand L.L.P., independent accountants,
served as auditors of the Fund and rendered an opinion on the
Fund's financial statements for the fiscal year ended November
30, 1994.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectus discusses the investment objectives of each
Series 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 Series may invest, the investment policies and
portfolio strategies that the Series 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 value
only security paying no interest. Zero coupon securities of the
United States government and certain of its agencies and
instrumentalities and of private corporate issuers are currently
available, although the Series will purchase only those that
represent direct obligations of the United States government.
Zero coupon securities of the United States government that
are currently available are called Separate Trading of Registered
Interest and Principal of Securities ("STRIPS") or Coupon Under
Book-Entry Safekeeping ("CUBES"). STRIPS and CUBES are issued
under programs introduced by the United States Treasury and are
direct obligations of the United States government. The United
States government does not issue zero coupon securities directly.
The STRIPS program, which is ongoing, is designed to facilitate
the secondary market stripping of selected treasury notes and
bonds into individual interest and principal components. Under
the program, the United States Treasury continues to sell its
notes and bonds through its customary auction process. However, a
purchaser of those notes and bonds who has access to a book-entry
account at a Federal Reserve Bank (the "Federal Reserve") may
separate the specified treasury notes and bonds into individual
interest and principal components. The selected treasury
securities may thereafter be maintained in the book-entry system
operated by the Federal Reserve in a manner that permits the
separate trading and ownership of the interest and principal
payments. The Federal Reserve does not charge a fee for this
service; however, the book-entry transfer of interest or
principal components is subject to the same fee schedule
generally applicable to the transfer of treasury securities.
Under the program, in order for a book-entry treasury
security to be separated into its component parts, the face
amount of the security must be an amount which, based on the
stated interest rate of the security, will produce a semi-annual
interest payment of $1,000 or a multiple of $1,000. Once a book-
entry security has been separated, each interest and principal
component may be maintained and transferred in multiples of
$1,000 regardless of the face value 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, each Series may hold at any
time up to 10% of the value of its assets in cash and money
market instruments. In addition, when SBMFM believes that
opportunities for capital appreciation do not appear attractive,
each Series 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
Series 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 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 Series will invest in obligations issued by such an
instrumentality only if Asset Management determines that the
credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the Series.
Repurchase Agreements. Each Series 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 upon price on an agreed
upon 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 a Series'
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 a Series 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, SBMFM or Boston
Advisors, 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 Series enters into repurchase agreements.
Warrants (Series 2000)
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 stock
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 Series are authorized to lend their securities
to brokers, dealers and other financial organizations, they will
not lend securities to their distributor, Smith Barney, or its
affiliates unless the Series apply for and receive specific
authority to do so from the SEC. These loans, if and when made,
may not exceed 33-1/3% of a Series' assets taken at value. The
Series' 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,
a Series 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
that Series and that is acting as a "finder."
By lending its securities, a Series 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 a Series' portfolio securities
are loaned: (a) the Series 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 Series must be able to terminate the loan at any time; (d)
the Series 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 Series 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 Series' 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 Series, 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 Series 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 Series:
1. A Series 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 a Series' total assets
would be invested in the securities of that issuer, except that
up to 25% of the value of a Series' total assets may be invested
without regard to this 5% limitation.
2. A Series 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 a Series' investments in U. S.
government securities, and up to 25% of a Series' assets may be
invested without regard to these 10% limitations.
3. A Series will not borrow money, except that a Series
may borrow from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests and cash
payments of dividends and distributions that might otherwise
require the untimely disposition of securities, in an amount not
to exceed 33-1/3% of the value of a Series' total assets
(including the amount borrowed) at the time the borrowing is
made. Whenever borrowings exceed 5% of the value of the total
assets of a Series, a Series will not make any additional
investments.
4. A Series will not lend money to other persons, except
through purchasing debt obligations, lending portfolio securities
and entering into repurchase agreements.
5. A Series 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. A Series will not underwrite the securities of other
issuers, except insofar as a Series 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. A Series will not purchase or sell real estate,
interests in real estate limited partnerships or interests in
real estate, except that a Series 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. A Series will not purchase or sell commodities or
commodities futures contracts.
