As filed with the Securities and Exchange Commission on
January 29, 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. 22
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)
_____ Immediately upon filing pursuant to paragraph (b)
_____ On (date) pursuant to paragraph (b)
XXX 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
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
Everyday.
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 the
funds' shares as an investment or determined whether this
prospectus is accurate or complete. Any statement to the
contrary is a crime.
Contents
Page
Fund goals and strategies
1
Risks, performance and expenses3
Other investments6
Management8
Reinvestment of dividends9
Exchanging shares9
Redeeming shares10
Other things to know about share transactions11
Dividends, distributions and taxes12
Share price12
Financial highlights14
Smith Barney Mutual Funds offers a distinctive family of
fund choices tailored to help meet the varying needs of
large and small investors. Currently, Smith Barney Mutual
Funds offers more than 60 individual funds with assets of
more than $xx billion.
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 ___% and
___% 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 that
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
any of the following occurs:
? 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.
Series 2000
%Total Return
Security and Growth Fund
%Total Return
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.
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: xx% in __ quarter 199x;
Lowest: xx% in __ quarter 199x.
Quarterly returns: Highest: xx% in __ quarter 199x;
Lowest: xx% in __ quarter 199x.
Comparative performance
This table 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 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 an index of approximately 1,700 large and
small
capitalization companies. The Lehman Brothers Index is an
index of U.S. Treasury and agency securities. The Russell
2000 Index 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
Security and Growth Fund
11/30/95
_____%
n/a
_____%
Value Line Composite Index
n/a
Russell 2000
n/a
_____%
_____%
n/a
Lehman Brothers Index
n/a
Lehman Brothers Index
n/a
_____%
_____%
n/a
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 fund net assets)
Management fees
0.60%
0.50%
Shareholder servicing fees
0.25%
0.25%
Other expenses
____%
____%
Total annual fund operating expenses
____%
____%
* 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
$____
$____
$____
$____
Security and Growth Fund
$____
$_____
n/a
$____
* 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, due to 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 Mutual Management Corp., 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. Among these
businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset
Management, Travelers Life & Annuity, and Travelers
Property
Casualty.
Richard Freeman has been responsible for the day to day
management of the Series 2000 Fund since its inception.
Mr. Freeman is an investment officer of Mutual Management
Corp. 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 since its inception. Mr.
Goode is an investment officer of Mutual Management Corp.
and Chairman and Chief Investment Officer of Davis Skaggs
Investment Management, a division of Mutual Management
Corp.
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 an
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 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 mutual 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 mutual
funds. Be sure to read the prospectus of the Smith Barney
mutual fund you are exchanging into. An exchange is a
taxable transaction. Upon an exchange prior to the
Maturity
Date, an investor 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 mutual 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 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 4:00 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.
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 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 4:00 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 that 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 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 (together with other requests submitted
in the previous 10 days) 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
loans, 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
Share certificates. The fund does not issue share
certificates.
Distributions, dividends 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. 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 market prices are not
available, or when the manager believes they are
unreliable,
the funds 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 was audited by KPMG Peat Marwick LLP,
independent accountants, whose report, along with the
funds'
financial statements, are included in the annual report
(available upon request).
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 period
$
$8.63
$9.28
$8.15
$9.00
Income (loss) from operations:
Net investment income (loss)
0.28
0.30
0.27
0.27
Net realized and unrealized gain (loss)
0.78
(0.16)
1.48
(0.28)
Total income (loss) from operations
1.06
0.14
1.75
(0.01)
Less distributions from:
Net investment income
- --
(0.57)
(0.27)
(0.34)
Net realized gains
(1.23)
(0.22)
(0.35)
(0.50)
Total distributions
(1.23)
(0.79)
(0.62)
(0.84)
Net asset value, end of year
$8.46
$8.63
$9.28
$8.15
Total return(1)
12.28%
1.55%
22.17%
(0.20)%
Net assets, end of year (000,000)'s
$59
$65
$77
$75
Ratios to average net assets:
Expenses
1.05%
1.11%
1.17%
1.15%
Net investment income (loss)
3.15
3.15
3.12
3.27
Portfolio turnover rate
0%
0%
6%
1%
(1) Total return does not reflect any applicable
sales charges.
