Filed with the Securities and Exchange Commission on October 31, 1996
Securities Act File No. 33-64457
Investment Company Act File No. 811-7435
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 4 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 5 [X]
Smith Barney Concert Series Inc.
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street, New York, NY 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 212-723-9218
Christina T. Sydor, Esq.
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
X on October 31, 1996 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
75 days after filing pursuant to Rule 485(a)(2)
on _________________ pursuant to Rule 485(a)
SMITH BARNEY CONCERT SERIES INC.
FORM N-1A
CROSS REFERENCE SHEET
Part A
Item No.
Heading in the Prospectus
1. Cover Page
Cover Page
2. Synopsis
Prospectus Summary
3. Condensed Financial Information
Not Applicable
4. General Description of
Registrant
Cover Page; Prospectus Summary;
Investment Objectives and
Management Policies; Why Invest in
the Concert Series; Description of
Underlying Smith Barney Funds;
Additional Information; Appendix
5. Management of the Fund
Prospectus Summary; Management of
the Concert Series; Additional
Information
6. Capital Stock and Other
Securities
Prospectus Summary; Dividends,
Distributions and Taxes; Purchase
of Shares; Additional Information
7. Purchase of Securities Being
Offered
Purchase of Shares; Valuation of
Shares
8. Redemption or Repurchase
Redemption of Shares
9. Legal Proceedings
Not Applicable
Part B
Item No.
Heading in Statement of Additional
Information
10. Cover Page
Cover Page
11. Table of Contents
Table of Contents
12. General Information and History
Not Applicable
13. Investment Objectives and
Policies
Investment Objectives and Management
Policies
14. Management of the Fund
Management of the Concert Series
15. Control Persons and Principal
Holders of
Securities
Management of the Concert Series
16. Investment Advisory and Other
Services
Management of the Concert Series;
Additional Information
17. Brokerage Allocation and Other
Practices
Not Applicable
18. Capital Stock and Other
Securities
Additional Information
19. Purchase, Redemption and Pricing
of
Securities Being Offered
Purchase of Shares; Redemption of
Shares; Valuation of Shares
20. Tax Status
Taxes (See in the Prospectus
"Dividends, Distributions and Taxes")
21. Underwriters
Not Applicable
22. Calculation of Performance Data
Performance
23. Financial Statements
Financial Statements
PART A
The Prospectus for the High Growth, Growth, Balanced, Conservative and Income
Portfolios of Smith Barney Concert Series Inc. (the "Fund") is incorporated by
reference to Part A of Post-Effective Amendment No. 1 to the Fund's
Registration Statement filed on August 7, 1996 (Accession No. 91155-96-315).
The Prospectus for the Select High Growth, Select Growth, Select Balanced,
Select Conservative and Select Income Portfolios of the Fund is filed herein.
.
Smith Barney Concert Series Inc.
PROSPECTUS
OCTOBER 31, 1996
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Concert Series Inc. (the "Concert Series" or "Series") offers ten
professionally managed investment portfolios, five of which are offered by this
Prospectus (each, a "Portfolio" and collectively, the "Select Portfolios") to
separate accounts sponsored by certain life insurance companies and qualified
pension and retirement plans. Each Portfolio seeks to achieve its objective by
investing in a number of other Smith Barney Mutual Funds.
The Select High Growth Portfolio seeks capital appreciation.
The Select Growth Portfolio seeks long-term growth of capital.
The Select Balanced Portfolio seeks a balance of growth of capital and income.
The Select Conservative Portfolio seeks income and, secondarily, long-term
growth of capital.
The Select Income Portfolio seeks high current income.
This Prospectus sets forth concisely certain information about the Concert
Series and each of the Select Portfolios that prospective investors will find
helpful in making an investment decision. Investors are encouraged to read this
Prospectus carefully and retain it for future reference.
Shares of the Select Portfolios are offered ONLY to insurance company separate
accounts (the "Separate Accounts"), which fund certain variable annuity and
variable life insurance contracts (the "Contracts") and qualified pension and
retirement plans. The Separate Accounts invest in shares of one or all of the
Select Portfolios in accordance with allocation instructions received from Con-
tract owners. Such allocation rights are further described in the accompanying
Contract prospectus.
Shares of each Select Portfolio are offered to Separate Accounts and qualified
pension and retirement plans at their net asset value, without a sales charge,
next determined after receipt of an order by an insurance company. The offering
of shares of a Portfolio may be suspended from time to time and the Series
reserves the right to reject any specific purchase order.
THIS PROSPECTUS, WHICH SETS FORTH CONCISE INFORMATION ABOUT THE CONCERT SERIES
THAT PROSPECTIVE INVESTORS SHOULD KNOW BEFORE INVESTING, SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION, ALSO
REFERRED TO AS "PART B," DATED OCTOBER 31, 1996 IS HEREBY INCORPORATED BY REF-
ERENCE INTO THIS PROSPECTUS AND IS AVAILABLE FROM THE CONCERT SERIES, WITHOUT
CHARGE, BY WRITING TO THE CONCERT SERIES AT THE ABOVE ADDRESS OR CALLING THE
TELEPHONE NUMBER LISTED ABOVE.
This Prospectus should be read in conjunction with the prospectus for the
Contracts.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
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Smith Barney Concert Series Inc.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- --------------------------------------------------
WHY INVEST IN THE CONCERT SERIES 4
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INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES 4
- --------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS 6
- --------------------------------------------------
PORTFOLIO TURNOVER 7
- --------------------------------------------------
INVESTMENT RESTRICTIONS 7
- --------------------------------------------------
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS 7
- --------------------------------------------------
VALUATION OF SHARES 17
- --------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 17
- --------------------------------------------------
TAXES 17
- --------------------------------------------------
PURCHASE OF SHARES 17
- --------------------------------------------------
REDEMPTION OF SHARES 18
- --------------------------------------------------
PERFORMANCE 18
- --------------------------------------------------
MANAGEMENT OF THE CONCERT SERIES 18
- --------------------------------------------------
SHARES OF THE CONCERT SERIES 20
- --------------------------------------------------
APPENDIX A-1
- --------------------------------------------------
</TABLE>
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained
in this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Concert Series or the Distributor. This Prospectus does not constitute an
offer by the Concert Series or the Distributor to sell or a solicitation of
an offer to buy any of the securities offered hereby or securities of any
Underlying Smith Barney Fund in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
2
<PAGE>
Smith Barney Concert Series Inc.
PROSPECTUS SUMMARY DATE
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVES The Concert Series is an open-end, non-diversified man-
agement investment company that currently offers ten professionally managed
investment portfolios. The Select High Growth Portfolio seeks to provide capi-
tal appreciation. The Select Growth Portfolio seeks to provide long-term
growth of capital. The Select Balanced Portfolio seeks to provide a balance of
growth of capital and income. The Select Conservative Portfolio seeks to pro-
vide income and, secondarily, long-term growth of capital. The Select Income
Portfolio seeks to provide high current income. Each Select Portfolio seeks to
achieve its investment objective by investing in a diverse mix of "Underlying
Smith Barney Funds," which consist of open-end management investment companies
or series thereof for which Smith Barney Inc. ("Smith Barney") now or in the
future acts as principal underwriter or for which Smith Barney, Smith Barney
Mutual Funds Management Inc. ("SBMFM") or Smith Barney Strategy Advisers Inc.
("SBSA") now or in the future acts as investment adviser. In addition, each
Select Portfolio may invest its short-term cash in repurchase agreements.
Investors may choose to invest in one or more of the Select Portfolios based
on their personal investment goals, risk tolerance and financial circumstanc-
es. See "Investment Objectives and Management Policies."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Redemption of Shares."
MANAGEMENT OF EACH PORTFOLIO Travelers Investment Adviser, Inc. ("TIA") serves
as each Select Portfolio's investment manager. TIA is an indirect wholly owned
subsidiary of Travelers Group Inc. ("Travelers"), a diversified financial
services holding company engaged, through its subsidiaries, principally in
four business segments: Investment Services, Consumer Finance Services, Life
Insurance Services and Property & Casualty Insurance Services.
SBMFM serves as the investment adviser of each of the Underlying Smith Barney
Funds (other than Smith Barney Premium Total Return Fund). SBSA, a wholly
owned subsidiary of SBMFM, serves as investment adviser to Smith Barney Pre-
mium Total Return Fund. See "Management of the Concert Series."
VALUATION OF SHARES Net asset value of each Portfolio for the prior day gener-
ally will be quoted daily in the financial section of most newspapers and is
also available from a Smith Barney Financial Consultant. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS The Concert Series intends to pay dividends from
net investment income monthly on shares of the Select Income Portfolio, quar-
terly on shares of the Select Conservative Portfolio and the Select Balanced
Portfolio and annually on shares of the Select High Growth Portfolio and the
Select Growth Portfolio. Distributions of net realized capital gains, if any,
are paid annually for each Portfolio. See "Dividends, Distributions and Tax-
es."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Portfolio will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Portfolio at current net asset val-
ue. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS The assets of each Portfolio are
invested in certain Underlying Smith Barney Funds, thus each Portfolio's
investment performance is directly related to the investment performance of
the Underlying Smith Barney Funds held. The ability of each Portfolio to meet
its investment objective is directly related to the ability of the Underlying
Smith Barney Funds held to meet their objectives as well as the allocation
among those Underlying Smith Barney Funds by TIA. There can be no assurance
that the investment objective of any Portfolio or any Underlying Smith Barney
Fund will be achieved.
The value of the Underlying Smith Barney Funds' investments, and thus the net
asset value of both those Underlying Smith Barney Funds' and the Select Port-
folios' shares, will fluctuate in response to changes in market and economic
conditions, as well as the financial condition and prospects of issuers in
which the Underlying Smith Barney Funds invest. For a description of the risks
involved in an investment in the Select Portfolios, see "Investment Objectives
and Management Policies," "Description of the Underlying Smith Barney Funds"
and the Appendix to this Prospectus.
3
<PAGE>
Smith Barney Concert Series Inc.
WHY INVEST IN THE CONCERT SERIES
The Select Portfolios are designed to meet the needs of investors who prefer
to have their asset allocation decisions made by professional money managers,
and appreciate the advantages of broad diversification.
The Concert Series will be managed so that each Portfolio can serve as a com-
plete investment program or as a core part of a larger portfolio. Each of the
Portfolios invests in a select group of Underlying Smith Barney Funds suited
to the Portfolio's particular investment objective. The allocation of assets
among Underlying Smith Barney Funds within each Portfolio is determined by TIA
according to fundamental and quantitative analysis. Because the assets will be
adjusted only periodically and only within pre-determined ranges that will
attempt to ensure broad diversification, there should not be any sudden large-
scale changes in the allocation of a Portfolio's investments among Underlying
Smith Barney Funds. The Concert Series is not designed as a market timing
vehicle, but rather as a simple and conservative approach to helping investors
meet retirement and other long-term goals.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Concert Series is an open-end, non-diversified, management investment
company that currently offers ten managed investment portfolios. Each portfo-
lio seeks to achieve its investment objective by investing within specified
ranges among Underlying Smith Barney Funds, as well as in repurchase agree-
ments. Initially, each portfolio will invest in the Underlying Smith Barney
Funds listed below.
The investment manager for each of the Select Portfolios, TIA, will allocate
investments for each Portfolio among Underlying Smith Barney Funds based on
its outlook for the economy, financial markets and the relative performance of
the Underlying Smith Barney Funds. The allocation among the Underlying Smith
Barney Funds will be made within investment ranges established by the Board of
Directors of the Concert Series which designate minimum and maximum percent-
ages for each of the Underlying Smith Barney Funds.
The Select High Growth Portfolio's investment objective is to seek capital
appreciation. The Select Growth Portfolio's investment objective is to seek
long-term growth of capital. The Select Balanced Portfolio's investment objec-
tive is to seek a balance of growth of capital and income. The Select Conser-
vative Portfolio's investment objective is to seek income and, secondarily,
long-term growth of capital. The Select Income Portfolio's investment objec-
tive is to seek high current income. Each Portfolio's investment objective is
fundamental and may be changed only with the approval of a majority of the
Portfolio's outstanding shares. There can be no assurance that any Portfolio's
investment objective will be achieved.
4
<PAGE>
Smith Barney Concert Series Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED) DATE
In investing in Underlying Smith Barney Funds, the Select Portfolios seek to
maintain different allocations between equity funds and fixed income funds (in-
cluding money market funds) depending on a Portfolio's investment objective.
Allocating investments between equity funds and fixed income funds permits each
Portfolio to attempt to optimize performance consistent with its investment
objective. The tables below illustrate the initial equity/fixed income fund
allocation targets and ranges for each Select Portfolio:
Equity/Fixed Income Fund Range (Percent of Each Portfolio's Net Assets)
<TABLE>
<CAPTION>
TYPE OF FUND TARGET RANGE
- ----------------------------------------------
<S> <C> <C>
Select High Growth Portfolio
Equity 90% 80%-100%
Fixed Income 10% 0%- 20%
Select Growth Portfolio
Equity 70% 60%- 80%
Fixed Income 30% 20%- 40%
Select Balanced Portfolio
Equity 50% 40%- 60%
Fixed Income 50% 40%- 60%
Select Conservative Portfolio
Equity 30% 20%- 40%
Fixed Income 70% 60%- 80%
Select Income Portfolio
Equity 10% 0%- 20%
Fixed Income 90% 80%-100%
- ----------------------------------------------
</TABLE>
The Select Portfolios invest their assets in the Underlying Smith Barney Funds
listed below within the ranges indicated.
Investment Range (Percent of Each Portfolio's Net Assets)
<TABLE>
<CAPTION>
SELECT SELECT SELECT SELECT SELECT
HIGH GROWTH GROWTH BALANCED CONSERVATIVE INCOME
UNDERLYING SMITH BARNEY FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Smith Barney Aggressive
Growth Fund Inc. 10-30% 0-15% -- -- --
Smith Barney Appreciation
Fund Inc. 0-20% 10-30% 0-20% -- --
Smith Barney Equity
Funds:
Smith Barney Growth and
Income Fund 0-20% 0-20% 5-20% -- --
Smith Barney Fundamental
Value Fund Inc. 0-20% 10-30% 0-20% -- --
Smith Barney Funds, Inc.:
Equity Income Portfolio -- 0-20% 5-20% 5-20% 0-15%
Short-Term U.S. Treasury
Securities Portfolio -- 0-15% 5-20% 5-20% 5-30%
Smith Barney Income
Funds:
Smith Barney High Income
Fund 0-20% 5-20% 0-15% 0-20% 0-20%
Smith Barney Utilities
Fund -- 0-20% 5-20% 5-20% 0-15%
Smith Barney Premium
Total Return Fund -- -- 5-20% 5-25% 0-15%
Smith Barney Convertible
Fund -- -- 5-20% 5-15% 0-15%
Smith Barney Diversified
Strategic Income Fund -- -- 5-25% 10-30% 10-30%
Smith Barney Investment
Funds Inc.:
Smith Barney Managed
Growth Fund 0-20% 10-30% 0-15% -- --
Smith Barney Special
Equities Fund 10-30% 0-15% -- -- --
Smith Barney Government
Securities Fund 0-15% 0-20% 0-20% 5-20% 5-20%
Smith Barney Investment
Grade Bond Fund 0-15% 0-15% -- -- 0-15%
Smith Barney Managed
Governments Fund Inc. -- 0-15% 5-20% 5-25% 5-30%
Smith Barney Money Funds,
Inc.:
Cash Portfolio 0-20% 0-20% 0-25% 0-30% 0-30%
Smith Barney Natural
Resources Fund Inc. 0-10% 0-10% 0-10% -- --
Smith Barney World Funds,
Inc.:
International Equity
Portfolio 10-25% 5-20% 0-15% 0-10% 0-10%
Emerging Markets
Portfolio 0-20% -- -- -- --
International Balanced
Portfolio 0-15% 0-10% 0-10% 0-10% 0-10%
Global Government Bond
Portfolio 0-15% 0-15% 0-15% 0-20% 0-20%
- ------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Smith Barney Concert Series Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
The Underlying Smith Barney Funds have been selected to represent a broad
spectrum of investment options for the Select Portfolios. The equity/fixed
income ranges and the investment ranges are based on the degree to which the
Underlying Smith Barney Funds selected are expected in combination to be appro-
priate for a Portfolio's particular investment objective. If, as a result of
appreciation or depreciation, the percentage of a Portfolio's assets invested
in an Underlying Smith Barney Fund exceeds or is less than the applicable per-
centage limitations set forth above, TIA will consider, in its discretion,
whether to reallocate the assets of the Portfolio to comply with the foregoing
percentage limitations. THE PARTICULAR UNDERLYING SMITH BARNEY FUNDS IN WHICH
EACH PORTFOLIO MAY INVEST, THE EQUITY/FIXED INCOME FUND TARGETS AND RANGES AND
THE INVESTMENT RANGES APPLICABLE TO EACH UNDERLYING SMITH BARNEY FUND MAY BE
CHANGED FROM TIME TO TIME BY THE CONCERT SERIES' BOARD OF DIRECTORS WITHOUT THE
APPROVAL OF THE PORTFOLIO'S SHAREHOLDERS.
Each Portfolio can invest a certain portion of its cash reserves in repurchase
agreements. Each Portfolio may also invest its cash reserves in the Cash Port-
folio of Smith Barney Money Funds, Inc. A reserve position provides flexibility
in meeting redemptions, expenses and the timing of new investments, and serves
as a short-term defense during periods of unusual volatility.
For information about the investment objectives of each of the Underlying
Smith Barney Funds and the investment techniques and the risks involved in the
Underlying Smith Barney Funds, please refer to "Description of the Underlying
Smith Barney Funds," the Appendix to this Prospectus, the Statement of Addi-
tional Information and the prospectus for each of the Underlying Smith Barney
Funds.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Non-Diversified Investment Company. The Concert Series is a "non-diversified"
investment company for purposes of the Investment Company Act of 1940, as
amended (the "1940 Act"), because it invests in the securities of a limited
number of mutual funds. However, the Underlying Smith Barney Funds themselves
are diversified investment companies (with the exception of the Global Govern-
ment Bond Portfolio, the International Balanced Portfolio and the Emerging Mar-
kets Portfolio). The Concert Series intends to qualify as a diversified invest-
ment company for the purposes of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code").
Investing in Underlying Smith Barney Funds. The investments of each Portfolio
are concentrated in the Underlying Smith Barney Funds, so each Portfolio's
investment performance is directly related to the investment performance of the
Underlying Smith Barney Funds held by it. The ability of each Portfolio to meet
its investment objective is directly related to the ability of the Underlying
Smith Barney Funds to meet their objectives as well as the allocation among
those Underlying Smith Barney Funds by TIA. There can be no assurance that the
investment objective of any Portfolio or any Underlying Smith Barney Fund will
be achieved.
Affiliated Persons. TIA, the investment manager of the Select Portfolios, and
the officers and directors of the Concert Series presently serve as investment
adviser, officers and directors, respectively, of many of the Underlying Smith
Barney Funds. Therefore, conflicts may arise as these persons fulfill their
fiduciary responsibilities to the Select Portfolios and the Underlying Smith
Barney Funds.
Investment Practices of Underlying Smith Barney Funds. In addition to their
principal investments, certain Underlying Smith Barney Funds may: invest a por-
tion of their assets in foreign securities; enter into forward currency trans-
actions; lend their portfolio securities; enter into stock index, interest
rate, currency and gold futures contracts, and options on such contracts;
engage in options transactions; make short sales; purchase zero coupon bonds
and payment-in-kind bonds; purchase restricted and illiquid securities; enter
into forward roll transactions; purchase securities on a when-issued or delayed
delivery basis; enter into repurchase or reverse repurchase agreements; borrow
money; and engage in various other investment practices.
High Yield Securities. Each of the Portfolios also may invest in an Underlying
Smith Barney Fund that invests primarily in high yield, high risk securities,
commonly referred to as junk bonds. As a result, the Select Portfolios may be
subject to some of the risks resulting from high yield investing. Further, each
of the Portfolios may invest in Underlying Smith Barney Funds that invest in
medium grade bonds. If these bonds are downgraded, the Select Portfolios will
consider whether to increase or decrease their investment in the affected
Underlying Smith Barney Fund. Lower quality debt instruments generally offer a
higher current yield than that available from higher grade issues, but typi-
cally involve greater risk. Lower rated and compara
6
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Smith Barney Concert Series Inc.
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED) DATE
ble unrated securities are especially subject to adverse changes in general
economic conditions, to changes in the financial condition of their issuers,
and to price fluctuation in response to changes in interest rates. During peri-
ods of economic downturn or rising interest rates, issuers of these instruments
may experience financial stress that could adversely affect their ability to
make payments of principal and interest and increase the possibility of
default. Further information on these investment policies and practices can be
found under "Description of the Underlying Smith Barney Funds," in the Appendix
to this Prospectus and in the Statement of Additional Information as well as
the prospectus of each Underlying Smith Barney Fund.
Concentration. Each Portfolio other than the Select High Growth Portfolio may
invest in an Underlying Smith Barney Fund that concentrates its investments in
the utilities industry. Under certain unusual circumstances, this could result
in those Portfolios being indirectly concentrated in this industry. If this
were to occur, the relevant Portfolios would consider whether to maintain or
change their investment in that Underlying Smith Barney Fund.
Market and Economic Factors. The Select Portfolios' share prices and yields
will fluctuate in response to various market and economic factors related to
both the stock and bond markets. All Select Portfolios may invest in mutual
funds that in turn invest in international securities and thus are subject to
additional risks of these investments, including changes in foreign currency
exchange rates and political risk.
PORTFOLIO TURNOVER
Each Portfolio's turnover rate is not expected to exceed 25% annually. A Port-
folio may purchase or sell securities to: (a) accommodate purchases and sales
of its shares; (b) change the percentages of its assets invested in each of the
Underlying Smith Barney Funds in response to market conditions; and (c) main-
tain or modify the allocation of its assets between equity and fixed income
funds and among the Underlying Smith Barney Funds within the percentage limits
described above.
The turnover rates of the Underlying Smith Barney Funds have ranged from 16%
to 292% during their most recent fiscal years. There can be no assurance that
the turnover rates of these funds will remain within this range during subse-
quent fiscal years. Higher turnover rates may result in higher expenses being
incurred by the Underlying Smith Barney Funds.
INVESTMENT RESTRICTIONS
In addition to the investment objectives of each Portfolio, the Concert Series
has adopted restrictions with respect to each Portfolio that may not be changed
without approval of a majority of the Portfolio's outstanding shares. The fun-
damental investment restrictions imposed by the Concert Series prohibit each
Portfolio from, among other things: (i) borrowing money except from banks for
temporary or emergency purposes, including the meeting of redemption requests
in an amount not exceeding 33 1/3% of the value of the Portfolio's total assets
(including the amount borrowed) valued at market less liabilities (not includ-
ing the amount borrowed) at the time the borrowing is made and (ii) making
loans to others, except through the purchase of portfolio securities consistent
with its investment objective and policies and through entering into repurchase
agreements.
Certain other investment restrictions, including fundamental restrictions as
well as restrictions that may be changed without a shareholder vote, adopted by
the Concert Series are described in the Statement of Additional Information.
Investment restrictions of the Underlying Smith Barney Funds in which the
Select Portfolios invest may be more or less restrictive than those adopted by
the Concert Series.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS
The following is a concise description of the investment objectives and prac-
tices for each of the Underlying Smith Barney Funds in which the Select Portfo-
lios may invest. There can be no assurance that the investment objectives of
the Underlying Smith Barney Funds will be met. Additional information regarding
the investment practices of the Underlying Smith Barney Funds is located in the
Appendix to this Prospectus, in the Statement of Additional Information and in
the prospectus of each of the Underlying Smith Barney Funds. No offer is made
in this Prospectus of any of the Underlying Smith Barney Funds.
7
<PAGE>
Smith Barney Concert Series Inc.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED)
EQUITY FUNDS The following Underlying Smith Barney Funds are funds that invest
primarily in equity securities.
Smith Barney Aggressive Growth Fund Inc. seeks capital appreciation by invest-
ing primarily in common stock of companies the Fund's investment adviser
believes are experiencing, or have the potential to experience, growth in earn-
ings that exceed the average earnings growth rate of companies whose securities
are included in the Standard & Poor's Daily Price Index of 500 Common Stocks
(the "S&P 500"), a weighted index that measures the aggregate change in market
value of 400 industrials, 60 transportation stocks and utility companies and 40
financial issues. SBMFM focuses its stock selection for the Fund on a diversi-
fied group of small- or medium-sized emerging growth companies that have passed
their "start-up" phase and show positive earnings and the prospect of achieving
significant profit gains in the two to three years after the Fund acquires
their stocks. These companies generally may be expected to benefit from new
technologies, techniques, products or services or cost-reducing measures, and
may be affected by changes in management, capitalization or asset deployment,
government regulations or other external circumstances.
Although SBMFM anticipates that the assets of the Fund ordinarily will be
invested primarily in common stocks of U.S. companies, the Fund may invest in
convertible securities, preferred stocks, securities of foreign issuers, war-
rants and restricted securities. The Fund also is authorized to borrow up to 33
1/3% of its total assets less liabilities for leveraging purposes. Securities
of the kinds of companies in which the Fund invests may be subject to signifi-
cant price fluctuation and above average risk.
Smith Barney Appreciation Fund Inc. seeks long-term appreciation of sharehold-
ers' capital. The Fund attempts to achieve its investment objective by invest-
ing primarily in equity securities (consisting of common stocks, preferred
stocks, warrants, rights and securities convertible into common stocks) that
are believed to afford attractive opportunities for investment appreciation.
The core holdings of the Fund are blue chip companies that are dominant in
their industries; however, at the same time, the Fund may hold securities of
companies with prospects of sustained earnings growth and/or companies with a
cyclical earnings record if it is felt these offer attractive investment oppor-
tunities. Typically, the Fund invests in middle- and larger-sized companies,
though it does invest in smaller companies whose securities may reasonably be
expected to appreciate. The Fund's investments are spread broadly among differ-
ent industries. The Fund may hold issues traded over-the-counter as well as
those listed on one or more national securities exchanges, and the Fund may
make investments in foreign securities although management intends to limit
such investments to 10% of the Fund's assets.