9. A Series will not sell securities short.
10. A Series will not purchase securities on margin,
except that a Series may obtain any short-term credits necessary
for the clearance of purchases and sales of securities.
11. A Series will not pledge, hypothecate, mortgage or
encumber in any other way more than 10% of its assets.
12. A Series will not invest in oil, gas, mineral leases
or other mineral exploration or development programs, except that
a Series may invest in the securities of companies that invest in
or sponsor those programs.
13. A Series 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. A Series will not write or sell put options, call
options, straddles or combinations of those options.
15. A Series will not purchase any security, except U.S.
government securities, if as a result of the purchase, the Series
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. A Series will not make investments for the purpose of
exercising control or management of any other issuer.
17. A Series will not purchase or retain securities of
any company, if to the knowledge of the Trust, any of the Trust's
officers or Trustees, or any officer or director of SBMFM,
individually owns more than 5% of the outstanding securities of
the company and together they own beneficially more than 5% of
the securities.
18. A Series will not invest in warrants, if as a result,
more than 2% of the value of a Series' net assets would be
invested in warrants that are not listed on a recognized United
States stock exchange, or more than 5% of a Series' net assets
would be invested in warrants regardless of whether they are
listed on such an exchange.
19. A Series will not invest in time deposits maturing in
more than seven days, enter into repurchase agreements having a
duration of more than seven days, purchase securities that may
not be sold without first being registered under the 1933 Act, as
amended ("restricted securities"), or purchase instruments
lacking readily available market quotations ("illiquid
instruments"), if as a result of the purchase a Series' 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 5% of
Series 1996's or Series 1998's net assets, or 10% of Series
2000'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 Series intend not to seek profits through short-term
trading of their securities. Nevertheless, a Series will not
consider portfolio turnover rate a limiting factor in making
investment decisions. The Series cannot accurately predict their
portfolio turnover rate, but anticipate that their annual
turnover rates will not exceed 50%. The turnover rates would be
100% if all of a Series' securities that are included in the
computation of turnover were replaced once during a period of one
year. The Series' 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. For the fiscal
years ended November 30, 1994 and 1993, and the Series' portfolio
turnover rates were as follows:
1994 1993
Series 1996 10% 20%
Series 1998 10% 17%
Series 2000 1% 0 %
Portfolio Transactions
Decisions to buy and sell securities for the Series are
made by SBMFM, subject to the overall review of the Trust's Board
of Trustees. Although investment decisions for a Series are made
independently from those of the other accounts managed by SBMFM,
investments of the type made by a Series also may be made by
those accounts. When a Series and one or more other accounts
managed by SBMFM 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 SBMFM to be
equitable to each. In some cases, this procedure may adversely
affect the price paid or received by a Series or the size of the
position obtained or disposed of by the Series.
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 following table sets forth
certain information regarding the Series' payment of brokerage
commissions:
Fiscal Year Ended Series
Series Series
November 30, 1996
1998 2000
Total Brokerage Commissions 1992 $36,372 $ 43,412
$22,080
1993 $56,490 $
82,248 $30,396
1994 $31,553 $
45,657 $ 0
Commissions Paid to
Smith Barney and/or 1992 $ 7,650 $
8,004 $ 3,480
Smith Barney Shearson 1993 $ 6,510 $ 8,880
$ 9,636
1994 $ 2,370 $
2,130 0
% of Total Brokerage
Commissions paid to Smith
Barney 1994 7.5% 4.7%
0%
% of Total Transactions involving
Commissions paid to Smith
Barney 1994 7.5% 4.3%
0%
SBMFM seeks the best overall terms available in selecting
brokers or dealers to execute transactions on behalf of the
Series. In assessing the best overall terms available for any
transaction, SBMFM 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, SBMFM 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 Series and/or
other accounts over which SBMFM or its affiliates exercise
investment discretion. The fees under the Series' Advisory
Agreements are not reduced by reason of SBMFM receiving brokerage
and research services. The Trust's Board of Trustees will
periodically review the commissions paid by the Series to
determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits inuring to the
Series.
