<PAGE>
As filed with the U.S. Securities and Exchange Commission
on September 14, 1999
Securities Act File No. [ ]
Investment Company Act File No. 811-[ ]
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. __ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. [ ]
(Check appropriate box or boxes) SSBC
SSBC INDEX SERIES INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, New York 10013
- ------------------------------------------------ --------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(800) 451-2010
Christina T. Sydor
388 Greenwich Street
New York, New York 10013
-----------------------------------------
(Name and Address of Agent for Service)
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended (the "1933 Act"), or until the Registration
Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
<PAGE>
Subject to Completion, dated September 14, 1999
PROSPECTUS
Internet Index Shares
____________ ___, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Internet Index Shares
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 5
Management.................................................................. 7
Comparison to a mutual fund................................................. 8
Buying and selling shares................................................... 8
Purchase of Creation Units.................................................. 8
Redemption of Creation Units................................................ 10
Dividends, distributions and taxes.......................................... 11
Determination of net asset value............................................ 12
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
1
<PAGE>
Investments, risks and performance
Investment objective
To provide investment results that correspond, before expenses, generally to
the price and yield performance of the Salomon Smith Barney "T" Series Internet
Index (the "Index"). The Index is a float-weighted equity index comprised of 30
of the largest publicly-listed U.S. Internet companies.
There can be no assurance that the fund will achieve its investment objective.
Principal investment strategies
The fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon eco-
nomic, financial and market analysis and investment judgment. Instead, the
fund, utilizing a "passive" or indexing investment approach, attempts to
approximate the investment performance of the Index by investing in a portfolio
of stocks that seeks to replicate the Index or through the use of quantitative
analytical procedures to approximate the Index's performance.
Companies eligible for inclusion in the Index must derive at least 50% of their
revenue from business directly related to the Internet. The Internet is a
world-wide network of computers designed to permit users to share information
and transfer data quickly and easily. Such companies include service and con-
tent providers, media and advertising firms, software and general technology
providers and electronic commerce enterprises. Only companies with a minimum
float of $100 million are considered for inclusion in the Index. As of [ ], the
30 Index companies covered a total market capitalization of $[ ] billion with
float capital of $[ ] billion. For a list of the companies currently included
in the Index, please consult the Statement of Additional Information (SAI).
The fund generally will hold all of the securities which comprise the Index.
There may, however, be instances where a stock in the Index is not held or is
not held in the same weighting as in the Index. In such a case, the fund may
attempt to hold a representative sample of the securities in the Index, which
will be selected by the fund's investment manager, SSBC Fund Management Inc.
(the "Manager"), utilizing quantitative analytical models. The Manager will
seek to construct the fund's portfolio so that its capitalization, industry and
fundamental investment characteristics perform like those of the Index.
2
<PAGE>
To the extent that the fund does not invest in every component security of the
Index in the proportions dictated by the Index, it may not track the Index with
the same degree of accuracy as an investment vehicle which does. The Manager
believes that, over time, the "tracking error" of the fund relative to the per-
formance of the Index, adjusted for the effect of fund expenses, will be less
than 5%. The Manager will adjust the fund's portfolio in accordance with
changes in the composition of the Index.
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the fund may
not perform as well as other investments, if:
. U.S. stock markets go down, or perform poorly relative to other types of
investments,
. An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of a company in which the fund invests,
. Internet stocks fall out of favor with investors, or
. No active trading market develops for the fund's shares.
Companies in the rapidly changing fields of computer/Internet technology face
special risks. For example, these companies spend heavily on research and
development and their products or services may not prove commercially success-
ful or may become obsolete quickly. The value of the fund's shares may be sus-
ceptible to factors affecting the computer/Internet technology sector and to
greater risk and market fluctuation than an investment in a fund that invests
in a broader range of portfolio securities not concentrated in any particular
industry. As such, the fund is not an appropriate investment for individuals
who are not long-term investors and who, as their primary objective, require
safety of principal or stable income from their investments. The
computer/Internet technology sector may be subject to greater governmental reg-
ulation than other sectors and changes in governmental policies and the need
for regulatory approvals may have a material adverse effect on this sector.
Additionally, companies in this sector may be subject to risks of developing
technologies, competitive pressures and other factors and are dependent upon
consumer and business acceptance as new technologies evolve.
The Index may include small capitalization companies or unseasoned companies
(those with less than a three-year operating history). Investments in such com-
panies may involve greater risks, such as limited product lines, markets and
financial or managerial resources. In addition, the securities
3
<PAGE>
of such companies may trade less frequently and may be subject to more abrupt
price movements than securities of larger capitalized well-established compa-
nies.
The fund is non-diversified, which means that the fund may invest more than 5%
of its assets in the securities of any one issuer. Investing in a non-diversi-
fied fund, particularly a fund which may invest in the securities of only 30
companies, may entail greater risk than is normally associated with more widely
diversified funds.
Who may want to invest The fund may be an appropriate investment if you:
. Are seeking a relatively low-cost "passive" approach for investing in a port-
folio of equity securities of Internet companies,
. Are willing to accept the risks of the stock market, and
. Are willing to accept the risks of an investment in a fund which concentrates
its investments in one sector.
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your
investment)
<S> <C>
Purchase Transaction Expenses* [ ]
Redemption Transaction Expenses* [ ]
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets)
<S> <C>
Management fee 0.xx%
Distribution and service (12b-1) fees 0.xx%
Other expenses 0.xx%
----
Total annual fund operating expenses X.xx%
</TABLE>
*The fund will sell redeem shares only in Creation Units. Shareholders who buy
their shares in the secondary market will not incur expenses associated with
selling and redeeming Creation Units. Such shareholders will, however, indi-
rectly incur the annual fund operating expenses and will pay a customary bro-
kerage commission when buying and selling the fund's shares. A Creation Unit
consists of 50,000 shares.