Smith Barney Fundamental Value Fund Inc.'s investment objective is long-term
capital growth. Current income is a secondary objective. The Fund seeks to
achieve its primary objective by investing in a diversified portfolio of common
stocks and common stock equivalents and, to a lesser extent, in bonds and other
debt instruments. The Fund's investment emphasis is on securities that are
undervalued in the marketplace and, accordingly, have above-average potential
for capital growth. In general, the Fund invests in securities of companies
that are temporarily unpopular among investors but which SBMFM regards as pos-
sessing favorable prospects for earnings growth and/or improvements in the
value of their assets and, consequently, as having a reasonable likelihood of
experiencing a recovery in market price.
Smith Barney Special Equities Fund, an investment portfolio of Smith Barney
Investment Funds Inc., seeks long-term capital appreciation by investing in
equity securities (common stocks or securities that are convertible into or
exchangeable for such stocks, including warrants) that SBMFM believes to have
superior appreciation potential. The Fund invests primarily in equity securi-
ties of secondary growth companies, generally not within the S&P 500, as iden-
tified by SBMFM. These companies may not have reached a fully mature stage of
earnings growth, since they may still be in the developmental stage, or may be
older companies that appear to be entering a new stage of more rapid earnings
progress due to factors such as management change or development of new tech-
nology, products or markets. A significant number of these companies may be in
technology areas, including health care related sectors, and may have annual
sales of less than $300 million. The Fund may also choose to invest in some
relatively unseasoned stocks, i.e., securities issued by companies whose market
capitalization is under $100 million. Investing in smaller, newer issuers gen-
erally involves greater risk than investing in larger, more established
issuers.
Smith Barney Managed Growth Fund, an investment portfolio of Smith Barney
Investment Funds Inc., has as its investment objective long term growth of cap-
ital. The Fund attempts to achieve its objective by investing primarily in
undervalued or out of favor common stock and other securities, including debt
securities that are convertible into common stock and that are currently price
depressed. Such securities might typically be valued at the low end of their
52-week trading range. Although under normal circumstances the Fund's portfolio
will primarily consist of these securities, the Fund may also invest in pre-
ferred stocks and warrants when SBMFM perceives an opportunity for capital
growth from such securities.
8
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Smith Barney Concert Series Inc.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED) DATE
The Natural Resources Fund seeks long-term capital appreciation by investing
at least 65% under normal market conditions in "Natural Resource Investments."
Natural Resource Investments are defined as equity and debt securities of
issuers that: (1) own or process natural resources, such as precious metals,
other minerals, water, timberland, agricultural commodities and forest prod-
ucts; (2) own or produce sources of energy such as oil, natural gas, coal, ura-
nium, geothermal, oil shale and biomass; (3) participate in the exploration and
development, transportation, distribution and/or processing of natural
resources; (4) own or control oil, gas, or other mineral leases, rights or roy-
alties; (5) provide related services or supplies, such as drilling, well ser-
vicing, chemicals, parts and equipment; (6) develop or participate in energy-
efficient technologies; and (7) are involved in the upgrading or processing of
raw commodities into intermediate products. The Fund may also invest in gold
bullion and gold coins. (A company is considered a "Natural Resources Invest-
ment" when it derives at least 50% of its total revenue from a business or
activity described above.)
Up to 35% of the Fund's assets may be invested in companies not in the natural
resources area, investment grade corporate debt securities, U.S. Government
securities and, for cash management purposes, money market instruments. For
temporary defensive purposes, the Fund may invest in excess of 35% in money
market instruments. The Fund may utilize up to 10% of its assets to purchase
put options on securities it owns and up to an additional 10% of its assets to
purchase call options on securities it may acquire in the future. The Fund may
purchase only put options that are traded on a regulated exchange. It also may
write covered put and call options on securities. The Fund may enter into
futures on domestic and foreign stock indexes and purchase and write related
put and call options to hedge against risks of market-wide movements affecting
that portion of its assets invested in the country whose stocks are subject to
the hedges.
The Fund may invest in debt securities when SBMFM believes they will enhance
the Fund's ability to achieve long-term capital appreciation. The Fund may
invest in fixed-income securities that are rated as low as B by Moody's Invest-
ors Service, Inc. ("Moody's") or Standard & Poor's Rating Services ("S&P") or
if unrated, are deemed by SBMFM to be of comparable quality.
Because issuers of Natural Resource Investments often are located outside the
United States, a significant portion of the Fund's investments may consist of
securities of foreign issuers. The percentage of assets invested in particular
countries or regions will change from time to time in accordance with the judg-
ment of the Fund's investment manager, which may be based on, among other
things, consideration of the political stability and economic outlook of these
countries or regions.
The Equity Income Portfolio, an investment portfolio of Smith Barney Funds,
Inc., seeks current income and long-term growth of capital. The Fund invests
primarily in common stocks offering a current return from dividends and will
also normally include some interest-paying debt obligations (such as U.S. gov-
ernment obligations, investment grade bonds and debentures) and high quality
short-term debt obligations (such as commercial paper and repurchase agreements
collateralized by U.S. government securities with broker/dealers or other
financial institutions, including the Fund's custodian) and may also purchase
preferred stocks and convertible securities. Temporary defensive investments or
a higher percentage of debt securities may be held when deemed advisable by
SBMFM, the Fund's adviser. In the selection of common stock investments, empha-
sis is generally placed on issues with established dividend records as well as
potential for price appreciation. From time to time, however, a portion of the
assets may be invested in non-dividend paying stocks. The Fund may make invest-
ments in foreign securities, though management currently intends to limit such
investments to 5% of the Fund's assets, and an additional 10% of its assets may
be invested in American Depository Receipts ("ADRs") representing shares in
foreign securities that are traded in U.S. securities markets.
Smith Barney Growth and Income Fund, an investment portfolio of Smith Barney
Equity Funds, seeks long-term capital growth and income by investing in income
producing equity securities, including dividend-paying common stocks, securi-
ties that are convertible into common stocks and warrants. Consistent with data
used in developing and maintaining quantitative investment criteria developed
by SBMFM to evaluate investment decisions, the Fund expects to invest primarily
in domestic companies of varying sizes, generally with capitalizations exceed-
ing $250 million in a wide range of industries. The Fund may also invest up to
20% in the securities of foreign issuers, including ADRs or European Depository
Receipts. Under normal market conditions, the Fund will invest substantially
all, but not less than 65%, of its assets in equity securities. The Fund may
invest the remainder of its assets in high grade money market instruments in
order to develop income, as well as in corporate bonds and mortgage related
securities that are rated investment grade or are deemed by SBMFM to be of com-
parable quality and in U.S. government securities.
9
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Smith Barney Concert Series Inc.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED) DATE
Smith Barney Premium Total Return Fund, an investment portfolio of Smith Bar-
ney Income Funds, seeks to provide shareholders with total return, consisting
of long-term capital appreciation and income, by investing primarily in a
diversified portfolio of dividend-paying common stocks. The Fund also purchases
put and call options and writes covered put and call options on securities it
holds and on stock indexes primarily as a hedge to reduce investment risk.
Because the Fund seeks total return by emphasizing investments in dividend-pay-
ing common stocks, it will not have as much investment flexibility as total
return funds that may pursue their objective by investing in both income and
equity stocks without such an emphasis. The Fund also may invest up to 10% of
its assets in: (a) securities rated less than investment grade by Moody's or
S&P or unrated securities of comparable quality; (b) interest-paying debt secu-
rities, such as U.S. government securities; and (c) other securities, including
convertible bonds, convertible preferred stock and warrants.
The Emerging Markets Portfolio, an investment portfolio of Smith Barney World
Funds, Inc., seeks long term capital appreciation on its assets through a port-
folio invested primarily in securities of emerging country issuers (consisting
of dividend and non-dividend paying common stocks, preferred stocks, convert-
ible securities and rights and warrants to such securities). The Fund will also
invest in debt securities having a high potential for capital appreciation,
especially in countries where direct equity investment is not permitted. Under
normal conditions, at least 70% of the Fund's assets will be invested in equity
securities. For purposes of its investment objective, the Fund considers as
"emerging" all countries other than the United States, Canada, Ireland, the
United Kingdom, Sweden, Norway, Finland, Denmark, Holland, Germany, Switzer-
land, Belgium, France, Italy, Spain and Japan. The Fund is a non-diversified
portfolio, but will generally invest its assets broadly among countries and
will normally have at least 65% of its assets invested in issuers in not less
than three different countries.
The Fund also may invest in debt securities of issuers in countries having
smaller capital markets. Capital appreciation in debt securities may arise as a
result of a favorable change in relative foreign exchange rates, in relative
interest rate levels, or in the creditworthiness of issuers. The Fund will not
seek to benefit from anticipated short-term fluctuations in currency exchange
rates. The Fund may invest in debt securities with relatively high yields (as
compared to other debt securities meeting the Fund's investment criteria), not-
withstanding that the Fund may not anticipate that such securities will experi-
ence substantial capital appreciation. The Fund also may invest in debt securi-
ties issued or guaranteed by foreign governments (including foreign states,
provinces and municipalities) or their agencies and instrumentalities, issued
or guaranteed by supranational organizations or issued by foreign corporations
or financial institutions.
The International Equity Portfolio, an investment portfolio of Smith Barney
World Funds, Inc., seeks a total return on its assets from growth of capital
and income. Under normal market conditions, the Fund invests at least 65% of
its assets in a diversified portfolio of equity securities consisting of divi-
dend and non-dividend paying common stock, preferred stock, convertible debt
and rights and warrants to such securities and up to 35% of the Fund's assets
in bonds, notes and debt securities (consisting of securities issued in the
Eurocurrency markets or obligations of the U.S. or foreign governments and
their political subdivisions) of established non-U.S. issuers. Investments may
be made for capital appreciation or for income or any combination of both for
the purpose of achieving a higher overall return than might otherwise be
obtained solely from investing for growth of capital or for income. There is no
limitation on the percent or amount of the Fund's assets that may be invested
for growth or income and, therefore, from time to time the investment emphasis
may be placed solely or primarily on growth of capital or solely or primarily
on income. The Fund may borrow up to 25% of the value of its assets for invest-
ment purposes, which involves certain risk considerations.
The Fund will generally invest its assets broadly among countries and will
normally have represented in the portfolio business activities in not less than
three different countries. The Fund will normally invest at least 65% of its
assets in companies organized or governments located in any area of the world
other than the U.S. However, under unusual economic or market conditions as
determined by the investment adviser, for defensive purposes the Fund may tem-
porarily invest all or a major portion of its assets in U.S. government securi-
ties or in debt or equity securities of companies incorporated in and having
their principal business activities in the U.S.
FIXED INCOME FUNDS The following Underlying Smith Barney Funds invest primarily
in fixed income securities, including the money market fund in which each Port-
folio may invest and which may serve as the cash reserve portion of each Port-
folio.
Smith Barney High Income Fund, an investment portfolio of the Smith Barney
Income Funds, seeks to provide shareholders with high current income. Although
growth of capital is not an investment objective of the Fund, SBMFM may con-
sider potential for growth as one factor, among others, in selecting invest-
ments for the Fund. The Fund will seek high current income by investing, under
normal circumstances, at least 65% of its assets in high risk, high-yielding
corporate bonds, deben-
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Smith Barney Concert Series Inc.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED) DATE
tures and notes denominated in U.S. dollars or foreign currencies. Up to 40%
of the Fund's assets may be invested in fixed-income obligations of foreign
issuers, and up to 20% of its assets may be invested in common stock or other
equity-related securities, including convertible securities, preferred stock,
warrants and rights. Securities purchased by the Fund generally will be rated
in the lower rating categories of recognized rating agencies, as low as Caa by
Moody's or D by S&P, or in unrated securities that SBMFM deems of comparable
quality. However, the Fund will not purchase securities rated lower than B by
both Moody's and S&P unless, immediately after such purchase, no more than 10%
of its total assets are invested in such securities. The Fund may hold securi-
ties with higher ratings when the yield differential between low-rated and
higher-rated securities narrows and the risk of loss may be reduced substan-
tially with only a relatively small reduction in yield. The Fund also may
invest in higher-rated securities when SBMFM believes that a more defensive
investment strategy is appropriate in light of market or economic conditions.
Smith Barney Investment Grade Bond Fund, an investment portfolio of Smith
Barney Investment Funds Inc., seeks to provide as high a level of current
income as is consistent with prudent investment management and preservation of
capital. Except when in a temporary defensive investment position, the Fund
intends to maintain at least 65% of its assets invested in bonds. The Fund
seeks to achieve its objective by investing in any of the following securi-
ties: corporate bonds rated Baa or better by Moody's or BBB or better by S&P;
U.S. government securities; commercial paper issued by domestic corporations
and rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P, or, if not rat-
ed, issued by a corporation having an outstanding debt issue rated Aa or bet-
ter by Moody's or AA or better by S&P; negotiable bank certificates of deposit
and bankers' acceptances issued by domestic banks (but not their foreign
branches) having total assets in excess of $1 billion; and high-yielding com-
mon stocks and warrants. A reduction in the rating of a security does not
require the sale of the security by the Fund.
Smith Barney Government Securities Fund, an investment portfolio of Smith
Barney Investment Funds Inc., seeks high current return by investing in obli-
gations of, or guaranteed by, the U.S. government, its agencies or instrumen-
talities ("U.S. government securities") (including, without limitation, Trea-
sury bills and bonds, mortgage participation certificates issued by the Fed-
eral Home Loan Mortgage Corporation ("FHLMC") and mortgage-backed securities
issued by the Government National Mortgage Association ("GNMA"). The Fund may
invest up to 5% of its net assets in U.S. government securities for which the
principal repayment at maturity, while paid in U.S. dollars, is determined by
reference to the exchange rate between the U.S. dollar and the currency of one
or more foreign countries. In addition, the Fund may borrow money (up to 25%
of its total assets) to increase its investments, thereby leveraging its port-
folio and exaggerating the effect on net asset value of any increase or
decrease in the market value of the Fund's securities. Except when in a tempo-
rary defensive investment position, the Fund intends to maintain at least 65%
of its assets invested in U.S. government securities (including futures con-
tracts and options thereon and options relating to U.S. government securi-
ties).
The Short-Term U.S. Treasury Securities Portfolio, an investment portfolio of
Smith Barney Funds, Inc., seeks current income, preservation of capital and
liquidity. The Fund seeks to achieve its objective by investing its assets in
U.S. Treasury securities backed by the full faith and credit of the U.S. gov-
ernment. Shares of the Fund are not issued, insured or guaranteed, as to value
or yield, by the U.S. government or its agencies or instrumentalities. In an
effort to minimize fluctuations in market value of its portfolio securities,
the Fund is expected to maintain a dollar-weighted average maturity of approx-
imately three years. Pending direct investment in U.S. Treasury debt securi-
ties, the Fund may enter into repurchase agreements secured by such securities
in an amount up to 10% of the value of its total assets. The Fund may, to a
limited degree, engage in short-term trading to attempt to take advantage of
short-term market variations, or may dispose of a portfolio security prior to
its maturity if it believes such disposition advisable or it needs to generate
cash to satisfy redemptions.
Smith Barney Managed Governments Fund Inc. seeks high current income consis-
tent with liquidity and safety of capital. The Fund invests substantially all
of its assets in U.S. government securities and, under normal circumstances,
the Fund is required to invest at least 65% of its assets in such securities.
The Fund's portfolio of U.S. government securities consists primarily of mort-
gage-backed securities issued or guaranteed by GNMA, the Federal National
Mortgage Association ("FNMA") and FHLMC. Assets not invested in such mortgage-
backed securities are invested primarily in direct obligations of the United
States Treasury and other U.S. government securities. The weighted average
maturity of the Fund's portfolio will vary from time to time and the Fund may
invest in U.S. government securities of all maturities: short-term, intermedi-
ate-term and long-term. The Fund may invest without limit in securities of any
issuer of U.S. government securities, and may invest up to an aggregate of 15%
of its total assets in securities with contractual or other restrictions on
resale and other instruments that are not readily marketable (such as repur-
chase agreements with maturities in excess of seven days). The Fund may invest
11
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Smith Barney Concert Series Inc.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED) DATE
up to 5% of its net assets in U.S. government securities for which the princi-
pal repayment at maturity, while paid in U.S. dollars, is determined by refer-
ence to the exchange rate between the U.S. dollar and the currency of one or
more foreign countries.
Smith Barney Diversified Strategic Income Fund, an investment portfolio of
Smith Barney Income Funds, seeks high current income primarily through invest-
ment in fixed-income securities. The Fund attempts to achieve its objective by
allocating and reallocating its assets primarily among various types of fixed-
income securities selected by Greenwich Street Advisors (a division of SBMFM)
based on its analysis of economic and market conditions and the relative risks
and opportunities of particular securities. The types of fixed-income securi-
ties among which the Fund's assets will be primarily allocated are: obligations
issued or guaranteed as to principal and interest by the United States govern-
ment; mortgage-related securities issued by various governmental and non-gov-
ernmental entities; domestic and foreign corporate securities; and foreign gov-
ernment securities. Under normal conditions, at least 65% of the Fund's assets
will be invested in fixed-income securities, which includes non-convertible
preferred stocks. The Fund generally will invest in intermediate- and long-term
fixed-income securities with the result that, under normal market conditions,
the weighted average maturity of the Fund's securities is expected to be
between five and 12 years.
Mortgage-related securities in which the Fund may invest include mortgage
obligations collateralized by mortgage loans or mortgage pass-through certifi-
cates. Mortgage-related securities held by the Fund generally will be rated no
lower than Aa by Moody's or AA by S&P or, if not rated, of equivalent invest-
ment quality as determined by Greenwich Street Advisors. The Fund may invest up
to 35% of its assets in corporate fixed-income securities of domestic issuers
rated Ba or lower by Moody's or BB or lower by S&P or in nonrated securities
deemed by Greenwich Street Advisors to be of comparable quality. The Fund may
invest in fixed-income securities rated as low as Caa by Moody's or CCC by S&P.
In general, the Fund may invest in debt securities issued by foreign govern-
ments or any of their political subdivisions that are considered stable by
Smith Barney Global Capital Management, Inc., the Fund's subadviser. Up to 5%
of the Fund's assets may be invested in foreign securities issued by countries
with developing economies. The Fund may also invest in securities issued by
supranational organizations.
The Global Government Bond Portfolio, an investment portfolio of Smith Barney
World Funds, Inc., seeks as high a level of current income and capital appreci-
ation as is consistent with its policy of investing principally in high quality
bonds of the U.S. and foreign governments. Under normal market conditions, the
Fund invests at least 65% of its total assets in bonds issued or guaranteed by
the U.S. or foreign governments (including foreign states, provinces, cantons
and municipalities) or their agencies, authorities or instrumentalities denomi-
nated in various currencies, including U.S. dollars, or in multinational cur-
rency units, such as the European Currency Unit. Except with respect to govern-
ment securities of less developed countries, the Fund invests in foreign gov-
ernment securities only if the issue or the issuer thereof is rated in the two
highest rating categories by Moody's or S&P, or if unrated, are of comparable
quality in the determination of the investment adviser.
Under normal circumstances the Fund may invest up to 35% of its total assets
in debt obligations (including debt obligations convertible into common stock)
of U.S. or foreign corporations and financial institutions and supranational
entities. Any non-governmental investment would be limited to issues that are
rated A or better by Moody's or S&P, or if not rated, determined to be of com-
parable quality by the investment adviser.
The Fund is a non-diversified portfolio and currently contemplates investing
primarily in obligations of the U.S. and of developed nations (i.e., industri-
alized countries) that the investment adviser believes to pose limited credit
risks. These countries currently are Australia, Austria, Belgium, Canada, Den-
mark, Finland, France, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zea-
land, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom and Ger-
many. Investments may be made from time to time in government securities,
including loan assignments and loan participations, of less developed coun-
tries. Such countries currently include Argentina, Brazil, Bulgaria, Czech
Republic, Ecuador, Hungary, Indonesia, Lithuania, Malaysia, Mexico, Peru, Phil-
ippines, Poland, Russia, Slovakia, South Africa, Thailand, Turkey, Uruguay and
Venezuela. Countries may be added or deleted from this list as economic and
political conditions warrant. Historical experience indicates that markets of
less developed countries have been more volatile than the markets of the mature
economies of developed countries; however, such markets often provide rates of
return to investors commensurate with the credit and market risks. The invest-
ment adviser does not intend to invest more than 10% of the Fund's total assets
in government securities of less developed countries and will not invest more
than 5% of its assets in the government securities of any one such country.
12
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Smith Barney Concert Series Inc.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED) DATE
Such investments may be unrated or rated below investment grade or may be in
default. Under normal market conditions the Fund invests at least 65% of its
assets in issues of not less than three different countries; issues of any one
country (other than the United States) will represent no more than 45% of the
Fund's total assets.
The Cash Portfolio is an investment portfolio of Smith Barney Money Funds,
Inc., a money market fund that seeks maximum current income and preservation of
capital. The Fund may invest in domestic and foreign money market securities
consisting of bank obligations and high quality commercial paper, corporate
obligations and municipal obligations, in addition to U.S. government obliga-
tions and related repurchase agreements. The Fund intends to maintain at least
25% of its total assets invested in obligations of domestic and foreign banks.
Shares of the Fund are not insured or guaranteed by the U.S. government.
The Fund has adopted certain investment policies to assure that, to the extent
reasonably possible, the Fund's price per share will not change from $1.00,
although no assurance can be given that this goal will be achieved on a contin-
uous basis. In order to minimize fluctuations in market price, the Fund will
not purchase a security with a remaining maturity of greater than 13 months or
maintain a dollar-weighted average portfolio maturity in excess of 90 days (se-
curities used as collateral for repurchase agreements are not subject to these
restrictions).
The Fund's investments are limited to U.S. dollar-denominated instruments that
have received the highest rating from the "Requisite NRSROs," securities of
issuers that have received such rating with respect to other short-term debt
securities and comparable unrated securities. "Requisite NRSROs" means (a) any
two nationally recognized statistical ratings organizations ("NRSROs") that
have issued a rating with respect to a security or class of debt obligations of
an issuer, or (b) one NRSRO, if only one NRSRO has issued such a rating at the
time that the Fund acquires the security. The NRSROs currently designated as
such by the Securities and Exchange Commission (the "SEC") are S&P, Moody's,
Fitch Investors Services, L.P., Duff and Phelps Inc., IBCA Limited and its
affiliate, IBCA, Inc. and Thomson BankWatch.
For purposes of the equity/fixed income fund allocation targets and ranges
applicable to each Portfolio (see page 5), each of the following Underlying
Smith Barney Funds is considered to be an equity fund with respect to 50% of a
Portfolio's investment in such Fund and an income fund with respect to the
remaining 50% of such Portfolio's investment.
The Smith Barney Convertible Fund, an investment portfolio of Smith Barney
Income Funds, seeks current income and capital appreciation by investing in
convertible securities and in combinations of nonconvertible fixed-income secu-
rities and warrants or call options that together resemble convertible securi-
ties ("synthetic convertible securities"). Under normal circumstances, the Fund
will invest at least 65% of its assets in convertible securities, but is not
required to sell securities to conform to this limitation and may retain on a
temporary basis securities received upon the conversion or exercise of such
securities. The Fund will not invest in fixed-income securities that are rated
lower than B by Moody's or S&P or, if unrated, deemed by SBMFM to be comparable
to securities rated lower than B. The Fund may invest up to 35% of its assets
in synthetic convertible securities and in equity and debt securities that are
not convertible into common stock and, for temporary defensive purposes, may
invest in these securities without limitation.
The Smith Barney Utilities Fund, an investment portfolio of Smith Barney
Income Funds, seeks current income by investing in equity and debt securities
of companies in the utility industry. Long-term capital appreciation is a sec-
ondary objective of the Fund. The utility industries are deemed to be comprised
of companies principally engaged (that is, at least 50% of a company's assets,
gross income or net profits results from utility operations or the company is
regulated as a utility by a government agency or authority) in the manufacture,
production, generation, transmission and sale of electric and gas energy and
companies principally engaged in the communications field, including entities
such as telephone, telegraph, satellite, microwave and other companies regu-
lated by governmental agencies as utilities that provide communication facili-
ties for the public benefit, but not including those in public broadcasting.
The Fund will invest primarily in utility equity and debt securities that have
a high expected rate of return as determined by SBMFM. Under normal market con-
ditions, the Fund will invest at least 65% of its assets in such securities.
The Fund may invest up to 35% of its assets in equity and debt securities of
non-utility companies believed to afford a reasonable opportunity for achieving
the Fund's investment objectives. The Fund will invest in investment grade debt
securities, but may invest up to 10% of its assets in securities rated BB or B
by S&P or Ba or B by Moody's whenever SBMFM believes that the incremental yield
on such securities is advantageous to the Fund in comparison to the additional
risk involved.
13
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Smith Barney Concert Series Inc.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED) DATE
The International Balanced Portfolio, an investment portfolio of Smith Barney
World Funds, Inc., seeks a competitive total return on its assets from growth
of capital and income through a portfolio invested primarily in securities of
established non-U.S. issuers. The Fund may borrow up to 15% of the value of its
assets for investment purposes, which involves certain risks. Under normal mar-
ket conditions, the Fund will invest its assets in an international portfolio
of equity securities (consisting of dividend and non-dividend paying common
stocks, preferred stocks, convertible securities, ADRs and rights and warrants
to such securities) and debt securities (consisting of corporate debt securi-
ties, sovereign debt instruments issued by governments or governmental enti-
ties, including supranational organizations and U.S. and foreign money market
instruments). The Fund attempts to achieve a balance between equity and debt
securities. However, the proportion of equity and debt held by the Fund at any
one time will depend on SBMFM's views on current market and economic condi-
tions. Under normal conditions, no more than 70%, nor less than 30%, of the
Fund's assets will be invested in either equity or debt securities; however,
there is no limitation on the percent or amount of the Fund's assets that may
be invested for growth or income.
The Fund is a non-diversified portfolio but will generally invest its assets
broadly among countries and will normally have at least 65% of its assets
invested in business activities in not less than three different countries out-
side of the U.S. The Fund will invest in a broad range of industries and sec-
tors and will mainly invest in securities issued by companies with market capi-
talization of at least $50,000,000. The Fund may invest in companies organized
or governments located in any area of the world. However, under unusual eco-
nomic or market conditions as determined by the investment adviser, for defen-
sive purposes the Fund may temporarily invest all or a major portion of its
assets in U.S. government securities, debt or equity securities of companies
incorporated in and having their principal business activities in the U.S. or
in U.S. as well as foreign money market instruments and equivalents.
