As filed with the Securities and Exchange Commission on
March 30, 1999
Registration No. 33-25087
811-5678
_______________________________________________
____________________
U.S.SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No._____
Post-Effective Amendment No. 23
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940,
Amendment No. 23
SMITH BARNEY 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)
(800) 451-2010
(Registrant's Telephone Number, Including Area Code)
Christina T. Sydor
Secretary
Smith Barney Principal Return Fund
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent of Service)
Continuous
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become effective:
(check appropriate box)
XXX Immediately upon filing pursuant to paragraph (b)
_____ On (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a) (1)
_____ On (date) pursuant to paragraph (a) (1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ On (date) pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
_____ This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Title of Securities being Registered: Shares of Common
Stock
PART A
SMITH BARNEY PRINCIPAL RETURN FUND
ZERO PLUS EMERGING GROWTH SERIES 2000
SECURITY AND GROWTH FUND
Prospectus
March 30, 1999
Current shareholders may purchase new shares through the
reinvestment of dividends and distributions. Except for
reinvestment of dividends and distributions, shares of the funds
are not currently being offered to investors. Consequently, a
fund's assets may be reduced by market fluctuations, a redemption
of shares and payment of cash dividends and distributions. A
reduction in a fund's net assets may increase the fund's expenses
on a per share basis and make it more difficult for a fund to
achieve its investment objective.
The Securities and Exchange Commission has not approved or
disapproved the funds' securities or determined whether this
prospectus is accurate or complete. Any statement to the contrary
is a crime.
Contents
Page
Fund goals and strategies 3
Risks, performance and expenses 4
Other investments 7
Management 8
Reinvestment of dividends 9
Exchanging shares 9
Redeeming shares 10
Other things to know about share transactions 11
Dividends, distributions and taxes 11
Share price 12
Financial highlights 13
You should know:
An investment in the funds is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
Fund goals and strategies
Investment objective
(a) Zero Plus Emerging Growth Series 2000 ("Series 2000") and
Security and Growth Fund both invest sufficient amounts in
zero coupon U.S. Treasury securities to provide a return of
the shareholder's original investment (including sales
charges) by the fund's maturity date - February 28, 2000 for
Series 2000 (the "Series 2000 Maturity Date") and August 31,
2005 for Security and Growth Fund (the "Security and Growth
Fund Maturity Date"). At February 28, 1999, zero coupon
U.S. Treasury securities represented 57% and 69% of the net
assets of Series 2000 and Security and Growth Fund,
respectively.
(b) The remaining assets of each fund are invested to seek long-
term appreciation of capital.
Key investments
Series 2000
The fund's assets that are not invested in zero coupon U.S.
Treasury securities are invested in equity securities of "emerging
growth companies." Emerging growth companies are small to medium
capitalization companies that, in the manager's opinion, may
generate superior earnings or cash flow over a 2 to 3 year time
frame. The manager will generally invest in companies with market
capitalizations of less than $1 billion. However, the manager may
also invest in larger companies that present opportunities for
capital growth.
Security and Growth Fund
The fund's assets that are not invested in zero coupon U.S.
Treasury Securities are invested in equity securities of companies
the manager believes have the potential to provide above average
capital appreciation. The manager generally focuses on small and
mid-cap companies with market capitalizations in the $500 million
to $3 billion range. The manager seeks to obtain the benefits of
both a diversified and focused portfolio by investing in a limited
number of issuers without any single position representing a
material portion of the fund's assets.
Investment strategy
The manager seeks zero coupon securities that will mature within
one year before the respective fund's Maturity Date. The manager
expects that the aggregate stated principal amount of the zero
coupon securities will be sufficient to meet each fund's objective
of repaying the investor's original investment. As each fund's
zero coupon securities mature, the proceeds will be invested in
short term U.S. government securities.
Investment strategy
Series 2000
In selecting individual securities for the actively managed
portion of the fund, the manager looks for companies it believes
are undervalued in the marketplace or have earnings that can be
expected to grow faster than the U.S. economy in general. These
companies typically would possess one or more of the following
characteristics:
? 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
? Sound financial position
? Relatively high rate of return on invested capital
The manager also seeks out "special situation companies" or
companies that offer the possibility of accelerating earnings
growth because of:
? Management changes
? Disposition of assets or corporate restructurings
? Governmental regulations
? Social, economic or industry trends that favorably affect the
company
Security and Growth Fund
In selecting individual securities for the actively managed
portion of the fund, the manager seeks to identify companies with
excellent long term growth prospects but which are temporarily out
of favor with investors. The manager's investment process
emphasizes limiting downside risk as an important factor in
maintaining favorable risk/reward ratios in the fund.
When analyzing potential investment candidates for the fund, the
manager looks for the following factors:
? New or innovative products, especially those likely to enhance
revenues and earnings in the next 12 months
? High technology companies with substantial operating leverage
and future earning power
? Catalysts such as a change in management, restructuring or
other corporate events designed to reduce costs and increase
earnings and cash flow
? Themes or trends likely to persist for a number of years that
could benefit a company and/or industry
? Companies that are industry leaders or have a market niche
differentiating them from other companies
? Strong balance sheets or ones likely to improve in a
relatively short period of time as a result of asset sales or
rapid growth of earnings and cash flow
Maturity date
On each fund's Maturity Date, the following events will occur:
? The fund's zero coupon investments will have matured
? The fund's remaining assets and liabilities will be liquidated
? The fund's shares will be redeemed
Within seven days after the Maturity Date, proceeds will be
distributed to the shareholders and the fund will be terminated.
Risks, performance and expenses
Principal risks of investing in the funds
While the zero coupon component of each fund is designed to return
to shareholders their initial investment on the Maturity Date, the
funds' net asset value per share can fluctuate substantially prior
to the Maturity Date. If you sell your shares prior to the
Maturity Date, you may receive less than your initial investment
in the fund. Due to the nature of the funds' portfolios, the funds
have risks associated with both equity and fixed income
investments. Investors could lose money in the funds or the
funds' performance could fall below other possible investments if
? The U.S. stock market declines
? The market favors value or large capitalization stocks over
growth stocks or small to medium capitalization stocks
? An adverse event, such as an unfavorable earnings report about
a company in a fund's portfolio, depresses the value of the
company's stock
? The manager's judgment about the attractiveness, value or
potential appreciation of a particular company's stock proves
to be incorrect
Each fund's zero coupon securities are also susceptible to certain
risks prior to maturity, including:
? If interest rates go up, the market value of zero coupon
securities will go down
? Volatile market prices when compared to securities that pay
interest periodically
? Greater sensitivity to changes in interest rates when compared
to non-zero coupon securities having similar maturities and
yields
The funds may not be appropriate for investors requiring cash
distributions from a fund to meet tax obligations or current
expenses.
Total return
Each bar chart indicates the risks of investing in the funds by
showing changes in the funds' performance from year to year. Past
performance does not necessarily indicate how the funds will
perform in the future.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Series 2000
Total Return
1992 19.94
1993 15.84
1994 1.45
1995 19.52
1996 0.81
1997 12.15
1998 8.95
Calendar year ended December 31
The chart shows the performance of a share of the fund for each of
the past seven years. The performance information in the chart
does not reflect sales charges, which would reduce your return.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Security and Growth Fund
Total Return
1996 8.76
1997 11.14
1998 (4.87)
Calendar year ended December 31
The chart shows the performance of a share of the fund for each of
the past three years. The performance information in the chart
does not reflect sales charges, which would reduce your return.
Quarterly returns: Highest: 14.14% in 3rd
quarter 1997; Lowest: (6.92)% in 4th quarter 1997.
Quarterly returns: Highest: 18.90% in 3rd quarter 1997; Lowest:
(7.46)% in 3rd quarter 1998.
Comparative performance
The table below indicates the risk of investing in the funds by
comparing the average annual total return for the periods shown to
that of the return of the Value Line Composite Index and Lehman
Brothers Intermediate Term Government Bond Index ("Lehman Brothers
Index"), in the case of Series 2000, and the Russell 2000 Index
and the Lehman Brothers Index in the case of the Security and
Growth Fund. The Value Line Composite is abroad-based index of
approximately 1,700 large and small capitalization companies. The
Lehman Brothers Index is a broad-based index of U.S. Treasury and
agency securities. The Russell 2000 Index is a broad-based index
that measures the performance of the 2,000 smallest stocks in the
U.S. equity market. Unlike the funds, the indices are unmanaged
and do not incur expenses. This table assumes imposition of the
maximum sales charge, redemption of shares at the end of the
period, and reinvestment of distributions and dividends.
Average Annual Total Return
Calendar Years Ended December 31, 1998
Inception Date
1 Year
5 Years
Since Inception
Inception Date
1 Year
5 Years
Since Inception
Series 2000
8/30/91
3.49%
7.24%
8.42%
Security and Growth Fund
3/30/95
(8.66)%
N/A
6.62%
Value Line Composite Index
*
(3.79)%
8.16%
8.18%
Russell 2000
**
(2.55)%
N/A
15.30%
Lehman Brothers Index
*
8.49%
6.45%
7.38%
Lehman Brothers Index
**
8.49%
N/A
8.03%
* Index comparison begins on 8/31/91
** Index comparison begins on 3/31/95
Fees and Expenses
This table sets forth the fees and expenses you will pay if you
invest in each fund's shares.
Shareholder fees
(paid directly from your investment)
Series 2000
Security and Growth Fund
Maximum sales charge on purchases (as a % of offering price)*
5.00%
4.00%
Annual fund operating expenses
(paid by the fund as a % of net assets)
Management fees
0.60%
0.50%
Shareholder servicing fees
0.25%
0.25%
Other expenses
0.25%
0.19%
Total annual fund operating expenses
1.10%
0.94%
* No sales charge applies to reinvestment of dividends in
additional shares.
Example
This example helps you compare the costs of investing in each fund
with other mutual funds. Your actual costs may be higher or
lower. The example assumes:
? You invest $10,000 in a fund for the time
periods shown
? Your investment has a 5% return each year
? You reinvest all distributions and dividends
without a sales charge
? Each fund's operating expenses remain the same
Number of years you own your shares
1 year
3 years
5 years
Maturity Date*
Series 2000
$607
N/A
N/A
$783
Security and Growth Fund
$492
$688
$899
$1,100
* The Series 2000 Maturity Date is February 28, 2000. The
Security and Growth Fund Maturity Date is August 31, 2005.
Other investments
The summary for each fund describes its investment objective and
principal investment strategies and risks. This section provides
additional information about the funds' investments and certain
portfolio management techniques the funds may use. More
information about the funds' investments and portfolio management
techniques, some of which entail risks, is included in the
statement of additional information (SAI).
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 funds,
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.
Zero coupon securities of the type held by each fund can be sold
prior to their due date in the secondary market at their then
prevailing market value which, depending on prevailing levels of
interest rates and the time remaining to maturity, may be more or
less than 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 paying 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 fund 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 fund attributable to zero coupon securities and other debt
instruments held by each fund generally will vary inversely with
changes in prevailing interest rates.
Each year each fund will be required to accrue an increasing
amount of income on its zero coupon securities utilizing the
effective interest method. To maintain its tax status as a pass-
through entity and also to avoid imposition of excise taxes, each
fund will be required to distribute dividends equal to
substantially all of its net investment income, including the
accrued income on its zero coupon securities for which it receives
no payments in cash prior to their maturity. Dividends of each
fund's net investment income and distributions of its short-term
capital gains will be taxable to shareholders as ordinary income
for Federal income tax purposes, whether received in cash or
reinvested in additional shares. However, a shareholder who
elects to receive dividends and distributions in cash, instead of
reinvesting these amounts in additional shares of the fund, may
realize an amount that is less than the entire amount originally
invested.
Derivatives and hedging techniques Security and Growth Fund may,
but need not, use derivative contracts, such as futures and
options on securities or securities indices, and options on these
futures, to hedge against the economic impact of adverse changes
in the market value of its securities, because of changes in stock
market prices. A derivative contract will obligate or entitle a
fund to deliver or receive an asset or cash payment that is based
on the change in value of one or more securities, currencies or
indices. Even a small investment in derivative contracts can have
a big impact on the fund's stock market exposure. Therefore,
using derivatives can disproportionately increase losses and
reduce opportunities for gains when stock prices are changing. A
fund may not fully benefit from or may lose money on derivatives
if changes in their value do not correspond accurately to changes
in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as
issuers of fixed income securities. Derivatives can also make a
fund less liquid and harder to value, especially in declining
markets.