4
<PAGE>
Example
The fund sells and redeems shares in Creation Units principally on an in-kind
basis for portfolio securities of the Index. Shares in less than Creation Unit
aggregations are not redeemable. This example is for illustration purposes
only, as shares will be issued only in Creation Units. Your actual costs may be
higher or lower. The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
Number of years you own your shares
1 year 3 years
$ $
More on the fund's investments
Securities lending To generate additional income, the fund may lend securities
in its portfolio to brokers, dealers and other financial organizations which
meet certain minimum credit quality requirements. This additional income may
partially offset the fund's expenses and reduce the effect that expenses have
on the fund's ability to track the Index. There are risks associated with the
lending of portfolio securities, including possible delays in receiving addi-
tional collateral from the borrower when the market value of the collateral
falls or in the recovery of loaned securities from the borrower. The fund could
also lose its claim to the collateral if the borrower declares bankruptcy.
Derivatives The fund may, but is not required to, use futures and options on
securities and securities indexes, and options on these futures, for any of the
following purposes:
. to facilitate trading in the securities of companies that comprise the index,
. to reduce transaction costs, or
. to simulate full investment in the Index while maintaining sufficient liquid-
ity to pay the fund's operating expenses.
The fund may not invest more than 20% of its assets in derivative contracts or
more than 5% of its assets in open purchased put options. Currently, there are
no futures contracts on the Index or on Internet stocks, however, the fund may
enter into futures contracts on technology-oriented indexes and options on such
futures.
5
<PAGE>
A derivative contract will obligate or entitle the fund to deliver or receive
an asset or cash payment that is based on the change in value of one or more
securities or indexes. Even a small investment in derivative contracts can have
a big impact on the fund's stock market exposure. Therefore, using derivatives
can disproportionately increase losses and reduce opportunities for gains when
stock prices are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings.
The other parties to certain derivative contracts present the same types of
credit risk as issuers of fixed income securities. Derivatives can also make
the fund less liquid and harder to value, especially in declining markets.
Money market instruments The fund may temporarily maintain a portion of its
assets in money market instruments. The fund invests in money market instru-
ments under the following circumstances:
. pending investment of any cash proceeds received in connection with the sale
of Creation Units, or
. pending settlement of purchases of securities of the fund.
6
<PAGE>
Management
Manager The fund's investment manager is SSBC Fund Management Inc., an affili-
ate of Salomon Smith Barney Inc. The Manager's address is 388 Greenwich Street,
New York, New York 10013. The Manager selects the fund's investments and
oversees its operations. The Manager and Salomon Smith Barney are subsidiaries
of Citigroup Inc. Citigroup businesses produce a broad range of financial serv-
ices--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world.
Management fees The Manager will be paid an advisory fee equal to [ %] of the
fund's average daily net assets.
Index compiler The Index will be compiled by Salomon Smith Barney Inc., an
affiliate of the fund. The fund will be entitled to use the Index pursuant to a
licensing agreement with Salomon Smith Barney Inc. pursuant to which the fund
will pay a licensing fee to Salomon Smith Barney Inc.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares. The Distributor will not distribute shares in less than
Creation Units and will not maintain a secondary market in the fund's shares.
Distribution plan The fund has adopted a Rule 12b-1 distribution plan pursuant
to which the fund pays distribution and service fees. These fees are an ongoing
expense and, over time, may cost you more than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by the fund. The Manager and Salomon Smith Barney are addressing the
Year 2000 issue for their systems. The fund has been informed by other service
providers that they are taking similar measures. Although the fund does not
expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be suc-
cessful.
7
<PAGE>
Comparison to a mutual fund
Unlike a mutual fund, which issues and redeems its shares at net asset value,
the fund will only issue and redeem shares in Creation Units. A Creation Unit
consists of 50,000 shares. The fund's shares will trade on the American Stock
Exchange (the "AMEX") at market prices. These prices may differ from net asset
value.
Buying and selling shares
The fund's shares have been approved for listing and secondary trading on the
AMEX, subject to notice of issuance. If you buy or sell the fund's shares in
the secondary market, you will incur customary brokerage commissions and
charges and may pay some or all of the spread between the bid and the offered
price in the secondary market. The fund's shares will trade on the AMEX at
prices that may differ to varying degrees from the daily net asset value of
such shares. Given, however, that the fund's shares can be issued and redeemed
in Creation Unit aggregations at net asset value, the Manager believes that
large discounts and premiums to net asset value should not be sustained for
very long.
The AMEX currently anticipates that options on the fund's shares will be listed
on the AMEX at the same time that the fund's shares are available for trading,
although there can be no assurance in this regard.
Purchase of Creation Units
To purchase Creation Units of the fund, an investor must deposit a designated
portfolio of equity securities constituting a substantial replication, or a
representation, of the stocks included in the Index (the "Deposit Securities")
and generally make a small cash payment referred to as the "Cash Component."
The list of the names and the number of shares of the Deposit Securities is
made available by the Custodian through the facilities of the National Securi-
ties Clearing Corporation (the "NSCC"), prior to the opening of business on the
AMEX. The Cash Component represents the difference between the net asset value
of a Creation Unit and the market value of the Deposit Securities, and includes
the Dividend Equivalent Payment. The Dividend Equivalent Payment is an amount
intended to enable the fund to make a distribution of dividends on the next
dividend payment date as if all the portfolio securities of the fund had been
held for the entire dividend period.