The debt securities in which the Fund invests generally range in maturity from
two to ten years. Debt securities of developed foreign countries must be rated
investment grade (or deemed by SBMFM to be of comparable quality) at the time
of purchase. Debt securities of emerging market countries may be rated below
investment grade and could include securities that are in default as to pay-
ments of principal or interest. Up to 25% of the total assets of the Fund may
be invested in securities of emerging market countries.
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Smith Barney Concert Series Inc.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED) DATE
PERFORMANCE OF UNDERLYING SMITH BARNEY FUNDS
The following chart shows the average annual total returns for the longest
outstanding class of shares for each of the Underlying Smith Barney Funds in
which the Select Portfolios may invest (other than the Cash Portfolio of Smith
Barney Money Funds, Inc.) for the most recent one-, five- and ten-year periods
(or since inception if shorter and giving effect to the maximum applicable
sales charges) and the 30-day yields for income-oriented funds, in each case
for the period ended December 31, 1995.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
ASSETS OF ALL THROUGH DECEMBER 31, 1995 30-DAY YIELD FOR
CLASSES AS OF ----------------------------- PERIOD ENDED
DECEMBER 31, INCEPTION DECEMBER 31,
UNDERLYING SMITH BARNEY FUND 1995 ($000'S) DATE CLASS ONE YEAR FIVE YEARS TEN YEARS 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Smith Barney Aggressive Growth Fund Inc. $ 525,528 10/24/83 A 28.94% 17.40% 15.70 % --
Smith Barney Appreciation Fund Inc. 3,024,628 03/10/70 A 22.74 12.18 12.81 --
Smith Barney Equity Funds:
Smith Barney Growth and Income Fund 218,807 11/06/92 A 24.36 -- 8.77 (+) --
Smith Barney Fundamental Value Fund Inc. 987,935 11/12/81 A 21.48 17.38 12.12 --
Smith Barney Funds, Inc.:
Equity Income Portfolio 747,520 01/01/72 A 26.40 13.82 11.59 --
Short-Term U.S. Treasury Securities Portfo-
lio 106,902 11/11/91 A 13.16 -- 6.26 (+) 4.69%
Smith Barney Equity Funds:
Smith Barney High Income Fund 888,802 09/02/86 B 13.03 16.35 8.76 (+) 7.83
Smith Barney Utilities Fund 1,958,317 03/28/88 B 25.89 11.19 11.19 (+) --
Smith Barney Premium Total Return Fund 2,380,777 09/16/85 B 16.84 15.02 12.30 --
Smith Barney Convertible Fund 82,137 09/02/86 B 15.82 12.30 8.20 (+) 2.83
Smith Barney Diversified Strategic Income Fund 2,627,676 12/28/89 B 10.57 9.45 9.20 (+) 8.48
Smith Barney Investment Funds Inc.:
Smith Barney Managed Growth Fund 507,097 06/30/95 A -- -- (3.30)(+) --
Smith Barney Special Equities Fund 342,704 12/13/82 B 57.30 25.87 11.76 --
Smith Barney Government Securities Fund 606,406 03/20/84 B 8.71 8.06 7.65 5.99
Smith Barney Investment Grade Bond Fund 519,566 01/04/82 B 30.56 13.78 10.93 5.71
Smith Barney Managed Governments Fund Inc. 644,202 09/04/84 A 8.76 7.52 7.72 6.27
Smith Barney Natural Resources Fund Inc. -- 12/24/06 (15.23) 3.10% -- --
Smith Barney World Funds, Inc.:
International Equity Portfolio 1,049,624 02/18/86 A (2.59) 13.44 11.10 (+) --
Emerging Markets Portfolio 16,972 05/11/95 A -- -- (13.47)(+) --
International Balanced Portfolio 25,245 08/25/94 A 8.90 -- 3.92 (+) --
Global Government Bond Portfolio 158,962 07/22/91 A 10.17 -- 8.36 (+) 5.82
- -----------
</TABLE>
+ Since inception (less than 10 years)
- --------------------------------------------------------------------------------
For the seven-day period ended December 31, 1995, the yield for the Cash Port-
folio of Smith Barney Money Funds, Inc. was 5.16% and the effective yield was
5.30%.
The performance data relating to the Underlying Smith Barney Funds set forth
above is not, and should not be viewed as, indicative of the future performance
of either the Underlying Smith Barney Funds or the Concert Series. The perfor-
mance reflects the impact of sales charges and other distribution related
expenses that will not be incurred by the Class Y shares of the Underlying
Smith Barney Funds in which the Portfolios will invest.
INVESTMENT POLICIES AND STRATEGIES OF THE UNDERLYING SMITH BARNEY FUNDS
In pursuing their investment objectives and programs, each of the Underlying
Smith Barney Funds is permitted to engage in a wide range of investment poli-
cies. The Underlying Smith Barney Funds' risks are determined by the nature of
the securities held and the investment strategies used by the Funds' adviser.
Certain of these policies are described below and further information about the
investment policies and strategies of the Underlying Smith Barney Funds in
which the Select Portfolios may invest is contained in the Appendix to this
Prospectus and in the Statement of Additional Information as well as the pro-
spectuses of the Underlying Smith Barney Funds. Because each Portfolio invests
in the Underlying Smith Barney Funds, shareholders of each Portfolio will be
affected by these investment policies in direct proportion to the amount of
assets each Portfolio allocates to the Underlying Smith Barney Funds pursuing
such policies.
15
<PAGE>
Smith Barney Concert Series Inc.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED)
Securities of Non-U.S. Issuers. The Select Portfolios will each invest in cer-
tain Underlying Smith Barney Funds that invest all or a portion of their assets
in securities of non-U.S. issuers. These include non-dollar denominated securi-
ties traded outside the U.S. and dollar-denominated securities traded in the
U.S. (such as ADRs). Such investments involve some special risks such as fluc-
tuations in foreign exchange rates, future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, repatriation, confiscatory taxa-
tion, political or social instability or diplomatic developments that could
adversely affect investments in those countries. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing, and financial
reporting standards and requirements comparable to or as uniform as those of
U.S. companies. Non-U.S. securities markets, while growing in volume, have, for
the most part, substantially less volume than U.S. markets, and securities of
many foreign companies are less liquid and their prices more volatile than
securities of comparable U.S. companies. Transaction costs on non-U.S. securi-
ties markets are generally higher than in the U.S. There is generally less gov-
ernment supervision and regulation of exchanges, brokers and issuers than there
is in the U.S. An Underlying Smith Barney Fund might have greater difficulty
taking appropriate legal action in non-U.S. courts. Dividend and interest
income from non-U.S. securities will generally be subject to withholding taxes
by the country in which the issuer is located and may not be recoverable by the
Underlying Smith Barney Fund or a Portfolio investing in such Fund.
Options and Futures. Certain of the Underlying Smith Barney Funds may enter
into stock index, interest rate and currency futures contracts (or options
thereon) as a hedging device, or as an efficient means of regulating their
exposure to various markets. Certain of the Underlying Smith Barney Funds may
also purchase and sell call and put options. Futures (a type of potentially
high-risk derivative) are often used to manage risk because they enable the
investor to buy or sell an asset at a predetermined price in the future. The
Underlying Smith Barney Funds may buy and sell futures and options contracts
for a number of reasons including: to manage their exposure to changes in
interest rates, stock and bond prices, and foreign currencies; as an efficient
means of adjusting their overall exposure to certain markets; to adjust the
portfolio's duration; to enhance income; and to protect the value of the port-
folio securities. Certain of the Underlying Smith Barney Funds may purchase,
sell or write call and put options on securities, financial indices, and for-
eign currencies. Options and futures can be volatile investments, and involve
certain risks. If the adviser to the Underlying Smith Barney Fund applies a
hedge at an inappropriate time or judges market conditions incorrectly, options
and futures strategies may lower the Underlying Smith Barney Fund's return.
Further losses could also be experienced if the options and futures positions
held by an Underlying Smith Barney Fund were poorly correlated with its other
investments, or if it could not close out its positions because of an illiquid
secondary market.
The Smith Barney Natural Resources Fund may also enter into futures contracts
for the purchase and sale of gold, purchase put and call options on those
future contracts and write call options on those futures contracts. The Smith
Barney Natural Resources Fund will purchase or write options on gold futures
only on a regulated domestic or foreign exchange approved for such purpose by
the Commodities Futures Trading Commission.
Debt Securities. Certain of the Underlying Smith Barney Funds may be affected
by general changes in interest rates, which will result in increases or
decreases in the market value of the debt securities held by the Funds. The
market value of the fixed-income obligations in which the Underlying Smith Bar-
ney Funds may invest can be expected to vary inversely in relation to the
changes in prevailing interest rates and also may be affected by other market
and credit factors.
Certain of the Underlying Smith Barney Funds may invest only in high quality,
high grade or investment grade securities. High quality securities are those
rated in the two highest categories by Moody's (Aaa or Aa) or S&P (AAA or AA).
High grade securities are those rated in the three highest categories by
Moody's (Aaa, Aa or A) or S&P (AAA, AA or A). Investment grade securities are
those rated in the four highest categories by Moody's (Aaa, Aa, A or Baa) or
S&P (AAA, AA, A or BBB). Securities rated Baa or BBB have speculative charac-
teristics and changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity of their issuers to make principal and
interest payments than is the case with higher grade securities.
Certain Underlying Smith Barney Funds may invest in securities that are rated
below investment grade; that is, rated below Baa by Moody's or BBB by S&P.
Securities rated below investment grade (and comparable unrated securities) are
the equivalent of high yield, high risk bonds, commonly known as "junk bonds."
Such securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations
16
<PAGE>
Smith Barney Concert Series Inc.
DESCRIPTION OF UNDERLYING SMITH BARNEY FUNDS (CONTINUED) DATE
and involve major risk exposure to adverse business, financial, economic or
political conditions. See the Appendix to the Statement of Additional Informa-
tion for additional information on the bond ratings by Moody's and S&P.
VALUATION OF SHARES
Each Select Portfolio's net asset value per share is determined as of the
close of regular trading on the NYSE on each day that the NYSE is open, by
dividing the value of the Portfolio's net assets by the total number of shares
of the Portfolio outstanding. The value of each Underlying Smith Barney Fund
will be its net asset value at the time of computation. Short-term investments
that have a maturity of more than 60 days are valued at prices based on market
quotations for securities of similar type, yield and maturity. Short-term
investments that have a maturity of 60 days or less are valued at amortized
cost unless conditions dictate otherwise.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Concert Series intends to declare monthly income dividends on shares of
the Select Income Portfolio, quarterly income dividends on shares of the
Select Conservative Portfolio and the Select Balanced Portfolio and annual
income dividends on shares of the Select High Growth Portfolio and the Select
Growth Portfolio. In addition, the Concert Series intends to make annual dis-
tributions of capital gains, if any, on the shares of each Portfolio.
Income dividends and capital gain distributions that are invested are cred-
ited to shareholders' accounts in additional shares at the net value as of the
close of business on the payment date. A shareholder may change the option at
any time by notifying his or her Smith Barney Financial Consultant. Sharehold-
ers whose accounts are held directly by First Data Investor Services Group
Inc. ("First Data") should notify First Data in writing at least five business
days prior to the payment date to permit the change to be entered in the
shareholder's account.
TAXES
Each Portfolio of the Concert Series intends to qualify as a "regulated
investment company" under Subchapter M of the Code. To qualify, each Portfolio
must meet certain tests, including distributing at least 90% of its investment
company taxable income, and deriving less than 30% of its gross income from
the sale or other disposition of certain investments held for less than three
months. Each Select Portfolio intends at least annually to declare and make
distributions of substantially all of its taxable income and net taxable capi-
tal gains to its shareowners (i.e., the Separate Accounts). Such distributions
are automatically reinvested in additional shares of the Portfolio at net
asset value and are includable in gross income of the Separate Accounts hold-
ing such shares. See the accompanying Contract prospectus for information
regarding the federal income tax treatment of distributions to the Separate
Accounts and to holders of the Contracts.
Each Select Portfolio of the Concert Series is also subject to asset diversi-
fication regulations promulgated by the U.S. Treasury Department under the
Code. The regulations generally provide that, as of the end of each calendar
quarter or within 30 days thereafter, no more than 55% of the total assets of
each Portfolio may be represented by any one investment, no more than 70% by
any two investments, no more than 80% by any three investments, and no more
than 90% by any four investments. For this purpose all securities of the same
issuer are considered a single investment. If a Select Portfolio should fail
to comply with these regulations, Contracts invested in that Portfolio would
not be treated as annuity, endowment or life insurance contracts under the
Code.
PURCHASE OF SHARES
Investment in the Select Portfolios of the Concert Series is available to
owners of either variable annuity or variable life insurance contracts issued
by insurance companies through their separate accounts and qualified pension
and retirement plans. It is possible that in the future it may become disad-
vantageous for both variable annuity and variable life insurance separate
accounts to be invested simultaneously in the Concert Series. However, the
Concert Series does not currently foresee any
17
<PAGE>
Smith Barney Concert Series Inc.
PURCHASE OF SHARES (CONTINUED)
disadvantages to the contract owners of the different contracts which are
funded by such separate accounts. The Board of Directors of the Concert Series
monitors events for the existence of any material irreconcilable conflict
between or among such owners, and each insurance company will take whatever
remedial action may be necessary to resolve any such conflict. Such action
could include the sale of the Concert Series shares by one or more of the
insurance company separate accounts which fund these contracts, which could
have adverse consequences to the Concert Series. Material irreconcilable con-
flicts could result from, for example: (a) changes in state insurance laws; (b)
changes in U.S. federal income tax laws; or (c) differences in voting instruc-
tions between those given by variable annuity contract owners and those given
by variable life insurance contract owners. If the Board were to conclude that
separate series of the Concert Series should be established for variable annu-
ity and variable life separate accounts, each insurance company would bear the
attendant expenses. Should this become necessary, contract owners would presum-
ably no longer have the economies of scale resulting from a larger combined
mutual fund.
REDEMPTION OF SHARES
The redemption price of the shares of each Select Portfolio will be the net
asset value next determined after receipt by the Concert Series of a redemption
order from a Separate Account, which may be more or less than the price paid
for the shares. The Concert Series will ordinarily make payment within one
business day, though redemption proceeds must be remitted to a Separate Account
on or before the third day following receipt of proper tender, except on a day
on which the NYSE is closed or as permitted by the SEC in extraordinary circum-
stances.
PERFORMANCE
From time to time the Concert Series may include a Portfolio's total return,
average annual total return, yield and current distribution return in adver-
tisements and/or other types of sales literature. THESE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. In
addition, these figures will not reflect the deduction of the charges that are
imposed on the Contracts by the Separate Account (see Contract prospectus)
which, if reflected, would reduce the performance quoted. Total return is com-
puted for a specified period of time assuming reinvestment of all income divi-
dends and capital gains distributions at net asset value on the ex-dividend
dates at prices calculated as stated in this Prospectus, then dividing the
value of the investment at the end of the period so calculated by the initial
amount invested and subtracting 100%. The standard average annual total return,
as prescribed by the SEC, is derived from this total return, which provides the
ending redeemable value. Such standard total return information may also be
accompanied with nonstandard total return information over different periods of
time by means of aggregate, average, year-by-year, or other types of total
return figures. The yield of a Portfolio refers to the net investment income
earned by investments in the Portfolio over a thirty-day period. This net
investment income is then annualized, i.e., the amount of income earned by the
investments during that thirty-day period is assumed to be earned each 30-day
period for twelve periods and is expressed as a percentage of the investments.
The yield quotation is calculated according to a formula prescribed by the SEC
to facilitate comparison with yields quoted by other investment companies. The
Concert Series calculates current distribution return for each Portfolio by
dividing the distributions from investment income declared during the most
recent period by the net asset value on the last day of the period for which
current distribution return is presented. A Portfolio's current distribution
return may vary from time to time depending on market conditions, the composi-
tion of its investment portfolio and operating expenses. These factors and pos-
sible differences in the methods used in calculating current distribution
return, and the charges that are imposed on the Contracts by the Separate
Account, should be considered when comparing the Portfolio's current distribu-
tion return to yields published for other investment companies and other
investment vehicles.
MANAGEMENT OF THE CONCERT SERIES
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Concert Series
rests with the Concert Series' Board of Directors. A majority of the Series'
directors are non-interested persons as defined in Section 2(a)(19) of the 1940
Act. However, the directors and officers of the Series also serve in similar
positions with many of the Underlying Smith Barney Funds. Thus, if the inter-
ests of a Portfolio and the Underlying Smith Barney Funds were ever to become
divergent, it is possible that a
18
<PAGE>
Smith Barney Concert Series Inc.
MANAGEMENT OF THE CONCERT SERIES (CONTINUED)
conflict of interest could arise and affect how the directors and officers of
the Series fulfill their fiduciary duties to that Portfolio and the Underlying
Smith Barney Funds. The directors of the Series believe they have structured
each Portfolio to avoid these concerns. However, conceivably a situation could
occur where proper action for the Series or a Portfolio separately could be
adverse to the interests of an Underlying Smith Barney Fund, or the reverse
could occur. If such a possibility arises, the directors and officers of the
Series, the affected Underlying Smith Barney Funds, TIA and SBMFM will care-
fully analyze the situation and take all steps they believe reasonable to mini-
mize and, where possible, eliminate the potential conflict. Moreover, limita-
tions on aggregate investments in the Underlying Smith Barney Funds have been
adopted by the Series to minimize this possibility, and close and continuous
monitoring will be exercised to avoid, insofar as is possible, these concerns.
The Statement of Additional Information contains background information regard-
ing each director and executive officer of the Concert Series.
INVESTMENT MANAGER--SBMFM
TIA, the investment manager to each Select Portfolio, is a registered invest-
ment adviser whose principal offices are located at 388 Greenwich Street, New
York, New York 10013. TIA was incorporated in 1996 under the laws of Delaware.
Subject to the supervision and direction of the Concert Series' Board of Direc-
tors, TIA will determine how each Select Portfolio's assets will be invested in
the Underlying Smith Barney Funds and in repurchase agreements pursuant to the
investment objective and policies of each Select Portfolio set forth in this
Prospectus and make recommendations to the Board of Directors concerning
changes to (a) the Underlying Smith Barney Funds in which the Portfolios may
invest, (b) the percentage range of assets that may be invested by each Portfo-
lio in any one Underlying Smith Barney Fund and (c) the percentage range of
assets of any Portfolio that may be invested in equity funds and fixed income
funds (including money market funds). The directors of the Concert Series will
periodically monitor the allocations made and the basis upon which such alloca-
tions were made or maintained. TIA also furnishes each Select Portfolio with
bookkeeping, accounting and administrative services, office space and equip-
ment, and the services of the officers and employees of the Concert Series.
Under the Asset Allocation and Administration Agreement with each Select Port-
folio, TIA has agreed to bear all expenses of the Select Portfolios other than
the management fee and extraordinary expenses. For the services rendered and
expenses borne, each Select Portfolio pays TIA a monthly fee at the annual rate
of 0.35% of the value of its average daily net assets.
SBMFM serves as investment adviser to each of the Underlying Smith Barney
Funds in which the Select Portfolios may invest (other than the Smith Barney
Premium Total Return Fund) and is responsible for the selection and management
of each of the Underlying Smith Barney Fund's investments. SBMFM is a
registered investment adviser whose principal offices are located at 388
Greenwich Street, New York, New York 10013. SBMFM renders investment advice to
a wide variety of investment company clients that had aggregate assets under
management as of September 30, 1996 in excess of $77 billion. SBSA, located at
388 Greenwich Street, New York, New York 10013, serves as investment adviser to
Smith Barney Premium Total Return Fund. SBSA has been in the investment
counseling business since 1968 and is a wholly owned subsidiary of SBMFM. SBSA
renders investment advice to investment companies that had aggregate assets
under management as of September 30, 1996 in excess of $3.3 billion.
19
<PAGE>
Smith Barney Concert Series Inc.
MANAGEMENT OF THE CONCERT SERIES (CONTINUED)
Each Portfolio, as a shareholder in the Underlying Smith Barney Funds, will
indirectly bear its proportionate share of any investment management fees and
other expenses paid by the Underlying Smith Barney Funds. The effective manage-
ment fee of each of the Underlying Smith Barney Funds in which the Select Port-
folios may invest is set forth below as a percentage rate of the Fund's annual
net assets:
<TABLE>
<CAPTION>
MANAGEMENT
UNDERLYING SMITH BARNEY FUND FEES
- ----------------------------------------------------------
<S> <C>
Smith Barney Aggressive Growth Fund Inc. 0.80%
Smith Barney Appreciation Fund Inc. 0.61
Smith Barney Equity Funds
Smith Barney Growth and Income Fund 0.65
Smith Barney Fundamental Value Fund Inc. 0.75
Smith Barney Funds, Inc.
Equity Income Portfolio 0.58
Short-Term U.S. Treasury Securities Portfolio 0.45
Smith Barney Income Funds
Smith Barney High Income Fund 0.70
Smith Barney Utilities Fund 0.65
Smith Barney Premium Total Return Fund 0.75
Smith Barney Convertible Fund 0.70
Smith Barney Diversified Strategic Income Fund 0.65
Smith Barney Investment Funds Inc.
Smith Barney Managed Growth Fund 0.85
Smith Barney Special Equities Fund 0.75
Smith Barney Government Securities Fund 0.55
Smith Barney Investment Grade Bond Fund 0.65
Smith Barney Managed Governments Fund Inc. 0.65
Smith Barney Money Funds, Inc.
Cash Portfolio 0.41
Smith Barney Natural Resources Fund Inc. 0.75
Smith Barney World Funds, Inc.
International Equity Portfolio 0.85
Emerging Markets Portfolio 1.00
International Balanced Portfolio 0.85
Global Government Bond Portfolio 0.75
</TABLE>
PORTFOLIO MANAGEMENT
Thomas B. Stiles II, Chief Investment Officer of TIA, has primary responsibil-
ity for the day-to-day management of each Select Portfolio. Mr. Stiles, born in
1940, is Chairman and Chief Executive Officer of Greenwich Street Advisors, a
division of SBMFM, and a Managing Director of Smith Barney. Certain managing
directors of TIA will assist Mr. Stiles in managing the Select Portfolios.
SHARES OF THE CONCERT SERIES
The Concert Series, an open-end, non-diversified investment company, was
incorporated in Maryland on August 11, 1995. The Concert Series has authorized
capital of 3,000,000,000 shares with a par value of $.001 per share. The Board
of Directors has authorized the issuance of 10 series of shares, each repre-
senting shares in one of ten separate portfolios and may authorize the issuance
of additional series of shares in the future. The assets of each portfolio are
segregated and separately managed and a shareholder's interest is in the assets
of the portfolio in which he or she holds shares.
PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia, Pennsylvania 19103, serves as custodian of the Select Portfolios'
investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Concert Series' transfer agent.
The Concert Series intends to send its shareholders a semi-annual report and
an audited annual report, which will include listings of the investment securi-
ties held by the Concert Series at the end of the period covered. In an effort
to reduce the
20
<PAGE>
Smith Barney Concert Series Inc.
SHARES OF THE CONCERT SERIES (CONTINUED)
Concert Series' printing and mailing costs, the Concert Series plans to consol-
idate the mailing of its semi-annual and annual reports by household. This con-
solidation means that a household having multiple accounts with the identical
address of record will receive a single copy of each report. In addition, the
Concert Series plans to consolidate the mailing of its Prospectus so that a
shareholder having multiple accounts will receive a single Prospectus annually.
Shareholders who do not want this consolidation to apply to their account
should contact their Smith Barney Financial Consultant or the Concert Series'
transfer agent.
VOTING RIGHTS
The Concert Series offers shares of the Select High Growth, Select Growth,
Select Balanced, Select Conservative and Select Income Portfolios only for pur-
chase by insurance company separate accounts and qualified pension and retire-
ment plans. In the case of insurance company separate accounts, the insurance
company is technically the shareholder of these Portfolios and, under the 1940
Act, is deemed to be in control of the these Portfolios. Nevertheless, with
respect to any Concert Series shareholder meeting, an insurance company will
solicit and accept timely voting instruction from its contract owners who own
units in a separate account investment division which corresponds to shares in
the Portfolios in accordance with the procedures set forth in the accompanying
prospectus of the applicable contract issued by the insurance company and to
the extent required by law. Shares of the Concert Series attributable to con-
tract owner interests for which no voting instructions are received will be
voted by an insurance company in proportion to the shares for which voting
instructions are received.
Each share of a Portfolio represents an equal proportionate interest in that
Portfolio with each other share of the same Portfolio and is entitled to such
dividends and distributions out of the net income of that Portfolio as are
declared in the discretion of the Directors. Shareowners are entitled to one
vote for each share held and will vote by individual Portfolio except to the
extent required by the 1940 Act. The Concert Series is not required to hold
annual shareowner meetings, although special meetings may be called for the
Concert Series as a whole, or a specific Portfolio, for purposes such as elect-
ing or removing Directors, changing fundamental policies or approving a manage-
ment contract. Shareowners may cause a meeting of shareowners to be held upon a
vote of 10% of the Series' outstanding shares for the purposes of voting on the
removal of Directors.
21
<PAGE>
Smith Barney Concert Series Inc.
APPENDIX
DESCRIPTIONS OF CERTAIN RISKS RELATED TO VARIOUS SECURITIES INVESTED IN, AND
INVESTMENT STRATEGIES EMPLOYED BY, THE UNDERLYING SMITH BARNEY FUNDS IN WHICH
THE SELECT PORTFOLIOS MAY INVEST
Repurchase Agreements. Repurchase agreements, as utilized by an Underlying
Smith Barney Fund or a Portfolio of the Concert Series, could involve certain
risks in the event of default or insolvency of the other party, including pos-
sible delays or restrictions upon the ability of an Underlying Smith Barney
Fund or a Portfolio to dispose of the underlying securities, the risk of a
possible decline in the value of the underlying securities during the period
in which an Underlying Smith Barney Fund or a Portfolio seeks to assert its
rights to them, the risk of incurring expenses associated with asserting those
rights and the risk of losing all or part of the income from the agreement.
Reverse Repurchase Agreements. Certain of the Underlying Smith Barney Funds
may engage in reverse repurchase agreement transactions with banks, brokers
and other financial institutions. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Underlying Smith Bar-
ney Fund may decline below the repurchase price of the securities.