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 period
$
$10.22
$10.68
$9.60
Income (loss) from operations:
Net investment income (loss)
0.28
0.33
0.28
Net realized and unrealized gain (loss)
1.40
0.82
0.94
Total income (loss) from operations
1.68
1.15
1.22
Less distributions from:
Net investment income
(0.03)
(0.62)
- --
Net realized gains
(1.75)
(0.99)
(0.14)
Total distributions
(1.78)
(1.61)
(0.14)
Net asset value, end of year
$10.12
$10.22
$10.68
Total return(2)
16.42%
11.15%
12.70(3)
Net assets, end of year (000,000)'s
$204
$244
$310
Ratios to average net assets:
Expenses
0.92%
0.99%
1.02%(4)
Net investment income (loss)
2.62
2.88
4.07(4)
Portfolio turnover rate
20%
43%
26%
(1) For the period from March 30, 1995 (commencement
of operations) to November 30, 1995.
(2) Total return does not reflect any applicable
sales loads or deferred sales charges.
(3) Not annualized.
(4) Annualized.
SALOMON SMITH BARNEY_
a member of citigroup [Symbol]
SMITH BARNEY PRINCIPAL RETURN FUND
Zero Plus Emerging Growth Series 2000
Security and Growth 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 31, 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 31, 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 Trust2
Investment Objectives and Management Policies4
Risk Factors13
Investment Restrictions15
Purchase, Redemption and Exchange of Shares17
Portfolio Turnover20
Portfolio Transactions21
Determination of Net Asset Value22
Taxes23
Performance Information25
Investment Management and Other Services27
Other Information About the Trust28
Financial Statements29
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,
Mutual Management Corp. ("MMC" or the "Manager").
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. Director of 18 investment
companies associated with Salomon Smith Barney; 75.
DWIGHT B. CRANE, TRUSTEE
Professor, Harvard Business School; Soldiers Field
Road, Boston, Massachusetts 02163. Director of 24
investment companies associated with Salomon Smith
Barney; 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, Chairman of
Smith Barney Strategy Advisers Inc. and President of
MMC and Travelers Investment Adviser, Inc. ("TIA");
388 Greenwich Street, New York, New York 10013.
Director of 59 investment companies associated with
Salomon Smith Barney 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 MMC; 388 Greenwich Street, New York, New
York 10013. Vice President and Investment Officer of
one other mutual fund of the Smith Barney Mutual
Funds; 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 MMC; 1 Sansome
Street, Suite 3850, San Francisco, California 94104.
Vice President and Investment Officer of two other
mutual funds; 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 MMC and TIA; 388
Greenwich Street, New York, New York 10013. Senior
Vice President of 42 Smith Barney Mutual Funds; 41.
CHRISTINA T. SYDOR, SECRETARY
Managing Director of Salomon Smith Barney; General
Counsel and Secretary of MMC and TIA; 388 Greenwich
Street, New York, New York 10013. Secretary of 42
Smith Barney Mutual Funds; 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
January 22, 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 will receive any
compensation from the Trust for serving as an officer
or Trustee. The Trust pays each Trustee who is not a
director, officer or employee of Salomon Smith Barney
or any of its affiliates a fee of $4,000 per annum
plus $500 per meeting attended and reimburses them for
travel and out-of-pocket expenses.
The following table shows the compensation paid by the
Trust to each trustee during the Trust's last fiscal
year.
Trustee
Aggregate Compensation from the Trust
Pension or Retirement Benefits Accrued as Part of the
Trust Expenses
Estimated Annual Benefits Upon Retirement
Aggregate Compensation from the Smith Barney Mutual
Funds
Number of Funds for Which Director Serves Within Fund
Complex
Paul R. Ades
$0
49,000
Herbert Barg
0
101,600
Dwight B. Crane
0
33,850
Frank G. Hubbard
0
52,000
Heath B. McLendon
0
Jerome Miller
0
12,400
Ken Miller
0
52,000
** 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 $_____.
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 ___% and
___%, 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 funds' 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 a reorganization since 1987). Because the
United States government is not obligated by law to
provide support to an instrumentality that 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 that 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 they 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 that 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 interest 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 each
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 Directors 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.