Foreign securities Each fund may invest up to 10% of its net
assets (at the time of investment) in foreign securities.
Investments in securities of foreign entities and securities
quoted or denominated in foreign currencies involve special risks.
These include possible political and economic instability and the
possible imposition of exchange controls or other restrictions on
investments. If a fund invests in securities denominated or
quoted in currencies other than the U.S. dollar, changes in
foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the fund's assets.
Defensive investing Each fund may depart from its principal
investment strategies in response to adverse market, economic or
political conditions by taking temporary defensive positions in
all types of money market and short-term debt securities. If a
fund takes a temporary defensive position, it may be unable to
achieve its investment goals.
Management
Manager Each fund's investment adviser and administrator (the
"manager") is SSBC Funds Management, Inc. ("SSBC"), an affiliate
of Salomon Smith Barney Inc. The manager's address is 388
Greenwich Street, New York, New York 10013. The manager selects
each fund's investments and oversees its operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc.
Citigroup businesses produce a broad range of financial services -
asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading -
and use diverse channels to make them available to consumer and
corporate customers around the world.
Richard Freeman has been responsible for the day-to-day management
of the Series 2000 Fund's portfolio since its inception.
Mr. Freeman is an investment officer of SSBC and managing director
of Salomon Smith Barney. John G. Goode has been responsible for
the day-to-day management of the Security and Growth Fund's
portfolio since its inception. Mr. Goode is an investment officer
of SSBC and Chairman and Chief Investment Officer of Davis Skaggs
Investment Management, a division of SSBC and a managing director
of Salomon Smith Barney.
Management fees During the fiscal year ended November 30, 1998,
the manager received an advisory fee and administrative fee equal
to 0.40% and 0.20%, respectively, of Series 2000 Fund's average
daily net assets, and management fee of 0.50% of Security and
Growth Fund's average daily net assets.
Year 2000 issue. Information technology experts are concerned
about computer systems' ability to process date-related
information on and after January 1, 2000. This situation,
commonly known as the "Year 2000" issue, could have an adverse
impact on the funds. The cost of addressing the year 2000 issue,
if substantial, could adversely affect companies and governments
that issue securities held by the funds. The manager and Salomon
Smith Barney are addressing the Year 2000 issue for their systems.
The funds have been informed by their other service providers
that they are taking similar measures. Although the funds do not
expect the Year 2000 issue to adversely affect them, the funds
cannot guarantee that the efforts of the funds, which are limited
to requesting and receiving reports from its service providers, or
the efforts of their service providers to correct the problem will
be successful.
Reinvestment of dividends
Both Series 2000 Fund and Security and Growth Fund are currently
closed to investors except through reinvestment of dividends or
distributions from the funds. The trustees may, upon 30 days'
notice to shareholders, reopen a fund if the trustees determine
the reopening to be in the best interests of that fund and its
shareholders.
Exchanging shares
Smith Barney offers a distinctive family of funds tailored to help
meet the varying needs of both large and small investors.
Because the funds are not continuously offering shares, an
investor who exchanges shares of a fund will not be able to effect
an exchange back into the funds. You should contact your Salomon
Smith Barney Financial Consultant or dealer representative to
exchange into other Smith Barney funds. Be sure to read the
prospectus of the Smith Barney fund you are exchanging into. An
exchange is a taxable transaction. If you make an exchange prior
to the Maturity Date, you may receive an amount less than the
original investment in the fund.
? You may exchange shares only for Class A shares of most
Smith Barney funds. Not all Smith Barney funds may be offered
in your state of residence. Contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent.
? You must meet the minimum investment amount for each fund.
? If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers (documents transferring ownership of
certificates) before the exchange is effective.
? The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
No additional sales charges
Shares acquired in the exchange will not be subject to an initial
sales charge at the time of the exchange.
By telephone
If you do not have a brokerage account, you may be eligible to
exchange shares through the transfer agent. To find out, call the
transfer agent. You must complete an authorization form to
authorize telephone transfers. If eligible, you may make
telephone exchanges on any day the New York Stock Exchange is
open. Call the transfer agent at 1-800-451-2010 between 9:00 a.m.
and 5:00 p.m. (Eastern time). Requests received after the close
of regular trading on the Stock Exchange are priced at the net
asset value next determined.
You can make telephone exchanges only between accounts that have
identical registrations.
By mail
If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent
at the address on the next page.
Redeeming shares
Generally
Contact your Salomon Smith Barney Financial Consultant or dealer
representative to redeem shares of the funds.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock powers
before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption proceeds
will not be sent to you until your original check clears which
may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be paid
by check mailed to your address of record.
By mail
For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney Principal Return Fund
(specify either Series 2000 Fund or Security and Growth
Fund)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
? Your account number
? The specific fund and the dollar amount or number of shares
to be redeemed
? Signatures of each owner exactly as the account is
registered
By telephone
If you do not have a brokerage account, you may be eligible to
redeem shares (except those held in retirement plans) in amounts
up to $10,000 per day through the transfer agent. You must
complete an authorization form to authorize telephone redemptions.
If eligible, you may request redemptions by telephone on any day
the New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
Requests received after the close of regular trading on the stock
exchange are priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your address of
record or by wire transfer to a bank account designated on your
authorization form. You may be charged a fee for wire transfers.
You must submit a new authorization form to change the bank
account designated to receive wire transfers and you may be asked
to provide certain other documents.
Other things to know about share transactions
When you reinvest dividends, exchange or redeem shares, your
request must be in good order. This means you have provided the
following information without which your request will not be
processed. These same requirements would apply if a fund reopened
to new investment purchases.
? Name of the fund
? Account number
? Dollar amount or number of shares to be exchanged or
redeemed
? Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange
or redemption request is genuine by recording calls, asking the
caller to provide a personal identification number for the
account, sending you a written confirmation or requiring other
confirmation procedures from time to time.
Signature guarantees. To be in good order, your redemption
request must include a signature guarantee if you:
? Are redeeming over $10,000 of shares
? Are sending signed share certificates or stock powers to the
transfer agent
? Instruct the transfer agent to mail the check to an address
different from the one on your account
? Changed your account registration
? Want the check paid to someone other than the account
owner(s)
? Are transferring the redemption proceeds to an account with
a different registration
You can obtain a signature guarantee from most banks, dealers,
brokers, credit unions and federal savings and loan institutions,
but not from a notary public.
The fund has the right to:
? Suspend the offering of shares
? Waive or change minimum and additional investment amounts
? Reject any purchase or exchange order
? Change, revoke or suspend the exchange privilege
? Suspend telephone transactions
? Suspend or postpone redemptions of shares on any day when
trading on the New York Stock Exchange is restricted, or as
otherwise permitted by the Securities and Exchange
Commission
? Pay redemptions proceeds by giving you securities. You may
pay transaction costs to dispose of the securities.
Share certificates. The fund does not issue share
certificates.
Dividends, distributions and taxes
Dividends Each fund generally makes capital gain distributions
and pays dividends, if any, once a year, typically in December.
Each fund may pay additional distributions and dividends at other
times if necessary for the fund to avoid a federal tax. Capital
gain distributions and dividends are reinvested in additional fund
shares. You do not pay a sales charge on reinvested distributions
or dividends. Alternatively, you can instruct your Salomon Smith
Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash.
You can change your choice at any time to be effective as of the
next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will
not be effective until the next distribution or dividend is paid.
A shareholder who elects to receive distributions and dividends
in cash may realize an amount that is greater or less than the
entire amount of his or her investment.
Taxes In general, redeeming shares, exchanging shares and
receiving distributions (whether in cash or additional shares) are
all taxable events.
Transaction
Federal tax status
Redemption or exchange of shares
Usually capital gain or loss; long-term only if shares owned more
than one year
Long-term capital gain distributions
Long-term capital gain
Short-term capital gain distributions
Ordinary income
Dividends
Ordinary income
Long-term capital gain distributions are taxable to you as long-
term capital gain regardless of how long you have owned your
shares.
After the end of each year, the fund will provide you with
information about the distributions and dividends you received and
any redemptions of shares during the previous year. If you do not
provide the fund with your correct taxpayer identification number
and any required certifications, you may be subject to back-up
withholding of 31% of your distributions, dividends, and
redemption proceeds. Because each shareholder's circumstances are
different and special tax rules may apply, you should consult your
tax adviser about your investment in the fund.
Share price
You may reinvest dividends, exchange or redeem shares at their net
asset value, next determined after receipt of your request in good
order. Each fund's net asset value is the value of its assets
minus its liabilities. Each fund calculates its net asset value
every day the New York Stock Exchange is open. The Exchange is
closed on certain holidays listed in the SAI. This calculation is
done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
Each fund generally values its portfolio securities based on
market prices or quotations. When reliable market prices or
quatations are not readily available, the fund may price those
securities at fair value. Fair value is determined in accordance
with procedures approved by the funds' board. A fund that uses
fair value to price securities may value those securities higher
or lower than another fund using market quotations to price the
same securities.
Investments in U.S. government securities (other than short-term
securities) are valued at the quoted bid price in the over-the-
counter market. Short-term investments maturing in 60 days or
less are valued at amortized cost. Under the amortized cost
method, an asset is valued by constantly amortizing over its
remaining life the difference between the principal amount due at
maturity and the cost of the instrument to the fund.
In order to redeem or exchange shares at that day's price, you
must place your order with your Salomon Smith Barney Financial
Consultant or dealer representative before the New York Stock
Exchange closes. If the New York Stock Exchange closes early, you
must place your order prior to the actual closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit
all orders to exchange or redeem shares to the funds' agent before
the agent's close of business.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you
understand each fund's financial performance for the past 5 years
(or since inception if less than 5 years). Total return
represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and
distributions. The information in the tables following for the
four year period ended November 1998, has been audited by KPMG
LLP, independent accountants, whose report, along with the funds'
financial statements, is included in the annual report (available
upon request). The information for the fiscal year ended 1994 has
been audited by other auditors.
For a share of capital stock outstanding throughout each year
ended November 30:
Series 2000
1998
1997
1996
1995
1994
Net asset value, beginning of year
$8.46
$8.63
$9.28
$8.15
$9.00
Income (loss) from operations:
Net investment income
0.28
0.28
0.30
0.27
0.27
Net realized and unrealized gain (loss)
0.13
0.78
(0.16)
1.48
(0.28)
Total income (loss) from operations
0.41
1.06
0.14
1.75
(0.01)
Less distributions from:
Net investment income
(0.31)
- --
(0.57)
(0.27)
(0.34)
Net realized gains
(0.49)
(1.23)
(0.22)
(0.35)
(0.50)
Total distributions
(0.80)
(1.23)
(0.79)
(0.62)
(0.84)
Net asset value, end of year
$8.07
$8.46
$8.63
$9.28
$8.15
Total return
5.05%
12.28%
1.55%
22.17%
(0.20)%
Net assets, end of year (millions)
$50
$59
$65
$77
$75
Ratios to average net assets:
Expenses
1.10%
1.05%
1.11%
1.17%
1.15%
Net investment income
3.30
3.15
3.15
3.12
3.27
Portfolio turnover rate
0%
0%
0%
6%
1%
For a share of capital stock outstanding throughout each year
ended November 30.
Security and Growth Fund
1998
1997
1996
1995(1)
Net asset value, beginning of year
$10.12
$10.22
$10.68
$9.60
Income (loss) from operations:
Net investment income
0.32
0.28
0.33
0.28
Net realized and unrealized gain (loss)
(1.35)
1.40
0.82
0.94
Total income (loss) from operations
(1.03)
1.68
1.15
1.22
Less distributions from:
Net investment income
(0.28)
(0.03)
(0.62)
- --
Net realized gains (loss)
(0.08)
(1.75)
(0.99)
(0.14)
Total distributions
(0.36)
(1.78)
(1.61)
(0.14)
Net asset value, end of year
$8.73
$10.12
$10.22
$10.68
Total return
(10.43)%
16.42%
11.15%
12.70(2)
Net assets, end of year (millions)
$123
$204
$244
$310
Ratios to average net assets:
Expenses
0.94%
0.92%
0.99%
1.02%(3)
Net investment income
2.88
2.62
2.88
4.07(3)
Portfolio turnover rate
23%
20%
43%
26%
(1) For the period from March 30, 1995 (commencement of
operations) to November 30, 1995.
(2) Total return is not annualized, as it may not be
representative of the total return for the year.
(3) Annualized.