Lending of Portfolio Securities. The risks in lending portfolio securities,
like those associated with other extensions of secured credit, consist of pos-
sible 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 adviser to the
Underlying Smith Barney Fund to be of good standing and will not be made
unless, in the judgment of the adviser, the consideration to be earned from
such loans would justify the risk.
When-Issued Securities and Delayed-Delivery Transactions. The purchase of
securities on a when-issued or delayed-delivery basis involves the risk that,
as a result of an increase in yields available in the marketplace, the value
of the securities purchased will decline prior to the settlement date. The
sale of securities for delayed delivery involves the risk that the prices
available in the market on the delivery date may be greater than those
obtained in the sale transaction.
Non-Diversified Funds. Certain of the Underlying Smith Barney Funds are
classified as non-diversified investment companies under the 1940 Act. Since,
as a non-diversified fund, such an Underlying Smith Barney Fund is permitted
to invest a greater proportion of its assets in the securities of a smaller
number of issuers, each such Fund may be subject to greater risk with respect
to its individual portfolio than a Fund that is more broadly diversified.
Securities of Unseasoned Issuers. Securities in which certain of the Under-
lying Smith Barney Funds may invest may have limited marketability and, there-
fore, may be subject to wide fluctuations in market value. In addition, cer-
tain securities may lack a significant operating history and be dependent on
products or services without an established market share.
Convertible Securities and Synthetic Convertible Securities. While convert-
ible securities generally offer lower yields than non-convertible debt securi-
ties of similar quality, their prices may reflect changes in the value of the
underlying common stock. Convertible securities entail less credit risk than
the issuer's common stock.
Synthetic convertible securities are created by combining non-convertible
bonds or preferred stocks with warrants or stock call options. Synthetic con-
vertible securities differ from convertible securities in certain respects,
including that each component of a synthetic convertible security has a sepa-
rate market value and responds differently to market fluctuations. Investing
in synthetic convertible securities involves the risks normally involved in
holding the securities comprising the synthetic convertible security.
Securities of Developing Countries. A developing country generally is consid-
ered to be a country that is in the initial stages of its industrialization
cycle. Investing in the equity and fixed-income markets of developing coun-
tries involves exposure to economic structures that are generally less diverse
and mature, and to political systems that can be expected to have less stabil-
ity, than those of developed countries. Historical experience indicates that
the markets of developing countries have been more volatile than the markets
of the more mature economies of developed countries; however, such markets
often have provided higher rates of return to investors.
Sovereign Debt Obligations. Sovereign debt of developing countries may
involve a high degree of risk, and may be in default or present the risk of
default. Governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repaying of principal and interest may depend on political as well as economic
factors. Although some sovereign
A-1
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Smith Barney Concert Series Inc.
APPENDIX (CONTINUED)
debt, such as Brady Bonds, is collateralized by U.S. government securities,
repayment of principal and interest is not guaranteed by the U.S. government.
Restrictions on Foreign Investment. Some countries prohibit or impose substan-
tial restrictions on investments in their capital markets, particularly their
equity markets, by foreign entities. As illustrations, certain countries
require governmental approval prior to investments by foreign persons, or limit
the amount of investment by foreign persons in a particular company, or limit
the investment by foreign persons to only a specific class of securities of a
company that may have less advantageous terms than securities of the company
available for purchase by nationals or limit the repatriation of funds for a
period of time.
Smaller capital markets, while often growing in trading volume, have substan-
tially less volume than U.S. markets, and securities in many smaller capital
markets are less liquid and their prices may be more volatile than securities
of comparable U.S. companies. Brokerage commissions, custodial services, and
other costs relating to investment in smaller capital markets are generally
more expensive than in the U.S. Such markets have different clearance and set-
tlement procedures, and in certain markets there have been times when settle-
ments have been unable to keep pace with the volume of securities transactions,
making it difficult to conduct such transactions. Further, satisfactory custo-
dial services for investment securities may not be available in some countries
having smaller capital markets, which may result in an Underlying Smith Barney
Fund incurring additional costs and delays in transporting and maintaining cus-
tody of such securities outside such countries. Delays in settlement could
result in temporary periods when assets of a Fund are uninvested and no return
is earned thereon. The inability of an Underlying Smith Barney Fund to make
intended security purchases due to settlement problems could cause such Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible lia-
bility to the purchaser. There is generally less government supervision and
regulation of exchanges, brokers and issuers in countries having smaller capi-
tal markets than there is in the U.S.
Mortgage-Related Securities. To the extent that an Underlying Smith Barney
Fund purchases mortgage-related securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time with-
out penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid. The Underlying Smith Barney Fund's yield may be
affected by reinvestment of prepayments at higher or lower rates than the orig-
inal investment. In addition, like other debt securities, the values of mort-
gage-related securities, including government and government-related mortgage
pools, generally will fluctuate in response to market interest rates.
Non-Publicly Traded and Illiquid Securities. The sale of securities that are
not publicly traded is typically restricted under the Federal securities laws.
As a result, an Underlying Smith Barney Fund may be forced to sell these secu-
rities at less than fair market value or may not be able to sell them when the
Fund's adviser believes it desirable to do so. Investments by an Underlying
Smith Barney Fund in illiquid securities are subject to the risk that should
the Fund desire to sell any of these securities when a ready buyer is not
available at a price that the Fund's adviser deems representative of its value,
the value of the Underlying Smith Barney Fund's net assets could be adversely
affected.
Short Sales. Possible losses from short sales differ from losses that could be
incurred from a purchase of a security, because losses from short sales may be
unlimited, whereas losses from purchases can equal only the total amount
invested.
Forward Roll Transactions. Forward roll transactions involve the risk that the
market value of the securities sold by an Underlying Smith Barney Fund may
decline below the repurchase price of the securities. Forward roll transactions
are considered borrowings by a Fund. Although investing the proceeds of these
borrowings in repurchase agreements or money market instruments may provide an
Underlying Smith Barney Fund with the opportunity for higher income, this
leveraging practice will increase a Fund's exposure to capital risk and higher
current expenses. Any income earned from the securities purchased with the
proceeds of these borrowings that exceeds the cost of the borrowings would
cause a Fund's net asset value per share to increase faster than would
otherwise be the case; any decline in the value of the securities purchased
would cause a Fund's net asset value per share to decrease faster than would
otherwise be the case.
Leverage. Certain of the Underlying Smith Barney Funds may borrow from banks,
on a secured or unsecured basis, in order to leverage their portfolios. Lever-
age creates an opportunity for increased returns to shareholders of an Under-
lying Smith Barney Fund but, at the same time, creates special risk considera-
tions. For example, leverage may exaggerate changes in the net asset value of a
Fund's shares and in a Fund's yield. Although the principal or stated value of
such borrowings will be
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Smith Barney Concert Series Inc.
APPENDIX (CONTINUED)
fixed, the Fund's assets may change in value during the time the borrowing is
outstanding. Leverage will create interest or dividend expenses for the Fund
that can exceed the income from the assets retained. To the extent the income
or other gain derived from securities purchased with borrowed funds exceeds the
interest or dividends the Fund will have to pay in respect thereof, the Fund's
net income or other gain will be greater than if leverage had not been used.
Conversely, if the income or other gain from the incremental assets is not suf-
ficient to cover the cost of leverage, the net income or other gain of the Fund
will be less than if leverage had not been used. If the amount of income for
the incremental securities is insufficient to cover the cost of borrowing,
securities might have to be liquidated to obtain required funds. Depending on
market or other conditions, such liquidations could be disadvantageous to the
Underlying Smith Barney Fund.
Floating and Variable Rate Income Securities. Floating and variable rate
income securities include securities whose rates vary inversely with changes in
market rates of interest. Such securities may also pay a rate of interest
determined by applying a multiple to the variable rate. The extent of increases
and decreases in the value of securities whose rates vary inversely with
changes in market rates of interest generally will be larger than comparable
changes in the value of an equal principal amount of a fixed rate security hav-
ing similar credit quality, redemption provisions and maturity.
Zero Coupon, Discount and Payment-in-Kind Securities. Zero coupon securities
generally pay no cash interest (or dividends in the case of preferred stock) to
their holders prior to maturity. Payment-in-kind securities allow the lender,
at its option, to make current interest payments on such securities either in
cash or in additional securities. Accordingly, such securities usually are
issued and traded at a deep discount from their face or par value and generally
are subject to greater fluctuations of market value in response to changing
interest rates than securities of comparable maturities and credit quality that
pay cash interest (or dividends in the case of preferred stock) on a current
basis.
Premium Securities. Premium securities are income securities bearing coupon
rates higher than prevailing market rates. Premium securities are typically
purchased at prices greater than the principal amounts payable on maturity. If
securities purchased by an Underlying Smith Barney Fund at a premium are called
or sold prior to maturity, the Fund will recognize a capital loss to the extent
the call or sale price is less than the purchase price. Additionally, the Fund
will recognize a capital loss if it holds such securities to maturity.
Yankee Bonds. Yankee bonds are U.S. dollar-denominated bonds sold in the U.S.
by non-U.S. issuers. As compared with bonds issued in the U.S., such bond
issues normally carry a higher interest rate but are less actively traded.
Swap Agreements. As one way of managing its exposure to different types of
investments, certain of the Underlying Smith Barney Funds may enter into inter-
est rate swaps, currency swaps, and other types of swap agreements such as
caps, collars, and floors. Swap agreements can be highly volatile and may have
a considerable impact on a Fund's performance. Swap agreements are subject to
risks related to the counterparty's ability to perform, and may decline in
value if the counterparty's creditworthiness deteriorates. A Fund may also suf-
fer losses if it is unable to terminate outstanding swap agreements or reduce
its exposure through offsetting transactions.
Indexed Securities. Certain of the Underlying Smith Barney Funds may invest in
indexed securities, including inverse floaters, whose value is linked to cur-
rencies, interest rates, commodities, indices, or other financial indicators.
Indexed securities may be positively or negatively indexed (i.e., their value
may increase or decrease if the underlying instrument appreciates), and may
have return characteristics similar to direct investments in the underlying
instrument or to one or more options on the underlying instrument. Indexed
securities may be more volatile than the underlying instrument itself.
Investment in Utility Securities. The Smith Barney Utilities Fund is particu-
larly subject to risks that are inherent to the utility industries, including
difficulty in obtaining an adequate return on invested capital, difficulty in
financing large construction programs during an inflationary period, restric-
tions on operations and increased cost and delays attributable to environmental
considerations and regulation, difficulty in raising capital in adequate
amounts on reasonable terms in periods of high inflation and unsettled capital
markets, increased costs and reduced availability of certain types of fuel,
occasional reduced availability and high costs of natural gas for resales, the
effects of energy conservation, the effects of a national energy policy and
lengthy delays and greatly increased costs and other problems associated with
the design, construction, licensing, regulation and operation of nuclear facil-
ities for electric generation, including, among other considerations, the prob-
lems associated with the use of radioactive materials and the disposal of
radioactive wastes. There are substantial differences between the regulatory
practices and policies of various jurisdictions, and any given regulatory
agency may make major shifts in policy from time to time. There is no assurance
that regulatory authorities will grant rate increases in the future or that
such
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Smith Barney Concert Series Inc.
APPENDIX (CONTINUED)
increases will be adequate to permit the payment of dividends on common stocks.
Additionally, existing and possible future regulatory legislation may make it
even more difficult for these utilities to obtain adequate relief. Certain of
the issuers of securities held by the Smith Barney Utilities Fund may own or
operate nuclear generating facilities. Governmental authorities may from time
to time review existing policies, and impose additional requirements governing
the licensing, construction and operation of nuclear power plants.
Each of the risks referred to above could adversely affect the ability and
inclination of public utilities to declare or pay dividends and the ability of
holders of common stock to realize any value from the assets of the issuer upon
liquidation or bankruptcy. All of the utilities that are issuers of the securi-
ties held by the Smith Barney Utilities Fund have been experiencing one or more
of these problems in varying degrees. Moreover, price disparities within
selected utility groups and discrepancies in relation to averages and indices
have occurred frequently for reasons not directly related to the general move-
ments or price trends of utility common stocks. Causes of these discrepancies
include changes in the overall demand for and supply of various securities (in-
cluding the potentially depressing effect of new stock offerings), and changes
in investment objectives, market expectations or cash requirements of other
purchasers and sellers of securities.
A-4
PART B
The Statement of Additional Information for the High Growth, Growth,
Balanced, Conservative and Income Portfolios of Smith Barney Concert Series
Inc. (the "Fund") is incorporated by reference to Part B of Post-Effective
Amendment No. 1 to the Fund's Registration Statement filed on August 7, 1996
(Accession No. 91155-96-315).
The Statement of Additional Information for Select High Growth, Select Growth,
Select Balanced, Select Conservative and Select Income Portfolios of the Fund
is filed herein.
Statement of Additional Information
October 31, 1996
SMITH BARNEY CONCERT SERIES INC.
SELECT HIGH GROWTH PORTFOLIO
SELECT GROWTH PORTFOLIO
SELECT BALANCED PORTFOLIO
SELECT CONSERVATIVE PORTFOLIO
SELECT INCOME PORTFOLIO
388 Greenwich Street, New York, New York 10013 (212) 723-9218
The Concert Series currently offers ten investment portfolios, five of which
are offered by this Statement of Additional Information (individually, a
"Portfolio" and collectively, the "Select Portfolios"). This Statement of
Additional Information expands upon and supplements the information contained
in the current Prospectus of Smith Barney Concert Series Inc. (the "Concert
Series") dated October 31, 1996 for the Select Portfolios, as amended or
supplemented from time to time (the "Prospectus"), and should be read in
conjunction therewith. Each of the Select Portfolios seeks to achieve its
objective by investing in a number of open-end management investment companies
or series thereof ("Underlying Smith Barney Funds") for which Smith Barney
Inc. ("Smith Barney") now or in the future acts as principal underwriter or
for which Smith Barney, Smith Barney Mutual Funds Management Inc. ("SBMFM") or
Smith Barney Strategy Advisers Inc. ("SBSA") now or in the future acts as
investment adviser. A Prospectus may be obtained from designated insurance
companies offering separate accounts ("Separate Accounts") which fund certain
variable annuity and variable life insurance contracts (each a "Contract") or
by writing or calling the Concert Series at the address or telephone number
listed above. This Statement of Additional Information, although not in
itself a prospectus, is incorporated by reference into the Prospectus in its
entirety.
TABLE OF CONTENTS
For ease of reference, the same section headings are used in the Prospectus
for the Select Portfolios and this Statement of Additional Information, except
as shown below:
Caption Page
Management of the Concert Series 2
Investment Objectives and Management Policies 4
Purchase of Shares 20
Redemption of Shares 20
Valuation of Shares 21
Performance 21
Taxes (See in the Prospectus "Dividends, Distributions and Taxes") 22
Voting (See in the Prospectus "Additional Information") 24
Additional Information 25
Appendix - Ratings of Debt Obligations A-1
MANAGEMENT OF THE CONCERT SERIES
The executive officers of the Concert Series are employees of certain of the
organizations that provide services to the Concert Series. These
organizations are the following:
Travelers Investment Adviser, Inc. ("TIA") Investment Manager
PNC Bank, National Association ("PNC Bank") Custodian
First Data Investor Services Group, Inc. ("First Data") Transfer Agent
These organizations and the functions they perform for the Concert Series are
discussed in the Prospectus and in this Statement of Additional Information.
Directors and Executive Officers of the Concert Series
The names of the directors and executive officers of the Concert Series,
together with information as to their principal business occupations during
the past five years, are shown below. Each director who is an "interested
person" of the Concert Series, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), is indicated by an asterisk.
Walter E. Auch, Director (Age 75). Consultant to companies in the
financial services industry; Director of Pimco Advisers L.P. His address is
6001 N. 62nd Place, Paradise Valley, Arizona 85253.
Martin Brody, Director (Age 75). Vice Chairman of the Board of
Restaurant Associates Industries, Inc. His address is c/o HMK Associates, 30
Columbia Turnpike, Florham Park, New Jersey 07932.
H. John Ellis, Jr., Director (Age 69). Prior to 1992, Executive Vice
President of the Consulting Services Division of Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers"). His address is 858 East Crystal Downs Drive,
Frankfort, Michigan 49635.
Stephen E. Kaufman, Director (Age 64). Attorney. His address is 277
Park Avenue, New York, New York 10172.
Armon E. Kamesar, Director (Age 69). Chairman of TEC, an international
organization of Chief Executive Officers; Trustee, U.S. Bankruptcy Court. His
address is 7328 Country Club Drive, LaJolla, California 92037.
*Heath B. McLendon, Chairman of the Board (Age 63). Managing Director
of Smith Barney, Chairman of the Board of Smith Barney Strategy Advisers Inc.
and President of SBMFM; prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers, Vice Chairman of Asset Management Division of
Shearson Lehman Brothers. Mr. McLendon serves as Chairman of the Board of 42
investment companies sponsored by Smith Barney ("Smith Barney Mutual Funds").
His address is 388 Greenwich Street, New York, New York 10013.
Madelon DeVoe Talley, Director (Age 64). Author. Governor-at-large of
the National Association of Securities Dealers, Inc. Her address is 876 Park
Avenue, New York, New York 10021.
Jessica M. Bibliowicz, President (Age 36). Executive Vice President of
Smith Barney; prior to 1994, Director of Sales and Marketing for Prudential
Mutual Funds. Ms. Bibliowicz serves as President of 40 Smith Barney Mutual
Funds. Her address is 388 Greenwich Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 39).
Managing Director of Smith Barney; Director and Senior Vice President of
SBMFM. Mr. Daidone serves as Senior Vice President and Treasurer of 42 Smith
Barney Mutual Funds. His address is 388 Greenwich Street, New York, New York
10013.
Christina T. Sydor, Secretary (Age 45). Managing Director of Smith
Barney; General Counsel and Secretary of SBMFM. Ms. Sydor serves as Secretary
of 42 Smith Barney Mutual Funds. Her address is 388 Greenwich Street, New
York, New York 10013.
No officer, director or employee of SBMFM, or any of its affiliates will
receive any compensation from the Concert Series for serving as an officer or
director of the Concert Series. The Concert Series pays each director who is
not an officer, director or employee of SBMFM or any of its affiliates a fee
of $5,000 per annum plus $100 per Portfolio per meeting attended and
reimburses travel and out-of-pocket expenses.
The following table shows the estimated compensation to be provided by Concert
Series to the directors during its first fiscal year and compensation paid to
such directors during the 1995 calendar year by other Smith Barney Mutual
Funds:
Compensation Table
Total
Pension or Total Number
Retirement Benefits Estimated Compensation of Funds
Aggregate Accrued as Expense Benefits on From Served in
Name Compensation of Concert Series Retirement Fund Complex Complex
Heath B. McLendon None None None None 41
Walter Auch $ 7,000 None None $ 19,500 2
Martin Brody 7,000 None None 103,625 15
H. John Ellis 7,000 None None None 1
Armon E. Kamesar 7,000 None None 19,500 1
Stephen E. Kaufman 7,000 None None 83,600 10
Madelon DeVoe Talley 7,000 None None 63,500 3
Investment Manager - TIA
TIA acts as investment manager to each Select Portfolio pursuant to separate
asset allocation and administration agreements (the "Asset Allocation and
Administration Agreements"). TIA is an indirect wholly owned subsidiary of
Travelers Group Inc. ("Travelers"). The Asset Allocation and Administration
Agreements with respect to each Select Portfolio were approved by the Board of
Directors, including a majority of the directors who are not "interested
persons" of the Concert Series or TIA (the "Independent Directors"), on
September 5, 1996. Pursuant to the Asset Allocation and Administration
Agreements, TIA will determine how each Select Portfolio's assets will be
invested in the Underlying Smith Barney Funds and in repurchase agreements
pursuant to the investment objectives and policies of each Portfolio set forth
in the Prospectus and make recommendations to the Board of Directors
concerning changes to (a) the Underlying Smith Barney Funds in which the
Select Portfolios may invest, (b) the percentage range of assets that may be
invested by each Portfolio in any one Underlying Smith Barney Fund and (c) the
percentage range of assets of any Portfolio that may be invested in equity
funds and fixed income funds (including money market funds). In addition to
such services, TIA pays the salaries of all officers and employees who are
employed by both it and the Concert Series, maintains office facilities for
the Concert Series, furnishes the Concert Series with statistical and research
data, clerical help and accounting, data processing, bookkeeping, internal
auditing and legal services and certain other services required by the Concert
Series and each Select Portfolio, prepares reports to each Portfolio's
shareholders and prepares tax returns, reports to and filings with the
Securities and Exchange Commission (the "SEC") and state Blue Sky authorities.
SBMFM provides investment advisory and management services to investment
companies affiliated with Smith Barney.
The management fee for each Select Portfolio is calculated at the annual rate
of 0.35% of that Portfolio's average daily net assets. Under the Asset
Allocation and Administration Agreements, TIA has agreed to bear all expenses
incurred in the operation of each Select Portfolio other than the management
fee and extraordinary expenses. Such expenses include taxes, interest,
brokerage fees and commissions, if any; fees of directors who are not
officers, directors, shareholders or employees of Smith Barney or TIA; SEC
fees and state Blue Sky qualification fees; charges of custodians; transfer
and dividend disbursing agent's fees; certain insurance premiums; outside
auditing and legal expenses; costs of maintenance of corporate existence;
investor services (including allocated telephone and personnel expenses); and
costs of preparation and printing of the prospectus for regulatory purposes
and for distribution to existing shareholders; cost of shareholders' reports
and shareholder meetings and meetings of the officers or Board of Directors of
the Concert Series.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the Concert Series. The
Independent Directors of the Concert Series have selected Stroock & Stroock &
Lavan as their legal counsel.
KPMG Peat Marwick LLP, independent accountants, 345 Park Avenue, New York, New
York 10154, have been selected as auditors for the Concert Series and will
render an opinion on the Concert Series' financial statements annually.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectus discusses the investment objectives of the Select Portfolios
and each of the Underlying Smith Barney Funds in which the Select Portfolios
may invest, as well as the policies employed to achieve those objectives.
This section contains supplemental information concerning the types of
securities and other instruments in which the Underlying Smith Barney Funds
may invest (and repurchase agreements in which the Select Portfolios and/or
the Underlying Smith Barney Funds may invest), the investment policies and
portfolio strategies the Underlying Smith Barney Funds may utilize and certain
risks attendant to such investments, policies and strategies. There can be no
assurance that the respective investment objectives of the Select Portfolios
or the Underlying Smith Barney Funds will be achieved.
The Articles of Incorporation of the Concert Series permit the Board of
Directors to establish additional portfolios of the Concert Series from time
to time. The investment objectives, policies and restrictions applicable to
additional portfolios would be established by the Board of Directors at the
time such portfolios were established and may differ from those set forth in
the Prospectus and this Statement of Additional Information.
MONEY MARKET INSTRUMENTS. Each of the Underlying Smith Barney Funds may
invest in certain types of money market instruments which may include: U.S.
government securities; certificates of deposit ("CDs"), time deposits ("TDs")
and bankers' acceptances issued by domestic banks (including their branches
located outside the United States and subsidiaries located in Canada),
domestic branches of foreign banks, savings and loan associations and similar
institutions; high grade commercial paper; and repurchase agreements with
respect to the foregoing types of instruments. The following is a more
detailed description of such money market instruments.
U.S. GOVERNMENT SECURITIES. U.S. government securities include debt
obligations of varying maturities issued or guaranteed by the U.S. government
or its agencies or instrumentalities. U.S. government securities include not
only direct obligations of the U.S. Treasury, but also securities issued or
guaranteed by the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association ("GNMA"), General Services
Administration, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, Federal Land Banks, Federal National Mortgage Association ("FNMA"),
Maritime Administration, Tennessee Valley Authority, District of Columbia
Armory Board, Student Loan Marketing Association, International Bank for
Reconstruction and Development and Resolution Trust Corporation. Certain U.S.
government securities, such as those issued or guaranteed by GNMA, FNMA and
Federal Home Loan Mortgage Corporation ("FHLMC"), are mortgage-related
securities. Because the U.S. Government is not obligated by law to provide
support to an instrumentality that it sponsors, a Portfolio or an Underlying
Smith Barney Fund will invest in obligations issued by such an instrumentality
only if its investment adviser determines that the credit risk with respect to
the instrumentality does not make its securities unsuitable for investment by
the Portfolio or the Fund, as the case may be.
BANK OBLIGATIONS. Domestic commercial banks organized under Federal law are
supervised and examined by the Comptroller of the Currency and are required to
be members of the Federal Reserve System and to be insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under
state law are supervised and examined by state banking authorities but are
members of the Federal Reserve System only if they elect to join. Most state
banks are insured by the FDIC (although such insurance may not be of material
benefit to an Underlying Smith Barney Fund, depending upon the principal
amount of certificates of deposit ("CDs") of each held by the Fund) and are
subject to Federal examination and to a substantial body of Federal law and
regulation. As a result of Federal and state laws and regulations, domestic
branches of domestic banks are, among other things, generally required to
maintain specified levels of reserves, and are subject to other supervision
and regulation designed to promote financial soundness.
Obligations of foreign branches of U.S. banks, such as CDs and TDs, may be
general obligations of the parent bank in addition to the issuing branch, or
may be limited by the terms of a specific obligation and governmental
regulation. Obligations of foreign branches of U.S. banks and foreign banks
are subject to different risks than are those of U.S. banks or U.S. branches
of foreign 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 and other taxes on interest income. Foreign
branches of U.S. banks are not necessarily subject to the same or similar
regulatory requirements that apply to U.S. 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 U.S. bank than about a U.S. bank. CDs
issued by wholly owned Canadian subsidiaries of U.S. banks are guaranteed as
to repayment of principal and interest, but not as to sovereign risk, by the
U.S. parent bank.
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by Federal and state regulation as well as
governmental action in the country in which the foreign bank has its head
office. A U.S. branch of a foreign bank with assets in excess of $1 billion
may or may not be subject to reserve requirements imposed by the Federal
Reserve System or by the state in which the branch is located if the branch is
licensed in that state. In addition, branches licensed by the Comptroller of
the Currency and branches licensed by certain states ("State Branches") may or
may not be required to: (a) pledge to the regulator by depositing assets with
a designated bank within the state, an amount of its assets equal to 5% of its
total liabilities; and (b) maintain assets within the state in an amount equal
to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state. The deposits of State Branches may not necessarily be insured by the
FDIC. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a U.S. bank.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from 1 to
270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing arrangement
involving periodically fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional lender, such as one of
the Underlying Smith Barney Funds, pursuant to which the lender may determine
to invest varying amounts. Transfer of such notes is usually restricted by
the issuer, and there is no secondary trading market for such notes.