Orders must be placed in proper form by or through either (i) a "Participating
Party", i.e., a broker-dealer or other participant in the clearing process of
the Continuous Net Settlement System of the NSCC (the "Clearing
8
<PAGE>
Process"), which may include Salomon Smith Barney or other affiliates of the
Manager; or (ii) a participant in The Depository Trust Company system (a "DTC
Participant"), that, in either case, has entered into an agreement with the
fund and the Distributor with respect to purchases and redemptions of Creation
Units ("Participant Agreement"). Investors should contact the Distributor for
the names of Participating Parties and/or DTC Participants that have signed a
Participant Agreement. All orders must be placed for one or more whole Creation
Units of shares of the fund and must be received by the Distributor in proper
form no later than the close of the regular trading session on the New York
Stock Exchange (ordinarily 4:00 p.m., New York time) ("Closing Time") in order
to be effected based on the net asset value of shares of the fund as next
determined on such date.
Orders may be effected through the Clearing Process or outside the Clearing
Process. An order to purchase Creation Units through the Clearing Process
(through a Participating Party), or outside the Clearing Process (through a DTC
Participant), is deemed received by the Distributor on the date transmitted if
the order is received by the Distributor no later than the Closing Time on such
date and all other procedures set forth in the Participant Agreement are fol-
lowed. However, in the case of orders effected outside the Clearing Process, if
the fund's custodian does not receive the requisite Deposit Securities and the
Cash Component by 11:00 a.m. and 2:00 p.m., New York time, respectively, on the
next business day immediately following the transmittal date, the order will be
canceled. Any order may be rejected under certain limited circumstances which
are specified in the SAI.
A fixed transaction fee of $[ ] is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. This
transaction fee will be paid to the Custodian and the Manager to cover any fees
charged in connection with the transaction and any excess will be paid to the
fund. An additional charge of up to three (3) times the fixed transaction fee
(for a total charge of up to $[ ]) may be imposed with respect to transactions
effected outside the Clearing Process (through a DTC Participant) and in the
limited circumstances specified in the SAI in which cash can be used in lieu of
Deposit Securities to purchase Creation Units. Shares may be issued in advance
of receipt of Deposit Securities subject to various conditions including a
requirement to maintain on deposit with the fund cash equal to at least 115% of
the market value of the missing Deposit Securities. Any such transaction
effected must be effected outside the Clearing Process.
9
<PAGE>
Redemption of Creation Units
Shares may be redeemed only in Creation Units at their net asset value and only
on a day the New York Stock Exchange is open for business. The Custodian makes
available prior to the opening of business on the AMEX (currently 9:30 a.m.,
New York time), through the facilities of the NSCC, the list of the names and
the number of shares of the fund's portfolio securities that will be applicable
to redemption requests received in proper form that day ("Fund Securities").
Fund Securities received on redemption may not be identical to Deposit Securi-
ties which are applicable to purchases of Creation Units. The redemption pro-
ceeds consist of the Fund Securities, plus cash in an amount equal to the
difference between the net asset value of the shares being redeemed as next
determined after receipt of a redemption request in proper form, and the value
of the Fund Securities (the "Cash Redemption Amount"), less the applicable
redemption fee. In certain circumstances the fund may, in its sole discretion,
pay a redeeming shareholder the cash equivalent of a Fund Security. Should the
Fund Securities have a value greater than the net asset value of the shares, a
compensating cash payment to the fund equal to the differential will be
required to be arranged for by or on behalf of the redeeming shareholder by the
Participating Party or DTC Participant, as the case may be. The calculation of
the value of the Fund Securities and the Cash Redemption Amount to be delivered
to the redeeming shareholder will be made by the Custodian according to proce-
dures set forth herein under "Determination of net asset value" (and in the
SAI) computed on the business day on which a redemption order is deemed
received by the fund.
Orders to redeem Creation Units of the fund may only be effected by or through
a Participating Party (with respect to redemptions through the Clearing Proc-
ess) or a DTC Participant (with respect to redemptions outside the Clearing
Process). An order to redeem through the Clearing Process is deemed received on
the date of transmittal if such order is received by the fund prior to the
Closing Time on the date of transmittal and all other procedures set forth in
the Participant Agreement are properly followed. An order to redeem outside the
Clearing Process is deemed received by the Transfer Agent on the date of trans-
mittal if: (i) such order is received by the fund no later than 4:00 p.m., New
York time, on the transmittal date; (ii) such order is accompanied or proceeded
by the requisite number of shares specified in the order, which delivery must
be made through DTC to the Custodian no later than 11:00 a.m., New York time,
on the next business day after the transmittal date; and (iii) all other proce-
dures set forth in the Participant Agreement are followed.
10
<PAGE>
A fixed transaction fee of $[ ] is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. This
transaction fee will be paid to the Custodian and the Manager to cover any fees
charged in connection with the transaction and any excess will be paid to the
fund. An additional charge of up to three (3) times the fixed transaction fee
(for a total charge of up to $[ ]) may be charged with respect to transactions
effected outside the Clearing Process and in the limited circumstances speci-
fied in the SAI in which cash may be used in lieu of securities to redeem Crea-
tion Units.
Investors must accumulate enough shares of the fund in the secondary market to
constitute a Creation Unit in order to redeem such shares. The accumulation of
such shares requires that there be sufficient liquidity in the public market to
assemble the required number of shares and will be subject to brokerage and
other costs. Upon the commencement of the fund's operations, a Creation Unit is
expected to cost approximately $[ ].
Dividends, distributions and taxes
Dividends The fund pays dividends from its net investment income and makes cap-
ital gain distributions, if any, once a year, typically in December. The fund
may pay additional distributions and dividends at other times if necessary for
the fund to avoid a federal tax. The fund expects any distributions to be pri-
marily, if not exclusively, from capital gains because dividends on stocks in
the Index are currently very small or non-existent. Dividends and capital gain
distributions will be paid in cash. The fund intends to make the DTC book-entry
Dividend Reinvestment Service available for its shareholders to reinvest divi-
dends and capital gain distributions. You may incur additional expenses if you
use this service.