The risks in lending portfolio securities, as with
other extensions of secured credit, consist of
possible delays in receiving additional collateral or
in the recovery of the securities or possible loss of
rights in the collateral should the borrower fail
financially. Loans will be made to firms deemed by
the Manager to be of good standing and will not be
made unless, in the judgement of the Manager, the
consideration to be earned 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 that 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 that apply to domestic
banks, such as mandatory reserve requirements, loan
limitations and accounting, auditing and financial
recordkeeping requirements. In addition, less
information may be publicly available about a foreign
branch of a domestic bank than about a domestic bank.
U.S. government securities in which a 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) deposit with its custodian in a
segregated account, 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 that it has written (or, if the exercise prices
of the calls that it holds are more than the exercise
prices of those that it has written, it will deposit
the difference with its custodian in a segregated
account).
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 that the fund has
written, an option of the same series as that on which
the fund desires to terminate its obligation. The
obligation of the fund under an option that it has
written would be terminated by a closing purchase
transaction, but the fund would not be deemed to own
an option as a result of the transaction. There can
be no assurances that the fund will be able to effect
closing purchase transactions at a time when it wishes
to do so. To facilitate closing purchase
transactions, however, the fund ordinarily will write
options only if a secondary market for the options
exists on domestic securities exchanges or in the
over-the-counter market.
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 that it may engage in transactions in exchange
traded options. OTC options differ from exchange
traded options in that they are negotiated
individually and terms of the contract are not
standardized as in the case of exchange traded
options. Moreover, because there is no clearing
corporation involved in an OTC option, there is a risk
of non-performance by the counterparty to the option.
However, OTC options are generally much more
available for securities in a wider range of
expiration dates and exercise prices than exchange
traded options. It is the current position of the
staff of the SEC 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 long call position 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 that the value of the fund's securities will
decrease. An option on a futures contract, as
contrasted with the direct investment in a futures
contract gives the purchaser the right, in return for
the premium paid, to assume a position in a futures
contract at a specified exercise price at any time
prior to the expiration date of the option. A call
option gives the purchaser of the option the right to
enter into a futures contract to buy and 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 that prices will rise before the purchases
will be made. When the fund enters into a futures
contract to purchase an underlying security, an amount
of eligible segregated assets, equal to the market
value of the contract, will be deposited in a
segregated account with the fund's custodian to
collateralize the position, thereby insuring that the
use of the contract is unleveraged. The fund will not
enter into futures contracts for speculation and will
only enter into futures contracts that are traded on a
U.S. exchange or board of trade.
RISK FACTORS
Zero coupon securities. 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 commodities 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 fluctuations 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.
Year 2000. The investment management services
provided to the Trust by MMC and the services provided
to shareholders by Salomon Smith Barney, depend on the
smooth functioning of their computer systems. Many
computer software systems in use today cannot
recognize the year 2000, but revert to 1900 or some
other date, due to the manner in which dates were
encoded and calculated. That failure could have a
negative impact on the Trust's operations, including
the handling of securities trades, pricing and account
services. MMC and Salomon Smith Barney have advised
the Trust that they have been reviewing all of their
computer systems and actively working on necessary
changes to their systems to prepare for the year 2000
and expect that their systems will be compliant before
that date. In addition, MMC has been advised by the
Trust's custodian, transfer agent and accounting
service agent that they are also in the process of
modifying their systems with the same goal. There
can, however, be no assurance that MMC, Salomon Smith
Barney or any other service provider will be
successful, or that interaction with other
noncomplying computer systems will not impair Trust
services at that time.