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 Series may be executed
through Smith Barney and other affiliated broker-dealers if, in
the judgment of SBMFM, 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 Series 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 Series 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 Series 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 Series normally utilizes is restricted, or an
emergency as determined by the SEC exists, so that disposal of
the Series' 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 Series'
shareholders.
VALUATION OF SHARES
The Series' net asset value is calculated on each day,
Monday through Friday, except on days on which the NYSE is
closed. The NYSE currently is scheduled to be closed on New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas, and on
the preceding Friday or subsequent Monday when one of these
holidays falls on a Saturday or Sunday. On those days,
securities held by the Series may nevertheless be actively
traded, and the value of the Series' shares could be
significantly affected.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the
Smith Barney Mutual Funds may exchange all or part of their
shares for shares of the same class of other funds of the Smith
Barney Mutual Funds to the extent such shares are offered for
sale in the shareholder's state of residence, on the basis of
relative net asset value per share at the time of exchange as
follows:
A. Class A shares of any fund may be exchanged for Class A
shares of any of the other funds, and the sales charge
differential, if any, will be applied. Class A shares of any
fund may be exchanged without a sales charge for shares of the
funds that are offered without a sales charge. Class A shares of
any fund purchased without a sales charge may be exchanged for
shares sold with a sales charge, and the appropriate sales charge
will be applied.
B. Class A shares of any fund acquired by a previous exchange
of shares purchased with a sales charge may be exchanged for
Class A shares of any of the other funds, and the sales charge
differential, if any, will be applied.
Dealers other than Smith Barney must notify TSSG of the
investor's prior ownership of shares of Smith Barney High Income
Fund and the account number in order to accomplish an exchange of
shares of the Smith Barney High Income Fund under paragraph B
above.
The exchange privilege enables shareholders to acquire
shares of the same Class in a fund with different investment
objectives when they believe that a shift between funds is an
appropriate investment decision. This privilege is available to
shareholders resident in any state in which the fund shares being
acquired may be legally sold. Prior to any exchange, the
investor should obtain and review a copy of the then current
prospectus of each fund into which an exchange is being made.
Prospectuses may be obtained from a Smith Barney Financial
Consultant.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are redeemed
at the then-current net asset value and the proceeds are
immediately invested, at a price as described above, in shares of
the fund being acquired with such shares being subject to any
applicable contingent deferred sales charge. Smith Barney
reserves the right to reject any exchange request. The exchange
privilege may be modified or terminated at any time after written
notice to shareholders.
DETERMINATION OF PERFORMANCE
From time to time, the Trust may quote a Series'
performance in terms of its total return in reports or other
communications to shareholders. The Series' performance will
vary from time to time depending upon market conditions, the
composition of its portfolio and its operating expenses.
Average Total Return
The Series' "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
The Series' average annual total returns were as follows
for the periods indicated:
Per Annum
for Period
One Year Five Year from
Commencement of
Period Ended Period Ended Operations
through
Name of Series 11/30/94 11/30/94
11/30/94
Series 1996 (1) (4.91)% 6.43%
8.74%
Series 1998 (2) (8.50)% N/A
6.08%
Series 2000 (3) (5.19)% N/A
5.57%
______________________________
(1) Series 1996 commenced operations on January 16, 1989.
(2) Series 1998 commenced operations on January 25, 1991.
(3) Series 2000 commenced operations on August 30, 1991.
These total return figures assume that the maximum 5% sales charge has
been deducted from the investment at the time of purchase.
Aggregate Total Return
The Series' aggregate total return figures shown below
represent the cumulative change in the value of an investment in
a Series for the specified period and are computed by the
following formula:
ERV-P
P
Where: P = a hypothetical initial payment of
$10,000.
ERV = Ending Redeemable Value of a
hypothetical
$10,000 investment made at the
beginning of the
1-, 5- or 10-year period at the end of
the 1-, 5- or 10 year period (or fractional
portion thereof), assuming reinvestment of
all dividends and distributions.