SALOMON SMITH BARNEY_
a member of citigroup [Symbol]
Zero Plus Emerging Growth Series 2000
Security and Growth Fund
Investment portfolios of
SMITH BARNEY PRINCIPAL RETURN FUND
ADDITIONAL INFORMATION
Shareholder reports. Annual and semiannual reports to
shareholders provide additional information about the funds'
investments. These reports discuss the market conditions and
investment strategies that affected each fund's performance.
The fund sends only one report to a household if more than one
account has the same address. Contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer agent
if you do not want this policy to apply to you.
Statement of additional information. The statement of additional
information provides more detailed information about the fund and
is incorporated by reference into (is legally part of) this
prospectus.
You can make inquiries about the fund or obtain shareholder
reports or the statement of additional information (without
charge) by contacting your Salomon Smith Barney Financial
Consultant or dealer representative by calling the fund at 1-800-
451-2010 or by writing to the fund at Smith Barney Mutual Funds,
388 Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review each fund's shareholder reports, prospectus
and statement of additional information at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C.
The Commission charges a fee for this service. Information about
the public reference room may be obtained by calling 1-800-SEC-
0330. You can get the same reports and information free from the
Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the funds that is not in this
prospectus, you should not rely upon that information. The funds
are not offering to sell their shares to any person to whom the
funds may not lawfully sell their shares.
(Investment Company Act file no. 811-05678)
(FD-01103)(3/99)
Principal Return Fund -1-
PART B
March 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
Smith Barney Principal Return Fund
Zero Plus Emerging Growth Series 2000
Security and Growth Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information is not a
prospectus. It supplements the information contained in the
current Prospectus dated March 30, 1999, as amended or
supplemented from time to time, about the Zero Plus Emerging
Growth Series 2000 ("Series 2000") and the Security and
Growth Fund (each, a "fund" and collectively the "funds").
Each fund is an investment portfolio of Smith Barney
Principal Return Fund (the "Trust"). This Statement of
Additional Information is intended to provide more detailed
information about the funds as well as matters already
discussed in the Prospectus and therefore should be read in
conjunction with the Prospectus.
The Prospectus may be obtained from any Salomon 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.
Shares of Series 2000 and the Security and Growth Fund 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 due
to changes in prevailing interest rates that will affect the
current value of each fund's holdings of zero coupon
securities, as well as changes in the value of each fund's
other holdings. Because the funds are not currently engaged
in a continuous offering of shares, they are not benefitting
from an inflow of new capital. In addition, because each
fund may experience redemptions and capital losses prior to
the maturity date (or in preparation for each fund's
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
fund's investment objectives unachievable; thus the
accomplishment of each fund's investment objectives with
respect to remaining shareholders that reinvest dividends
and distributions could depend in part on the investment
decisions of other shareholders.
CONTENTS
Trustees and Executive Officers of the Trust 2
Investment Objectives and Management Policies 4
Risk Factors 11
Investment Restrictions 14
Purchase, Redemption and Exchange of Shares 15
Portfolio Turnover 18
Portfolio Transactions 19
Determination of Net Asset Value 20
Taxes 21
Performance Information 25
Investment Management and Other Services 27
Other Information About the Trust 29
Financial Statements 30
TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST
Overall responsibility for management and supervision of
the Trust rests with the Trust's Board of Trustees. The
Trustees approve all significant agreements between the
Trust and the companies that furnish services to the Trust,
including agreements with the Trust's investment manager,
distributor, custodian and transfer agent. The day-to-day
operations of the Trust are delegated to the Trust's
investment manager, SSBC Fund Management Inc. (the
"Manager"), formerly called Mutual Management Corp.
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 and their ages,
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.
PAUL R. ADES, TRUSTEE
Partner in the law firm of Murov & Ades; 272 South Wellwood
Avenue, P.O. Box 504, Lindenhurst, New York 1137, 58.
HERBERT BARG, TRUSTEE
Private investor; 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004; 75.
DWIGHT B. CRANE, TRUSTEE
Professor, Harvard Business School; Soldiers Field Road,
Boston, Massachusetts 02163; 61.
FRANK HUBBARD, TRUSTEE
Vice President of S & S Industries; Former Corporate Vice
President, Materials Management and Marketing Services of
Huls American, Inc.; 80 Centennial Avenue P.O. Box 456,
Piscataway; New Jersey 08855-0456; 63.
*HEATH B. MCLENDON, CHAIRMAN OF THE BOARD AND INVESTMENT
OFFICER
Managing Director of Salomon Smith Barney, President of
the Manager and Travelers Investment Adviser, Inc. ("TIA");
formerly Chairman of Smith Barney Strategy Advisers Inc.
388 Greenwich Street, New York, New York 10013. 65.
JEROME MILLER, TRUSTEE
Retired, Former President, Asset Management Group of
Shearson Lehman Brothers; 27 Hemlock Road, Manhassett, New
York 11030.; 61.
KEN MILLER, TRUSTEE
President of Young Stuff Apparel Group, Inc.; 1407 Broadway,
6th Floor, New York, New York 10018. ; 57.
RICHARD A. FREEMAN, VICE PRESIDENT AND INVESTMENT OFFICER
Managing Director of Smith Barney Investment Advisors, a
division of the Manager; 388 Greenwich Street, New York, New
York 10013; 45.
JOHN G. GOODE, VICE PRESIDENT AND INVESTMENT OFFICER
Managing Director of Salomon Smith Barney, President and
Chief Investment Officer of Davis Skaggs Investment
Management, a division of the Manager; 1 Sansome Street,
Suite 3850, San Francisco, California 94104; 53.
LEWIS E. DAIDONE, SENIOR VICE PRESIDENT AND TREASURER
Managing Director of Salomon Smith Barney, Chief
Financial Officer of the Smith Barney Mutual Funds; Director
and Senior Vice President of the Manager and TIA; 388
Greenwich Street, New York, New York 10013; 41.
CHRISTINA T. SYDOR, SECRETARY
Managing Director of Salomon Smith Barney; General
Counsel and Secretary of the Manager and TIA; 388 Greenwich
Street, New York, New York 10013; 47.
Each Trustee also serves as a trustee, general partner
and/or director of other mutual funds for which Salomon
Smith Barney serves as a distributor. As of March 19, 1999,
Trustees and officers of the funds, as a group, owned less
than 1% of the outstanding shares of beneficial interest of
each fund.
No director, officer or employee of Salomon Smith Barney or
any of its affiliates receives 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
Salomon 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.
The following table shows the compensation paid by the
Trust to each trustee during the Trust's last fiscal year
and the total compensation paid by the Smith Barney Mutual
Funds complex for the calendar year ended December 31, 1998.
None of the officers of the Trust received any compensation
from the Trust for such period. The Trust does not pay
retirement benefits to its directors and officers. Officers
and interested directors of the Trust are compensated by
Salomon Smith Barney.
Trustee
Aggregate Compensation from the Trust*
Aggregate Compensation from the Smith Barney Mutual Funds
Number of Funds for Which Director Serves Within Fund
Complex
Paul R. Ades
$6,550
$54,225
5
Herbert Barg
6,550
105,425
16
Dwight B. Crane
6,450
139,975
22
Frank G. Hubbard
6,550
54,125
5
Heath B. McLendon
- ---
- ---
59
Jerome Miller
6,550
44,925
5
Ken Miller
6,450
53,625
5
* Trustee Emeritus. Upon attainment of age 80 Trustees
are required to change to emeritus status. Trustees
Emeritus are entitled to serve in emeritus status for a
maximum of 10 years during which time they are paid 50% of
the annual retainer fee and meeting fees otherwise
applicable to the Trust together with reasonable out-of-
pocket expenses for each meeting attended. During the
Trust's last fiscal year aggregate compensation paid by the
Trust to Trustees Emeritus totaled $9,443
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
General The Prospectus discusses the investment objectives
of each fund and the policies to be employed to achieve
those objectives. The funds are open-end, diversified
management investment companies under the 1940 Act.
Zero Plus Emerging Growth 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 fund's 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.
Security and Growth Fund seeks (a) to return to each
shareholder on August 31, 2005 (the "Security and Growth
Fund 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 ("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. There
can be no assurance that the Security and Growth Fund's
investment objectives will be achieved.
When used herein, the term Maturity Date shall refer to the
"Series 2000 Maturity Date" and the "Security and Growth
Fund Maturity Date," as applicable.
Set forth below is supplemental information concerning
certain of the securities and other instruments in which the
funds may invest, the investment policies and portfolio
strategies that the funds may utilize and certain risks
involved with those investments, policies and strategies.
Operation of the funds As of February 28, 1999, zero coupon
securities represented approximately 57% and 69%, of Series
2000's and Security and Growth Fund's net assets,
respectively, with the balance of each fund's net assets
invested in equity securities (in the case of Series 2000,
equity securities of emerging growth companies) and other
securities as described below. The funds' 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 funds
will not receive any payments with respect to a zero coupon
security prior to the maturity of that security. The funds
may hold zero coupon securities in excess of those required
to meet the Repayment Objective to the extent the Manager
deems appropriate. As each fund's zero coupon securities
mature, the proceeds will be invested in direct obligations
of the United States government with remaining maturities of
one year or less and, in any case, maturing on or prior to
the Maturity Date. On the Maturity Date, each fund's
remaining equity investments will be sold and other
investments will mature, the liabilities of each fund will
be discharged or provision made therefor, each fund's shares
will be mandatorily redeemed and, within seven days
thereafter, the proceeds will be distributed to shareholders
and each fund's existence thereafter will be terminated.
These arrangements may require the disposition of the funds'
equity securities at a time when it is otherwise
disadvantageous to do so and may involve selling securities
at a substantial loss. On a continuous basis and as the
maturity date of each fund approaches, the Board of Trustees
will consider the intended liquidation and termination of
each fund together with other factors and determine whether
liquidation and termination or such other action as it deems
appropriate is in the best interests of the Trust and its
shareholders. The estimated expenses of liquidation and
termination of each fund will be accrued ratably over the
entire term of the fund and will be charged to income.
These expenses are not expected to affect materially the
ordinary annual operating expenses of the funds and,
accordingly, should have no effect on the funds' ability to
meet the Repayment Objective.
Each fund 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 fund would have sufficient
zero coupon securities remaining to meet the Repayment
Objective.
Thus, each fund's 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 fund's assets depending on the
performance of those investments, the fund's expenses, the
level of dividend reinvestment and the level of redemptions
over time. In order to facilitate management of the fund's
portfolios, shareholders are urged to reinvest dividends and
distributions in additional shares; these amounts will be
paid in cash only at the specific election of a shareholder.
FIXED INCOME SECURITIES
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 funds, 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.
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 U.S. government and certain of its
agencies and instrumentalities and of private corporate
issuers are currently available, although the funds will
purchase only those that represent direct obligations of the
government.
Zero coupon securities of the U.S. 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 U.S.
government. The U.S. 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, but the book-entry
transfer of interest or principal components is subject to
the same fee schedule 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 U.S.
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 funds 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.
Convertible securities (each fund) 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 (each fund) 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. 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.
U.S. government securities (each fund) 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 reorganization since 1987). Because the United
States government is not obligated by law to provide support
to an instrumentality it sponsors, the funds will invest in
obligations issued by such an instrumentality only if the
Manager determines that the credit risk with respect to the
instrumentality does not make its securities unsuitable for
investment by the funds.
EQUITY SECURITIES
Security and Growth Fund Although the Manager anticipates
that Security and Growth Fund's non-zero coupon security
portfolio primarily will be invested in small- to
medium-sized companies, it may also be invested in the
equity securities of larger, established companies the
Manager determines present particular opportunities for
capital growth.
Under normal market conditions, the bulk of Security and
Growth Fund's non-zero coupon security portfolio consists of
common stocks, but it also may contain other equity
securities, including preferred stocks and debt securities
convertible into common stocks. Preferred securities and
convertible securities will be selected on the basis of
their equity characteristics. Ratings by statistical rating
organizations generally will not be a factor in the
selection process.
Series 2000 Series 2000's non-zero coupon security
portfolio has been designed to provide investors with
significant opportunities for long-term capital appreciation
the Manager believes are presented by the equity securities
of small capitalization companies. The Manager 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.
Common Stocks (each fund) Each fund may invest in common
stocks. Common stocks are shares of a corporation or other
entity that entitle the holder to a pro rata share of the
profits of the corporation, after dividend payments to
preferred stockholders. Common stock usually carries with
it the right to vote and frequently an exclusive right to do
so.
Warrants (each fund) 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. 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.
Foreign securities (each fund) Each fund may invest up to
10% of its net assets in securities of foreign issuers.