REPURCHASE AGREEMENTS. The Select Portfolios and the Underlying Smith Barney
Funds may purchase securities and concurrently enter into repurchase
agreements with certain member banks which are the issuers of instruments
acceptable for purchase by the Portfolio or the Fund, as the case may be, and
with certain dealers on the Federal Reserve Bank of New York's list of
reporting dealers. Repurchase agreements are contracts under which the buyer
of a security simultaneously commits to resell the security to the seller at
an agreed-upon price and date. Under each repurchase agreement, the selling
institution will be required to maintain the value of the securities subject
to the repurchase agreement at not less than their repurchase price.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
a Portfolio's or a Fund's ability to dispose of the underlying securities, the
risk of a possible decline in the value of the underlying securities during
the period in which the Portfolio or 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 part of the income from the repurchase agreement.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. To secure an
advantageous price or yield, certain of the Underlying Smith Barney Funds may
purchase certain securities on a when-issued basis or purchase or sell
securities for delayed delivery. Delivery of the securities in such cases
occurs beyond the normal settlement periods, but no payment or delivery is
made by a Fund prior to the reciprocal delivery or payment by the other party
to the transaction. In entering into a when-issued or delayed-delivery
transaction, an Underlying Smith Barney Fund will rely on the other party to
consummate the transaction and may be disadvantaged if the other party fails
to do so.
U.S. government securities normally are subject to changes in value based upon
changes, real or anticipated, in the level of interest rates and the public's
perception of the creditworthiness of the issuers. In general, U.S.
government securities tend to appreciate when interest rates decline and
depreciate when interest rates rise. Purchasing these securities on a when-
issued or delayed-delivery basis, therefore, can involve the risk that the
yields available in the market when the delivery takes place may actually be
higher than those obtained in the transaction itself. Similarly, the sale of
U.S. government securities for delayed delivery can involve the risk that the
prices available in the market when the delivery is made may actually be
higher than those obtained in the transaction itself.
In the case of the purchase by an Underlying Smith Barney Fund of securities
on a when-issued or delayed-delivery basis, a segregated account in the name
of the Fund consisting of cash or liquid debt securities equal to the amount
of the when-issued or delayed-delivery commitments will be established at the
Fund's custodian. For the purpose of determining the adequacy of the
securities in the accounts, the deposited securities will be valued at market
or fair value. If the market or fair value of the securities declines,
additional cash or securities will be placed in the account daily so that the
value of the account will equal the amount of such commitments by the Fund
involved. On the settlement date, a Fund will meet its obligations from then-
available cash flow, the sale of securities held in the segregated account,
the sale of other securities or, although it would not normally expect to do
so, from the sale of the securities purchased on a when-issued or delayed-
delivery basis (which may have a value greater or less than the Fund's payment
obligations).
LENDING OF PORTFOLIO SECURITIES. Certain of the Underlying Smith Barney Funds
have the ability to lend portfolio securities to brokers, dealers and other
financial organizations. A Fund will not lend portfolio securities to Smith
Barney unless it has applied for and received specific authority to do so from
the SEC. Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. government securities which are maintained at all
times in an amount at least equal to the current market value of the loaned
securities. From time to time, an Underlying Smith Barney Fund may pay 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 and is acting as a "finder."
By lending its securities, an Underlying Smith Barney 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. A Fund will comply with the following
conditions whenever its portfolio securities are loaned: (a) the Fund must
receive at least 100% cash collateral or equivalent securities from the
borrower; (b) the borrower must increase such collateral whenever the market
value of the securities loaned 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 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; provided, however, that if a material event adversely affecting the
investment in the loaned securities occurs, the Fund's trustees or directors,
as the case may be, 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 a 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 each Underlying Smith Barney Fund's investment adviser
to be of good standing and will not be made unless, in the judgment of the
adviser, the consideration to be earned from such loans would justify the
risk.
OPTIONS ON SECURITIES. Certain of the Underlying Smith Barney Funds may
engage in transactions in options on securities, which, depending on the Fund,
may include the writing of covered put options and covered call options, the
purchase of put and call options and the entry into closing transactions.
The principal reason for writing covered call options on securities is to
attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. Certain Underlying Smith Barney
Funds, however, may engage in option transactions only to hedge against
adverse price movements in the securities that it holds or may wish to
purchase and the currencies in which certain portfolio securities may be
denominated. In return for a premium, the writer of a covered call option
forfeits the right to any appreciation in the value of the underlying security
above the strike price for the life of the option (or until a closing purchase
transaction can be effected). Nevertheless, the call writer retains the risk
of a decline in the price of the underlying security. Similarly, the
principal reason for writing covered put options is to realize income in the
form of premiums. The writer of a covered put option accepts the risk of a
decline in the price of the underlying security. The size of the premiums
that a Fund may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or increase
their option-writing activities.
Options written by an Underlying Smith Barney Fund normally will have
expiration dates between one and nine months from the date written. The
exercise price of the options may be below, equal to or above the market
values of the underlying securities at the times the options are written. In
the case of call options, these exercise prices are referred to as "in-the-
money," "at-the-money" and "out-of-the-money," respectively. An Underlying
Smith Barney Fund with option-writing authority may write (a) in-the-money
call options when its investment adviser expects that the price of the
underlying security will remain flat or decline moderately during the option
period, (b) at-the-money call options when its adviser expects that the price
of the underlying security will remain flat or advance moderately during the
option period and (c) out-of-the-money call options when its adviser expects
that the price of the underlying security may increase but not above a price
equal to the sum of the exercise price plus the premiums received from writing
the call option. In any of the preceding situations, if the market price of
the underlying security declines and the security is sold at this lower price,
the amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be utilized in the same market environments that such call options
are used in equivalent transactions.
So long as the obligation of an Underlying Smith Barney Fund as the writer of
an option continues, the Fund may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Fund to
deliver, in the case of a call, or take delivery of, in the case of a put, the
underlying security against payment of the exercise price. This obligation
terminates when the option expires or the Fund effects a closing purchase
transaction. A Fund can no longer effect a closing purchase transaction with
respect to an option once it has been assigned an exercise notice. To secure
its obligation to deliver the underlying security when it writes a call
option, or to pay for the underlying security when it writes a put option, an
Underlying Smith Barney Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the
Options Clearing Corporation (the "Clearing Corporation") or similar foreign
clearing corporation and of the securities exchange on which the option is
written.
Certain Underlying Smith Barney Funds may purchase and sell put, call and
other types of option securities that are traded on domestic or foreign
exchanges or the over-the-counter market including, but not limited to,
"spread" options, "knock-out" options, "knock-in" options and "average rate"
or "look-back" options. "Spread" options are dependent upon the difference
between the price of two securities or futures contracts, "knock-out" options
are canceled if the price of the underlying asset reaches a trigger level
prior to expiration, "knock-in" options only have value if the price of the
underlying asset reaches a trigger level and, "average rate" or "look-back"
options are options where, at expiration, the option's strike price is set
based on either the average, maximum or minimum price of the asset over the
period of the option.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized securities exchange or
in the over-the-counter market. Certain Underlying Smith Barney Funds with
option-writing authority may write options on U.S. or foreign exchanges and in
the over-the-counter market.
An Underlying Smith Barney Fund may realize a profit or loss upon entering
into a closing transaction. In cases in which a Fund has written an option,
it will realize a profit if the cost of the closing purchase transaction is
less than the premium received upon writing the original option and will incur
a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. Similarly, when a Fund has
purchased an option and engages in a closing sale transaction, whether the
Fund realizes a profit or loss will depend upon whether the amount received in
the closing sale transaction is more or less than the premium that the Fund
initially paid for the original option plus the related transaction costs.
Although an Underlying Smith Barney Fund generally will purchase or write only
those options for which its adviser believes there is an active secondary
market so as to facilitate closing transactions, there is no assurance that
sufficient trading interest to create a liquid secondary market on a
securities exchange will exist for any particular option or at any particular
time, and for some options no such secondary market may exist. A liquid
secondary market in an option may cease to exist for a variety of reasons. In
the past, for example, higher than anticipated trading activity or order flow,
or other unforeseen events, have at times rendered inadequate certain of the
facilities of the Clearing Corporation and U.S. and foreign securities
exchanges and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. If as a covered call
option writer a Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Securities exchanges generally have established limitations governing the
maximum number of calls and puts of each class which may be held or written,
or exercised within certain time periods, by an investor or group of investors
acting in concert (regardless of whether the options are written on the same
or different securities exchanges or are held, written or exercised in one or
more accounts or through one or more brokers). It is possible that the
Underlying Smith Barney Funds with authority to engage in options transactions
and other clients of their respective advisers and certain of their affiliates
may be considered to be such a group. A securities exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions.
In the case of options written by an Underlying Smith Barney Fund that are
deemed covered by virtue of the Fund's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert or exchange
and obtain physical delivery of the underlying common stocks with respect to
which the Fund has written options may exceed the time within which the Fund
must make delivery in accordance with an exercise notice. In these instances,
an Underlying Smith Barney Fund may purchase or borrow temporarily the
underlying securities for purposes of physical delivery. By so doing, the
Fund will not bear any market risk because the Fund will have the absolute
right to receive from the issuer of the underlying security an equal number of
shares to replace the borrowed stock, but the Fund may incur additional
transaction costs or interest expenses in connection with any such purchase or
borrowing.
Additional risks exist with respect to certain of the U.S. government
securities for which an Underlying Smith Barney Fund may write covered call
options. If a Fund writes covered call options on mortgage-backed securities,
the securities that it holds as cover may, because of scheduled amortization
or unscheduled prepayments, cease to be sufficient cover. The Fund will
compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of those securities.
STOCK INDEX OPTIONS. Certain of the Underlying Smith Barney Funds may
purchase and write put and call options on U.S. stock indexes listed on U.S.
exchanges for the purpose of hedging its portfolio. A stock index fluctuates
with changes in the market values of the stocks included in the index. Some
stock index options are based on a broad market index such as the New York
Stock Exchange Composite Index or a narrower market index such as the Standard
& Poor's 100. Indexes also are based on an industry or market segment such as
the American Stock Exchange Oil and Gas Index or the Computer and Business
Equipment Index.
Options on stock indexes are similar to options on stock except that (a) the
expiration cycles of stock index options are monthly, while those of stock
options currently are quarterly, and (b) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. The writer
may offset its position in stock index options prior to expiration by entering
into a closing transaction on an exchange or it may let the options expire
unexercised.
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the portion
of a securities portfolio being hedged correlate with price movements of the
stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular
stock, whether a Fund will realize a gain or loss from the purchase or writing
of options on an index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indexes, in an industry
or market segment, rather than movements in the price of a particular stock.
Accordingly, successful use by a Fund of options on stock indexes will be
subject to its adviser's ability to predict correctly movements in the
direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the prices
of individual stocks.
An Underlying Smith Barney Fund will engage in stock index options
transactions only when determined by its adviser to be consistent with the
Fund's efforts to control risk. There can be no assurance that such judgment
will be accurate or that the use of these portfolio strategies will be
successful. When a Fund writes an option on a stock index, the Fund will
establish a segregated account with its custodian in an amount equal to the
market value of the option and will maintain the account while the option is
open.
MORTGAGE-RELATED SECURITIES. The average maturity of pass-through pools of
mortgage related securities varies with the maturities of the underlying
mortgage instruments. In addition, a pool's stated maturity may be shortened
by unscheduled payments on the underlying mortgages. Factors affecting
mortgage prepayments include the level of interest rates, general economic and
social conditions, the location of the mortgaged property and age of the
mortgage. Because prepayment rates of individual pools vary widely, it is not
possible to accurately predict the average life of a particular pool. Common
practice is to assume that prepayments will result in an average life ranging
from 2 to 10 years for pools of fixed-rate 30-year mortgages. Pools of
mortgages with other maturities or different characteristics will have varying
average life assumptions.
Mortgage-related securities may be classified as private, governmental or
government-related, depending on the issuer or guarantor. Private mortgage-
related securities represent pass-through pools consisting principally of
conventional residential mortgage loans created by non-governmental issuers,
such as commercial banks, savings and loan associations and private mortgage
insurance companies. Governmental mortgage-related securities are backed up
by the full faith and credit of the U.S. Government. GNMA, the principal
guarantor of such securities, is a wholly owned U.S. government corporation
within the Department of Housing and Urban Development. Government-related
mortgage-related securities are not backed by the full faith and credit of the
U.S. Government. Issuers of such securities include FNMA and FHLMC. FNMA is
a government-sponsored corporation owned entirely by private stockholders,
which is subject to general regulation by the Secretary of Housing and Urban
Development. Pass-through securities issued by FNMA are guaranteed as to
timely payment of principal and interest by FNMA. FHLMC is a corporate
instrumentality of the U.S., the stock of which is owned by Federal Home Loan
Banks. Participation certificates representing interests in mortgages from
FHLMC's national portfolio are guaranteed as to the timely payment of interest
and ultimate collection of principal by FHLMC.
Private U.S. governmental or government-related entities create mortgage loan
pools offering pass-through investments in addition to those described above.
The mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments whose principal or interest
payments may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-related securities are developed and
offered to investors, certain of the Underlying Smith Barney Funds, consistent
with their investment objective and policies, may consider making investments
in such new types of securities.
CURRENCY TRANSACTIONS. Certain of the Underlying Smith Barney Funds may enter
into forward currency exchange transactions. A forward currency contract is
an obligation to purchase or sell a currency against another currency at a
future date and price as agreed upon by the parties. An Underlying Smith
Barney Fund that enters into a forward currency contract may either accept or
make delivery of the currency at the maturity of the forward contract or,
prior to maturity, enter into a closing transaction involving the purchase or
sale of an offsetting contract. A Fund may engage in forward currency
transactions in anticipation of, or to protect itself against, fluctuations in
exchange rates. A Fund might sell a particular foreign currency forward, for
example, when it holds bonds denominated in that currency but anticipates, and
seeks to be protected against, decline in the currency against the U.S.
dollar. Similarly, a Fund may sell the U.S. dollar forward when it holds
bonds denominated in U.S. dollars but anticipates, and seeks to be protected
against, a decline in the U.S. dollar relative to other currencies. Further,
a Fund may purchase a currency forward to "lock in" the price of securities
denominated in that currency which it anticipates purchasing.
Transaction hedging is the purchase or sale of forward currency contracts with
respect to a specific receivable or payable of the Fund generally arising in
connection with the purchase or sale of its securities. Position hedging,
generally, is the sale of forward currency contracts with respect to portfolio
security positions denominated or quoted in the currency. A Fund may not
position hedge with respect to a particular currency to an extent greater than
the aggregate market value at any time of the security or securities held in
its portfolio denominated or quoted in or currently convertible (such as
through exercise of an option or consummation of a forward currency contract)
into that particular currency, except that certain Underlying Smith Barney
Funds may utilize forward currency contracts denominated in the European
Currency Unit to hedge portfolio security positions when a security or
securities are denominated in currencies of member countries in the European
Monetary System. If a Fund enters into a transaction hedging or position
hedging transaction, it will cover the transaction through one or more of the
following methods: (a) ownership of the underlying currency or an option to
purchase such currency; (b) ownership of an option to enter into an offsetting
forward currency contract; (c) entering into a forward contract to purchase
currency being sold or to sell currency being purchased, provided that such
covering contract is itself covered by any one of these methods unless the
covering contract closes out the first contract; or (d) depositing into a
segregated account with the custodian or a sub-custodian of the Fund cash or
readily marketable securities in an amount equal to the value of the Fund's
total assets committed to the consummation of the forward currency contract
and not otherwise covered. In the case of transaction hedging, any securities
placed in an account must be liquid debt securities. In any case, if the
value of the securities placed in the segregated account declines, additional
cash or securities will be placed in the account so that the value of the
account will equal the above amount. Hedging transactions may be made from
any foreign currency into dollars or into other appropriate currencies.
At or before the maturity of a forward contract, a Fund either may sell a
portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the relevant Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to
deliver. If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or loss to the extent movement has occurred in
forward contract prices. Should forward prices decline during the period
between a Fund's entering into a forward contract for the sale of a currency
and the date that it enters into an offsetting contract for the purchase of
the currency, the Fund will realize a gain to the extent that the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to
the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
The cost to a Fund of engaging in currency transactions varies with factors
such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because transactions in currency exchange
are usually conducted on a principal basis, no fees or commissions are
involved. The use of forward currency contracts does not eliminate
fluctuations in the underlying prices of the securities, but it does establish
a rate of exchange that can be achieved in the future. In addition, although
forward currency contracts limit the risk of loss due to a decline in the
value of the hedged currency, at the same time, they limit any potential gain
that might result should the value of the currency increase. If a devaluation
is generally anticipated a Fund may not be able to contract to sell the
currency at a price above the devaluation level anticipated.
FOREIGN CURRENCY OPTIONS. Certain Underlying Smith Barney Funds may purchase
or write put and call options on foreign currencies for the purpose of hedging
against changes in future currency exchange rates. Foreign currency options
generally have three, six and nine month expiration cycles. Put options
convey the right to sell the underlying currency at a price which is
anticipated to be higher than the spot price of the currency at the time the
option expires. Call options convey the right to buy the underlying currency
at a price which is expected to be lower than the spot price of the currency
at the time that the option expires.
An Underlying Smith Barney Fund may use foreign currency options under the
same circumstances that it could use forward currency exchange transactions.
A decline in the dollar value of a foreign currency in which a Fund's
securities are denominated, for example, will reduce the dollar value of the
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of securities that it
holds, the Fund may purchase put options on the foreign currency. If the
value of the currency does decline, the Fund will have the right to sell the
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its securities that otherwise would have resulted.
Conversely, if a rise in the dollar value of a currency in which securities to
be acquired are denominated is projected, thereby potentially increasing the
cost of the securities, the Fund may purchase call options on the particular
currency. The purchase of these options could offset, at least partially, the
effects of the adverse movements in exchange rates. The benefit to the Fund
derived from purchases of foreign currency options, like the benefit derived
from other types of options, will be reduced by the amount of the premium and
related transaction costs. In addition, if currency exchange rates do not
move in the direction or to the extent anticipated, the Fund could sustain
losses on transactions in foreign currency options that would require it to
forego a portion or all of the benefits of advantageous changes in the rates.
FOREIGN GOVERNMENT SECURITIES. Among the foreign government securities in
which certain Underlying Smith Barney Funds may invest are those issued by
countries with developing economies, which are countries in the initial stages
of their industrialization cycles. Investing in securities of countries with
developing economies involves exposure to economic structures that are
generally less diverse and less mature, and to political systems that can be
expected to have less stability, than those of developed countries. The
markets of countries with developing economies historically have been more
volatile than markets of the more mature economies of developed countries, but
often have provided higher rates of return to investors.
RATINGS AS INVESTMENT CRITERIA. In general, the ratings of nationally
recognized statistical rating organization ("NRSROs") represent the opinions
of these agencies as to the quality of securities that they rate. Such
ratings, however, are relative and subjective, and are not absolute standards
of quality and do not evaluate the market value risk of the securities. These
ratings will be used the by Underlying Smith Barney Funds as initial criteria
for the selection of portfolio securities, but the Funds also will rely upon
the independent advice of their respective advisers to evaluate potential
investments. Among the factors that will be considered are the long-term
ability of the issuer to pay principal and interest and general economic
trends. The Appendix to this Statement of Additional Information contains
further information concerning the rating categories of NRSROs and their
significance.
Subsequent to its purchase by a Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. In addition, it is possible that an NRSRO might not change its
rating of a particular issue to reflect subsequent events. None of these
events will require sale of such securities by a Fund, but the Fund's adviser
will consider such events in its determination of whether the Fund should
continue to hold the securities. In addition, to the extent that the ratings
change as a result of changes in such organizations or their rating systems,
or due to a corporate reorganization, a Fund will attempt to use comparable
ratings as standards for its investments in accordance with its investment
objective and policies.
FUTURES CONTRACTS. The purpose of the acquisition or sale of a futures
contract by a Fund is to mitigate the effects of fluctuations in interest
rates or currency or market values, depending on the type of contract, on
securities or their values without actually buying or selling the securities.
Of course, because the value of portfolio securities will far exceed the value
of the futures contracts sold by a Fund, an increase in the value of the
futures contracts could only mitigate -- but not totally offset -- the decline
in the value of the Fund.
Certain of the Underlying Smith Barney Funds may enter into futures contracts
or related options on futures contracts that are traded on a domestic or
foreign exchange or in the over-the-counter market. Generally, these
investments may be made solely for the purpose of hedging against changes in
the value of its portfolio investments due to anticipated changes in interest
rates, currency values and/or market conditions when the transactions are
economically appropriate to the reduction of risks inherent in the management
of the Fund and not for purposes of speculation. However, the International
Equity Portfolio, the International Balanced Portfolio and the Natural
Resources Fund may also enter into futures transactions for non-hedging
purposes, subject to applicable law. The ability of the Funds to trade in
futures contracts may be limited by the requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), applicable to a regulated investment
company.
No consideration is paid or received by a Fund upon entering into a futures
contract. Initially, a Fund will be required to deposit with its custodian an
amount of cash or cash equivalents equal to approximately 1% to 10% of the
contract amount (this amount is subject to change by the board of trade on
which the contract is traded and members of such board of trade may charge a
higher amount). This amount, known as initial margin, is in the nature of a
performance bond or good faith deposit on the contract and is returned to a
Fund upon termination of the futures contract, assuming that all contractual
obligations have been satisfied. Subsequent payments, known as variation
margin, to and from the broker, will be made daily as the price of the
securities, currency, index or gold underlying the futures contract
fluctuates, making the long and short positions in the futures contract more
or less valuable, a process known as "marking-to-market." At any time prior to
expiration of a futures contract, a Fund may elect to close the position by
taking an opposite position, which will operate to terminate the Fund's
existing position in the contract.
Several risks are associated with the use of futures contracts as a hedging
device. Successful use of futures contracts by a Fund is subject to the
ability of its adviser to predict correctly movements in interest rates, stock
or bond indices, the price of gold or foreign currency values. These
predictions involve skills and techniques that may be different from those
involved in the management of the portfolio being hedged. In addition, there
can be no assurance that there will be a correlation between movements in the
price of the underlying securities, currency, index or gold and movements in
the price of the investments which are the subject of the hedge. A decision
of whether, when and how to hedge involves the exercise of skill and judgment,
and even a well-conceived hedge may be unsuccessful to some degree because of
market behavior or unexpected trends in interest rates or currency values.
There is no assurance that an active market will exist for future contracts at
any particular time. Most futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular contract,
no trades may be made that day at a price beyond that limit. It is possible
that futures contract prices could move to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses. In such event, and in the event of adverse price
movements, a Fund would be required to make daily cash payments of variation
margin, and an increase in the value of the portion of the portfolio being
hedged, if any, may partially or completely offset losses on the futures
contract. As described above, however, there is no guarantee that the price
of the securities being hedged will, in fact, correlate with the price
movements in a futures contract and thus provide an offset to losses on the
futures contract.
If a Fund has hedged against the possibility of a change in interest rates or
currency or market values adversely affecting the value of investments held in
its portfolio and rates or currency or market values move in a direction
opposite to that which the Fund has anticipated, the Fund will lose part or
all of the benefit of the increased value of investments which it has hedged
because it will have offsetting losses in its futures positions. In addition,
in such situations, if the Fund had insufficient cash, it may have to sell
investments to meet daily variation margin requirements at a time when it may
be disadvantageous to do so. These sales of investments may, but will not
necessarily, be at increased prices which reflect the change in interest rates
or currency or market values, as the case may be.
OPTIONS ON FUTURES CONTRACTS. An option on an interest rate or gold futures
contract, as contrasted with the direct investment in such a contract, gives
the purchaser the right, in return for the premium paid, to assume a position
in the underlying interest rate futures contract at a specified exercise price
at any time prior to the expiration date of the option. An option on a
foreign currency futures contract, as contracted with the direct investment in
such a contract, gives the purchaser the right, but not the obligation, to
assume a long or short position in the relevant underlying foreign currency
futures contract at a predetermined exercise price at a time in the future.
Upon exercise of an option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of
the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The potential for loss
related to the purchase of an option on a futures contract is limited to the
premium paid for the option (plus transaction costs). Because the value of
the option is fixed at the point of sale, there are no daily cash payments to
reflect changes in the value of the underlying contract; however, the value of
the option does change daily and that change would be reflected in the net
asset value of a Fund investing in the options.
Several risks are associated with options on futures contracts. The ability
to establish and close out positions on such options will be subject to the
existence of a liquid market. In addition, the purchase of put or call
options on interest rate, foreign currency and gold futures will be based upon
predictions by a Fund's adviser as to anticipated trends in interest rates,
currency and gold values, as the case may be, which could be incorrect. Even
if the expectations of an adviser are correct, there may be an imperfect
correlation between the change in the value of the options and of the
portfolio investments being hedged.
FOREIGN INVESTMENTS. Investors should recognize that investing in foreign
companies involves certain considerations which are not typically associated
with investing in U.S. issuers. Since certain Underlying Smith Barney Funds
will be investing in securities denominated in currencies other than the U.S.
dollar, and since certain Funds may temporarily hold funds in bank deposits or
other money market investments denominated in foreign currencies, the Funds
may be affected favorably or unfavorably by exchange control regulations or
changes in the exchange rate between such currencies and the dollar. A change
in the value of a foreign currency relative to the U.S. dollar will result in
a corresponding change in the dollar value of a Fund's assets denominated in
that foreign currency. Changes in foreign currency exchange rates may also
affect the value of dividends and interest earned, gains and losses realized
on the sale of securities and net investment income and gain, if any, to be
distributed to shareholders by the Fund.
The rate of exchange between the U.S. dollar and other currencies is
determined by the forces of supply and demand in the foreign exchange markets.