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 Series 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 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 4:00 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 reserves 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 4:00 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 that are 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%
20%
0%
43%
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the funds are
made by MMC, 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 MMC, 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 MMC 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 MMC 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. 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
_____
$303,127
128,979
_______
Total Brokerage Commissions paid to Salomon Smith
Barney
1996
1997
1998
$0
0
0
$3,000
5,448
________
% of Total Brokerage Commissions paid to Salomon Smith
Barney
1996
1997
1998
0%
0
0
0.99%
4.22
_______
% of Total Transaction involving Commissions paid to
Salomon Smith Barney
1996
1997
1998
0%
0
_______
0.99%
0.66
_______
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. 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 that
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 that 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 coupons 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 forward
currency forward 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 that 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 Stares
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 that 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)
Security and Growth Fund (2)
6.72
11.72
8.85
N/A
8.45
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' 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)
Security and Growth Fund(2)
12.28
16.42
60.89
N/A
74.92
45.83
6.72
11.72
52.84
N/A
66.17
40.0
* 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's with certain bank deposits or other
investments that pay a fixed yield for a stated period
of time. Investors comparing the funds' 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. MMC, 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
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 funds'
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
Series average daily net assets. Under its terms, the
Plan continues from year to year, provided that its
continuance is approved annually by vote of the
Trust's Board of Trustees, including a majority of the
Trustees who are not interested persons of the Trust
and who have no direct or indirect financial interest
in the operation of the Plan (the "Independent
Trustees"). The Plan may not be amended to increase
materially the amount to be spent for the services
provided by 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
$______ and $______ in shareholder servicing fees for
Series 2000 and the Security and Growth Fund
respectively.
Custodian. PNC Bank is located at 17th and Chestnut
Streets, Philadelphia, PA 19103 and serves as the
custodian of 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, 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.
Counsel. Willkie Farr & Gallagher serves as counsel
to the Trust. Stroock & Stroock & Lavan LLP serves as
counsel to the Trustees who are not "interested
persons" of the Trust.
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 November 18, 1988,
August 27, 1990, July 30, 1993 and October 14, 1994,
the Trust changed its name from SLH Secured Capital
Fund to SLH Principal Return Fund, Shearson Lehman
Brothers Principal Return Fund, Smith Barney Shearson
Principal Return Fund and Smith Barney Principal
Return Fund, respectively. Under the Trust Agreement,
the Trustees have authority to issue an unlimited
number of shares of beneficial interest with a par
value of $.001 per share.
Massachusetts law provides that shareholders could,
under certain circumstances, be held personally liable
for the obligations of the Trust. The Trust has been
structured, and will be operated in such a way, so as
to ensure as much as possible, that shareholders will
not be liable for obligations of the 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 Reports for the fiscal year ended
November 30, 1998 accompany this Statement of
Additional Information and are incorporated herein by
reference in its entirety.
1
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. filed herein.
(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) To be filed by amendment.
(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) Not Applicable.
(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 - Mutual Management Corp.("MMC")
(formerly Smith Barney Mutual Funds Management, Inc.,) was
incorporated in December 1968 under the laws of the State
of Delaware. MMC 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. MMC 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 MMC, 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
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) Mutual Management Corp.
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, 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 29 day of
January, 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)
01/29/99
/s/ Lewis E. Daidone Senior Vice President
Lewis E. Daidone and Treasurer
(Chief Financial and
Accounting Officer)
01/29/99
/s/ Paul R. Ades* Trustee
01/29/99
Paul R. Ades
Herbert Barg* Trustee
01/29/99
Herbert Barg
/s/ Dwight B. Crane* Trustee
01/29/99
Dwight B. Crane
/s/ Frank Hubbard* Trustee
01/29/99
Frank Hubbard
/s/Jerome Miller* Trustee
01/29/99
Jerome Miller
/s/ Ken Miller* Trustee
01/29/99
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
Exhibit No. Exhibit
(e) Form of Distribution Agreement
SMITH BARNEY PRINCIPAL RETURN FUND
DISTRIBUTION AGREEMENT
October 8, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the
agreements hereinafter contained, the above-named
investment company (the "Fund") has agreed that you
shall be, for the period of this Agreement, the non-
exclusive principal underwriter and distributor of
shares of the Fund and each Series of the Fund set
forth on Exhibit A hereto, as such Exhibit may be
revised from time to time (each, including any shares
of the Fund not designated by series, a "Series").