Investing in foreign securities involves certain risks,
including those resulting from fluctuations in currency
exchange rates, revaluation of currencies, future political
or economic developments and the possible imposition of
restrictions or prohibitions on the repatriation of foreign
currencies or other foreign governmental laws or
restrictions, reduced availability of public information
concerning issuers, and, typically, the lack of uniform
accounting, auditing and financial reporting standards or
other regulatory practices and requirements comparable to
those applicable to domestic companies. Moreover,
securities of many foreign companies may be less liquid and
their prices more volatile than those of securities of
comparable domestic companies. In addition, with respect to
certain foreign countries, the possibility exists of
expropriation, confiscatory taxation and limitations on the
use or removal of funds or other assets of the fund
including the withholding of dividends.
INVESTMENT TECHNIQUES
Lending of Portfolio Securities Consistent with applicable
regulatory requirements, the fund has the ability to lend
securities from its portfolio to brokers, dealers and other
financial organizations. The fund may not lend its portfolio
securities to Salomon Smith Barney or its affiliates unless
it has applied for and received specific authority from the
Securities and Exchange Commission ("SEC"). Loans of
portfolio securities by the fund will be collateralized by
cash, letters of credit or U.S. government securities which
will be maintained at all times in an amount equal to at
least 100% of the current market value (determined by
marking to market daily) of the loaned securities. From time
to time, the fund may return a part of the interest earned
from the investment of collateral received for securities
loaned to the borrower and/or a third party, which is
unaffiliated with the fund or with Salomon Smith Barney, and
which is acting as a "finder." In lending its securities,
the fund can increase its income by continuing to receive
interest on the loaned securities as well as by either
investing the cash collateral in short-term instruments or
obtaining yield in the form of interest paid by the borrower
when U.S. government securities are used as collateral. The
following conditions must be met whenever the fund's
portfolio securities are loaned: (a) the fund must receive
at least 100% cash collateral or equivalent securities or
letters of credit from the borrower; (b) the borrower must
increase such collateral whenever the market value of the
securities rises above the level of such collateral; (c) the
fund must be able to terminate the loan at any time; (d) the
fund must receive reasonable interest on the loan, as well
as an amount equal to any dividends, interest or other
distributions on the loaned securities, and any increase in
market value; (e) the fund may pay only reasonable custodian
fees in connection with the loan; and (f) voting rights on
the loaned securities may pass to the borrower; however, if
a material event adversely affecting the investment occurs,
the fund's Board of Trustees must terminate the loan and
regain the right to vote the securities. The risks in
lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving
additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made to firms
deemed by the Manager to be of good standing and will not be
made unless, in the judgment of the Manager, the
consideration to be gained from such loans would justify the
risk.
Temporary defensive investing (each fund) Each fund may
hold at any time up to 10% of the value of its assets in
cash and money market instruments in order to cover the
fund's expenses, anticipated redemptions, cash payments of
dividends and distributions and to meet settlement
requirements for securities. In addition, when the Manager
believes that, with respect to its equity portfolio, a
temporary defensive investment posture is warranted, a fund
may invest without limitation in cash and money market
instruments. To the extent it holds cash or invests in
money market instruments, a fund will not achieve its
investment objective of long-term appreciation of capital.
Money market instruments in which the funds 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 Rating Group or
Prime-2 by Moody's Investors Service, Inc. or the equivalent
from another nationally recognized statistical rating
organization ("NRSRO") 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 fund's investments in bank obligations,
including time deposits, exceed 25% of its assets. In
addition, a fund will not invest in time deposits maturing
in more than seven days if, as a result, its holdings of
those time deposits would exceed 5% of Security and Growth
Fund's net assets and 10% of Series 2000's net assets.
A fund will invest in an obligation of a foreign bank or
foreign branch of a United States bank only if the Manager
determines that the obligation presents minimal credit
risks. Obligations of foreign banks or foreign branches of
United States banks in which a fund will invest may be
traded in the United States or outside the United States,
but will be denominated in U.S. dollars. These obligations
entail risks that are different from those of investments in
obligations of United States banks. These risks include
foreign economic and political developments, foreign
governmental restrictions that may adversely affect payment
of principal and interest on the obligations, foreign
exchange controls and foreign withholding or other taxes on
income. Foreign branches of domestic banks are not
necessarily subject to the same or similar regulatory
requirements as 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 fund 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 fund) Each fund may engage in
repurchase agreement transactions with certain banks which
are the issuers of instruments acceptable for purchase by
the fund and with certain dealers on the Federal Reserve
Bank of New York's list of reporting dealers. 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 the
terms of a typical repurchase agreement, a fund would
acquire an underlying debt obligation for a relatively short
period (usually not more than seven days) subject to an
obligation of the seller to repurchase, and the fund to
resell, the obligation at an agreed price and time, thereby
determining the yield during the fund's holding period.
This arrangement results in a fixed rate of return that is
not subject to market fluctuations during the fund's holding
period. The value of the underlying securities will be
monitored on an ongoing basis by the Manager to ensure that
the value is at least equal at all times to the total amount
of the repurchase obligation, including interest. The
Manager also will review on an ongoing basis the
creditworthiness of those banks and dealers with which the
fund may enter into repurchase agreements to evaluate the
potential risks. The fund bears a risk of loss if the other
party to a repurchase agreement defaults on its obligations
and the fund is delayed in or prevented from exercising its
rights to dispose of the underlying securities, including
the risk of a possible decline in the value of the
underlying securities during the period in which the fund
seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk
of losing all or a part of the income from the agreement.
At any one time, 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.
DERIVATIVES
Covered option writing (Security and Growth Fund) Security
and Growth Fund may write covered call options with respect
to its portfolio securities. Security and Growth Fund
realizes a fee (referred to as a "premium") for granting the
rights evidenced by the options. A call option embodies the
right of its purchaser to compel the writer of the option to
sell to the option holder an underlying security at a
specified price at any time during the option period. Thus,
the purchaser of a call option written by Security and
Growth Fund has the right to purchase from the fund the
underlying security owned by the fund at the agreed-upon
price for a specified time period.
Upon the exercise of a call option written by the fund, the
fund may suffer a loss equal to the excess of the security's
market value at the time of the option exercise over the
fund's cost of the security, less the premium received for
writing the option. Security and Growth Fund will write
only covered options with respect to its portfolio
securities. Accordingly, whenever the fund writes a call
option on its securities, it will continue to own or have
the present right to acquire the underlying security for as
long as it remains obligated as the writer of the option.
To support its obligation to sell the underlying security if
a call option is exercised, the fund will either (a)
segregated cash, or equity and debt securities of any grade
provided such securities have been determined by the Manager
to be liquid and unencumbered pursuant to guidelines
established by the Trustees ("eligible segregated assets")
having a value at least equal to the value of the underlying
securities or (b) continue to own an equivalent number of
shares of the security or of calls of the same "series"
(that is, calls on the same underlying security) with
exercise prices equal to or less than those it has written
(or, if the exercise prices of the calls it holds are more
than the exercise prices of those it has written, it will
segregate the difference).
Security and Growth Fund may engage in a closing purchase
transaction to realize a profit, to prevent an underlying
security from being called or to unfreeze an underlying
security (thereby permitting its sale or the writing of a
new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the
fund would purchase, prior to the holder's exercise of an
option the fund has written, an option of the same series as
that on which the fund desires to terminate its obligation.
The obligation of the fund under an option it has written
would be terminated by a closing purchase transaction, but
the fund would not be deemed to own an option as a result of
the transaction. There can be no assurances that the fund
will be able to effect closing purchase transactions at a
time when it wishes to do so. To facilitate closing
purchase transactions, however, the fund ordinarily will
write options only if a secondary market for the options
exists on domestic securities exchanges or in the
over-the-counter market.
Security and Growth Fund may also, for hedging purposes,
purchase put options on securities traded on national
securities exchanges as well as in the over-the-counter
market. The fund may purchase put options on particular
securities in order to protect against a decline in the
market value of the underlying securities below the exercise
price less the premium paid for the option. Put options on
individual securities are intended to protect against
declines in market value which occur prior to the option's
expiration date. Prior to expiration, most options may be
sold in a closing sale transaction. Profit or loss from
such a sale will depend on whether the amount received is
more or less than the premium paid for the option plus the
related transaction cost.
Security and Growth Fund may purchase options in the
over-the-counter market ("OTC options") to the same extent
it may engage in transactions in exchange traded options.
OTC options differ from exchange traded options in that they
are negotiated individually and terms of the contract are
not standardized as in the case of exchange traded options.
Moreover, because there is no clearing corporation involved
in an OTC option, there is a risk of non-performance by the
counterparty to the option. However, OTC options are
generally much more available for securities in a wider
range of expiration dates and exercise prices than exchange
traded options. It is the current position of the staff of
the SEC that OTC options (and securities underlying the OTC
options) are illiquid securities. Accordingly, the fund
will treat OTC options as subject to the fund's limitation
on illiquid securities until such time as there is a change
in the SEC's position.
Options on stock indexes (Security and Growth Fund)
Security and Growth Fund may, for hedging purposes only,
write call options and purchase put options on broad based
domestic stock indexes and enter into closing transactions
with respect to such options. Options on stock indexes are
similar to options on securities except that, rather than
having the right to take or make delivery of stock at the
specified exercise price, an option on a stock index gives
the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the stock
index upon which the option is based is "in the money,"
i.e., the closing level of the index is higher than the
exercise price of the option. This amount of cash is equal
to the difference between the closing level of the index and
the exercise price of the option, expressed in dollars times
a specified multiple. The writer of the option is
obligated, in return for the premium received, to make
delivery of this amount. Unlike stock options, all
settlements are in cash, and gain or loss depends on price
movements in the stock market generally rather than price
movements in the individual stocks.
The effectiveness of purchasing and writing puts and calls
on stock index options depends to a large extent on the
ability of the Manager to predict the price movement of the
stock index selected. Therefore, whether the fund realizes
a gain or loss from the purchase of options on an index
depends upon movements in the level of stock prices in the
stock market generally. Additionally, because exercises of
index options are settled in cash, a call writer such as the
fund cannot determine the amount of the settlement
obligations in advance and it cannot provide in advance for,
or cover, its potential settlement obligations by acquiring
and holding the underlying securities. When the fund has
written the call, there is also a risk that the market may
decline between the time the fund has a call exercised
against it, at a price which is fixed as of the closing
level of the index on the date of exercise, and the time the
fund is able to exercise the closing transaction with
respect to the securities it holds.
Futures contracts and options on futures contracts
(Security and Growth Fund) A futures contract provides for
the future sale by one party and the purchase by the other
party of a certain amount of a specified security at a
specified price, date, time and place. Security and Growth
Fund may enter into futures contracts to sell securities
when the Manager believes the value of the fund's securities
will decrease. An option on a futures contract, as
contrasted with the direct investment in a futures contract
gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract at a
specified exercise price at any time prior to the expiration
date of the option. A call option gives the purchaser of
the option the right to enter into a futures contract to buy
and obligates the writer to enter into a futures contract to
sell the underlying securities. A put option gives a
purchaser the right to sell and obliges the writer to buy
the underlying contract. The fund may enter into futures
contracts to purchase securities when the Manager
anticipates purchasing the underlying securities and
believes prices will rise before the purchases will be made.
When the fund enters into a futures contract to purchase an
underlying security, an amount of eligible segregated
assets, equal to the market value of the contract, will be
segregated to collateralize the position, thereby insuring
that the use of the contract is unleveraged. The fund will
not enter into futures contracts for speculation and will
only enter into futures contracts that are traded on a U.S.
exchange or board of trade.
RISK FACTORS
Zero coupon securities (each Fund) Zero coupon securities
of the type held by each fund can be sold prior to their due
date in the secondary market at their then prevailing market
value which, depending on prevailing levels of interest
rates and the time remaining to maturity, may be more or
less than 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 fund 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 fund attributable to zero coupon securities and other
debt instruments held by each fund generally will vary
inversely with changes in prevailing interest rates.
As a series of an open-end investment company, each fund is
required to redeem its shares upon the request of any
shareholder at the net asset value next determined after
receipt of the request. However, because of the price
volatility of zero coupon securities prior to maturity, a
shareholder who redeems shares prior to the Maturity Date
may realize an amount that is greater or less than the
purchase price of those shares, including any sales charge
paid. Although shares redeemed prior to the Maturity Date
would no longer be subject to the possible achievement of
the Repayment Objective, the amount originally invested in
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 fund is successful in achieving
the Repayment Objective, the holder of those remaining
shares plus shares acquired through reinvestment of
dividends and distributions thereon ("Remaining Shares")
would receive at the Maturity Date an amount that equals or
exceeds the purchase price of those shares. Nonetheless,
the amount received on the Maturity Date in respect of
Remaining Shares, when combined with the amount received in
respect of shares redeemed prior to the Maturity Date, may
be more or less than the aggregate purchase price of all
shares purchased.