Changes in the exchange rate may result over time from the interaction of many
factors directly or indirectly affecting economic conditions and political
developments in other countries. Of particular importance are rates of
inflation, interest rate levels, the balance of payments and the extent of
government surpluses or deficits in the U.S. and the particular foreign
country, all of which are in turn sensitive to the monetary, fiscal and trade
policies pursued by the governments of the U.S. and other foreign countries
important to international trade and finance. Governmental intervention may
also play a significant role. National governments rarely voluntarily allow
their currencies to float freely in response to economic forces. Sovereign
governments use a variety of techniques, such as intervention by a country's
central bank or imposition of regulatory controls or taxes, to affect the
exchange rates of their currencies.
Securities held by an Underlying Smith Barney Fund may not be registered with,
nor the issuers thereof be subject to reporting requirements of, the SEC.
Accordingly, there may be less publicly available information about the
securities and about the foreign company or government issuing them than is
available about a domestic company or government entity. Foreign issuers are
generally not subject to uniform financial reporting standards, practices and
requirements comparable to those applicable to U.S. issuers. In addition,
with respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or domestic
developments which could affect U.S. investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments positions. Certain Underlying Smith Barney Funds may invest in
securities of foreign governments (or agencies or instrumentalities thereof),
and many, if not all, of the foregoing considerations apply to such
investments as well.
Securities of some foreign companies are less liquid and their prices are more
volatile than securities of comparable domestic companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold.
The interest payable on a Fund's foreign securities may be subject to foreign
withholding taxes, and while investors may be able to claim some credit or
deductions for such taxes with respect to their allocated shares of such
foreign tax payments, the general effect of these taxes will be to reduce the
Fund's income. Additionally, the operating expenses of a Fund can be expected
to be higher than that of an investment company investing exclusively in the
U.S. securities, since the expenses of the Fund, such as custodial costs,
valuation costs and communication costs, as well as the rate of the investment
advisory fees, though similar to such expenses of some other international
funds, are higher than those costs incurred by other investment companies.
FOREIGN COMMODITY EXCHANGES. Unlike trading on domestic commodity exchanges,
trading on foreign commodity exchanges is not regulated by the Commodity
Futures Trading Commission and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges may be principal
markets so that no common clearing facility exists and a trader may look only
to the broker for performance of the contract. In addition, unless an
Underlying Smith Barney Fund trading on a foreign commodity exchange hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that the
Fund might realize in trading could be eliminated by adverse changes in the
exchange rate, or the Fund could incur losses as a result of those changes.
SHORT SALES. Certain of the Underlying Smith Barney Funds may from time to
time sell securities short. A short sale is a transaction in which the Fund
sells securities that it does not own (but has borrowed) in anticipation of a
decline in the market price of the securities.
When a Fund makes a short sale, the proceeds it receives from the sale are
retained by a broker until the Fund replaces the borrowed securities. To
deliver the securities to the buyer, the Fund must arrange through a broker to
borrow the securities and, in so doing, the Fund becomes obligated to replace
the securities borrowed at their market price at the time of replacement,
whatever that price may be. The Fund may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
A Fund's obligation to replace the securities borrowed in connection with a
short sale will be secured by collateral deposited with the broker that
consists of cash, U.S. government securities, equity securities or debt
securities of any grade so long as such assets are liquid, unencumbered and
marked to market daily. In addition, the Fund will place in a segregated
account with its custodian an amount of cash or U.S. government securities
equal to the difference, if any, between (a) the market value of the
securities sold at the time they were sold short and (b) any cash or U.S.
government securities deposited as collateral with the broker in connection
with the short sale (not including the proceeds of the short sale). Until it
replaces the borrowed securities, the Fund will maintain the segregated
account daily at a level so that the amount deposited in the account plus the
amount deposited with the broker (not including the proceeds from the short
sale) (a) will equal the current market value of the securities sold short and
(b) will not be less than the market value of the securities at the time they
were sold short.
SHORT SALES AGAINST THE BOX. Certain of the Underlying Smith Barney Funds may
enter into a short sale of common stock such that when the short position is
open the Fund involved owns an equal amount of preferred stocks or debt
securities, convertible or exchangeable, without payment of further
consideration, into an equal number of shares of the common stock sold short.
This kind of short sale, which is described as "against the box," will be
entered into by a Fund for the purpose of receiving a portion of the interest
earned by the executing broker from the proceeds of the sale. The proceeds of
the sale will be held by the broker until the settlement date when the Fund
delivers the convertible securities to close out its short position. Although
prior to delivery a Fund will have to pay an amount equal to any dividends
paid on the common stock sold short, the Fund will receive the dividends from
the preferred stock or interest from the debt securities convertible into the
stock sold short, plus a portion of the interest earned from the proceeds of
the short sale. The Fund will deposit, in a segregated account with their
custodian, convertible preferred stock or convertible debt securities in
connection with short sales against the box.
SWAP AGREEMENTS. Among the hedging transactions into which certain Underlying
Smith Barney Funds may enter are interest rate swaps and the purchase or sale
of interest rate caps and floors. Interest rate swaps involve the exchange by
a Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments.
The purchase of an interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling
such interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payment of interest on a notional principal amount
from the party selling such interest rate floor.
Certain Underlying Smith Barney Funds may enter into interest rate swaps, caps
and floors on either an asset-based or liability-based basis, depending on
whether it is hedging its assets or its liabilities, and will usually enter
into interest rate swaps on a net basis, i.e., the two payment streams are
netted, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. Inasmuch as these hedging transactions are
entered into for good faith hedging purposes, the investment adviser and the
Fund believe such obligations do not constitute senior securities and,
accordingly will not treat them as being subject to its borrowing
restrictions. The net amount of the excess, if any, of a Fund's obligations
over its entitlement with respect to each interest rate swap will be accrued
on a daily basis and an amount of cash or liquid securities having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account with PNC Bank. If there is a default by the
other party to such a transaction, a Fund will have contractual remedies
pursuant to the agreement related to the transaction. The swap market has
grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents. As a
result, the swap market has become relatively liquid. Caps and floors are
more recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps.
RESTRICTED SECURITIES. Certain of the Underlying Smith Barney Funds may
invest in securities the disposition of which is subject to legal or
contractual restrictions. The sale of restricted securities often requires
more time and results in higher brokerage charges or dealer discounts and
other selling expenses than does the sale of securities eligible for trading
on a national securities exchange that are not subject to restrictions on
resale. Restricted securities often sell at a price lower than similar
securities that are not subject to restrictions on resale.
REVERSE REPURCHASE AGREEMENTS. Certain Underlying Smith Barney Funds may
enter into reverse repurchase agreements with banks or broker-dealers. A
reverse repurchase agreement involves the sale of a money market instrument
held by an Underlying Smith Barney Fund coupled with an agreement by the Fund
to repurchase the instrument at a stated price, date and interest payment.
The Fund will use the proceeds of a reverse repurchase agreement to purchase
other money market instruments which either mature at a date simultaneous with
or prior to the expiration of the reverse repurchase agreement or which are
held under an agreement to resell maturing as of that time.
An Underlying Smith Barney Fund will enter into a reverse repurchase agreement
only when the interest income to be earned from the investment of the proceeds
of the transaction is greater than the interest expense of the transaction.
Under the 1940 Act, reverse repurchase agreements may be considered to be
borrowings by the seller. Entry into such agreements requires the creation and
maintenance of a segregated account with the Fund's custodian consisting of
U.S. government securities, cash, equity securities or debt securities of any
grade so long as such assets are liquid, unencumbered and marked to market
daily.
LEVERAGING. Certain of the Underlying Smith Barney Funds may from time to
time leverage their investments by purchasing securities with borrowed money.
A Fund is required under the 1940 Act to maintain at all times an asset
coverage of 300% of the amount of its borrowings. If, as a result of market
fluctuations or for any other reason, the Fund's asset coverage drops below
300%, the Fund must reduce its outstanding borrowings within three business
days so as to restore its asset coverage to the 300% level.
Any gain in the value of securities purchased with borrowed money that exceeds
the interest paid on the amount borrowed would cause the net asset value of
the Underlying Smith Barney Fund's shares to increase more rapidly than
otherwise would be the case. Conversely, any decline in the value of
securities purchased would cause the net asset value of the Fund's shares to
decrease more rapidly than otherwise would be the case. Borrowed money thus
creates an opportunity for greater capital gain but at the same time increases
exposure to capital risk. The net cost of any borrowed money would be an
expense that otherwise would not be incurred, and this expense could restrict
or eliminate a Fund's net investment income in any given period.
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITORY RECEIPTS. Certain of the
Underlying Smith Barney Funds may invest in the securities of foreign and
domestic issuers in the form of American Depository Receipts ("ADRs") and
European Depository Receipts ("EDRs"). These securities may not necessarily
be denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a U.S. bank or trust company
that evidence ownership of underlying securities issued by a foreign
corporation. EDRs, which sometimes are referred to as Continental Depository
Receipts ("CDRs"), are receipts issued in Europe typically by foreign banks
and trust companies that evidence ownership of either foreign or domestic
securities. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and CDRs are designed for use in European
securities markets.
CONVERTIBLE SECURITIES. Convertible securities are fixed-income securities
that may be converted at either a stated price or stated rate into underlying
shares of common stock. Convertible securities have general characteristics
similar to both fixed-income and equity securities. Although to a lesser
extent than with fixed-income securities generally, the market value of
convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because
of the conversion feature, the market value of convertible securities tends to
vary with fluctuations in the market value of the underlying common stocks
and, therefore, also will react to variations in the general market for equity
securities. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the market
price of the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As fixed-income securities, convertible securities are investments that
provide for a stable stream of income with generally higher yields than common
stocks. Of course, like all fixed-income securities, there can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation. A
convertible security, in addition to providing fixed income, offers the
potential for capital appreciation through the conversion feature, which
enables the holder to benefit from increases in the market price of the
underlying common stock. There can be no assurance of capital appreciation,
however, because securities prices fluctuate.
Convertible securities generally are subordinated to other similar but non-
convertible securities of the same issuer, although convertible bonds, such 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 nonconvertible
securities.
WARRANTS. Because a warrant does not carry with it the right to dividends or
voting rights with respect to the 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 prior to its expiration
date. Warrants acquired by an Underlying Smith Barney Fund in units or
attached to securities may be deemed to be without value.
PREFERRED STOCK. Preferred stocks, like debt obligations, are generally
fixed-income securities. Shareholders of preferred stocks normally have the
right to receive dividends at a fixed rate when and as declared by the
issuer's board of directors, but do not participate in other amounts available
for distribution by the issuing corporation. Dividends on the preferred stock
may be cumulative, and all cumulative dividends usually must be paid prior to
common shareholders receiving any dividends. Preferred stock dividends must
be paid before common stock dividends and, for that reason, preferred stocks
generally entail less risk than common stocks. Upon liquidation, preferred
stocks are entitled to a specified liquidation preference, which is generally
the same as the par or stated value, and are senior in right of payment to
common stock. Preferred stocks are, however, equity securities in the sense
that they do not represent a liability of the issuer and, therefore, do not
offer as great a degree of protection of capital or assurance of continued
income as investments in corporate debt securities. In addition, preferred
stocks are subordinated in right of payment to all debt obligations and
creditors of the issuer, and convertible preferred stocks may be subordinated
to other preferred stock of the same issuer.
Investment Restrictions
The Concert Series has adopted the following investment restrictions for the
protection of shareholders. Restrictions 1 through 6 below have been adopted
by the Concert Series with respect to each Portfolio as fundamental policies.
Under the 1940 Act, a fundamental policy of a Portfolio may not be changed
without the vote of a majority, as defined in the 1940 Act, of the outstanding
voting securities of the Portfolio. Such majority is defined as the lesser of
(a) 67% or more of the shares present at the meeting, if the holders of more
than 50% of the outstanding shares of the Portfolio are present or represented
by proxy, or (b) more than 50% of the outstanding shares. Investment
restrictions 7 through 15 may be changed by a vote of a majority of the
Concert Series' Board of Directors at any time.
The investment policies adopted by the Concert Series prohibit a Portfolio
from:
1. Borrowing money except from banks for temporary or emergency purposes,
including the meeting of redemption requests in an amount not exceeding 33-
1/3% of the value of a Portfolio's total assets (including the amount
borrowed) valued at market less liabilities (not including the amount
borrowed) at the time the borrowing is made.
2. Making loans of money to others, except through the purchase of portfolio
securities consistent with its investment objective and policies and
repurchase agreements.
3. Underwriting the securities of other issuers, except insofar as the
Portfolio may be deemed an underwriter under the Securities Act of 1933, as
amended, by virtue of disposing of portfolio securities.
4. Purchasing or selling real estate except that each Portfolio may purchase
and sell money market securities that are secured by real estate or issued by
companies that invest or deal in real estate.
5. Investing in commodities.
6. Issuing senior securities except as permitted by investment restriction 1.
7. Purchasing securities on margin.
8. Making short sales of securities or maintaining a short position.
9. Pledging, hypothecating, mortgaging or otherwise encumbering more than 33-
1/3% of the value of a Portfolio's total assets.
10. Investing in oil, gas or other mineral exploration or development
programs.
11. Writing or selling puts, calls, straddles, spreads or combinations
thereof.
12. Purchasing restricted securities, illiquid securities (such as repurchase
agreements with maturities in excess of seven days) or other securities that
are not readily marketable.
13. Purchasing any security if as a result the Portfolio would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three
years (except for Underlying Smith Barney Funds).
14. Making investments for the purpose of exercising control or management.
15. Purchasing or retaining securities of any company if, to the knowledge of
the Concert Series, any officer or director of the Concert Series or TIA
individually owns more than 1/2 of 1% of the outstanding securities of such
company and together they own beneficially more than 5% of such securities.
The Concert Series may make commitments more restrictive than the restrictions
listed above with respect to a Portfolio so as to permit the sale of shares of
the Portfolio in certain states. Should the Concert Series determine that any
such commitment is no longer in the best interests of the Portfolio and its
shareholders, the Concert Series will revoke the commitment by terminating the
sale of shares of the Portfolio in the relevant state. The percentage
limitations contained in the restrictions listed above (other than with
respect to (1) above) apply at the time of purchases of securities.
Notwithstanding the foregoing investment restrictions, the Underlying Smith
Barney Funds in which the Portfolios invest have adopted certain investment
restrictions which may be more or less restrictive than those listed above,
thereby permitting a Portfolio to engage in investment strategies indirectly
that are prohibited under the investment restrictions listed above. The
investment restrictions of an Underlying Smith Barney Fund are located in its
Statement of Additional Information.
Under Rule 12d(1)(G) of the 1940 Act, each Select Portfolio may invest
substantially all of its assets in the Underlying Smith Barney Funds.
Because of their investment objectives and policies, the Select Portfolios
will each concentrate more than 25% of their assets in the mutual fund
industry. In accordance with the Select Portfolios' investment programs set
forth in the Prospectus, each of the Portfolios may invest more than 25% of
its assets in certain Underlying Smith Barney Funds. However, each of the
Underlying Smith Barney Funds in which each Fund will invest (other than the
Smith Barney Utilities Fund) will not concentrate more than 25% of its total
assets in any one industry. The Smith Barney Utilities Fund will invest at
least 65% of its assets in securities of companies in the utility industries.
Portfolio Turnover
Each Portfolio's turnover rate is not expected to exceed 25% annually. A
Portfolio may purchase or sell securities to: (a) accommodate purchases and
sales of its shares, (b) change the percentages of its assets invested in each
of the Underlying Smith Barney Funds in response to market conditions, and (c)
maintain or modify the allocation of its assets between equity and fixed
income funds and among the Underlying Smith Barney Funds within the percentage
limits described in the Prospectus.
The turnover rates of the Underlying Smith Barney Funds have ranged from 16%
to 292% during their most recent fiscal years. There can be no assurance that
the turnover rates of these funds will remain within this range during
subsequent fiscal years. Higher turnover rates may result in higher expenses
being incurred by the Underlying Smith Barney Funds.
PURCHASE OF SHARES
The Concert Series offers its shares of capital stock on a continuous basis.
Shares can only be acquired by buying a Contract from a life insurance company
designated by Concert Series and directing the allocation of part or all of
the net purchase payment to one or more of five subaccounts (the
"Subaccounts"), each of which invests in a Select Portfolio as permitted under
the Contract prospectus. Investors should read this Statement of Additional
Information and the Fund's Prospectus for the Select Portfolios dated October
28, 1996 along with the Contract prospectus.
Sales Charges and Surrender Charges
The Concert Series does not assess any sales charge, either when it sells or
when it redeems shares of a Portfolio. Surrender charges may be assessed
under the Contract, as described in the Contract prospectus. Mortality and
expense risk fees and other charges are also described in that prospectus.
REDEMPTION OF SHARES
The Concert Series will redeem any shares of the Select Portfolios presented
by the Subaccounts, its sole shareholders, for redemption. The Subaccounts'
policy on when or whether to buy or redeem Portfolio shares is described in
the Contract prospectus.
Payment upon redemption of shares of a Portfolio is normally made within three
days of receipt of such request. The right of redemption of shares of a
Portfolio may be suspended or the date of payment postponed (a) for any
periods during which the New York Stock Exchange, Inc. ("NYSE") is closed
(other than for customary weekend and holiday closings), (b) when trading in
the markets the Portfolio customarily utilizes is restricted, or an emergency,
as defined by the rules and regulations of the SEC, exists, making disposal of
the Portfolio's investments or determination of its net asset value not
reasonably practicable, or (c) for such other periods as the SEC by order may
permit for the protection of the Portfolio's shareholders.
Should the redemption of shares of a Portfolio be suspended or postponed, the
Concert Series' Board of Directors may make a deduction from the value of the
assets of the Portfolio to cover the cost of future liquidations of the assets
so as to distribute fairly these costs among all owners of the Contract.
VALUATION OF SHARES
The net asset value of each Portfolio's Classes of Shares will be determined
on any day that the NYSE is open. The NYSE is closed on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. The following is a description of the
procedures used by each Select Portfolio in valuing its assets.
The value of each Underlying Smith Barney Fund will be its net asset value at
the time of computation. Short-term investments that have a maturity of more
than 60 days are valued at prices based on market quotations for securities of
similar type, yield and maturity. Short-term investments that have a maturity
of 60 days or less are valued at amortized cost, which constitutes fair value
as determined by the Concert Series' Board of Directors. Amortized cost
involves valuing an instrument at its original cost to the Portfolio 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 instrument.
PERFORMANCE
From time to time, the Concert Series may quote a Portfolio's yield or total
return in advertisements or in reports and other communications to
shareholders. The Concert Series may include comparative performance
information in advertising or marketing the Portfolio's shares. Such
performance information may include the following industry and financial
publications: BARRON'S, BUSINESS WEEK, CDA INVESTMENT TECHNOLOGIES, INC.,
CHANGING TIMES, FORBES, FORTUNE, INSTITUTIONAL INVESTOR, INVESTORS BUSINESS
DAILY, MONEY, MORNINGSTAR MUTUAL FUND VALUES, THE NEW YORK TIMES, USA TODAY
and THE WALL STREET JOURNAL.
Yield
A Portfolio's 30-day yield figure described below is calculated according to a
formula prescribed by the SEC. The formula can be expressed as follows: YIELD
= 2[( [(a-b/(c*d))/1] + 1)6 - 1], where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations purchased by the Portfolio at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.
Investors should recognize that in periods of declining interest rates a
Portfolio's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates, the Portfolio's yield will
tend to be somewhat lower. In addition, when interest rates are falling, the
inflow of net new money to the Portfolio from the continuous sale of its
shares will likely be invested in portfolio instruments producing lower yields
than the balance of the Portfolio's investments, thereby reducing the current
yield of the Portfolio. In periods of rising interest rates, the opposite can
be expected to occur.
Average Annual Total Return
"Average annual total return" figures, as described below, are computed
according to a formula prescribed by the SEC. The formula can be expressed as
follows: P(1+T)/n = ERV, where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1-, 5- or 10-year period at the end of
the 1-, 5- or 10-year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
Aggregate Total Return
Aggregate total return figures, as described below, represent the cumulative
change in the value of an investment in the Portfolio for the specified period
and are computed by the following formula:
(ERV-P)/P
Where: P = a hypothetical initial payment of $10,000, and ERV = Ending
Redeemable Value of a hypothetical $10,000 investment made at the beginning of
a 1-, 5- or 10-year period (or fractional portion thereof), at the end of the
1-, 5- or 10-year period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
A Portfolio's performance will vary from time to time depending upon market
conditions, the composition of its investment portfolio and operating
expenses. Consequently, any given performance quotation should not be
considered representative of the Portfolio's performance for any specified
period in the future. Because performance will vary, it may not provide a
basis for comparing an investment in the Portfolio with certain bank deposits
or other investments that pay a fixed yield for a stated period of time.
Investors comparing the Portfolio's performance with that of other mutual
funds should give consideration to the quality and maturity of the respective
investment companies' portfolio securities.
TAXES
The following is a summary of certain Federal income tax considerations that
may affect the Concert Series and its shareholders. The summary is not
intended as a substitute for individual tax advice, and investors are urged to
consult their tax advisors as to the tax consequences of an investment in any
Portfolio of the Concert Series .
Tax Status of the Portfolios
Each Portfolio will be treated as a separate taxable entity for Federal income
tax purposes.
Each Portfolio intends to qualify separately each year as a "regulated
investment company" under the Code. A qualified Portfolio will not be liable
for Federal income taxes to the extent that its taxable net investment income
and net realized capital gains are distributed to its shareholders, provided
that each Portfolio distributes at least 90% of its net investment income.
Each Portfolio intends to accrue dividend income for Federal income tax
purposes in accordance with the rules applicable to regulated investment
companies. In some cases, these rules may have the effect of accelerating (in
comparison to other recipients of the dividend) the time at which the dividend
is taken into account by a Portfolio as taxable income.
Distributions of an Underlying Smith Barney Fund's investment company taxable
income are taxable as ordinary income to a Portfolio which invests in the
Fund. Distributions of the excess of an Underlying Smith Barney Fund's net
long-term capital gain over its net short-term capital loss, which are
properly designated as "capital gain dividends," are taxable as long-term
capital gain to a Portfolio which invests in the Fund, regardless of how long
the Portfolio held the Fund's shares, and are not eligible for the corporate
dividends-received deduction. Upon the sale or other disposition by a
Portfolio of shares of any Underlying Smith Barney Fund, the Portfolio
generally will realize a capital gain or loss which will be long-term or
short-term, generally depending upon the Portfolio's holding period for the
shares.
Tax Treatment of Shareholders
The Concert Series has been informed that certain of the life insurance
companies offering Contracts intend to qualify each of the Subaccounts as a
"segregated asset account" within the meaning of the Code. For a Subaccount
to quality as a segregated asset account, the Select Portfolio in which such
Subaccount holds shares must meet the diversification requirements of Section
817(h) of the Code and the regulations promulgated thereunder. To meet those
requirements, a Select Portfolio may not invest more than certain specified
percentages of its assets in the securities of any one, two, three or four
issuers. However, certain increases are made to the percentage limitations to
the extent of investments in United States Treasury obligations. For these
purposes, all obligations of the United States Treasury and each
instrumentality are treated as securities of separate issuers.
Income on assets of a Subaccount qualified as a segregated asset account whose
underlying investments are adequately diversified will not be taxable to
Contract owners. However, in the event a Subaccount is not so qualified, all
annuities allocating any amount of premiums to such Subaccount will not
qualify as annuities for federal income tax purposes and the holders of such
annuities would be taxed on any income on the annuities during the period of
disqualification.
The Concert Series has undertaken to meet the diversification requirements of
Section 817(h) of the Code. This undertaking may limit the ability of a
particular Select Portfolio to make certain otherwise permitted investments.
Taxation of the Underlying Smith Barney Funds
Each Underlying Smith Barney Fund intends to qualify annually and elect to be
treated as a regulated investment company under Subchapter M of the Code. In
any year in which an Underlying Smith Barney Fund qualifies as a regulated
investment company and timely distributes all of its taxable income, the
Underlying Smith Barney Fund generally will not pay any federal income or
excise tax.
If more than 50% in value of an Underlying Smith Barney Fund's assets at the
close of any taxable year consists of stocks or securities of foreign
corporations, that Underlying Smith Barney Fund may elect to treat certain
foreign taxes paid by it as paid by its shareholders. The shareholders would
then be required to include their proportionate share of the electing Fund's
foreign income and related foreign taxes in income even if the shareholder
does not receive the amount representing foreign taxes. Shareholders
itemizing deductions could then deduct the foreign taxes, or, whether or not
deductions are itemized but subject to certain limitations, claim a direct
dollar for dollar tax credit against their U.S. federal income tax liability
attributable to foreign income. In many cases, a foreign tax credit will be
more advantageous than a deduction for foreign taxes. Each of the Portfolios
may invest in some Underlying Smith Barney Funds that expect to be eligible to
make the above-described election. While a Portfolio will be able to deduct
the foreign taxes that it will be treated as receiving if the election is
made, the Portfolio will not itself be able to elect to treat its foreign
taxes as paid by its shareholders. Accordingly, the shareholders of the
Portfolio will not have an option of claiming a foreign tax credit for foreign
taxes paid by the Underlying Smith Barney Funds, while persons who invest
directly in such Underlying Smith Barney Funds may have that option.
General
The foregoing discussion related only to Federal income tax law as applicable
to U.S. citizens. Distributions by the Portfolio also may be subject to
state, local and foreign taxes, and their treatment under state, local and
foreign income tax laws may differ from the Federal income tax treatment.
Shareholders should consult their tax advisors with respect to particular
questions of Federal, state, local and foreign taxation.
VOTING
Voting Rights
The Concert Series offers shares of the Select High Growth, Select Growth,
Select Balanced, Select Conservative and Select Income Portfolios only for
purchase by insurance company separate accounts. Thus, the insurance company
is technically the shareholder of these Portfolios, and under the 1940 Act, is
deemed to be in control of these Portfolios. Nevertheless, with respect to
any Concert Series shareholder meeting, an insurance company will solicit and
accept timely voting instruction from its contract owners who own units in a
separate account investment division which corresponds to shares in the Select
Portfolios in accordance with the procedures set forth in the accompanying
prospectus of the applicable contract issued by the insurance company and to
the extent required by law. Shares of the Concert Series attributable to
contract owner interests for which no voting instructions are received will be
voted by an insurance company in proportion to the shares for which voting
instructions are received.