For purposes of this Agreement, the term "Shares"
shall mean shares of the each Series, or one or more
Series, as the context may require.
1. Services as Principal Underwriter and
Distributor
1.1 You will act as agent for the
distribution of Shares covered by, and in accordance
with, the registration statement, prospectus and
statement of additional information then in effect
under the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940,
as amended (the "1940 Act"), and will transmit or
cause to be transmitted promptly any orders received
by you or those with whom you have sales or servicing
agreements for purchase or redemption of Shares to the
Transfer and Dividend Disbursing Agent for the Fund of
which the Fund has notified you in writing.
1.2 You agree to use your best efforts to
solicit orders for the sale of Shares. It is
contemplated that you will enter into sales or
servicing agreements with registered securities
dealers and banks and into servicing agreements with
financial institutions and other industry
professionals, such as investment advisers,
accountants and estate planning firms. In entering
into such agreements, you will act only on your own
behalf as principal underwriter and distributor. You
will not be responsible for making any distribution
plan or service fee payments pursuant to any plans the
Fund may adopt or agreements it may enter into.
1.3 You shall act as principal
underwriter and distributor of Shares in compliance
with all applicable laws, rules, and regulations,
including, without limitation, all rules and
regulations made or adopted from time to time by the
Securities and Exchange Commission (the "SEC")
pursuant to the 1933 Act or the 1940 Act or by any
securities association registered under the Securities
Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such
action is warranted for any reason, including, without
limitation, market, economic or political conditions,
the Fund's officers may decline to accept any orders
for, or make any sales of, any Shares until such time
as those officers deem it advisable to accept such
orders and to make such sales and the Fund shall
advise you promptly of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and
expenses in connection with the registration of Shares
under the 1933 Act, and all expenses in connection
with maintaining facilities for the issue and transfer
of Shares and for supplying information, prices and
other data to be furnished by the Fund hereunder, and
all expenses in connection with the preparation and
printing of the Fund's prospectuses and statements of
additional information for regulatory purposes and for
distribution to shareholders; provided however, that
nothing contained herein shall be deemed to require
the Fund to pay any of the costs of advertising or
marketing the sale of Shares.
2.2 The Fund agrees to execute any and
all documents and to furnish any and all information
and otherwise to take any other actions that may be
reasonably necessary in the discretion of the Fund's
officers in connection with the qualification of
Shares for sale in such states and other U.S.
jurisdictions as the Fund may approve and designate to
you from time to time, and the Fund agrees to pay all
expenses that may be incurred in connection with such
qualification. You shall pay all expenses connected
with your own qualification as a securities broker or
dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all
other expenses incurred by you in connection with the
sale of Shares as contemplated in this Agreement.
2.3 The Fund shall furnish you from time
to time, for use in connection with the sale of
Shares, such information reports with respect to the
Fund or any relevant Series and the Shares as you may
reasonably request, all of which shall be signed by
one or more of the Fund's duly authorized officers;
and the Fund warrants that the statements contained in
any such reports, when so signed by the Fund's
officers, shall be true and correct. The Fund also
shall furnish you upon request with (a) the reports of
annual audits of the financial statements of the Fund
for each Series made by independent certified public
accountants retained by the Fund for such
purpose; (b) semi-annual unaudited financial
statements pertaining to each Series; (c) quarterly
earnings statements prepared by the Fund; (d) a
monthly itemized list of the securities in each
Series' portfolio; (e) monthly balance sheets as soon
as practicable after the end of each month; (f) the
current net asset value and offering price per share
for each Series on each day such net asset value is
computed and (g) from time to time such additional
information regarding the financial condition of each
Series of the Fund as you may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration
statements, prospectuses and statements of additional
information filed by the Fund with the SEC under the
1933 Act and the 1940 Act with respect to the Shares
have been prepared in conformity with the requirements
of said Acts and the rules and regulations of the SEC
thereunder. As used in this Agreement, the terms
"registration statement", "prospectus" and "statement
of additional information" shall mean any registration
statement, prospectus and statement of additional
information filed by the Fund with the SEC and any
amendments and supplements thereto filed by the Fund
with the SEC. The Fund represents and warrants to you
that any registration statement, prospectus and
statement of additional information, when such
registration statement becomes effective and as such
prospectus and statement of additional information are
amended or supplemented, will include at the time of
such effectiveness, amendment or supplement all
statements required to be contained therein in
conformance with the 1933 Act, the 1940 Act and the
rules and regulations of the SEC; that all statements
of material fact contained in any registration
statement, prospectus or statement of additional