The Series' aggregate total returns were as follows for the
periods indicated:
N
a
m
e
o
f
P
o
r
t
f
o
l
i
o
O
n
e
Y
e
a
r
P
e
r
i
o
d
E
n
d
e
d
1
1
/
3
0
/
9
4
*
F
i
v
e
Y
e
a
r
P
e
r
i
o
d
E
n
d
e
d
1
1
/
3
0
/
9
4
*
Per
iod
Fro
m
Com
men
cem
ent
of
Ope
rat
ion
s
thr
oug
h
11/
30/
94*
O
n
e
Y
e
a
r
P
e
r
i
o
d
E
n
d
e
d
1
1
/
3
0
/
9
4
*
*
F
i
v
e
Y
e
a
r
P
e
r
i
o
d
E
n
d
e
d
1
1
/
3
0
/
9
4
*
*
Per
iod
Fro
m
Com
men
cem
ent
of
Ope
rat
ion
s
thr
oug
h
11/
30/
94*
*
S
e
r
i
e
s
1
9
9
6
(
1
)
0
.
1
0
%
4
3
.
7
7
%
72.
22%
(
4
.
9
1
)
%
3
6
.
5
8
%
63.
61%
S
e
r
i
e
s
1
9
9
8
(
2
)
(
3
.
6
9
)
%
N
/
A
32.
14%
(
8
.
5
0
)
%
N
/
A
25.
53%
S
e
r
i
e
s
2
0
0
0
(
3
)
(
0
.
2
0
)
%
N
/
A
25.
56%
(
5
.
1
9
)
%
N
/
A
19.
28%
* Figures do not include the effect of the maximum 5% sales charge.
** Figures include the effect of the maximum 5% sales charge.
(1) Series 1996 commenced operations on January 16, 1989.
(2) Series 1998 commenced operations on January 25, 1991.
(3) Series 2000 commenced operations on August 30, 1991.
A Series' 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 Series'
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 Series with certain bank
deposits or other investments that pay a fixed yield for a stated
period of time. Investors comparing the Series' 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 a Series.
Tax Status of the Trust and its Shareholders
Each of the Series 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 Series must meet
certain requirements set forth in the Code. Each Series 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
Series' business of investing in stock or securities. Each
Series 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
Series. 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
Series.
Dividends of investment income (but not distributions of
capital gain) from the Series 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 Series from domestic
corporations. If securities held by the Series are considered to
be "debt-financed" (generally, acquired with borrowed funds) or
are held by the Series for less than 46 days (91 days in the case
of certain preferred stock), the portion of the dividends paid by
the Series 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 a Series 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 a Series 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 Series' 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 Series acquired the stock.
Capital Gains. In general, a shareholder who redeems or
exchanges his or her Series 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 a Series 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 a Series' 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 Series' Investments
Zero Coupon Securities. The Series 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 Series will be
required to accrue as income a portion of this original issue
discount even though the Series will receive no cash payment of
interest with respect to these securities. In addition, if the
Series acquires a security at a discount that resulted from
fluctuations in prevailing interest rates ("market discount"),
the Series may elect to include in income each year a portion of
this market discount.
The Series 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, a Series may
be required in some years to distribute an amount greater than
the total cash income the Series actually receives. In order to
make the required distribution in such a year, a Series may be
required to borrow or to liquidate securities. The amount of
actual cash that a Series 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 Series' 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 a Series will generally be long-term capital gain or
loss if the Series 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
a Series 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 Series' distributor pursuant to
a written agreement (the "Distribution Agreement") with the
Trust. To compensate Smith Barney for the services it provides
as Shareholder Servicing Agent 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
Series 1998 and Series 2000, a fee, accrued daily and paid
monthly, calculated at the annual rate of .25% of the value of
the respective Series' 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 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 relevant Series 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. For the
fiscal year ended November 30, 1994, Smith Barney was paid
$292,311 and $208,263 in shareholder servicing fees for Series
1998 and Series 2000, respectively. For the fiscal period from
commencement of operations on * through
November 30, 1994, Smith Barney (or its predecessor), accrued
$1,581,980 and $942,798 in Series 1998 and Series 2000,
respectively, for shareholder servicing fees.