Taxes In general, redeeming shares, selling shares and receiving distributions
(whether in cash or additional shares) are all taxable events.
Transaction Federal tax status
Redemption or sale of shares Usually capital gain or
loss; long-term only if
shares owned more than
one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
11
<PAGE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
You generally will recognize a gain or loss when you exchange equity securities
for Creation Units. The gain or loss will be equal to the difference between
the market value of the Creation Units at the time and your basis in the secu-
rities surrendered and the cash component paid. The Internal Revenue Service,
however, may assert that a loss realized upon an exchange of securities for
Creation Units cannot be deducted currently under the rules governing "wash
sales," or on the basis that there has been no significant change in economic
position. You should consult your own tax adviser about the tax consequences of
exchanging securities for Creation Units.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received. If you do not provide the fund
with your correct taxpayer identification number and any required certifica-
tions, you may be subject to back-up withholding of 31% of your distributions
and dividends. Because each shareholder's circumstances are different and spe-
cial tax rules may apply, you should consult your tax adviser about your
investment in the fund.
Determination of net asset value
The fund's net asset value is the value of its assets minus its liabilities.
The fund calculates its net asset value every day the New York Stock Exchange
is open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. When reliable market prices or quotations are not readily available, the
fund may price those securities at fair value. Fair value is determined in
accordance with procedures approved by the fund's board. A fund that uses fair
value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities.
12
<PAGE>
[SMITH BARNEY LOGO APPEARS HERE]
Internet Index Shares
A series of SSBC Index Series, Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund may send only one report to a household if more than one account has
the same address.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by calling the fund at 1-
800-451-2010, or by writing to the fund at 388 Greenwich Street, MF2, New York,
New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the Commis-
sion, Washington, D.C. 20549-6009. Information about the public reference room
may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
(Investment Company Act file no. 811- )
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 14, 1999
Internet Index Shares
388 Greenwich Street
New York, New York 10013
[1-800-451-2010]
- ------------------------------------------------
Statement of Additional Information _______ __, 1999
- ------------------------------------------------
This Statement of Additional Information ("SAI") expands upon and supplements
the information contained in the current Prospectus of Internet Index Shares
(the "Fund") dated ______ __, 1999, as amended or supplemented from time to
time, and should be read in conjunction with the Fund's Prospectus. The Fund is
a series of SSBC Index Series Inc. (the "Company"). The Fund's Prospectus may be
obtained from the Fund's distributor, CFBDS, Inc. (the "Distributor") or by
writing or calling the Fund at the address or telephone number set forth above.
This SAI, although not in itself a prospectus, is incorporated by reference into
the Prospectus in its entirety.
TABLE OF CONTENTS
Page
----
GENERAL DESCRIPTION OF THE FUND.............................................3
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES................................3
CONSTRUCTION AND MAINTENANCE STANDARDS FOR THE INDEX.......................10
INVESTMENT RESTRICTIONS....................................................11
CONTINUOUS OFFERING........................................................13
EXCHANGE LISTING AND TRADING...............................................13
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY............................14
BOOK ENTRY ONLY SYSTEM.....................................................18
PURCHASE OF CREATION UNITS.................................................20
ACCEPTANCE OF ORDERS FOR CREATION UNITS....................................24
REDEMPTION OF CREATION UNITS...............................................25
DETERMINATION OF NET ASSET VALUE...........................................28
PERFORMANCE DATA...........................................................29
DIVIDENDS, DISTRIBUTIONS AND TAXES.........................................30
ADDITIONAL INFORMATION.....................................................35
FINANCIAL STATEMENTS.......................................................36
<PAGE>
EXHIBIT A
2
<PAGE>
GENERAL DESCRIPTION OF THE FUND
The Fund is a non-diversified, open-end management investment company. The Fund
offers and issues shares at their net asset value only in aggregations of a
specified number of shares (each, a "Creation Unit") generally in exchange for a
basket of equity securities included in the Salomon Smith Barney "T" Series
Internet Index (the "Index") ("Deposit Securities") together with the deposit of
a specified cash payment ("Cash Component"). The shares have been approved for
listing and secondary trading on the American Stock Exchange LLC ("AMEX),
subject to notice of issuance. The shares will trade on the AMEX at market
prices. These prices may differ from the shares' net asset value. The shares are
also redeemable only in Creation Unit aggregations, and generally in exchange
for portfolio securities and a specified cash payment. A Creation Unit of the
Fund consists of 50,000 shares of the Fund.
The Fund reserves the right to offer a "cash" option for purchases and
redemptions of shares (subject to applicable legal requirements) although it has
no current intention of doing so. Shares may be issued in advance of receipt of
Deposit Securities subject to various conditions including a requirement to
maintain on deposit with the Fund cash at least equal to 115% of the market
value of the missing Deposit Securities. In each instance of such cash purchases
or redemptions, the Fund may impose transaction fees that will be higher than
the transaction fees associated with in-kind purchases or redemptions. In all
cases, such fees will be limited in accordance with the requirements of the
Securities and Exchange Commission (the "SEC") applicable to management
investment companies offering redeemable securities.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the Fund's investment objective and policies. This
section contains supplemental information concerning the types of securities and
other instruments in which the Fund may invest, the investment policies and
portfolio strategies the Fund may utilize and certain risks associated with
these investments, policies and strategies. SSBC Fund Management Inc. ("SSBC" or
the "Manager") serves as investment manager to the Fund.
The Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of its total assets in common stocks included in the
Index in approximately the same weightings as in the Index. The Fund intends to
invest in substantially all of the stocks that comprise the Index. The Fund
operates as an index fund and will not be actively managed; as such, adverse
performance of a security from the Fund's portfolio will ordinarily not result
in the elimination of the security from the Fund's portfolio. The Fund will be
reviewed daily and adjusted, when necessary, to maintain security weightings as
close to those of the Index as possible, given the amount of assets in the Fund
at that time.
Money Market Instruments. The Fund may invest a portion of its assets in
short-term corporate and government bonds and notes and money market
instruments. Money market instruments include: obligations issued or guaranteed
by the United States government, its agencies or instrumentalities ("U.S.
government securities"); certificates of deposit, time deposits 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
3
<PAGE>
with respect to the foregoing types of instruments. Certificates of deposit
("CDs") are short-term, negotiable obligations of commercial banks. Time
deposits ("TDs") are non-negotiable deposits maintained in banking institutions
for specified periods of time at stated interest rates. Bankers' acceptances are
time drafts drawn on commercial banks by borrowers, usually in connection with
international transactions.
Repurchase Agreements. The Fund may agree to purchase securities from a bank or
recognized securities dealer and simultaneously commit to resell the securities
to the bank or dealer at an agreed-upon date and price reflecting a market rate
of interest unrelated to the coupon rate or maturity of the purchased securities
("repurchase agreements"). The Fund would maintain custody of the underlying
securities prior to their repurchase; thus, the obligation of the bank or dealer
to pay the repurchase price on the date agreed to would be, in effect, secured
by such securities. If the value of such securities were less than the
repurchase price, plus interest, the other party to the agreement would be
required to provide additional collateral so that at all times the collateral is
at least 102% of the repurchase price plus accrued interest. Default by or
bankruptcy of a seller would expose the Fund to possible loss because of adverse
market action, expenses and/or delays in connection with the disposition of the
underlying obligations. The financial institutions with which the Fund may enter
into repurchase agreements will be banks and non-bank dealers of U.S. Government
securities on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by the Fund's
manager. The Manager will continue to monitor creditworthiness of the seller
under a repurchase agreement, and will require the seller to maintain during the
term of the agreement the value of the securities subject to the agreement to
equal at least 102% of the repurchase price (including accrued interest). In
addition, the Manager will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to 102% or greater than the repurchase price
(including accrued premium) provided in the repurchase agreement or the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Manager will mark-to-market
daily the value of the securities. Repurchase agreements are considered to be
loans by the Fund under the Investment Company Act of 1940, as amended (the
"1940 Act").
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements which involve the sale of Fund securities with an agreement to
repurchase the securities at an agreed-upon price, date and interest payment and
have the characteristics of borrowing. Since the proceeds of borrowings under
reverse repurchase agreements are invested, this would introduce the speculative
factor known as "leverage." The securities purchased with the Funds obtained
from the agreement and securities collateralizing the agreement will have
maturity dates no later than the repayment date. Generally the effect of such a
transaction is that the Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while in many cases it will be able to keep some of the interest
income associated with those securities. Such transactions are only advantageous
if the Fund has an opportunity to earn a greater rate of interest on the cash
derived from the transaction than the interest cost of obtaining that cash.
Opportunities to realize earnings from the use of the proceeds equal to or
greater than the interest required to be paid may not always be available, and
the Fund intends to use the reverse repurchase technique only when the Manager
believes it will be advantageous to the Fund. The use of reverse repurchase
agreements may exaggerate any interim increase or decrease in the value of the
Fund's assets. The Fund's custodian bank will maintain a
4
<PAGE>
separate amount for the Fund with securities having a value equal to or greater
than such commitments.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend portfolio securities to brokers, dealers and
other financial organizations that meet capital and other credit requirements or
other criteria established by the Board. The Fund will not lend portfolio
securities to affiliates of the Manager unless they have 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 equal to at least 102% of the
current market value of the loaned securities. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Fund. From time to time, the Fund may return a
part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is unaffiliated with
the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by continuing to
receive interest and any dividends on the loaned securities as well as by either
investing the collateral received for securities loaned 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. Although the generation of
income is not the primary investment goal of the Fund, income received could be
used to pay the Fund's expenses and would increase an investor's total return.
The Fund will adhere to the following conditions whenever its portfolio
securities are loaned: (i) the Fund must receive at least 102% cash collateral
or equivalent securities of the type discussed in the preceding paragraph from
the borrower; (ii) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral; (iii)
the Fund must be able to terminate the loan at any time; (iv) 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;
(v) the Fund may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower,
provided, however, that if a material event adversely affecting the investment
occurs, the Board must terminate the loan and regain the right to vote the
securities. Loan agreements involve certain risks in the event of default or
insolvency of the other party including possible delays or restrictions upon a
Fund's ability to recover the loaned securities or dispose of the collateral for
the loan.
When-Issued Securities and Delayed-Delivery Transactions. The Fund may purchase
securities on a "when-issued" basis, for delayed delivery (i.e., payment or
delivery occur beyond the normal settlement date at a stated price and yield) or
on a forward commitment basis. The Fund does not intend to engage in these
transactions for speculative purposes, but only in furtherance of its investment
goal. These transactions occur when securities are purchased or sold by the Fund
with payment and delivery taking place in the future to secure what is
considered an advantageous yield and price to the Fund at the time of entering
into the transaction. The payment obligation and the interest rate that will be
received on when-issued securities are fixed at the time the buyer enters into
the commitment. Because of fluctuations in the value of securities purchased or
sold on a when-issued, delayed-delivery basis or forward commitment basis, the
prices obtained on such securities may be higher or lower than the prices
available in the market on the dates when the investments are actually delivered
to the buyers.