information will be true and correct when such
registration statement becomes effective; and that
neither any registration statement nor any prospectus
or statement of additional information when such
registration statement becomes effective will include
an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not
misleading to a purchaser of the Fund's Shares. The
Fund may, but shall not be obligated to, propose from
time to time such amendment or amendments to any
registration statement and such supplement or
supplements to any prospectus or statement of
additional information as, in the light of future
developments, may, in the opinion of the Fund, be
necessary or advisable. If the Fund shall not propose
such amendment or amendments and/or supplement or
supplements within fifteen days after receipt by the
Fund of a written request from you to do so, you may,
at your option, terminate this Agreement or decline to
make offers of the Fund's Shares until such amendments
are made. The Fund shall not file any amendment to
any registration statement or supplement to any
prospectus or statement of additional information
without giving you reasonable notice thereof in
advance; provided, however, that nothing contained in
this Agreement shall in any way limit the Fund's right
to file at any time such amendments to any
registration statement and/or supplements to any
prospectus or statement of additional information, of
whatever character, as the Fund may deem advisable,
such right being in all respects absolute and
unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any
prospectus or statement of additional information
furnished by the Fund from time to time, in connection
with the sale of Shares. The Fund agrees to
indemnify, defend and hold you, your several officers
and directors, and any person who controls you within
the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of
investigating or defending such claims, demands or
liabilities and any such counsel fees incurred in
connection therewith) which you, your officers and
directors, or any such controlling person, may incur
under the 1933 Act or under common law or otherwise,
arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained
in any registration statement, any prospectus or any
statement of additional information or arising out of
or based upon any omission, or alleged omission, to
state a material fact required to be stated in any
registration statement, any prospectus or any
statement of additional information or necessary to
make the statements in any of them not misleading;
provided, however, that the Fund's agreement to
indemnify you, your officers or directors, and any
such controlling person shall not be deemed to cover
any claims, demands, liabilities or expenses arising
out of any statements or representations made by you
or your representatives or agents other than such
statements and representations as are contained in any
prospectus or statement of additional information and
in such financial and other statements as are
furnished to you pursuant to paragraph 2.3 of this
Agreement; and further provided that the Fund's
agreement to indemnify you and the Fund's
representations and warranties herein before set forth
in paragraph 3 of this Agreement shall not be deemed
to cover any liability to the Fund or its shareholders
to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in
the performance of your duties, or by reason of your
reckless disregard of your obligations and duties
under this Agreement. The Fund's agreement to
indemnify you, your officers and directors, and any
such controlling person, as aforesaid, is expressly
conditioned upon the Fund's being notified of any
action brought against you, your officers or
directors, or any such controlling person, such
notification to be given by letter or by telegram
addressed to the Fund at its principal office in New
York, New York and sent to the Fund by the person
against whom such action is brought, within ten days
after the summons or other first legal process shall
have been served. The failure so to notify the Fund
of any such action shall not relieve the Fund from any
liability that the Fund may have to the person against
whom such action is brought by reason of any such
untrue, or alleged untrue, statement or omission, or
alleged omission, otherwise than on account of the
Fund's indemnity agreement contained in this paragraph
4.1. The Fund will be entitled to assume the defense
of any suit brought to enforce any such claim, demand
or liability, but, in such case, such defense shall be
conducted by counsel of good standing chosen by the
Fund. In the event the Fund elects to assume the
defense of any such suit and retains counsel of good
standing, the defendant or defendants in such suit
shall bear the fees and expenses of any additional
counsel retained by any of them; but if the Fund does
not elect to assume the defense of any such suit, the
Fund will reimburse you, your officers and directors,
or the controlling person or persons named as
defendant or defendants in such suit, for the fees and
expenses of any counsel retained by you or them. The
Fund's indemnification agreement contained in this
paragraph 4.1 and the Fund's representations and
warranties in this Agreement shall remain operative
and in full force and effect regardless of any
investigation made by or on behalf of you, your
officers and directors, or any controlling person, and
shall survive the delivery of any of the Fund's
Shares. This agreement of indemnity will inure
exclusively to your benefit, to the benefit of your
several officers and directors, and their respective
estates, and to the benefit of the controlling persons
and their successors. The Fund agrees to notify you
promptly of the commencement of any litigation or
proceedings against the Fund or any of its officers or
Board members in connection with the issuance and sale
of any of the Fund's Shares.