Each year each fund will be required to accrue an increasing
amount of income on its zero coupon securities utilizing the
effective interest method. To maintain its tax status as a
pass-through entity and also to avoid imposition of income
and excise taxes, however, each fund will be required to
distribute dividends equal to substantially all of its net
investment income, including the accrued income on its zero
coupon securities for which it receives no payments in cash
prior to their maturity. Dividends of each fund's net
investment income and distributions of its short-term
capital gains will be taxable to shareholders as ordinary
income for Federal income tax purposes, whether received in
cash or reinvested in additional shares. See "Taxes."
However, a shareholder who elects to receive dividends and
distributions in cash, instead of reinvesting these amounts
in additional shares of the funds, may realize an amount
that is less or greater than the entire amount originally
invested.
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.
Smaller and medium sized companies (each Fund) Securities
of smaller and medium sized companies (companies with a
capitalization of less than $1 billion) may be subject to a
limited liquidity and more volatility which could result in
significant fluctuations in the price of their shares.
Operational risk (each Fund) In order to generate
sufficient cash to meet distribution requirements and other
operational needs and to redeem its shares on request, each
fund may be required to limit reinvestment of capital on the
disposition of its non-zero coupon securities and may be
required to liquidate some or all of its non-zero coupon
securities over time. Each fund may be required to effect
these liquidations at a time when it is otherwise
disadvantageous to do so. If a fund realizes capital losses
on dispositions of non-zero coupon securities that are not
offset by capital gains on the disposition of other such
securities, the fund may be required to liquidate a
disproportionate amount of its zero coupon securities or
borrow money, in an amount not exceeding 33-1/3% of the
fund's total assets, to satisfy the distribution and
redemption requirements described above. The liquidation of
zero coupon securities and the expenses associated with
borrowing money in these circumstances could render the fund
unable to meet the Repayment Objective.
Derivative instruments (Security and Growth Fund) In
accordance with its investment policies, the fund may invest
in certain derivative instruments which are securities or
contracts that provide for payments based on or "derived"
from the performance of an underlying asset, index or other
economic benchmark. Essentially, a derivative instrument is
a financial arrangement or a contract between two parties.
Transactions in derivative instruments can be, but are not
necessarily, riskier than investments in conventional
stocks, bonds and money market instruments. A derivative
instrument is more accurately viewed as a way of
reallocating risk among different parties or substituting
one type of risk for another. Every investment by a fund,
including an investment in conventional securities, reflects
an implicit prediction about future changes in the value of
that investment. Every fund investment also involves a risk
that the portfolio manager's expectations will be wrong.
Transactions in derivative instruments often enable a fund
to take investment positions that more precisely reflect the
portfolio manager's expectations concerning the future
performance of the various investments available to the
fund. Derivative instruments can be a legitimate and often
cost-effective method of accomplishing the same investment
goals as could be achieved through other investment in
conventional securities.
Derivative contracts include options, futures contracts,
forward contracts, forward commitment and when-issued
securities transactions, forward foreign currency exchange
contracts and interest rate, mortgage and currency swaps.
The following are the principal risks associated with
derivative instruments.
Leverage and associated price volatility: Leverage causes
increased volatility in the price and magnifies the impact
of adverse market changes, but this risk may be consistent
with the investment objective of even a conservative fund in
order to achieve an average portfolio volatility that is
within the expected range for that type of fund.
Liquidity and valuation risk: Many derivative instruments
are traded in institutional markets rather than on an
exchange. Nevertheless, many derivative instruments are
actively traded and can be priced with as much accuracy as
conventional securities. Derivative instruments that are
custom designed to meet the specialized investment needs of
a relatively narrow group of institutional investors such as
the funds are not readily marketable and are subject to a
fund's restrictions on illiquid investments.
Futures contracts and related options. The fund may lose
the expected benefit of these futures or options
transactions and may incur losses if the prices of the
underlying securities move in an unanticipated manner. In
addition, changes in the value of the fund's futures and
options positions may not prove to be perfectly or even
highly correlated with changes in the value of its portfolio
securities. Successful use of futures and related options
is subject to the Manager's ability to predict correctly
movements in the direction of the securities markets
generally, which ability may require different skills and
techniques than predicting changes in the prices of
individual securities. Moreover, futures and options
contracts may be closed out only by entering into offsetting
transactions on the exchange where the position was entered
into (or a linked exchange), and, as a result of daily price
fluctuation limits, there can be no assurance the offsetting
transaction could be entered into at an advantageous price
at a particular time. Consequently, the fund may realize a
loss on a futures contract or option that is not offset by
an increase in the value of its portfolio securities that
are being hedged or the fund may not be able to close a
futures or options position without incurring a loss in the
event of adverse price movements.
INVESTMENT RESTRICTIONS
These investment restrictions have been adopted by the
Trust as fundamental policies. Under the 1940 Act, a
fundamental policy may not be changed without the vote of a
majority of the outstanding voting securities of the fund,
as defined in the 1940 Act. "Majority" means the lesser of
(a) 67% or more of the shares present at a meeting, if the
holders of more than 50% of the outstanding shares of the
Fund are present or represented by proxy, or (b) more than
50% of the outstanding shares.
Under the investment restrictions adopted by each fund:
1. A fund will not invest in a manner that would cause it
to fail to be a "diversified company" under the 1940 Act and
the rules, regulations and orders thereunder.
2. A fund will not borrow money, except that (a) a fund
may borrow from banks for temporary or emergency (not
leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely
disposition of securities and (b) a fund may, to the extent
consistent with its investment policies, enter into reverse
repurchase agreements, forward roll transactions and similar
investment strategies and techniques. To the extent that it
engages in transactions described in (a) and (b), a fund
will be limited so that no more than 33-1/3% of the value of
a fund's total assets (including the amount borrowed) valued
at the lesser of cost or market, less liabilities (not
including the amount borrowed) valued at the time the
borrowing is made is derived from such transactions.
3. A fund will not make loans. This restriction does not
apply to: (a) the purchase of debt obligations in which a
Fund may invest consistent with its investment objectives
and policies; (b) repurchase agreements; and (c) loans of
its portfolio securities, to the fullest extent permitted
under the 1940 Act.
4. A fund will invest no more than 25% of the value of
its total assets in securities the issuers of which conduct
their principal business activities in the same industry.
For the purpose of this limitation, securities of the U.S.
government (including its agencies and instrumentalities)
and securities of state or municipal governments and their
political subdivisions are not considered to be issued by
members of any industry.
5. A fund will not underwrite the securities of other
issuers, except insofar as a fund may be deemed to be an
underwriter under the Securities Act of 1933, as amended
(the "1933 Act") in disposing of its portfolio securities.
6. A fund will not purchase or sell real estate, real
estate mortgages, commodities or commodity contracts, but
this restriction shall not prevent the fund from (a)
investing in securities of issuers engaged in the real
estate business or the business of investing in real estate
(including interests in limited partnerships owning or
otherwise engaging in the real estate business or the
business of investing in real estate) and securities which
are secured by real estate or interests therein; (b) holding
or selling real estate received in connection with
securities it holds or held; (c) trading in futures
contracts and options on futures contracts (including
options on currencies to the extent consistent with the
fund's investment objective and policies); or (d) investing
in real estate investment trust securities.
7. A fund will not issue "senior securities" as defined
in the 1940 Act and the rules, regulations and orders
thereunder, except as permitted under the 1940 Act and the
rules, regulations and orders thereunder.
Nonfundamental restrictions The following investment
restrictions may be changed by a vote of a majority of the
Board of Trustees at any time.
1. A fund will not sell securities short.
2. A fund will not purchase securities on margin, except
that a fund may obtain any short-term credits necessary for
the clearance of purchases and sales of securities.
3. A fund will not invest in oil, gas, mineral leases or
other mineral exploration or development programs, except
that a fund may invest in the securities of companies that
invest in or sponsor those programs.
4. A fund will not write or sell put options, call
options, straddles or combinations of those options, except
that the Security and Growth Fund may write covered call
options with respect to its portfolio securities and may,
for hedging purposes only, (i) write call options and
purchase put options on broad-based domestic stock indexes
and enter into closing transactions with respect to such
options; and (ii) write or purchase options on futures
contracts.
5. A fund will not purchase any security, except U.S.
government securities, if as a result of the purchase, the
fund would then have more than 5% of its total assets
invested in securities of companies (including predecessor
companies) that have been in continuous operation for fewer
than three years. (For purposes of this limitation, issuers
include predecessors, sponsors, controlling persons, general
partners, guarantors and originators of underlying assets
which may have less than three years of continuous operation
or relevant business experience.)
6. A fund will not make investments for the purpose of
exercising control or management of any other issuer.
7. A fund will not invest in warrants, if as a result,
more than 2% of the value of a fund's net assets would be
invested in warrants that are not listed on a recognized
United States stock exchange, or more than 5% of a fund's
net assets would be invested in warrants regardless of
whether they are listed on such an exchange.
8. A fund will not invest in time deposits maturing in
more than seven days, enter into repurchase agreements
having a duration of more than seven days, or purchase
instruments lacking readily available market quotations
("illiquid instruments"), if as a result of the purchase a
fund's aggregate holdings of illiquid instruments exceed 10%
of a fund's net assets.
The Trust may make commitments more restrictive than the
restrictions listed above so as to permit the sale of its
shares in certain states. Should the Trust determine that
any commitment is no longer in the best interests of the
Trust and its shareholders, the Trust will revoke the
commitment by terminating the sale of shares in the relevant
state. The percentage limitations set forth above apply at
the time of purchase of securities.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
PURCHASE OF SHARES.
Shares of the funds are not currently being offered for sale
to new investors, although each fund, upon at least 30 days'
notice to shareholders, may commence a continuous offering
if the Trustees determine it to be in the best interests of
that fund and its shareholders.
WRITTEN REDEMPTION REQUESTS
The Trust is required to redeem shares of a fund tendered to
it, as described below, at a redemption 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 funds normally transmit redemption proceeds for credit
to the shareholder's account at Salomon Smith Barney, an
investment dealer in the selling group or a broker that
clears securities transactions through Salomon Smith Barney
("Dealer Representative"), or at no charge within three days
after receipt of proper tender except on any days on which
the NYSE is closed or as permitted under the 1940 Act in
extraordinary circumstances. Generally, these funds will
not be invested for the shareholder's benefit without
specific instruction and Salomon Smith Barney will benefit
from the use of temporarily uninvested funds.
Shares held by Salomon Smith Barney as custodian must be
redeemed by submitting a written request to a Salomon Smith
Barney Financial Consultant. Shares other than those held
by Salomon Smith Barney as a custodian may be redeemed
through an investor's financial consultant, by submitting a
written request for redemption to:
Smith Barney Principal Return Fund
(specify either Series 2000 or Security and Growth
Fund)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the number or
dollar amount of shares to be redeemed, (b) identity the
fund 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 in excess of $10,000, 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. Written requests of $10,000 or less do
not require a signature guarantee unless more than one such
redemption request is made in any 10-day period or the
redemption proceeds are to be sent to an address other than
the address of record. Unless otherwise directed,
redemption proceeds will be mailed to an investor's address
of record. 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.
The right of redemption may be suspended or the date of
payment postponed (a) for any period during which the NYSE
is closed (other than for customary weekend and holiday
closings), (b) when trading in markets the funds normally
utilize is restricted, or an emergency as determined by the
SEC exists, so that the disposal of the funds' investments
or determination of their net asset value is not reasonably
practicable or (c) for such other periods as the SEC by
order may permit for protection of the funds' shareholders.
EXCHANGE PRIVILEGE
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
Salomon Smith Barney Financial Consultant. A shareholder who
has redeemed shares of either of the funds, through the
exchange privilege or otherwise, will not be able to
purchase new shares of either fund.
Upon receipt of proper instructions and all necessary
supporting documents in proper form, 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. 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. Salomon 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. The Trust reserves the
right to modify or discontinue exchange privileges upon 60
days' prior notice to shareholders.