5
<PAGE>
When the Fund agrees to purchase when-issued or delayed-delivery securities, the
Fund will set aside cash or liquid securities equal to the amount of the
commitment in a segregated account on the Fund's books. Normally, the custodian
will set aside portfolio securities to satisfy a purchase commitment, and in
such a case the Fund may be required subsequently to place additional assets in
the segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. The assets contained in the
segregated account will be marked-to-market daily. It may be expected that the
Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. When the Fund engages in when-issued or delayed-delivery transactions, it
relies on the other party to consummate the trade. Failure of the seller to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price considered to be advantageous.
Foreign Securities. The Fund may purchase common stocks of foreign corporations
represented in the Index (such securities are publicly traded on securities
exchanges or over-the-counter in the U. S.). The Fund's investment in common
stock of foreign corporations represented in the Index may also be in the form
of American Depositary Receipts ("ADRs"). ADRs are receipts, typically issued by
a U.S. bank or trust company, which evidence ownership of underlying securities
issued by a foreign corporation.
Investing in the securities of foreign companies involves special risks and
considerations not typically associated with investing in U.S. companies. These
include differences in accounting, auditing and financial reporting standards,
the possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investments in foreign countries, and potential restrictions on the
flow of international capital. Investments in foreign securities may be affected
by changes in governmental administration or economic policy (in the U.S. and
abroad) or changed circumstances in dealings between nations. Foreign companies
may be subject to less governmental regulation than U.S. companies. Securities
of foreign companies may be more volatile than securities of U.S. companies.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross domestic product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payment positions.
Illiquid Securities. The Fund may invest up to an aggregate amount of 15% of its
net assets in illiquid securities, which term includes securities subject to
contractual or other restrictions on resale and other instruments that lack
readily available markets.
Non-Diversified Classification. The Fund is classified as a non-diversified fund
under the 1940 Act which means the Fund is not limited by the Act in the
proportion of its assets it may invest in the obligations of a single issuer.
The Fund intends to conduct its operations, however, so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which will relieve the Fund of any liability for
Federal income tax to the extent its earnings are distributed to shareholders.
To qualify as a regulated investment company, the Fund will, among other things,
limit its investments so that, at the close of each quarter of the taxable year
(a) not more than 25% of the market value of the Fund's total assets will be
invested in the securities of a single issuer and (b) with respect to 50% of the
market value of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities of
6
<PAGE>
a single issuer and the Fund will not own more than 10% of the outstanding
voting securities of a single issuer.
Futures and Options. The Fund may enter into futures contracts, options, and
options on futures contracts, subject to the limitation that the value of these
futures contracts and options will not exceed 20% of the Fund's total assets.
Also, the Fund will not purchase options to the extent that more than 5% of the
value of the Fund's total assets would be invested in premiums on open put
option positions. These futures contracts and options will be used for the
following reasons: to simulate full investment in the Index while retaining a
cash balance for Fund management purposes, to facilitate trading or to reduce
transaction costs. The Fund will only enter into futures contracts and options
on futures contracts that are traded on a domestic exchange. The Fund will not
use futures or options for speculative purposes.
A call option gives a holder the right to purchase a specific security at a
specified price referred to as the "exercise price," within a specified period
of time. A put option gives a holder the right to sell a specific security at a
specified price within a specified period of time. The initial purchaser of a
call option pays the "writer" a premium, which is paid at the time of purchase
and is retained by the writer whether or not such option is exercised.
Institutions, such as the Fund, that sell (or "write") call options against
securities held in their investment portfolios retain the premium. The Fund may
purchase put options to hedge its portfolio against the risk of a decline in the
market value of securities held, and may purchase call options to hedge against
an increase in the price of securities it is committed to purchase. The Fund may
write put and call options along with a long position in options to increase its
ability to hedge against a change in the market value of the securities it holds
or is committed to purchase.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific instrument or index at a
specified future time and at a specified price. Stock index contracts are based
on indices that reflect the market value of common stock of the firms included
in the indices. The Fund may enter into futures contracts to purchase securities
indices when the manager anticipates purchasing the underlying securities and
believes prices will rise before the purchase will be made. Assets committed to
futures contracts will be segregated at the Fund's custodian to the extent
required by law.
There are several risks accompanying the utilization of futures contracts and
options on futures contracts. First, positions in futures contracts and options
on futures contracts may be closed only on the exchange on which the contract
was made (or a linked exchange). While the Fund plans to utilize futures
contracts only if an active market exists for such contracts, there is no
guarantee that a liquid market will exist for the contracts at a specified time.
Furthermore, because, by definition, futures contracts project price levels in
the future and not current levels of valuation, market circumstances may result
in there being a discrepancy between the price of the stock index future and the
movement in the stock index. In addition, because the futures market imposes
less burdensome margin requirements than the securities market, an increased
amount of participation by speculators in the futures market could result in
price fluctuations. Finally, no stock index future includes all the stocks in
the Index. Therefore, price movements in the futures contract and the Index
cannot be perfectly correlated.
7
<PAGE>
In view of these considerations, the Fund will comply with the following
restriction when purchasing and selling futures. Aggregate initial margin and
premiums required to establish positions other than those considered to be "bona
fide hedging" by the Commodity Futures Trading Commission (the "CFTC") will not
exceed 5% of the Fund's net asset value after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into.
No consideration will be paid or received by the Fund upon entering into a
futures contract. Initially, the Fund will be required to deposit with the
broker 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 exchange on which
the contract is traded and members of such exchange 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 the Fund upon
termination of the futures contract, assuming 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 index 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, the 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.