4.2 You agree to indemnify, defend and
hold the Fund, its several officers and Board members,
and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of
investigating or defending such claims, demands or
liabilities and any counsel fees incurred in
connection therewith) that the Fund, its officers or
Board members or any such controlling person may incur
under the 1933 Act, or under common law or otherwise,
but only to the extent that such liability or expense
incurred by the Fund, its officers or Board members,
or such controlling person resulting from such claims
or demands shall arise out of or be based upon (a) any
unauthorized sales literature, advertisements,
information, statements or representations or (b) any
untrue, or alleged untrue, statement of a material
fact contained in information furnished in writing by
you to the Fund and used in the answers to any of the
items of the registration statement or in the
corresponding statements made in the prospectus or
statement of additional information, or shall arise
out of or be based upon any omission, or alleged
omission, to state a material fact in connection with
such information furnished in writing by you to the
Fund and required to be stated in such answers or
necessary to make such information not misleading.
Your agreement to indemnify the Fund, its officers or
Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon your being
notified of any action brought against the Fund, its
officers or Board members, or any such controlling
person, such notification to be given by letter or
telegram addressed to you at your principal office in
Boston, Massachusetts and sent to you by the person
against whom such action is brought, within ten days
after the summons or other first legal process shall
have been served. You shall have the right to control
the defense of such action, with counsel of your own
choosing, satisfactory to the Fund, if such action is
based solely upon such alleged misstatement or
omission on your part or with the Fund's consent, and
in any event the Fund, its officers or Board members
or such controlling person shall each have the right
to participate in the defense or preparation of the
defense of any such action with counsel of its own
choosing reasonably acceptable to you but shall not
have the right to settle any such action without your
consent, which will not be unreasonably withheld. The
failure to so notify you of any such action shall not
relieve you from any liability that you may have to
the Fund, its officers or Board members, or to such
controlling person by reason of any such untrue, or
alleged untrue, statement or omission, or alleged
omission, otherwise than on account of your indemnity
agreement contained in this paragraph 4.2. You agree
to notify the Fund promptly of the commencement of any
litigation or proceedings against you or any of your
officers or directors in connection with the issuance
and sale of any of the Fund's Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the
Fund under any of the provisions of this Agreement and
no orders for the purchase or sale of such Shares
under this Agreement shall be accepted by the Fund if
and so long as the effectiveness of the registration
statement then in effect or any necessary amendments
thereto shall be suspended under any of the provisions
of the 1933 Act, or if and so long as a current
prospectus as required by Section 5(b) (2) of the 1933
Act is not on file with the SEC; provided, however,
that nothing contained in this paragraph 5 shall in
any way restrict or have an application to or bearing
upon the Fund's obligation to repurchase its Shares
from any shareholder in accordance with the provisions
of the Fund's prospectus, statement of additional
information or charter documents, as amended from time
to time.