Except as otherwise noted below, shares of a fund may be
exchanged at the net asset value next determined for Class A
shares in any of the Smith Barney Mutual Funds, to the
extent shares are offered for sale in the shareholder's
state of residence. Exchanges of fund shares are subject to
minimum investment requirements and to the other
requirements of the Smith Barney fund into which exchanges
are made. Shareholders of a fund who wish to exchange all
or a portion of their shares for Class A shares in any of
the Smith Barney funds may do so without imposition of any
charge. Certain shareholders may be able to exchange
shares by telephone. See "Telephone Redemption and Exchange
Program."
Additional information regarding the exchange privilege An
exchange is a taxable transaction. Before exchanging
shares, investors should read the current prospectus
describing the shares to be acquired.
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. Moreover, because
each fund is not engaging in a continuous offering of
shares, a shareholder who exchanges his or her fund shares
will not be able to effect a further exchange back into that
fund.
Excessive transactions Although the exchange privilege is
an important benefit, excessive exchange transactions can be
detrimental to a fund's performance and its shareholders.
The Manager may determine that a pattern of frequent
exchanges is excessive and contrary to the best interests of
the fund's other shareholders. In this event, the fund may,
in its discretion, decide to limit additional purchases
and/or exchanges by a shareholder. Upon such a
determination, the fund 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 the fund or (b) remain invested in the fund 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.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
General Shareholders who do not have a Salomon Smith Barney
brokerage account may be eligible to redeem and exchange
fund shares by telephone. To determine if a shareholder is
entitled to participate in this program, he or she should
contact First Data Investor Services Group Inc. ("First
Data") at 1-800-451-2010. Once eligibility is confirmed,
the shareholder must complete and return a Telephone/Wire
Authorization Form, along with a signature guarantee that
will be provided by First Data upon request.
Redemptions Redemption requests of up to $10,000 of a
fund's shares may be made by eligible shareholders by
calling First Data at 1-800-451-2010. Such requests may be
made between 9:00 a.m. and 5:00 p.m. (Eastern time) on any
day the NYSE is open. Redemptions of shares (i) by
retirement plans or (ii) for which certificates have been
issued are not permitted under this program.
A shareholder will have the option of having the redemption
proceeds mailed to his/her address of record or wired to a
bank account predesignated by the shareholder. Generally,
redemption proceeds will be mailed or wired, as the case may
be, on the next business day following the redemption
request. In order to use the wire procedures, the bank
receiving the proceeds must be a member of the Federal
Reserve System or have a correspondent relationship with a
member bank. The funds reserve the right to charge
shareholders a nominal fee for each wire redemption. Such
charges, if any, will be assessed against the shareholder's
account from which shares were redeemed. In order to change
the bank account designated to receive redemption proceeds,
a shareholder must complete a new Telephone/Wire
Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a
signature guarantee and certain other documentation.
Exchanges Eligible shareholders may make exchanges by
telephone if the account registration of the shares of the
fund being acquired is identical to the registration of the
shares of the fund exchanged. Such exchange requests may be
made by calling First Data at 1-800-451-2010 between 9:00
a.m. and 5:00 p.m. (Eastern time) on any day on which the
NYSE is open. Exchange requests received after the close of
regular trading on the NYSE are processed at the net asset
value next determined.
Additional information regarding the telephone redemption
and exchange program Neither the Trust nor its agents will
be liable for following instructions communicated by
telephone that are reasonably believed to be genuine. The
Trust and its agents will employ procedures designed to
verify the identity of the caller and legitimacy of
instructions (for example, a shareholder's name and account
number will be required and phone calls may be recorded).
The Trust reserves the right to suspend, modify or
discontinue the telephone redemption and exchange program or
to impose a change for this service at any time following at
least seven (7) days' prior notice to shareholders.
Redemptions in kind If the Trust'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 fund may pay any portion of a
redemption in excess of the lesser of $250,000 or 1% of the
fund's net assets by distribution in kind of securities from
the fund's portfolio in lieu of cash in conformity with SEC
rules. Portfolio securities distributed 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.
PORTFOLIO TURNOVER
General The funds do not intend to seek profits through
short-term trading of their securities. Nevertheless, a
fund will not consider portfolio turnover rate a limiting
factor in making investment decisions. The funds cannot
accurately predict their portfolio turnover rates, but
anticipate that their annual turnover rates will not exceed
50%. The turnover rate would be 100% if all of a fund's
securities included in the computation of turnover were
replaced once during a period of one year. A fund's
turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by
the monthly average value of portfolio securities.
Securities with remaining maturities of one year or less on
the date of acquisition are excluded from the calculation.
For the fiscal years ended November 30, 1998, 1997 and 1996,
the funds' portfolio turnover rates were as follows:
1998
1997
1996
Series 2000
Security and Growth Fund
0%
23%
0%
20%
0%
43%
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the funds are made
by the Manager, subject to the overall review of the Trust's
Board of Trustees. Although investment decisions for a fund
are made independently from those of the other accounts
managed by the Manager, investments of the type made by a
fund also may be made by those accounts. When a fund and
one or more other accounts managed by the Manager are
prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales
will be allocated in a manner believed by the Manager to be
equitable to each. In some cases, this procedure may
adversely affect the price paid or received by a fund or the
size of the position obtained or disposed of by the fund.
Transactions on U.S. 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.
During the fiscal year 1998, the total amount of
commissionable transactions was $26,835,982 of which
$3,252,729 (12.12%) was directed to Salomon Smith Barney and
$23,583,253 (87.88%) of which was directed to other brokers.
The following table sets forth certain information
regarding the funds' payment of brokerage commissions:
Fiscal Year Ended November 30
Series 2000
Security and Growth Fund
Total Brokerage Commissions
1996
1997
1998
$8,690
3,090
2,855
$303,127
128,979
118,904
Total Brokerage Commissions paid to Salomon Smith Barney
1996
1997
1998
$0
0
0
$3,000
5,448
10,440
% of Total Brokerage Commissions paid to Salomon Smith
Barney
1996
1997
1998
0%
0
0
0.99%
4.22
8.7
% of Total Transaction involving Commissions paid to Salomon
Smith Barney
1996
1997
1998
0%
0
0
0.99%
0.66
9.7
The Manager seeks the best overall terms available in
selecting brokers or dealers to execute transactions on
behalf of the fund. In assessing the best overall terms
available for any transaction the Manager will consider
factors it deems relevant, including the breadth of the
market in the security, the price of the security, the
financial condition and execution capability of the broker
or dealer and the reasonableness of the commission, if any,
for the specific transaction and on a continuing basis. In
addition, the Manager is authorized in selecting brokers or
dealers to execute a particular transaction and in
evaluating the best overall terms available to consider the
brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934)
provided to the funds and/or other accounts over which the
Manager or its affiliates exercise investment discretion.
The fees under the funds' advisory agreements are not
reduced by reason of the Manager receiving brokerage and
research services. For the fiscal year ended November 30,
1998 the Security and Growth Fund paid $20, 872 for research
services. The Trust's Board of Trustees will periodically
review the commissions paid by the funds to determine if the
commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the funds.
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 funds may be executed
through Salomon Smith Barney and other affiliated broker-
dealers if, in the judgment of the Manager, the use of an
affiliated broker-dealer is likely to result in price and
execution at least as favorable as those of other qualified
broker-dealers and if, in the transaction, the affiliated
broker-dealer charges the fund a rate consistent with that
charged to comparable unaffiliated customers in similar
transactions. In addition, under the rules adopted by the
SEC, Salomon Smith Barney may directly execute such
transactions for the fund on the floor of any national
securities exchange, provided: (a) the Board of Trustees has
expressly authorized Salomon Smith Barney to effect such
transactions; and (b) Salomon Smith Barney annually advises
the fund of the aggregate compensation it earned on such
transactions.
DETERMINATION OF NET ASSET VALUE
When calculated The funds' 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, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas, and on the
preceding Friday or subsequent Monday when Christmas falls
on a Saturday or Sunday. On those days, securities held by
the funds may nevertheless be actively traded, and the value
of the funds' shares could be significantly affected.
Valuation Generally, the funds' 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 the fair value of the investment.
In carrying out the Board's valuation policies, the Manager
may consult with an independent pricing service retained by
the Trust.
TAXES
The following is a summary of the material United States
federal income tax considerations regarding the purchase,
ownership and disposition of shares of a fund. Each
prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local
and foreign tax consequences of investing in a fund. The
summary is based on the laws in effect on the date of this
Statement of Additional Information, which are subject to
change.
The Funds and Their Investments
Each fund intends to qualify to be treated as a regulated
investment company each taxable year under the Internal
Revenue Code of 1986, as amended (the "Code"). To so
qualify, a fund must, among other things: (a) derive at
least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities,
loans and gains from the sale or other disposition of stock
or securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures
or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies; and
(b) diversify its holdings so that, at the end of each
quarter of a fund's taxable year, (i) at least 50% of the
market value of a fund's assets is represented by cash,
securities of other regulated investment companies, United
States government securities and other securities, with such
other securities limited, in respect of any one issuer, to
an amount not greater than 5% of a fund's assets and not
greater than 10% of the outstanding voting securities of
such issuer and (ii) not more than 25% of the value of its
assets is invested in the securities (other than United
States government securities or securities of other
regulated investment companies) of any one issuer or any two
or more issuers that a fund controls and are determined to
be engaged in the same or similar trades or businesses or
related trades or businesses. Each fund expects that all of
its foreign currency gains will be directly related to its
principal business of investing in stocks and securities.
As a regulated investment company, each fund will not be
subject to United States federal income tax on its net
investment income (i.e., income other than its net realized
long- and short-term capital gains) and its net realized
long- and short-term capital gains, if any, that it
distributes to its shareholders, provided that an amount
equal to at least 90% of the sum of its investment company
taxable income (i.e., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains
over its net realized short-term capital losses (including
any capital loss carryovers), plus or minus certain other
adjustments as specified in the Code) and its net tax-exempt
income for the taxable year is distributed, but will be
subject to tax at regular corporate rates on any taxable
income or gains that it does not distribute. Furthermore,
each fund will be subject to a United States corporate
income tax with respect to such distributed amounts in any
year it fails to qualify as a regulated investment company
or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on each fund
to the extent a fund does not distribute by the end of any
calendar year at least 98% of its net investment income for
that year and 98% of the net amount of its capital gains
(both long-and short-term) for the one-year period ending,
as a general rule, on October 31 of that year. For this
purpose, however, any income or gain retained by a fund that
is subject to corporate income tax will be considered to
have been distributed by year-end. In addition, the minimum
amounts that must be distributed in any year to avoid the
excise tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be,
from the previous year. Each fund anticipates it will pay
such dividends and will make such distributions as are
necessary in order to avoid the application of this tax.
If, in any taxable year, a fund fails to qualify as a
regulated investment company under the Code or fails to meet
the distribution requirement, it would be taxed in the same
manner as an ordinary corporation and distributions to its
shareholders would not be deductible by a fund in computing
its taxable income. In addition, in the event of a failure
to qualify, a fund's distributions, to the extent derived
from a fund's current or accumulated earnings and profits
would constitute dividends (eligible for the corporate
dividends-received deduction) which are taxable to
shareholders as ordinary income, even though those
distributions might otherwise (at least in part) have been
treated in the shareholders' hands as long-term capital
gains. If a fund fails to qualify as a regulated investment
company in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify again
as a regulated investment company. In addition, if a fund
failed to qualify as a regulated investment company for a
period greater than one taxable year, a fund may be required
to recognize any net built-in gains (the excess of the
aggregate gains, including items of income, over aggregate
losses that would have been realized if it had been
liquidated) in order to qualify as a regulated investment
company in a subsequent year.
Each fund will invest in zero coupon securities having an
original issue discount (that is, the discount represented
by the excess of the stated redemption price at maturity
over the issue price). Each year, each fund will be
required to accrue as income a portion of this original
issue discount even though the fund will receive no cash
payment of interest with respect to these securities. In
addition, if the fund acquires a security after its initial
issuance at a discount that resulted from fluctuations in
prevailing interest rates ("market discount"), the fund may
elect to include in income each year a portion of this
market discount.
Each fund will be required to distribute substantially all
of its income (including accrued original issue and
recognized market discount) in order to qualify for "pass-
through" federal income tax treatment and also in order to
avoid the imposition of 4% excise tax referred to above.
Therefore, a fund may be required in some years to
distribute an amount greater than the total cash income the
fund actually receives. In order to make the required
distribution in such a year, a fund may be required to
borrow or to liquidate securities. The amount of cash that
a fund would have to distribute, and thus the degree to
which securities would need to be liquidated or borrowing
made would depend upon the number of shareholders who chose
not to have their dividends reinvested.
A fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including options
and futures contracts on foreign currencies) will be subject
to special provisions of the Code (including provisions
relating to "hedging transactions" and "straddles") that,
among other things, may affect the character of gains and
losses realized by a fund (i.e., may affect whether gains or
losses are ordinary or capital), accelerate recognition of
income to a fund and defer fund losses. These rules could
therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a)
will require a fund to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if they were
closed out) and (b) may cause a fund to recognize income
without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise
taxes. Each fund will monitor its transactions, will make
the appropriate tax elections and will make the appropriate
entries in its books and records when it acquires any
foreign currency, forward contract, option, futures contract
or hedged investment in order to mitigate the effect of
these rules and prevent disqualification of a fund as a
regulated investment company.
A fund's investment in Section 1256 contracts, such as
regulated futures contracts, most foward currency contracts
traded in the interbank market and options on most stock
indices, are subject to special tax rules. All section 1256
contracts held by a fund at the end of its taxable year are
required to be marked to their market value, and any
unrealized gain or loss on those positions will be included
in the fund's income as if each position had been sold for
its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or
loss realized by the fund from positions in section 1256
contracts closed during the taxable year. Provided such
positions were held as capital assets and were not part of a
"hedging transaction" nor part of a "straddle," 60% of the
resulting net gain or loss will be treated as long-term
capital gain or loss, and 40% of such net gain or loss will
be treated as short-term capital gain or loss, regardless of
the period of time the positions were actually held by the
fund.
Foreign Investments Dividends or other income (including,
in some cases, capital gains) received by the fund from
investments in foreign securities may be subject to
withholding and other taxes imposed by foreign countries.
Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases.
The funds will not be eligible to elect to treat any foreign
taxes they pay as paid by their shareholders, who therefore
will not be entitled to credits for such taxes on their own
tax returns. Foreign taxes paid by a fund will reduce the
return from a fund's investments.
Passive Foreign Investment Companies If a fund purchases
shares in certain foreign investment entities, called
"passive foreign investment companies" (a "PFIC"), it may be
subject to United States federal income tax on a portion of
any "excess distribution" or gain from the disposition of
such shares even if such income is distributed as a taxable
dividend by a fund to its shareholders. Additional charges
in the nature of interest may be imposed on a fund in
respect of deferred taxes arising from such distributions or
gains. If a fund were to invest in a PFIC and elected to
treat the PFIC as a "qualified electing fund" under the
Code, in lieu of the foregoing requirements, a fund might be
required to include in income each year a portion of the
ordinary earnings and net capital gains of the qualified
electing fund, even if not distributed to a fund, and such
amounts would be subject to the 90% and excise tax
distribution requirements described above. In order to make
this election, a fund would be required to obtain certain
annual information from the passive foreign investment
companies in which it invests, which may be difficult or not
possible to obtain.
Recently, legislation was enacted that provides a mark-to-
market election for regulated investment companies effective
for taxable years beginning after December 31, 1997. This
election would result in a fund being treated as if it had
sold and repurchased all of the PFIC stock at the end of
each year. In this case, a fund would report gains as
ordinary income and would deduct losses as ordinary losses
to the extent of previously recognized gains. The election,
once made, would be effective for all subsequent taxable
years of a fund, unless revoked with the consent of the IRS.
By making the election, a fund could potentially ameliorate
the adverse tax consequences with respect to its ownership
of shares in a PFIC, but in any particular year may be
required to recognize income in excess of the distributions
it receives from PFICs and its proceeds from dispositions of
PFIC company stock. A fund may have to distribute this
"phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax.
Each fund will make the appropriate tax elections, if
possible, and take any additional steps that are necessary
to mitigate the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions Any dividend declared by a
fund in October, November or December of any calendar year
and payable to shareholders of record on a specified date in
such a month shall be deemed to have been received by each
shareholder on December 31 of such calendar year and to have
been paid by a fund not later than such December 31,
provided such dividend is actually paid by a fund during
January of the following calendar year. Each fund intends
to distribute annually to its shareholders substantially all
of its investment company taxable income, and any net
realized long-term capital gains in excess of net realized
short-term capital losses (including any capital loss
carryovers). Each fund currently expects to distribute any
excess annually to its shareholders. However, if a fund
retains for investment an amount equal to all or a portion
of its net long-term capital gains in excess of its net
short-term capital losses and capital loss carryovers, it
will be subject to a corporate tax (currently at a rate of
35%) on the amount retained. In that event, a fund will
designate such retained amounts as undistributed capital
gains in a notice to its shareholders who (a) will be
required to include in income for United States federal
income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (b) will
be entitled to credit their proportionate shares of the 35%
tax paid by the fund on the undistributed amount against
their United States federal income tax liabilities, if any,
and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to
increase their tax basis, for United States federal income
tax purposes, in their shares by an amount equal to 65% of
the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject
to federal income tax on such capital gains will be entitled
to a refund of their pro rata share of such taxes paid by a
fund upon filing appropriate returns or claims for refund
with the Internal Revenue Service (the "IRS").
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash
or in shares. Distributions of net-long-term capital gains,
if any, that a fund designates as capital gains dividends
are taxable as long-term capital gains, whether paid in cash
or in shares and regardless of how long a shareholder has
held shares of a fund. Dividends and distributions paid by
a fund (except for the portion thereof, if any, attributable
to dividends on stock of U.S. corporations received by a
fund) will not qualify for the deduction for dividends
received by corporations. Distributions in excess of a
fund's current and accumulated earnings and profits will, as
to each shareholder, be treated as a tax-free return of
capital, to the extent of a shareholder's basis in his
shares of a fund, and as a capital gain thereafter (if the
shareholder holds his shares of a fund as capital assets).
Shareholders receiving dividends or distributions in the
form of additional shares should be treated for United
States federal income tax purposes as receiving a
distribution in the amount equal to the amount of money the
shareholders receiving cash dividends or distributions will
receive, and should have a cost basis in the shares received
equal to such amount.
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although
the price of shares just purchased at that time may reflect
the amount of the forthcoming distribution, such dividend or
distribution may nevertheless be taxable to them.
If a fund is the holder of record of any stock on the record
date for any dividends payable with respect to such stock,
such dividends are included in a fund's gross income not as
of the date received but as of the later of (a) the date
such stock became ex-dividend with respect to such dividends
(i.e., the date on which a buyer of the stock would not be
entitled to receive the declared, but unpaid, dividends) or
(b) the date a fund acquired such stock. Accordingly, in
order to satisfy its income distribution requirements, a
fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the
difference between the amount realized and his basis in his
shares. Such gain or loss will be treated as capital gain
or loss, if the shares are capital assets in the
shareholder's hands, and will be long-term capital gain or
loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for
one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of
dividends and capital gains distributions in a fund, within
a 61-day period beginning 30 days before and ending 30 days
after the disposition of the shares. In such a case, the
basis of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a shareholder on
the sale of a fund share held by the shareholder for six
months or less will be treated for United States federal
income tax purposes as a long-term capital loss to the
extent of any distributions or deemed distributions of long-
term capital gains received by the shareholder with respect
to such share.
Backup Withholding. Each fund may be required to withhold,
for United States federal income tax purposes, 31% of the
dividends and distributions payable to shareholders who fail
to provide a fund with their correct taxpayer identification
number or to make required certifications, or who have been
notified by the IRS that they are subject to backup
withholding. Certain shareholders are exempt from backup
withholding. Backup withholding is not an additional tax
and any amount withheld may be credited against a
shareholder's United States federal income tax liabilities.
Notices Shareholders will be notified annually by a fund as
to the United States federal income tax status of the
dividends, distributions and deemed distributions
attributable to undistributed capital gains (discussed above
in "Dividends and Distributions") made by a fund to its
shareholders. Furthermore, shareholders will also receive,
if appropriate, various written notices after the close of a
fund's taxable year regarding the United States federal
income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as
having been paid) by a fund to its shareholders during the
preceding taxable year.
Other Taxation
Distributions also may be subject to additional state, local
and foreign taxes depending on each shareholder's particular
situation.
The foregoing is only a summary of certain material tax
consequences affecting the fund and its shareholders.
Shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of
an investment in the funds.
PERFORMANCE INFORMATION
From time to time, the Trust may quote a fund's performance
in terms of its total return in reports or other
communications to shareholders. A fund's performance will
vary from time to time depending upon market conditions, the
composition of its portfolio and its operating expenses.
Average annual total return A fund's "average annual total
return" figures are computed according to a formula
prescribed by the SEC. The formula can be expressed as
follows:
P(1 +T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or 10-
year period at the end of the 1-, 5-, or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions
The funds' average annual total returns were as follows for
the periods indicated:
Name of Funds
One Year
Period Ended
11/30/98
Five Year
Period Ended
11/30/98
Per Annum for Period
from Commencement of
Operations through
11/30/98
Series 2000(1)
6.72%
8.85%
8.45%
Security and Growth Fund (2)
11.72
N/A
13.41
(1) Series 2000 commenced operations on August 30, 1991.
(2) Security and Growth Fund commenced operations on March
30, 1995.
These total return figures assume that the maximum sales
charge has been included in the investment at the time of
purchase.
Aggregate total return The funds' aggregate total return
figures shown below represent the cumulative change in the
value of an investment in a fund 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 funds' average annual total returns were as follows for
the periods indicated:
Name of Fund
One Year Period Ended 11/30/98*
Five Year Period Ended 11/30/98*
Period from Commencement of Operations through 11/30/998*
One Year Period Ended 11/30/98**
Five Year Period Ended 11/30/98**
Period from Commencement of Operations through 11/30/998**
Series 2000(1)
5.05%
7.87%
8.74%
(0.25)%
6.78%
7.98%
Security and Growth Fund(2)
(10.43)
N/A
7.54
(14.00)
N/A
6.35
* Figures do not include the effect of the maximum sales
charge.
** Figures include the effect of the maximum sales charge.
(1) Series 2000 commenced operations on August 30, 1991.
(2) Security and Growth Fund commenced operations on March
30, 1995.
The funds' aggregate total returns were as follows for the
periods indicated:
Name of Fund
One Year Period Ended 11/30/98*
Five Year Period Ended 11/30/98*
Period from Commencement of Operations through 11/30/98*
One Year Period Ended 11/30/98**
Five Year Period Ended 11/30/98**
Period from Commencement of Operations through 11/30/98**
Series 2000(1)
5.05%
46.06%
83.75%
(0.25)%
38.81%
74.57%
Security and Growth Fund(2)
(10.43)
N/A
30.62
(14.00)
N/A
25.40%
* Figures do not include the effect of the maximum sales
charge.
** Figures include the effect of the maximum sales charge.
(1) Series 2000 commenced operations on August 30, 1991.
(2) Security and Growth Fund commenced operations on March
30, 1995.
A fund's performance will vary from time to time
depending upon market conditions, the composition of its
portfolio and its operating expenses. Consequently, any
given performance quotation should not be considered
representative of a fund's performance for any specified
period in the future. In addition, because performance will
fluctuate, it may not provide a basis for comparing an
investment in a fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of
time. Investors comparing a fund's performance with that of
other mutual funds should give consideration to the quality
and maturity of the respective investment companies'
portfolio securities.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment adviser The Manager, at 388 Greenwich Street,
New York, New York 10013, serves as the funds' investment
adviser under the terms of a written agreement for each fund
(the "Advisory Agreements"). The Manager is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"), which is in turn a wholly owned subsidiary of
Citigroup, Inc. ("Citigroup"). The Advisory Agreements for
the funds were last approved by the Board of Trustees,
including a majority of the Trustees who are not "interested
persons" of the Trust or Salomon Smith Barney on July 23,
1998. The Manager pays the salaries of all officers and
employees who are employed by both it and the Trust and
maintains office facilities for the Trust. The Manager
bears all expenses in connection with the performance of its
services under the Advisory Agreements.
As compensation for investment advisory services rendered,
Series 2000 pays the Manager a fee computed daily and paid
monthly at the annual rate of 0.40% of the value of its
average daily net assets. Security and Growth Fund pays the
Manager a fee of 0.50% of the value of its average daily net
assets for investment management services rendered.
Administrator The Manager also serves as the administrator
of Series 2000 pursuant to a written agreement (the
"Administration Agreement"). The Administration Agreement
was most recently approved for the fund by the Board of
Trustees, including a majority of the Trustees who are not
"interested persons" of the fund or Salomon Smith Barney, on
July 23, 1998. The Manager 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.