If the Fund hedges against the possibility of a change in market conditions
adversely affecting the value of securities held in its portfolio and market
conditions move in a direction opposite to that which has been anticipated, the
Fund will lose part or all of the benefit of the increased value of securities
that it has hedged because it will have offsetting losses in its futures
position. In addition, in such situations, if the Fund had insufficient cash, it
may have to sell securities to meet daily variation margin requirements at a
time when it may be disadvantageous to do so. These sales of securities may, but
will not necessarily, be at increased prices that reflect the change in market
conditions.
Although the Fund intends to enter into futures contracts only if there is an
active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. 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 the
Fund to substantial losses. In such event, in the event of adverse price
movements, the Fund would be required to make daily cash payments of variation
margin.
Options on Futures Contracts. An option on a 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 futures
contract at a specified exercise price at any time prior to the expiration date
of the option. Upon exercise of an option, the delivery of the futures
8
<PAGE>
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
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 by the
purchaser 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 the Fund. The potential for loss related to writing
options is unlimited.
The Fund may purchase and write put and call options on futures contracts that
are traded on a U.S. exchange as a hedge against changes in the value of its
portfolio securities, or in anticipation of the purchase of securities, and may
enter into closing transactions with respect to such options to terminate
existing positions. There is no guarantee that such closing transactions can be
effected.
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
will be based upon predictions by the manager as to anticipated trends, which
predictions could prove to be incorrect. Even if the expectations of the manager
are correct, there may be an imperfect correlation between the change in the
value of the options and of the portfolio securities being hedged.
Stock Index Options. As described generally above, the Fund may purchase put and
call options and write call options on domestic stock indexes listed on domestic
exchanges in order to realize its investment objective of capital appreciation
or for the purpose of hedging its portfolio. A stock index fluctuates with
changes in the market values of the stocks included in the index. Some stock
index options are based on a broad market index such as the New York Stock
Exchange Composite Index or the Canadian Market Portfolio Index, or a narrower
market index such as the Standard & Poor's 100.
Options on stock indexes are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the 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 or
a foreign currency, as the case may be, times a specified multiple. The writer
of the option is obligated, in return for the premium received, to make delivery
of this amount. The writer may offset its position in stock index options prior
to expiration by entering into a closing transaction on an exchange or it may
let the option expire unexercised.
9
<PAGE>
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the portion of
the securities portfolio of the Fund correlate with price movements of the stock
index selected. Because the value of an index option depends upon movements in
the level of the index rather than the price of a particular stock, whether the
Fund will realize a gain or loss from the purchase or writing of options on an
index depends upon movement 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 the Fund of options on stock indexes will be subject to the
manager'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 price of individual stocks.
CONSTRUCTION AND MAINTENANCE STANDARDS FOR THE INDEX
The Index has been developed and will be maintained in accordance with
the following criteria, among others:
. The Index includes 30 of the largest publicly listed U.S.
Internet companies. Only companies with a minimum float of $100
million are considered. The largest 20 eligible Internet
companies, measured by total market capitalization, are always
included in the Index. The companies included in the Index are
listed in Exhibit A hereto.
. The Index is re-balanced quarterly. At the quarterly reset dates,
the common equity shares of the largest 40 Internet and Internet
related companies (with sufficient float) are eligible for
inclusion in the Index. Companies are removed from the Index if
their total capitalization ranking amongst Index eligible
companies falls below 40. Conversely, if necessary, the largest
eligible non-Index companies are added to complete the Index.
. The Index uses float shares (total shares outstanding multiplied
by the float factor), rounded to the nearest 1,000 shares subject
to the constraints described below. Each company's total
capitalization is used to rank the 40 eligible candidates for
inclusion.
. A 12.5% stock index weight ceiling is imposed on all Index
companies at the time of the quarterly share re-balances.
. At each quarterly rebalance, if the sum of the weightings of all
"small companies" (a "small company" is any company with an index
weighting of less than 5%) is less than 50% then their index
shares will be "grossed up" so that their combined index
weighting equals 55% of the Index. In addition, none of the index
weightings of the "grossed up" small companies may exceed that of
the smallest "large company" index weighting after the
adjustment.
. Year-round maintenance includes quarterly share re-balancing for
initial and secondary offerings, buybacks and stake changes and
daily adjustment for
10
<PAGE>
corporate actions on their respective ex-dates. Adjustments in
ownership and share structures are also reflected year-round due
to large privatizations, spin-offs and mergers.
. All issues in the Index are assigned a float factor. This factor
is a measurement of each issue's float (available capital) as a
percentage of total capitalization. When applied to the total
capitalization of an issue, the float factor is a determinant of
each issue's weighting in the Index.
. Only 10% or greater block capital, whether private holdings,
corporate cross holdings or government holdings, are excluded in
determining an issue's float. The free float factor is 100% minus
the net sum of excluded block capital.
. Controlling blocks are entities (individual, corporate, family or
trust) acting alone or in concert to form a block of holdings.
. Index reconstitution occurs quarterly at the end of March, June,
September and December (the quarterly reset dates). Ten business
days prior to the quarterly reset date, a preliminary "candidate
list" of eligible Internet companies and their free floating
shares are announced. At this time, comments from the investor
community pertaining to float factor and business description
will be taken and any errors will be revised using publicly
available company documents. Final company business analysis will
remain the sole responsibility of the Salomon Smith Barney Equity
Index Group. The candidate list includes the 40 largest publicly
listed U.S. Internet firms by total capitalization.
. Seven business days before the quarterly reset date, the
candidate list is finalized and marked-to-market to determine
those companies entering or leaving the Index. Only companies
included on the candidate list are eligible to enter the Index.
Final Index additions and deletions and new Index share
quantities will be announced five business days before the Index
reset date.