_____________________
* Series 1998 - January 25, 1991
Series 2000 - August 30, 1991
CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of The Boston
Company, Inc., is located at One Boston Place, Boston,
Massachusetts 02108, and serves as the custodian of the Trust
pursuant to a custodian agreement. Under the custodian
agreement, Boston Safe holds the Trust's portfolio securities and
keeps all necessary accounts and records. For its services,
Boston Safe receives a monthly fee based upon the month-end
market value of securities held in custody and also receives
securities transaction charges. The assets of the Trust are held
under bank custodianship in compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts
02109, and serves as the Trust's transfer agent. Under the
transfer agency agreement, TSSG maintains the shareholder account
records for the Trust, handles certain communications between
shareholders and the Trust, distributes dividends and
distributions payable by the Trust and produces statements with
respect to account activity for the Trust and its shareholders.
For these services, TSSG receives a monthly fee computed on the
basis of the number of shareholder accounts TSSG maintains for
the Trust during the month and is reimbursed for out-of-pocket
expenses.
ORGANIZATION OF THE TRUST
The Trust is organized as an unincorporated business trust
under the laws of the Commonwealth of Massachusetts pursuant to a
Master Trust Agreement dated October 18, 1988, as amended (the
"Trust Agreement"). On November 18, 1988, August 27, 1990, July
30, 1993 and October 14, 1994, the Trust changed its name from
SLH Secured Capital Fund to SLH Principal Return Fund, Shearson
Lehman Brothers Principal Return Fund, Smith Barney Shearson
Principal Return Fund and Smith Barney Principal Return Fund,
respectively. 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 Series. 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.
FINANCIAL STATEMENTS
The Trust's Annual Reports for the fiscal year ended
November 30, 1994 accompany this Statement of Additional
Information and are incorporated herein by reference in its
entirety.
-6-
Financial Statements
SMITH BARNEY PRINCIPAL RETURN FUND
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year ended
November 30, 1994 and the Report
of Independent Accountants dated January 12, 1995 are
incorporated by reference to the
Definitive 30b2-1 filed on February 3, 1995.
Included in Part C:
Consent of Independent Accountants
(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 incorporated by reference to the Registrant's Registration
Statement filed with the SEC on March 23, 1995 ("Post-Effective Amendment
No. 16").
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 incorporated by reference to Post-Effective
Amendment No. 16.
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 incorporated by reference to Post-Effective
Amendment No. 16.
(b) Sub-Administration Agreement dated April 21, 1994 between the
Registrant and The Boston Company Advisors, Inc. dated April 21, 1994 are
incorporated by reference to Post-Effective Amendment No. 16.
(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 incorporated by reference to Post-
Effective Amendment No. 16
10 Not Applicable
11 Consent of Independent Accountants is filed herewith.
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 incorporated by reference to Post-Effective Amendment No. 16.
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 28th 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 03/28/95
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Treasurer (Chief Financial
03/28/95
Lewis E. Daidone and Accounting Officer)
/s/ Paul R. Ades* Trustee 03/28/95
Paul R. Ades
Herbert Barg* Trustee
03/28/95
Herbert Barg
/s/ Alger B. Chapman* Trustee 03/28/95
Alger B. Chapman
/s/ Dwight B. Crane* Trustee 03/28/95
Dwight B. Crane
/s/ Frank Hubbard* Trustee 03/28/95
Frank Hubbard
/s/ Allan R. Johnson* Trustee 03/28/95
Allan R. Johnson
/s/ Ken Miller* Trustee 03/28/95
Ken Miller
/s/ John F. White* Trustee 03/28/95
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 pea17
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Smith Barney Principal Return Fund:
We hereby consent to the following with respect to
Post-Effective Amendment No. 17 to the Registration Statement on
Form N-1A (File No. 33-25087) under the Securities Act of 1933,
as amended, of Smith Barney Principal Return Fund (formerly
Smith Barney Shearson Principal Return Fund):
1. The incorporation by reference of our reports dated January
12, 1995 accompanying the Annual Reports for the fiscal year
ended November 30, 1994 of Smith Barney Principal Return Fund,
in the Statement of Additional Information.
2. The reference to our firm under the heading "Financial
Highlights" in the Prospectus.
3. The reference to our firm under the heading "Counsel and
Auditors" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 27, 1995
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