As compensation for administrative services rendered to
Series 2000, the Manager receives a fee computed daily and
paid monthly at the annual rate of 0.20% of the value of the
fund's average daily net assets.
For the fiscal years ended November 30, 1998, 1997 and 1996,
the funds paid investment advisory and/or administration
fees to the Manager as follows:
Fiscal Year
Series 2000
Security and Growth Fund
Ended
Advisory Fee
Administration Fee
Advisory Fee
Administration Fee
1998
$213,776
$106,888
$807,501
N/A
1997
249,071
124,536
1,007,814
N/A
1996
278,880
139,440
1,363,022
N/A
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 Salomon Smith Barney; SEC fees
and state Blue Sky qualification fees; charges of
custodians; transfer and dividend disbursing agents 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.
Distributor CFBDS, Inc. serves as the fund's distributor
pursuant to a written agreement dated October 8, 1998 (the
"Distribution Agreement") with the Trust. To compensate
Salomon 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 Salomon Smith
Barney, with respect to Series 2000 and Security and Growth
Fund, a fee, accrued daily and paid monthly, calculated at
the annual rate of .25% of the value of the respective Fund
average daily net assets. Under its terms, the Plan
continues from year to year, provided 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 CFBDS 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 Fund. Pursuant to the Plan,
Salomon 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. Prior to the
merger of Travelers Group, Inc. and Citicorp, Inc. on
October 8, 1998, Salomon Smith Barney served as the Fund's
distributor. For the fiscal year ended November 30, 1998,
Salomon Smith Barney was paid $133,610 and $403,751 in
distribution fees for Series 2000 and the Security and
Growth Fund, respectively.
For the fiscal year ended October 31, 1998, Salomon Smith
Barney incurred the following distribution expenses for the
funds:
Fund Name
Salomon Smith Barney Financial Consultants
Advertising
Support Services
Total
Series 1998*
$58,747
$7,320
$68,849
$142,225
Series 2000
62,866
7,804
60,478
131,148
Security and Growth Fund
186,122
23,134
160,792
370,048
* Smith Barney Principal Return Fund Series 1998 matured on
August 31, 1998.
Custodian PNC Bank is located at 17th and Chestnut Streets,
Philadelphia, PA 19103 and serves as the custodian of the
Trust.
Transfer agent First Data is located at Exchange Place,
Boston, Massachusetts 02109 and serves as the Trust's
transfer agent. Under the transfer agency agreement, First
Data 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, First Data receives a monthly fee computed
on the basis of the number of shareholder accounts First
Data maintains for the Trust during the month and is
reimbursed for out-of-pocket expenses.
Independent auditors KPMG LLP, 345 Park Avenue, New York,
New York 10154, has been selected as the Trust's independent
auditor to examine and report on each fund's financial
statements and highlights for the fiscal year ending
November 30, 1999.
OTHER INFORMATION ABOUT THE TRUST
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 October 14, 1994, the Trust changed its
name from Smith Barney Shearson Principal Return Fund to
Smith Barney Principal Return Fund. Under the Trust
Agreement, the Trustees have authority to issue an unlimited
number of shares of beneficial interest with a par value of
$.001 per share.
Massachusetts law provides that shareholders could, under
certain circumstances, be held personally liable for the
obligations of the Trust. The Trust has been structured,
and will be operated in such a way, so as to ensure as much
as possible, that shareholders will not be liable for
obligations of the fund. The Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust,
and requires that notice of the disclaimer be given in each
agreement, obligation or instrument entered into or executed
by the Trust or a Trustee. The Trust Agreement also
provides for indemnification from the Trust's property for
all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of
a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which
the Trust would be unable to meet its obligations, a
possibility that the Trust's management believes is remote.
Upon payment of any liability incurred by the Trust, the
shareholder paying the liability will be entitled to
reimbursement from the general assets of the Trust. The
Trustees intend to conduct the operations of the Trust and
each of its series in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for
liabilities of the Trust.
Minimum account size The Trust reserves the right to
voluntarily liquidate any shareholder's account in a fund if
aggregate net asset value of the shares held in the fund's
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 this right, shareholders will
receive written notice and will be permitted 60 days to
bring accounts up to the minimum to avoid involuntary
liquidation.
Voting rights When matters are submitted for shareholder
vote, shareholders of each fund will have one vote for each
full share owned and a proportionate, fractional vote for
any fractional share held. Generally shares of the Trust
vote by individual funds on all matters except (a) matters
affecting only the interests of one or more of the funds, in
which case only shares of the affected fund would be
entitled to vote or (b) when the 1940 Act requires that
shares of the fund be voted in the aggregate. There
normally will be no annual meetings of shareholders for the
purpose of electing Trustees unless and until such time as
less than a majority of the Trustees holding office have
been elected by shareholders. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust
may remove a Trustee through a declaration in writing or by
vote cast in person or by proxy at a meeting called for that
purpose. A meeting will be called for the purpose of voting
on the removal of a Trustee at the written request of
holders of 10% of the Trust's outstanding shares and the
Trust will assist shareholders in calling such a meeting as
required by the 1940 Act.
Annual and semi-annual reports The Trust sends its
shareholders a semi-annual report and an audited annual
report, each of which includes a listing of the investment
securities held by the fund at the end of the period
covered. In an effort to reduce each fund's printing and
mailing costs, each fund consolidates 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. Any shareholder who does not
want this consolidation to apply to his or her account
should contact his or her Financial Consultant or First
Data.
FINANCIAL STATEMENTS
Each Fund's Annual Report for the fiscal year ended November
30, 1998 accompany this Statement of Additional Information
and are incorporated herein by reference in its entirety.
3
PART C
b) Exhibits
Exhibit No. Description of Exhibit
Item 23. Exhibits
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).
(a)(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").
(a)(2) 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").
(b) By-Laws are incorporated by reference to
Registrant's Registration Statement filed
with the SEC on October 19, 1988 (the
"Registration Statement").
(c) Not Applicable.
(d)(1) Investment Advisory Agreement between the
Registrant and Smith Barney Shearson Asset
Management ("Asset Management") relating to
Series 2000 is incorporated by reference to
Post-Effective Amendment No. 13.
(d)(2) 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.
(e) Distribution Agreement between the Registrant
and CFBDS Inc. is incorporated by reference to
Post-Effective Amendment No. 22.
(f) Not Applicable.
(g) Form of Custodian Agreement is incorporated
by reference to Post-Effective Amendment No.
19
(h)(1) Administration Agreements dated April 21,
1994 between the Registrant and Smith Barney
Advisers, Inc. relating to Series 2000 is
incorporated by reference to Post-Effective
Amendment No.16.
(h)(2) Transfer Agency Agreement between the
Registrant and First Data Investor Services
Group formerly known as The Shareholder
Services Group, Inc. dated August 2, 1993 is
incorporated by reference to Post-Effective
Amendment No. 13.
(h)(3) Shareholder Services Plan between the
Registrant and Smith Barney Shearson relating
to Series 2000 is incorporated by reference
to Post-Effective Amendment No. 13.
(h)(4) Shareholder Services Plan between the
Registrant and Smith Barney relating to
Security & Growth Fund is incorporated by
reference to Post-Effective Amendment No. 16
(i) Not Applicable
(j) Auditors' consent filed herewith
(k) Not Applicable.
(l)(1) Form of Purchase Agreement relating to Series
2000 is incorporated by reference to Post-
Effective Amendment No. 8.
(1)(2) Form of Purchase Agreement relating to
Security and Growth Fund is incorporated by
reference to Post-Effective Amendment No. 16.
(m) Not Applicable.
(n) Financial Data Schedule filed herewith
(o) Not Applicable.
Item 24. None
Item 25. Indemnification
The response to this item is incorporated by
reference to Registrant's Pre-Effective
Amendment No. 1.
Item 26. Business and Other Connections of Investment
Adviser
Investment Adviser - SSBC Fund Management Inc. (formerly Mutual
Management Corp.) was incorporated in December 1968 under the
laws of the State of Delaware. SSBC Fund Management Inc. is a
wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
formerly known as Smith Barney Holdings Inc.), which in turn
is a wholly owned subsidiary of Citigroup Inc. SSBC Fund
Management Inc. 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 SSBC Fund Management Inc., 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).
Item 27. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor, is also the
distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio,
CitiFundsSM Large Cap Growth Portfolio,
CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves,
CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves,
CitiFundsSM Institutional U.S. Treasury Reserves,
CitiFundsSM Institutional Liquid Reserves,
SM Institutional Cash Reserves,
CitiFundsSM Tax Free Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves,
CitiFundsSM Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio,
CitiFundsSM Growth & Income Portfolio,
CitiFundsSM Small Cap Growth Portfolio,
CitiFundsSM National Tax Free Income Portfolio,
CitiFundsSM New York Tax Free Income Portfolio,
CitiSelect VIP Folio 200,
Citiselect VIP Folio 300,
CitiSelect (VIP Folio 400,
CitiSelect (VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio,
CitiSelect (Folio 200,
CitiSelect (Folio 300,
CitiSelect (Folio 400,
and CitiSelect (Folio 500.
CFBDS is also the placement agent for
Large Cap Value Portfolio,
International Portfolio,
Foreign Bond Portfolio,
Intermediate Income Portfolio,
Short-Term Portfolio,
Growth & Income Portfolio,
Large Cap Growth Portfolio,
Small Cap Growth Portfolio,
International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio,
Emerging Asian Markets Equity Portfolio,
Tax Free Reserves Portfolio,
Cash Reserves Portfolio
and U.S. Treasury Reserves Portfolio.
CFBDS, Inc. is also the distributor for the following Smith
Barney Mutual Fund registrants:
Concert Investment Series
Consulting Group Capital Markets Funds
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Trust
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Investment Funds Inc.
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS, Inc. is also the distributor for the following
Salomon Brothers funds;
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
CFBDS, Inc is also the distributor for the Centurion Funds, Inc.
The information required by this Item 27 with respect to
each director, officer and partner of CFBDS, Inc. is
incorporated by reference to Schedule A of Form BD filed by
CFBDS, Inc. pursuant to the Securities Exchange Act of 1934
(SEC File No. 8-32417).
Item 28. Location of Accountants and Record
(1) Smith Barney Principal Return Fund
388 Greenwich Street
New York, New York 10013
(2) SSBC Fund Management Inc.
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA 19103
(4) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(6) CFBDS Inc.
21 Milk Street, 5th floor
Boston, Massachusetts 02109
Item 29. Management Services
Not Applicable.
Item 30. 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 the 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
30th day of March, 1999.
SMITH BARNEY PRINCIPAL RETURN FUND
By:/s/ Heath B. McLendon *
Heath B. McLendon,
President and Chief Executive Officer
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
Heath B. McLendon (Chief Executive Officer)
03/30/99
/s/ Lewis E. Daidone Senior Vice President
Lewis E. Daidone and Treasurer
(Chief Financial and
Accounting Officer)
03/30/99
/s/ Paul R. Ades* Trustee
03/30/99
Paul R. Ades
/s/Herbert Barg* Trustee
03/30/99
Herbert Barg
/s/ Dwight B. Crane* Trustee
03/30/99
Dwight B. Crane
/s/ Frank Hubbard* Trustee
03/30/99
Frank Hubbard
/s/Jerome Miller* Trustee
03/30/99
Jerome Miller
/s/ Ken Miller* Trustee
03/30/99
Ken Miller
*Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant to power of attorney dated
December 23, 1994
/s/ Heath B. McLendon
Heath B. McLendon
Exhibit index
J. Auditors Consent
n. Financial Data Schedule
cover
Independent Auditors' Consent
To the Shareholders and Board of Trustees of
Smith Barney Principal Return Fund:
We consent to the use of our reports dated January 15,
1999, with respect to the Portfolios listed below of Smith
Barney Principal Return Fund, incorporated herein by
reference and to the references to our Firm under the
headings "Financial Highlights" in the Prospectus and
"Independent Auditors" in the Statement of Additional
Information.
Portfolios
Zeros Plus Emerging Growth Series 2000
Security and Growth Fund
KPMG LLP
New York, New York
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> SMITH BARNEY PRINCIPAL RETURN FUND
<SERIES>
<NUMBER> 1
<NAME> SB ZEROS PLUS EMERGING GROWTH SERIES 2000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 38,703,133
<INVESTMENTS-AT-VALUE> 49,650,453
<RECEIVABLES> 0
<ASSETS-OTHER> 459,284
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,109,737
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76,105
<TOTAL-LIABILITIES> 76,105
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,273,081
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<NAME> SMITH BARNEY PRINCIPAL RETURN FUND
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