Each share of a Portfolio represents an equal proportionate interest in that
Portfolio with each other share of the same Portfolio and is entitled to such
dividends and distributions out of the net income of that Portfolio as are
declared in the discretion of the Directors. Shareowners are entitled to one
vote for each share held and will vote by individual Portfolio except to the
extent required by the 1940 Act. The Concert Series is not required to hold
annual shareowner meetings, although special meetings may be called for the
Concert Series as a whole, or a specific Portfolio, for purposes such as
electing or removing Directors, changing fundamental policies or approving a
management contract. Shareowners may cause a meeting of shareowners to be
held upon a vote of 10% of the Fund's outstanding shares for the purposes of
voting on the removal of Directors.
As used in the Prospectus and this Statement of Additional Information, a
"vote of a majority of the outstanding voting securities" means the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares
of the Concert Series (or the affected Portfolio) or (b) 67% or more of such
shares present at a meeting if more than 50% of the outstanding shares of the
Concert Series (or the affected Portfolio are represented at the meeting in
person or by proxy. A Portfolio shall be deemed to be affected by a matter
unless it is clear that the interests of each Portfolio in the matter are
identical or that the matter does not affect any interest of the Portfolio.
The approval of a management agreement, a distribution agreement or any change
in a fundamental investment policy would be effectively acted upon with
respect to a Portfolio only if approved by a "vote of a majority of the
outstanding voting securities" of the Portfolio affected by the matter;
however, the ratification of independent accountants and the election of
directors are not subject to separate voting requirements and may be
effectively acted upon by a vote of the holders of a majority of all Concert
Series shares voting without regard to Portfolio.
ADDITIONAL INFORMATION
The Concert Series was incorporated in Maryland on August 11, 1995.
Portfolio securities and cash owned by the Concert Series are held in the
custody of PNC Bank, National Association, 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103.
In the event of the liquidation or dissolution of the Concert Series,
shareholders of a Portfolio are entitled to receive the assets belonging to
that Portfolio that are available for distribution and a proportionate
distribution, based upon the relative net assets of the respective Portfolios,
of any general assets not belonging to any particular Portfolio that are
available for distribution.
APPENDIX - RATINGS OF DEBT OBLIGATIONS
BOND (AND NOTE) RATINGS
Moody's Investors Services, Inc. ("Moody's")
Aaa - Bonds that are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present that make the long term risks appear somewhat larger
than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca - Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated "C" are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Con (..) - Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Standard & Poor's Ratings Services ("S&P")
AAA - Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation and 'C' the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus to show relative standing within the major rating
categories.
Provisional Ratings: The letter "p" indicates that the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise judgment with respect to such likelihood and risk.
L - The letter "L" indicates that the rating pertains to the principal amount
of those bonds where the underlying deposit collateral is fully insured by the
FDIC.
+ Continuance of the rating is contingent upon S&P's receipt of closing
documentation confirming investments and cash flow.
* Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement.
"NR" Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Moody's
Issuers rated "Prime-1" (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
will normally be evidenced by the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
S&P
A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issuers determined to
possess overwhelming safety characteristics will be noted with a plus (+) sign
designation.
A-2 - Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
PART C
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C of this Registration Statement.
OTHER INFORMATION
Item 24: Financial Statements and Exhibits
a. Financial Statements:
Included in Part A of this Registration Statement:
Financial Highlights
Included in Part B of this Registration Statement:
Statement of assets and liabilities as of January 22, 1996.
Statement of assets and liabilities as of May 31, 1996.
b. Exhibits:
1. Articles of Incorporation of the Registrant is incorporated by
reference to Registrant's Registration Statement Pre-Effective Amendment No. 1
on Form N-1A as filed on January 23, 1996 (the "Registration Statement").
1(a) Articles Supplementary to the Articles of Incorporation of the
Registrant dated October 28, 1996 is filed herein.
2. Restated By-Laws of the Registrant is incorporated by reference to
Registrant's Registration Statement as filed January 23, 1996.
3. Inapplicable.
4.(a) Registrant's form of stock certificates for Class A, B, C and Y
shares of the High Growth Portfolio is incorporated by reference to
Registrant's Registration Statement as filed January 23, 1996.
(b) Registrant's form of stock certificates for Class A, B, C and Y
shares of the Growth Portfolio is incorporated by reference to Registrant's
Registration Statement as filed January 23, 1996.
(c) Registrant's form of stock certificates for Class A, B, C and Y
shares of the Balanced Portfolio is incorporated by reference to Registrant's
Registration Statement as filed January 23, 1996.
(d) Registrant's form of stock certificates for Class A, B, C and Y
shares of the Conservative Portfolio is incorporated by reference to
Registrant's Registration Statement as filed January 23, 1996.
(e) Registrant's form of stock certificates for Class A, B, C and Y
shares of the Income Portfolios incorporated by reference to Registrant's
Registration Statement as filed January 23, 1996.
(f) Registrant's form of stock certificate for shares of the Smith
Barney Concert Series - Select High Growth Portfolio is incorporated by
reference to Registrant's Registration Statement as filed August 13, 1996.
(g) Registrant's form of stock certificate for shares of the Smith
Barney Concert Series - Select Growth Portfolio is incorporated by reference
to Registrant's Registration Statement as filed August 13, 1996.
(h) Registrant's form of stock certificate for shares of the Smith
Barney Concert Series - Select Balanced Portfolio is incorporated by reference
to Registrant's Registration Statement as filed August 13, 1996.
(i) Registrant's form of stock certificate for shares of the Smith
Barney Concert Series - Select Conservative Portfolio is incorporated by
reference to Registrant's Registration Statement as filed August 13, 1996.
(j) Registrant's form of stock certificate for shares of the Smith
Barney Concert Series - Select Income Portfolio is incorporated by reference
to Registrant's Registration Statement as filed August 13, 1996.
5.(a) Form of Asset Allocation and Administration Agreement between the
Registrant and Smith Barney Mutual Funds Management Inc. is incorporated by
reference to Registrant's Registration Statement as filed January 23, 1996 for
each of the following:
(i) High Growth Portfolio
(ii) Growth Portfolio
(iii) Balanced Portfolio
(iv) Conservative Portfolio
(v) Income Portfolio
5.(b) Form of Asset Allocation and Administration Agreement between the
Registrant and Travelers Investment Adviser, Inc. is filed herein:
(i) Select High Growth Portfolio
(ii) Select Growth Portfolio
(iii) Select Balanced Portfolio
(iv) Select Conservative Portfolio
(j) Select Income Portfolio
6.(a) Form of the Distribution Agreement between the Registrant and
Smith Barney Inc. is incorporated by reference to Registrant's Registration
Statement as filed January 23, 1996.
(b) Form of the Distribution Agreement between the Registrant and PFS
Distributors, Inc. is incorporated by reference to Registrant's Registration
Statement as filed January 23, 1996.
(c) Form of Participation Agreement between the Registrant and
Travelers Fund BD for Variable Annuities and Travelers Fund BD II for Variable
Annuities is filed herein.
7. Inapplicable.
8 Form of Custodian Agreement between the Registrant and PNC Bank,
National Association is incorporated by reference to Registrant's Registration
Statement as filed January 23, 1996.
9.(a) Form of Transfer Agency and Service Agreement between the
Registrant and The Shareholder Services Group, Inc. is incorporated by
reference to Registrant's Registration Statement as filed January 23, 1996.
(b) Form of Sub-Transfer Agency Agreement between the Registrant and
PFS Shareholders Services is incorporated by reference to Registrant's
Registration Statement as filed January 23, 1996.
10. Opinion and Consent of Willkie Farr & Gallagher as to legality of
the series of shares being registered is filed herein.
11. Consent of Independent Public Accountants regarding shares being
registered is filed herin.
12. Inapplicable.
13. Form of Purchase Agreement between the Registrant and the
Purchaser of the initial shares is incorporated by reference to Registrant's
Registration Statement as filed January 23, 1996.
14. Inapplicable.
15. Form of Service and Distribution Plan pursuant to Rule 12b-1
between the Registrant and Smith Barney Inc. is incorporated by reference to
Registrant's Registration Statement as filed January 23, 1996.
16. Inapplicable.
17. Inapplicable.
18. Form of Multiple Class Plan pursuant to Rule 18f-3(d) of the
Investment Company Act of 1940 is incorporated by reference to Registrant's
Registration Statement as filed January 23, 1996.
Item 25. Persons Controlled by or Under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
August 2, 1996 Shares
Balanced Portfolio Class A 3,399,391.768
Balanced Portfolio Class B 4,782,789.764
Balanced Portfolio Class C 929,446.663
Balanced Portfolio Class Y 1
Income Portfolio Class A 819,968.047
Income Portfolio Class B 927,418.714
Income Portfolio Class C 134,891.461
Income Portfolio Class Y 1
High Growth Portfolio Class A 6,451,969.652
High Growth Portfolio Class B 6,208,489.221
High Growth Portfolio Class C 872,938.213
High Growth Portfolio Class Y 1
Conservative Portfolio Class A 1,398,051.514
Conservative Portfolio Class B 1,279,715.543
Conservative Portfolio Class C 198,172.142
Conservative Portfolio Class Y 1
Growth Portfolio Class A 6,715,329.427
Growth Portfolio Class B 9,070,191.284
Growth Portfolio Class C 1,438,747.487
Growth Portfolio Class Y 1
Item 27. Indemnification.
The response to this item is incorporated by reference to the Registrant
Statement filed with the SEC on January 23, 1996.
Item 28. Business or Other Connections of Investment Adviser.
Investment Adviser -- Smith Barney Mutual Funds Management Inc.,
formerly known as Smith Barney Advisers, Inc.
SBMFM was incorporated in December 1968 under the laws of the State of
Delaware. SBMFM is a wholly owned subsidiary of Smith Barney Holdings
Inc. (formerly known as Smith Barney Shearson Holdings Inc.), which in
turn is a wholly owned subsidiary of The Travelers Group Inc. (formerly known
as Primerica Corporation) ("Travelers"). SBMFM is registered as an
investment adviser under the Investment Advisers Act of 1940 (the "Advisers
Act").
The list required by this Item 28 of officers and directors of SBMFM
together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of the Form ADV filed by SBMFM pursuant to the
Advisers Act (SEC File No. 801-8314).
Travelers Investment Adviser, Inc. ("TIA") was incorporated in June 1996 under
the laws of the State of Delaware. TIA is a wholly owned subsidiary of The
Plaza Corporation which, in turn, is an indirect wholly owned subsidiary of
Travelers. TIA is registered as an investment adviser under the Advisers Act.
The list required by this Item 28 of officers and directors of TIA together
with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of the Form ADV filed by TIA pursuant to the Advisers
Act (SEC File No. 801-52365).
Item 29. Principal Underwriters.
Smith Barney Inc. ("Smith Barney") also serves as distributor for each of the
following investment companies:
(a) Smith Barney Managed Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Global Opportunities Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Income Funds
Smith Barney Equity Funds
Smith Barney Investment Funds Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney Telecommunications Trust
Smith Barney Arizona Municipals Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
The USA High Yield Fund N.V.
Garzarelli Sector Analysis Portfolio N.V.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Series Fund
Consulting Group Capital Markets Funds
Smith Barney Investment Trust
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Oregon Municipals Fund
Smith Barney Funds, Inc.
Smith Barney Muni Funds
Smith Barney World Funds, Inc.
Smith Barney Money Funds, Inc.
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Variable Account Funds
Smith Barney U.S. Dollar Reserve Fund (Cayman)
Worldwide Special Fund, N.V.
Worldwide Securities Limited (Bermuda)
Smith Barney International Fund (Luxembourg)
and various series of unit investment trusts.
(b) The information required by this Item 29(b) with respect to
each director and officer of Smith Barney is incorporated by reference to
Schedule A of the Form BD filed by Smith Barney pursuant to the Securities
Exchange Act of 1934 (File No. 8-8177).
(c) Inapplicable.
Item 30. Location of Accounts and Records.
Certain accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the Rules promulgated thereunder are maintained
by Smith Barney Inc., 388 Greenwich Street, New York, New York 10013.
Records relating to the duties of the Registrant's custodian are
maintained by PNC Bank, National Association, 17th and Chestnut Streets,
Philadelphia, Pennsylvania. Records relating to the duties of the
Registrant's transfer agent are maintained by First Data Investor Services
Group, Inc., Exchange Place, Boston, Massachusetts.
Item 31. Management Services.
Inapplicable.
Item 32. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
The Registrant hereby undertakes to call a meeting of shareholders for
the purpose of voting on the question of removal of a Director or Directors
when requested to do so by the holders of at least 10% of the
Registrant's outstanding shares and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company
Act relating to shareholder communications.
The Registrant hereby undertakes, insofar as indemnification for
liability arising under the Securities Act may be permitted to Directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, to indemnify the Directors, officers and
controlling persons of the Registrant. The Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes to file, with respect to the Select High
Growth Portfolio, Select Growth Portfolio, Select Balanced Portfolio, Select
Conservative Portfolio and Select Income Portfolio, a post-effective
amendment, using financial statements which need not be certified, within four
to six months from the effectiveness date of this Amendment to the
Registrant's Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act").
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Amendment to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and the
State of New York on the 30 th day of October 1996.
SMITH BARNEY CONCERT SERIES INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant, Smith Barney
Concert Series, has duly caused this Post-Effective Amendment No. 4 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 as
of the 30th day of October, 1996.
By:/s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board of Directors
Signature
Title
Date
/s/ Heath B. McLendon
Heath B. McLendon
Director; Chairman of
the Board
October 30, 1996
/s/ Lewis E. Daidone
Lewis E. Daidone
Senior Vice President;
Treasurer (Principal
Accounting Officer)
October 30, 1996
/s/ Walter E. Auch*
Walter E. Auch
Director
October 30, 1996
/s/ Martin Brody*
Martin Brody
Director
October 30, 1996
/s/ H. John Ellis*
H. John Ellis
Director
October 30, 1996
/s/ Stephen E.
Kaufman*
Stephen E. Kaufman
Director
October 30, 1996
/s/ Armon E. Kamesar*
Armon E. Kamesar
Director
October 30, 1996
/s/ Madelon DeVoe
Talley*
Madelon DeVoe Talley
Director
October 30, 1996
* Signed by Heath B. McLendon, their duly authorized attorney-in-fact,
pursuant to power of attorney dated January 23, 1996.
/s/ Heath B. McLendon
Heath B. McLendon
SMITH BARNEY CONCERT SERIES INC.
ARTICLES SUPPLEMENTARY
Smith Barney Concert Series Inc., a Maryland corporation having its
principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation presently authorizes
3,000,000,000 shares of capital stock, all of which is Common Stock, par value
$.001 per share. The number of shares of Common Stock that the Corporation has
authority to issue is hereby increased to 5,500,000,000 shares of Common
Stock, par value $.001 per share, and the additional 2,500,000,000 shares are
hereby classified as Common Stock shares of five series (each a "Series") of
the Corporation, as follows:
Series Number of Shares
Select High Growth Portfolio 500,000,000
Select Growth Portfolio 500,000,000
Select Balanced Portfolio 500,000,000
Select Conservative Portfolio 500,000,000
Select Income Portfolio 500,000,000
2,500,000,000
SECOND: The shares of each Series classified hereby shall have the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends qualifications, and terms and conditions of
redemption set forth in Article V, paragraph (4) of the Articles of
Incorporation, as amended, of the Corporation and shall be subject to all
provisions of the Corporation's Charter relating to stock of the Corporation
generally.
THIRD: (a). Immediately prior to these Articles Supplementary
becoming effective, the Corporation had authority to issue 3,000,000,000
shares of Common Stock, $.001 par value per share, with an aggregate par value
of $3,000,000 classified in Article V, paragraph (4) of the Articles of
Incorporation, as amended, as follows:
"(4) There are hereby established and classified five
separate series of stock, each series comprised initially of six
hundred million (600,000,000) shares of Common Stock, and each
series having initially four classes of Common Stock invested in
the common portfolio comprising the series, for an aggregate of
twenty classes of common stock, each with a par value of one tenth
of one cent ($.001) per share. The Corporation's five series of
stock shall be known initially as the 'High Growth Portfolio,'
'Growth Portfolio,' 'Balanced Portfolio,' Conservative Portfolio'
and 'Income Portfolio,' respectively, and the classes of common
stock shall be known initially as 'Class A Common Stock', 'Class B
Common Stock', 'Class C Common Stock' and 'Class Y Common Stock'
of each respective series. The Corporation shall be authorized to
issue up to six hundred million shares of each of the Class A
Common Stock, Class B Common Stock, Class C Common Stock and Class
Y Common Stock of each respective series less, at any time, the
total number of shares of all other classes of Common Stock of
such series then issued and outstanding. At no time may the
Corporation caused to be issued and outstanding more than six
hundred million (600,000,000) shares of Common Stock of all four
such classes in the aggregate of each of the series unless such
number hereafter increase in accordance with the Maryland General
Corporation Law...."
(b) Immediately upon these Articles Supplementary become
effective, the Corporation has authority to issue 5,500,000,000 shares of
Common Stock, $.001 par value per share, with an aggregate par value of
$5,500,000, of which 3,000,000,000 shares are classified as set forth in
paragraph (a) of this Article THIRD of these Articles Supplementary and
2,500,000,000 shares are classified as follows:
Series Number of Shares
Select High Growth Portfolio 500,000,000
Select Growth Portfolio 500,000,000
Select Balanced Portfolio 500,000,000
Select Conservative Portfolio 500,000,000
Select Income Portfolio 500,000,000
2,500,000,000
FOURTH: The number of shares of capital stock that the Corporation
has authority to issue has been increased by the Board of Directors pursuant
to Section 2-105(c) of the Maryland General Corporation Law. The Corporation
is registered as an open-end investment company under the Investment Company
Act of 1940, as amended. The additional shares have been duly classified as
aforesaid by the Board of Directors pursuant to authority and power contained
in the Charter of the Corporation.
IN WITNESS WHEREOF, Smith Barney Concert Series Inc. has caused theses
presents to be signed, as of the 28th day of October, 1996, in its name and on
its behalf by its duly authorized officers, who acknowledge that these
Articles Supplementary are the act of the Corporation, that to the best of
their knowledge, information and belief, all matters and facts set forth
herein relating to the authorization and approval of these Articles are true
in all material respects, and that this statement is made under the penalties
of perjury.
SMITH BARNEY CONCERT
SERIES INC.
WITNESS:
____________________________ _____________________________
Name: Caren Cunningham Name: Heath B. McLendon
Title: Assistant Secretary Title: Chairman of the Board
g:\funds\sbcs\misc\artsupp.doc 3
SMITH BARNEY CONCERT SERIES INC.
VINTAGE HIGH GROWTH PORTFOLIO
VINTAGE GROWTH PORTFOLIO
VINTAGE BALANCED PORTFOLIO
VINTAGE INCOME PORTFOLIO
VINTAGE CONSERVATIVE PORTFOLIO
FORM OF ASSET ALLOCATION AND ADMINISTRATION AGREEMENT
AGREEMENT, made this ___th day of __________ 1996 between Smith
Barney Concert Series Inc., a Maryland corporation (the "Fund"), with
respect to the _______ Portfolio (the "Portfolio") and Travelers
Investment Adviser, Inc., a Delaware corporation ("TIA").
W I T N E S S E T H:
WHEREAS, the Portfolio is a series of the Fund which will operate
as an open-end management investment company registered under the
Investment Company Act of 1940, as amended, and the rules thereunder
(the "1940 Act"); and
WHEREAS, the Fund has been organized for the purpose of investing
its assets in open-end management investment companies or series thereof
that are or will be part of a group of investment companies that holds
itself out to investors as related companies for purposes of investment
and investor services (i) for which Smith Barney Inc. ("Smith Barney")
or any entity controlling, controlled by, or under common control with
Smith Barney now or in the future acts as principal underwriter or (ii)
for which Smith Barney, Smith Barney Mutual Funds Management Inc.
("SBMFM") or Smith Barney Strategy Advisers Inc. ("SBSA") or any entity
controlling, controlled by, or under common control with Smith Barney,
SBMFM or SBSA now or in the future acts as investment adviser
(collectively, the "Underlying Smith Barney Funds"), as well as
repurchase agreements and desires to avail itself of the experience,
sources of information, advice, assistance and facilities available to
TIA and to have TIA perform for it various asset allocation and
administration services; and TIA is willing to furnish such advice and
services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed as follows:
1. The Fund on behalf of the Portfolio hereby appoints TIA to
act as investment manager to the Portfolio on the terms set forth in
this Agreement. TIA accepts such appointment and agrees to render the
services herein described, for the compensation herein provided. TIA is
hereby authorized to retain affiliated third parties and is hereby
authorized to delegate some or all of its administration duties and
obligations hereunder to such persons provided that such persons shall
remain under the general supervision of TIA.
2. Subject to the supervision of the Board of Directors of the
Fund (the "Board"), TIA shall manage the investment of the Portfolio's
assets and provide investment research advice and supervision of the
Portfolio's investments in accordance with the Portfolio's investment
objective, policies and restrictions as stated in the Fund's
Registration Statement under the 1940 Act as it may be amended from time
to time (the "Registration Statement"), and subject to the following
understandings:
(a) TIA shall provide supervision of the Portfolio's investments
and determine from time to time the investments or securities that
will be purchased, retained or sold by the Portfolio. TIA shall
determine the percentage of the Portfolio's assets invested from
time to time in each Underlying Smith Barney Fund selected by the
Board pursuant to the investment objective and policies of the
Portfolio as set forth in the prospectus forming part of the
Registration Statement and in repurchase agreements. TIA shall
allocate investments for the Portfolio among the Underlying Smith
Barney Funds and repurchase agreements based on factors it
considers relevant, including its outlook for the economy,
financial markets and the relative performance of the Underlying
Smith Barney Funds. The allocation among the Underlying Smith
Barney Funds shall be made within investment ranges established by
the Board, which will designate minimum and maximum percentages
for each of the Underlying Smith Barney Funds.
TIA will also make recommendations to the Board concerning changes
to (i) the Underlying Smith Barney Funds in which the Portfolio
may invest, (ii) the percentage range of assets that may be
invested by the Portfolio in any one Underlying Smith Barney Fund
and (iii) the percentage range of assets of the Portfolio that may
be invested in equity funds and fixed income funds (including
money market funds).
(b) TIA shall use its best judgment in the performance of its
duties under this Agreement.
(c) TIA undertakes to perform its duties and obligations under
this Agreement in conformity with the Registration Statement, with
the requirements of the 1940 Act and all other applicable Federal
and state laws and regulations and with the instructions and
directions of the Board.
(d) TIA shall maintain such books and records with respect to
the Portfolio's investments transactions and such books and
records required to be maintained by TIA pursuant to the Rules of
the Securities and Exchange Commission ("SEC") under the 1940 Act
and TIA shall render to the Board such periodic and special
reports as the Board may reasonably request. TIA agrees that all
records that it maintains for the Portfolio or the Fund are the
property of the Fund and it will surrender promptly to the Fund on
behalf of the Portfolio any of such records upon the Fund's
request.
(e) TIA will (i) maintain office facilities for the Fund, (ii)
furnish the Portfolio with statistical and research data, clerical
help and accounting, data processing, bookkeeping, internal
auditing and legal services and certain other services required by
the fund and the Portfolio, (iii) prepare reports to each
Portfolio's shareholders and (iv) prepare tax returns, reports to
and filings with the SEC and state Blue Sky authorities.
3. TIA will bear all of the expenses of its employees and
overhead in connection with its duties under this Agreement. TIA will
also bear all expenses incurred in the operation of the Portfolio other
than the management fee payable under this Agreement, the fees payable
pursuant to the plan adopted pursuant to Rule 12b-1 under the 1940 Act
and extraordinary expenses (such as costs of litigation to which the
Fund is a party and of indemnifying officers and Directors of the Fund),
which will be borne by the Portfolio. The expenses to be borne by TIA
include taxes, interest, brokerage fees and commissions, if any; fees of
the Fund's directors, salaries of all officers and employees who are
employed by both it and the Fund, SEC fees and state Blue Sky
qualification fees; charges of custodians; transfer agent, registrar and
dividend disbursing agent's fees; certain insurance premiums; outside
auditing and legal expenses; costs of maintenance of corporate
existence; investor services (including allocated telephone and
personnel expenses); and costs of preparation and printing of the
prospectus and statement of additional information relating to the
Portfolio; cost of printing and mailing stock certificates,
shareholders' reports, notices, proxy statements and reports to
governmental offices; or directors of the Fund; expenses of membership
in investment company associations; and expenses of fidelity bonding and
other insurance premiums.
4. For the services provided and the expenses assumed pursuant
to this Agreement, the Fund will pay to TIA out of the assets of the
Portfolio a monthly fee in arrears equal to 0.35% per annum of the
Portfolio's average daily net assets during the month.
5. TIA shall authorize and permit any of its directors,
officers and employees who may be elected as directors or officers of
the Fund to serve in the capacities in which they are elected.
6. TIA shall not be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services (in which
case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
7. This Agreement shall commence upon the effectiveness of the
Fund's Registration Statement and shall continue in effect for a period
of two years from its effective date, and if not sooner terminated, will
continue in effect for successive periods of 12 months thereafter,
provided that each continuance is specifically approved at least
annually in conformity with the requirements of the 1940 Act. This
Agreement may be terminated as a whole at any time by the Fund on behalf
of the Portfolio, without the payment of any penalty, upon the vote of a
majority of the Board or the vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Portfolio, or by
TIA, on 60 days' written notice by either party to the other. This
Agreement shall terminate automatically in the event of its assignment
(as defined in the 1940 Act).
8. Nothing in this Agreement shall limit or restrict the right
of any of TIA's directors, officers, or employees who may also be a
director, officer or employee of the Fund to engage in any other
business or to devote his/her time and attention in part to management
or other aspects of any business, whether of a similar or a dissimilar
nature, nor limit or restrict the Manger's right to engage in any other
business or to render services of any kind to any other corporation,
firm, individual or association. The investment management services
provided by TIA hereunder are not to be deemed exclusive, and TIA shall
be free to render similar services to others.
9. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or
mailed by registered mail, postage prepaid, (i) to TIA at 388 Greenwich
Street, New York, New York 10013, Attention: Secretary; or (ii) to the
Fund at 388 Greenwich Street, New York, New York 10013, Attention:
Secretary.
10. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect
to the conflict of law rules thereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year
first above written.
SMITH BARNEY CONCERT SERIES INC.
TRAVELERS INVESTMENT
on behalf of the BALANCED PORTFOLIO ADVISER, INC.