6. Offering Price
Shares of any class of any Series of the Fund
offered for sale by you shall be offered for sale at a
price per share (the "offering price") equal to (a)
their net asset value (determined in the manner set
forth in the Fund's charter documents and the then-
current prospectus and statement of additional
information) plus (b) a sales charge, if applicable,
which shall be the percentage of the offering price of
such Shares as set forth in the Fund's then-current
prospectus relating to such Series. In addition to or
in lieu of any sales charge applicable at the time of
sale, Shares of any class of any Series of the Fund
offered for sale by you may be subject to a contingent
deferred sales charge as set forth in the Fund's then-
current prospectus and statement of additional
information. You shall be entitled to receive any
sales charge levied at the time of sale in respect of
the Shares without remitting any portion to the Fund.
Any payments to a broker or dealer through whom you
sell Shares shall be governed by a separate agreement
between you and such broker or dealer and the Fund's
then-current prospectus and statement of additional
information
7. Notice to You
The Fund agrees to advise you immediately in
writing:
(a) of any request
by the SEC for amendments
to the registration
statement, prospectus or
statement of additional
information then in effect
or for additional
information;
(b) in the event of
the issuance by the SEC of
any stop order suspending
the effectiveness of the
registration statement,
prospectus or statement of
additional information then
in effect or the initiation
of any proceeding for that
purpose;
(c) of the happening
of any event that makes
untrue any statement of a
material fact made in the
registration statement,
prospectus or statement of
additional information then
in effect or that requires
the making of a change in
such registration
statement, prospectus or
statement of additional
information in order to
make the statements therein
not misleading; and
(d) of all actions
of the SEC with respect to
any amendment to the
registration statement, or
any supplement to the
prospectus or statement of
additional information
which may from time to time
be filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the
date hereof, shall have an initial term of one year
from the date hereof, and shall continue for
successive annual periods thereafter so long as such
continuance is specifically approved at least annually
by (a) the Fund's Board or (b) by a vote of a majority
(as defined in the 1940 Act) of the Fund's outstanding
voting securities, provided that in either event the
continuance is also approved by a majority of the
Board members of the Fund who are not interested
persons (as defined in the 1940 Act) of any party to
this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement is terminable, without penalty, on 30
days' notice by the Fund's Board or by vote of holders
of a majority of the relevant Series outstanding
voting securities, or on 90 days' notice by you. This
Agreement will also terminate automatically, as to the
relevant Series, in the event of its assignment (as
defined in the 1940 Act and the rules and regulations
thereunder).
9. Arbitration
Any claim, controversy, dispute or
deadlock arising under this Agreement (collectively, a
"Dispute") shall be settled by arbitration
administered under the rules of the American
Arbitration Association ("AAA") in New York, New
York. Any arbitration and award of the arbitrators,
or a majority of them, shall be final and the judgment
upon the award rendered may be entered in any state or
federal court having jurisdiction. No punitive
damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter
and distributor of Shares, you shall not perform any
services for any entity other than investment
companies advised or administered by Citigroup Inc. or
its subsidiaries. The Fund recognizes that the
persons employed by you to assist in the performance
of your duties under this Agreement may not devote
their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict
your or any of your affiliates right to engage in and
devote time and attention to other businesses or to
render services of whatever kind or nature. This
Agreement and the terms and conditions set forth
herein shall be governed by, and construed in
accordance with, the laws of the State of New York.
11. Limitation of Liability (Massachusetts
business trusts only)
The Fund and you agree that the obligations of
the Fund under this Agreement shall not be binding
upon any of the Trustees, shareholders, nominees,
officers, employees or agents, whether past, present
or future, of the Fund, individually, but are binding
only upon the assets and property of the Fund, as
provided in the Master Trust Agreement. The execution
and delivery of this Agreement have been authorized by
the Trustees and signed by an authorized officer of
the Fund, acting as such, and neither such
authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been
made by any of them individually or to impose any
liability on any of them personally, but shall bind
only the trust property of the Fund as provided in its
Master Trust Agreement.
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance of this
Agreement by signing and returning to us the enclosed
copy, whereupon this Agreement will become binding on
you.
Very truly yours,
SMITH BARNEY
PRINCIPAL RETURN FUND
By:
_____________________
Authorized
Officer
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
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turnFund
EXHIBIT A
Smith Barney Principal Return Fund
Zeros Plus Emerging Growth Series 2000
Smith Barney Security and Growth Fund
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