By: __________________________ By:________________________
Heath B. McLendon Heath B. McLendon
Chairman of the Board President
Attest: ______________________Attest: __________________
Caren Cunningham Christina T. Sydor
Assistant Secretary Secretary and General Counsel
PARTICIPATION AGREEMENT
Among
SMITH BARNEY CONCERT SERIES INC.,
TRAVELERS INVESTMENT ADVISER, INC.
and
________________________________________
THIS AGREEMENT, made as of the ____ day of ___, 199_ by and among
_________________ (hereinafter the "Company"), on its own behalf and on
behalf of each segregated asset account of the Company set forth on
Schedule A hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"), the SMITH BARNEY CONCERT
SERIES INC., a Maryland corporation (hereinafter the "Fund"), and
TRAVELERS INVESTMENT ADVISER, INC. (hereinafter the "Adviser"), a
Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable annuity contracts and,
subject to an order expected to be obtained from the Securities and
Exchange Commission (the "SEC"), expects to be available to act as the
investment vehicle for certain qualified pension and retirement plans
("Qualified Plans") and for separate accounts established for variable
life insurance policies (such variable life insurance policies and
variable annuity contracts are herein, collectively, the "Variable
Insurance Products") to be offered by insurance companies which have
entered into participation agreements with the Fund and the Adviser
(hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interests in the Fund are divided into
several series of shares, each representing the interest in a particular
managed portfolio of securities and other assets; and
WHEREAS, the Fund desires to make shares of such managed
portfolios as are listed on Schedule B attached hereto, as such Schedule
B may be amended from time to time hereafter by mutual written agreement
of all the parties hereto, available to the Company for purchase (each
such listed portfolio, a "Portfolio"); and
WHEREAS, the Fund is seeking and expects to obtain an order from
the SEC, granting Participating Insurance Companies and variable annuity
and variable insurance separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act
of 1940, as amended, (hereinafter the "l940 Act") and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Fund to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated life
insurance companies (hereinafter the "Mixed and Shared Funding Exemptive
Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company under the l940 Act and its shares are registered
under the Securities Act of 1933, as amended (hereinafter the "1933
Act"); and
WHEREAS, the Adviser is duly registered as an Investment Adviser
under the Federal Investment Advisers Act of 1940 and any applicable
state securities law; and
WHEREAS, the Company has registered or will register certain
variable life and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of
Directors of the Company, on the date shown for such Account on Schedule
A hereto, to set aside and invest assets attributable to one or more
variable life and annuity contracts; and
WHEREAS, the Company has registered or will register each Account
as a unit investment trust under the l940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on
behalf of each Account to fund certain of the aforesaid variable life
and variable annuity contracts,
NOW, THEREFORE, in consideration of their mutual promises the
Company, the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis
at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Fund. For purposes of this
Section l.l, the Company shall be the designee of the Fund for receipt
of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice
of such order by 10:00 a.m. Eastern time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange
Commission.
1.2. The Fund agrees to make its shares available indefinitely
for purchase at the applicable net asset value per share by the Company
and its Accounts on those days on which the Fund calculates its net
asset value pursuant to rules of the SEC and the Fund shall use
reasonable efforts to calculate such net asset value on each day which
the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Directors of the Fund (hereinafter the "Board")
may refuse to sell shares of any Portfolio to any person, or suspend or
terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is,
in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws,
necessary in the best interest of the shareholders of such Portfolio.
1.3. The Fund and the Adviser agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate
accounts and, in accordance with the terms of the Mixed and Shared
Funding Exemptive Order, certain Qualified Plans. No shares of any
Portfolio will be sold to the general public.
1.4. The Fund will not sell Fund shares to any insurance company
or separate account unless an agreement containing provisions
substantially the same as Articles I and VII, Section 2.5 of Article II
and Sections 3.4 and 3.5 of Article III of this Agreement is in effect
to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's
request, any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value next
computed after receipt by the Fund or its designee of the request for
redemption. For purposes of Sections 2.10 and 2.11, upon the payment by
the Fund to the Company of the proceeds of such redemptions, such
proceeds shall cease to be the responsibility of the Fund and shall
become the responsibility of the Company. For purposes of this Section
1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee
shall constitute receipt by the Fund; provided that the Fund receives
notice of such request for redemption by 10:00 a.m. Eastern time on the
next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund in
accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the variable life and variable
annuity contracts with the form number(s) which are listed on Schedule C
attached hereto and incorporated herein by this reference, as such
Schedule C may be amended from time to time hereafter by mutual written
agreement of all the parties hereto and which such contracts have been
sold pursuant to an Annuity Selling Agreement dated __________, 199_, by
and between the Company and ___________________. (the "Contracts"),
shall be invested in the Portfolios, in such other funds advised by the
Adviser as may be mutually agreed to in writing by the parties hereto,
or in the Company's general account, provided that such amounts may also
be invested in an investment company other than the Fund if (a) such
other investment company, or series thereof, has investment objectives
or policies that are substantially different from the investment
objectives and policies of the Portfolios of the Fund; or (b) the
Company gives the Fund and the Adviser 60 days' written notice of its
intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of
this Agreement and the Company so informs the Fund and Adviser prior to
their signing this Agreement; or (d) the Fund or Adviser consents to the
use of such other investment company.
1.7. The Company shall pay for Fund shares on the next Business
Day after an order to purchase Fund shares is made in accordance with
the provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire. For purpose of Section 2.9 and 2.10, upon receipt
by the Fund of the federal funds so wired, such funds shall cease to be
the responsibility of the Company and shall become the responsibility of
the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any
Account. Shares ordered from the Fund will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish notice (by wire or telephone,
followed by written confirmation) as soon as is reasonably practicable
to the Company of any income, dividends or capital gain distributions
payable on the Fund's shares. The Company hereby elects to receive all
such income dividends and capital gain distributions as are payable on
the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Fund
shall notify the Company of the number of shares so issued as payment of
such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated
(normally 6:30 p.m. Eastern time) and shall use its best efforts to make
such net asset value per share available by 7:00 p.m. Eastern time. If
the Fund provides the Company with the incorrect share net asset value
information, the Company on behalf of the Account shall be entitled to a
prompt adjustment to the number of shares purchased or redeemed to
reflect the correct share net asset value. Upon a final determination
that there has been an error in the calculation of net asset value,
dividend or capital gain, the Fund shall report such error to the
Company.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are
or will be registered under the 1933 Act; that the Contracts will be
issued and sold in compliance in all material respects with all
applicable Federal and State laws and that the sale of the Contracts
shall comply in all material respects with state insurance suitability
requirements. The Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable
law and that it has legally and validly established each Account prior
to any issuance or sale thereof as a segregated asset account under Iowa
Code Section 508A.1 and has registered or, prior to any issuance or sale
of the Contracts, will register each Account as a unit investment trust
in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, shall
be duly authorized for issuance and sold in compliance with the laws of
the State of Maryland and all applicable federal and state securities
laws and that the Fund is and shall remain registered under the 1940
Act. The Fund shall amend the Registration Statement for its shares
under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Fund shall
register and qualify the shares for sale where necessary as determined
by the Fund or the Adviser in accordance with the laws of the various
states.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, as amended, (the "Code") and that it will make every
effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.4. The Company represents that the Contacts are currently
treated as endowment, annuity or life insurance contacts, under
applicable provisions of the Code and that it will make every effort to
maintain such treatment and that it will notify the Fund and the Adviser
immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1040 Act
or otherwise, although it may make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule
12b-1, the Fund undertakes to have a board of directors, a majority of
whom are not interested persons of the Fund, formulate and approve any
plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and
investment polices) complies with the insurance laws or regulations of
the various states except that the Fund and the Adviser represent that
their respective operations are and shall at all times remain in
material compliance with the laws of the State of Maryland to the extent
required to perform this Agreement.
2.7. The Fund represents that it is lawfully organized and
validly existing under the laws of the State of Maryland and that it
does and will comply in all material respects with the 1940 Act.
2.8. The Adviser represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all
applicable federal and state securities laws and that the Adviser shall
perform its obligations for the Fund in compliance in all material
respects with the laws of the State of Maryland and any applicable state
and federal securities laws.
2.9. The Fund and Adviser represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the
Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule
17g-1 of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all if any of its
directors, officers, employees, investment advisers, and other
individuals/entities deal with the money and/or securities of the Fund
they will at all such times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund, in an amount not less than
the minimal coverage as required by Rule 17g-1 of the 1940 Act or
related provisions as may be promulgated from time to time. The
aforesaid Bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Adviser and the Fund shall provide to the Company such
documentation (including a final copy of the Fund's most current
prospectus as set in type at the Fund's expense) and other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for the Fund is amended) to have the
prospectus for the Contracts and the Portfolios' prospectus printed
(such printing to be at the Company's expense except as provided in
Section 5.3 hereof).
3.2. The Fund's prospectus shall state that the Statement of
Additional Information ("SAI") for the Fund is available from the
Adviser (or in the Fund's discretion, the Prospectus shall state that
such SAI is available from the Fund), and the Adviser (or the Fund), at
its expense, shall print and provide one copy of such SAI free of charge
to the Company and to any owner of a Contract or prospective owner who
requests such Statement. The Company may make additional copies of the
SAI at its expense.
3.3. The Fund, at its expense, shall provide the Company with
copies of its proxy material, reports to shareholders, and other
communications to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners; provided,
however, that the Company shall bear the expenses for the costs of
printing and distributing any proxy material, reports to shareholders
and other communications to shareholders that are prepared at the
request of the Company.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares
of such Portfolio for which instructions have
been received;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for owners of
Variable Insurance Products. The Company reserves the right to vote
Fund shares held in any segregated asset account in its own right, to
the extent permitted by law. Participating Insurance Companies shall be
responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner
consistent with this Section.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee, each piece of sales literature or other
promotional material in which the Fund, the Adviser, or the Fund's
underwriter is named, at least ten Business Days prior to its use. No
such material shall be used if the Fund or its designee object to such
use within ten Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund in connection with the sale of the Contracts other than the
information or representations contained in the registration statement
or prospectus for the Fund shares, as such registration statement and
prospectus may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in sales literature or
other promotional material approved by the Fund or its designee or by
the Adviser, except with the permission of the Fund or the Adviser or
the designee of either.
4.3. The Fund, and the Adviser, or its designee shall furnish, or
shall cause to be furnished, to the Company or its designee, each piece
of sales literature or other promotional material in which the Company
and/or its separate account(s), is named at least ten Business Days
prior to its use. No such material shall be used if the Company or its
designee object to such use within ten Business Days after receipt of
such material.
4.4. The Fund and the Adviser shall not give any information or
make any representations on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for
the Contracts, as such registration statement and prospectus may be
amended or supplemented from time to time, or in published reports for
each Account which are in the public domain or approved by the Company
for distribution to Contract owners, or in sales literature or other
promotional material approved by the Company or its designee, except
with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, Statements of
Additional Information, reports, proxy statements, sales literature and
other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate
to the Fund or its shares, as soon as is reasonably practicable after
the filing of such document with the SEC or other regulatory
authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, Statements of
Additional Information, annual and semi-annual reports, solicitations
for voting instructions, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to
the Contracts or each Account, as soon as is reasonably practicable
after the filing of such document with the SEC or other regulatory
authorities.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not limited
to, advertisements (such as materials published, or designed for use in,
in a newspaper, magazine, or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures, or other public media), sales literature (i.e., any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, and registration statements, prospectuses, Statements of
Additional Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Adviser shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the underwriter may make payments to the
Company for the Contracts if and in amounts agreed to by the Adviser in
writing and such payments will be made out of existing fees otherwise
payable to the Adviser, past profits of the Adviser or other resources
available to the Adviser, or by the Fund, to the extent permitted.
Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. Except as provided in sections
3.1, 3.2, 3.3 and 5.3 hereof, the Fund shall bear the expenses for the
cost of registration and qualification of the Fund's shares, preparation
and filing of the Fund's prospectus and registration statement, proxy
materials and reports, setting the prospectus in type, setting in type
and printing the proxy materials and reports to shareholders (including,
if so elected, the costs of printing a prospectus that constitutes an
annual report), the preparation of all statements and notices required
by any federal or state law, all taxes on the issuance or transfer of
the Fund's shares.
5.3. The printing and distributing of the prospectus for the
Portfolios (or that portion of a prospectus relating to the Portfolios
should the Company determine to print a combined prospectus) to existing
owners of Contracts shall be at the expense of the Fund.
ARTICLE VI. Diversification
6.1. Subject to the following sentence, the Fund will at all
times comply with Section 817(h) of the Code and Treasury Regulation
1.817-5, relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulations. In the event of any
changes to such Section or Regulations relating to the treatment of
variable contracts, the Company will advise the Fund of such changes.
ARTICLE VII. Potential Conflicts
7.1 The parties to this Agreement acknowledge that the Fund has
filed an application with the SEC to request an order (the "Exemptive
Order") granting relief from various provisions of the 1940 Act and the
rules thereunder to the extent necessary to permit Fund shares to be
sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and Qualified Plans. It is anticipated that the
Exemptive Order, when and if issued, shall require the Fund and each
Participating Insurance Company to comply with conditions and
undertakings substantially as provided in this Article VII. If the
Exemptive Order imposes conditions on the Company materially different
from those provided for in this Article VII, the conditions and
undertakings imposed by the Exemptive Order shall govern this Agreement.
The Fund will not enter into a participation agreement with any other
Participating Insurance Company unless it imposes the same conditions
and undertakings as are imposed on the Company hereby.
7.2 The Company will report any potential or existing conflicts
promptly to the Board, and in particular whenever contract owner voting
instructions are disregarded, and recognizes that it shall be
responsible for assisting the Board in carrying out its responsibilities
in connection with the Exemptive Order. The Company agrees to carry out
such responsibilities with a view to the interests of contract owners.
7.3. If it is determined by a majority of the Board, or a
majority of its disinterested directors that a material irreconcilable
conflict exists, the Company and other Participating Insurance Companies
shall, at their expense and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees), take whatever
steps are necessary to remedy or eliminate the irreconcilable material
conflict, including but not limited to: (1) withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented,
to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract
owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of
such segregation, or offering to the affected contract owners the option
of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard contract owner voting instructions
and said decision represents a minority position or would preclude a
majority vote by all contract owners having an interest in the Fund, the
Company may be required, at the Board's election, to withdraw the
Account's investment in the Fund.
7.5 For purposes of this Article VII, a majority of the
disinterested directors shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in
no event shall the Fund be required to bear the expense of establishing
a new funding medium for any Contract. The Company shall not be
required by this Article VII to establish a new funding medium for any
Contract if an offer to do so has been declined by vote of a majority of
the contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any
proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the
Fund and terminate this Agreement within six (6) months after the Board
informs the Company in writing of the foregoing determination, provided,
however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested members of the Board.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Mixed and Shared Funding
Exemptive Order) on terms and conditions materially different from those
contained in the Shared Funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take
such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T) as
amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4 and 7.5 of
this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless
the Fund and each of its directors and officers and each person,
if any, who controls the Fund within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in the Registration Statement or prospectus for
the Contract or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Company by
or on behalf of the Fund for use in the Registration
Statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or
persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
Registration Statement, prospectus, or sales literature of
the Fund or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company
to provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach
of any representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Fund, whichever is
applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Company in writing within a reasonable time after the
summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified
Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify
the Company of any such claim shall not relieve the Company from
any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such action.
The Company also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After
notice from the Company to such party of the Company's election to
assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and
the Company will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(d). The indemnification provided by this Section 8.1
shall survive the termination of this Agreement and shall be in
addition to any other liability the Company may have.
8.2. Indemnification by the Adviser
8.2(a). The Adviser agrees to indemnify and hold harmless
the Company and each of its directors and officers and each
person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation
(including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to the Adviser or Fund
by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature for the Contracts not supplied by the Adviser or
persons under its control) or wrongful conduct of the Fund
or Adviser or persons under their control; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Fund; or
(iv) arise as a result of (a) any failure by the Fund to
provide the services and furnish the material under the
terms of this Agreement; or (b) a failure to comply with
Article VI of this Agreement with respect to diversification
requirements; or (c) failure to qualify as a registered
investment company under Subchapter M of the Code; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or the
Fund in this Agreement or arise out of or result from any
other material breach of this Agreement by the Adviser or
the Fund.
8.2(b). The Adviser shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company or Account,
whichever, is applicable.
8.2(c). The Adviser shall not be able under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified
Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify
the Adviser of any such claim shall not relieve the Adviser from
any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to
participate, at its own expense, in the defense thereof. The
Adviser also shall be entitled to assume the defense thereof with
counsel satisfactory to the party named in the action. After
notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and
the Adviser will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.2(d). The indemnification provided by this Section 8.2
shall survive the termination of this Agreement and shall be in
addition to any other liability the Fund or Adviser may have.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New
York.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE X. Term and Termination
10.1. The Agreement is effective as of the date hereof and will
remain in effect until terminated in accordance with the provisions
herein.
10.2. This Agreement shall terminate:
(a) at the option of any party upon 180 days advance
written notice to the other parties unless otherwise agreed in a
separate written agreement among the parties; or
(b) at the option of the Company if shares of the
Portfolios delineated in Schedule 2 are not reasonably available to meet
the requirements of the Contracts as determined by the Company;
provided, however, that such termination shall only apply to the
Portfolio(s) not reasonably available. Prompt notice of the election to
terminate for such cause shall be furnished by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the administration of the Contracts, the operation of the
Account, or the purchase of the Fund shares, the expected or anticipated
ruling, judgment or outcome of which would, in the Fund's reasonable
judgment, materially impair the Company's ability to perform its
obligation and duties hereunder; or
(d) at the option of the Company upon institution of
formal proceedings against the Fund by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body, the
expected or anticipated ruling, judgment or outcome of which would, in
the Company's reasonable judgment, materially impair the Fund's ability
to perform its obligation and duties hereunder; or
(e) at the option of the Company or the Fund upon receipt
of any necessary regulatory approvals and/or the vote of the contract
owners having an interest in the Account (or any subaccount) to
substitute the shares of another investment company for the
corresponding Portfolio shares of the Fund in accordance with the terms
of the Contracts for which those Portfolio shares had been selected to
serve as the underlying investment media. The Company will give 30
days' prior written notice to the Fund of the date of any proposed vote
or other action
taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of the
disinterested Fund Board members, that an irreconcilable material
conflict exists among the interests of (i) all contractowners of
variable insurance products of all separate accounts or (ii) the
interests of the Participating Insurance Companies investing in the Fund
as delineated in Article VII of this Agreement; or
(g) at the option of the Company if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M of the
Code, or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to
meet the diversification requirements specified in Article VI hereof; or
(i) at the option of any party to this Agreement, upon
another party's material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company
determines in its sole judgment exercised in good faith, that either the
Fund or the Adviser has suffered a material adverse change in its
business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity and such
material adverse change or material adverse publicity is likely to have
a material adverse impact upon the business and operations of the
Company; or
(k) at the option of the Fund or Adviser, if the Fund or
Adviser respectively, shall determine in its sole judgment exercised in
good faith, that the Company has suffered a material adverse change in
its business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity and such
material adverse change or material adverse publicity is likely to have
a material adverse impact upon the business and operations of the Fund
or Adviser; or
(l) at the option of the Fund in the event any of the
Contracts are not issued or sold in accordance with applicable federal
and/or state law. Termination shall be effective immediately upon such
occurrence without notice, or
(m) automatically upon its assignment by any party without
the other parties' prior written consent; or
(n) in the event the Fund's shares are not registered,
issued or sold in accordance with applicable state or federal law, or
such law precludes the use of such shares for the underlying investment
medium of variable contracts issued or to be issued by the Company.
Termination shall be effective immediately upon such occurrence without
notice.
10.3. Notice Requirement
(a) In the event that any termination of this Agreement
is based upon the provisions of Article VII such prior written notice
shall be given in advance of the effective date of termination as
required by such provisions.
(b) In the event that any termination of this Agreement
is based upon the provisions of Sections 10.2(b)- (d) or 10.2(g) - (i),
prior written notice of the election to terminate this Agreement for
cause shall be furnished by the party terminating the Agreement to the
non-terminating parties, with said termination to be effective upon
receipt of such notice by the non-terminating parties.
(c) In the event that any termination of this Agreement
is based upon the provisions of Sections 10.2(j) or 10.2(k), prior
written notice of the election to terminate this Agreement for cause
shall be furnished by the party terminating this Agreement to the non-
terminating parties. Such prior written notice shall be given by the
party terminating this Agreement to the non-terminating parties at least
30 days before the effective date of termination.
10.4. It is understood and agreed that the right to terminate
this Agreement pursuant to Section 10.2(a) may be exercised for any
reason or for no reason.
10.5. Effect of Termination
(a) Notwithstanding any termination of this Agreement
pursuant to Section 10.2 of this Agreement, the Fund may, at its option,
or in the event of termination of this Agreement by the Fund or the
Adviser pursuant to Section 10.2(a) of this Agreement, the Company may
require the Fund and the Adviser to, continue to make available
additional shares of the Fund for so long after the termination of this
Agreement as the Fund or the Company, if the Company is so requiring,
desires pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, if the Fund
so elects to make available additional shares of the Fund or if the
Company is so requiring, the owners of the Existing Contracts shall be
permitted to reallocate investments in the Fund, redeem investments in
the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that
this Section 10.5 shall not apply to any terminations under Article VII
and the effect of such Article VII terminations shall be governed by
Article VII of this Agreement.
(b) In the event of a termination of this Agreement
pursuant to Section 10.2 of this Agreement, the Fund shall promptly
notify the Company whether the Fund will continue to make available
shares of the Fund after such termination, except that, with respect to
a termination by the Fund or the Adviser pursuant to Section 10.2(a) of
this Agreement, the Company shall promptly notify the Fund whether it
wishes the Fund to continue to make available additional shares of the
Fund. If shares of the Fund continue to be made available after such
termination, the provisions of this Agreement shall remain in effect
except for Section 10.2(a) and thereafter the Fund or the Company may
terminate the Agreement, as so continued pursuant to this Section 10.5
upon written notice to the other party, such notice to be for a period
that is reasonable under the circumstances.
(c) In determining whether to make available additional
Fund shares, the Fund shall act in good faith, giving due consideration
to the interest of the existing shareholders, including holders of the
existing Contracts.
[10.6. Except (a) as necessary to implement contractowner
initiated or approved transactions, or (b) as required by state
insurance laws or regulations (a "Legally Required Redemption"), the
Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the
Account), and the Company shall not prevent contractowners from
allocating payments to a Portfolio that was otherwise available under
the Contracts, until 90 days after the Company shall have notified the
Fund or Adviser of its intention to do so. Upon request, the Company
will promptly furnish to the Fund and Adviser the opinion of counsel for
the Company (which counsel shall be reasonably satisfactory to the Fund
and the Adviser) to the effect that a particular redemption is a Legally
Required Redemption.]
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time
specify in writing to the other party.
If to the Fund:
Smith Barney Concert Series Inc.
388 Greenwich Street, 22nd Floor
New York, NY 10013
Attn: Christina T. Sydor, Secretary
If to the Company:
If to the Adviser:
Travelers Investment Adviser, Inc.
388 Greenwich Street, 22nd Floor
New York, NY 10013
Attn: Christina T. Sydor, General Counsel
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund
as neither the Board, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund.
12.2. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as if confidential the names
and addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement shall not disclose
disseminate or utilize such names and addresses and other confidential
information until such time as it may come into the public domain
without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provision
hereof or otherwise affect their construction or effect.
12.4. This Agreement maybe executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of the Agreement shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation
the SEC, the NASD and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
12.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the parties hereto
are entitled to under stat and federal laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly
authorized representative and its seal to be hereunder affixed hereto as
of the date specified below.
[NAME OF LIFE INSURANCE
COMPANY]
By its authorized officer
By:________________________
Title:_____________________
Date:______________________
SMITH BARNEY CONCERT
SERIES INC.
By its authorized officer
By:________________________
Title:_____________________
Date:______________________
TRAVELERS INVESTMENT ADVISER, INC.
By its authorized officer
By:________________________
Title:_____________________
Date:______________________
EXHIBIT B
Vintage High Growth Portfolio
Vintage Growth Portfolio
Vintage Balanced Portfolio
Vintage Conservative Portfolio
Vintage Income Portfolio
October 31, 1996
Smith Barney Concert Series, Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We have acted as counsel to Smith Barney Concert Series, Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, in connection
with the Fund's establishment of five new series, the Select High Growth
Portfolio, the Select Growth Portfolio, the Select Balanced Portfolio, the
Select Conservative Portfolio and the Select Income Portfolio (the
"Portfolios").
We have examined copies of the Fund's Articles of Incorporation, as amended or
supplemented (the "Articles"), the Fund's By-Laws, as amended (the "By-Laws"),
the Fund's Registration Statement, as amended, on Form N-1A, Securities Act
File No. 33-64457 and Investment Company Act File No. 811-7435 (the
"Registration Statement"), and all resolutions adopted by the Fund's Board of
Directors at the Portfolios' organizational meeting held on September 5, 1996.
We have also examined such other records, documents, papers, statutes and
authorities as we have deemed necessary to form a basis for the opinion
hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied
upon statements and certificates of officers and representatives of the Fund
and others.
Based upon the foregoing, we are of the opinion that the shares of common
stock of the Portfolios, par value $.001 per share (collectively, the
"Shares") when duly sold, issued and paid for in accordance with the terms of
the Articles, the By-Laws and the Registration Statement, will be validly
issued and will be fully paid and non-assessable shares of common stock of the
Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the statement of additional
information included as part of the Registration Statement and to the filing
of this opinion as an exhibit to any application made by or on behalf of the
Fund or any distributor or dealer in connection with the registration or
qualification of the Fund or the Shares under the securities laws of any state
or other jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions.
Very truly yours,
/s/ Willkie Farr & Gallagher
0191078.03
Smith Barney Concert Series, Inc.
October 31, 1996
Page 2
0191078.03
Independent Auditors' Consent
To the Shareholders and Board of Directors of the
Smith Barney Concert Series Inc.:
We consent to the use of our Firm's name under the heading "Counsel and
Auditors" in the Statement of Additional Information.
KPMG PEAT MARWICK LLP
New York, New York
October 28, 1996
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