. New issues are eligible for Index inclusion provided sufficient
free float information is available and the equity has begun to
trade at the time of the composition of the quarterly candidate
list. New issues are not eligible for inclusion between quarterly
reset dates.
. When additions to the Index are necessary between quarterly reset
dates due to deal activity, privatizations or other share trading
restrictions, new constituents will be chosen from the list of
ten candidates not included at the previous quarterly reset date.
Whenever possible, this list will be marked-to-market five days
prior to scheduled inclusion and ranked according to free float
market capitalization. The new constituent(s) will be weighted
according to its (their) free float market capitalization.
INVESTMENT RESTRICTIONS
11
<PAGE>
The investment restrictions numbered 1 through 7 below and the Fund's investment
objective have been adopted by the Company as fundamental policies of the Fund.
Under the 1940 Act, a fundamental policy may not be changed with respect to a
fund without the vote of a majority of the outstanding voting securities of the
fund. A vote of a majority of the outstanding voting securities is defined in
the 1940 Act as the lesser of (a) 67% or more of the shares present at a fund
meeting, if the holders of more than 50% of the outstanding shares of the fund
are present or represented by proxy, or (b) more than 50% of outstanding shares.
Under the investment restrictions adopted by the Company with respect to the
Fund: the Fund will not
1. Invest more than 25% of its total assets in securities, the issuers of which
conduct their business activities in the same industry, except that the Fund may
invest without limit in the securities of the companies comprising the Index.
For purposes of this limitation, securities of the U.S. government (including
its agencies and instrumentalities) and securities of state or municipal
governments and their political subdivisions are not considered to be issued by
members of any industry.
2. Borrow money, except that (a) the Fund may borrow from banks for temporary or
emergency (not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of securities,
and (b) the Fund may, to the extent consistent with its investment policies,
enter into reverse repurchase agreements, forward roll transactions and similar
investment strategies and techniques. To the extent that it engages in
transactions described in (a) and (b), the Fund will be limited so that no more
than 33 1/3% of the value of its total assets (including the amount borrowed),
valued at the lesser of cost or market, less liabilities (not including the
amount borrowed) valued at the time the borrowing is made, is derived from such
transactions.
3. Issue "senior securities" as defined in the 1940 Act and the rules,
regulations and orders thereunder, except as permitted under the 1940 Act and
the rules, regulations and orders thereunder.
4. Make loans. This restriction does not apply to: (a) the purchase of debt
obligations in which the Fund may invest consistent with its investment
objectives and policies; (b) repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent permitted under the 1940 Act.
5. Purchase or sell real estate, real estate mortgages, commodities or commodity
contracts, but this restriction shall not prevent the Fund from trading in
futures contracts and options on futures contracts (including options on
currencies to the extent consistent with the Fund's investment objective and
policies).
6. Engage in the business of underwriting securities issued by other persons,
except to the extent that the Fund may technically be deemed to be an
underwriter under the Securities Act of 1933, as amended (the "Securities Act"),
in disposing of portfolio securities.
7. Purchase or otherwise acquire any illiquid security except as permitted under
the 1940 Act which currently permits up to 15% of the Fund's net assets to be
invested in illiquid securities.
12
<PAGE>
If any percentage restriction described above is complied with at the time of an
investment, a later increase or decrease in percentage resulting from a change
in values or assets will not constitute a violation of such restriction.
CONTINUOUS OFFERING
The method by which Creation Units of Shares are created and traded may raise
certain issues under applicable securities laws. Because new Creation Units of
Shares are issued and sold by the Fund on an ongoing basis, at any point a
"distribution," as such term is used in the Securities Act, may occur.
Broker-dealers and other persons are cautioned that some activities on their
part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory
underwriters and subject them to the prospectus delivery and liability
provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into constituent shares, and sells such shares
directly to customers, or if it chooses to couple the creation of a supply of
new shares with an active selling effort involving solicitation of secondary
market demand for shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker-dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a categorization
as an underwriter.
Broker-dealer firms should also note that dealers who are not "underwriters" but
are effecting transactions in shares, whether or not participating in the
distribution of shares, are generally required to deliver a prospectus. This is
because the prospectus delivery exemption in Section 4(3) of the Securities Act
is not available in respect of such transactions as a result of Section 24(d) of
the 1940 Act. Firms that incur a prospectus-delivery obligation with respect to
shares of the Fund are reminded that under Rule 153 under the Securities Act, a
prospectus-delivery obligation under Section 5(b)(2) of the Securities Act owed
to an exchange member in connection with a sale on the AMEX is satisfied by the
fact that the Fund's prospectus is available at the AMEX upon request. The
prospectus delivery mechanism provided in Rule 153 is only available with
respect to transactions on an exchange.
EXCHANGE LISTING AND TRADING
The shares of the Fund have been approved for listing and trading on the AMEX,
subject to notice of issuance. The shares will trade on the AMEX at prices that
may differ to some degree from their net asset value. There can be no assurance
that the requirements of the AMEX necessary to maintain the listing of the
Fund's shares will continue to be met.
The AMEX may but is not required to remove the shares of the Fund from listing
if (1) following the initial twelve-month period beginning upon the commencement
of trading of the Fund, there are fewer than 50 beneficial holders of the shares
for 30 or more consecutive trading days; (2) the value of the Index is no longer
calculated or available; or (3) such other event shall occur or condition exists
that, in the opinion of the AMEX, makes further dealings on the AMEX
13
<PAGE>
inadvisable. In addition, the AMEX will remove the Fund's shares from listing
and trading upon dissolution of the Company.
As in the case of other stocks traded on the AMEX, brokers, commissions on
transactions will be based on negotiated commission rates at customary levels.
The AMEX currently anticipates that options on the Fund's shares will be listed
on the AMEX at the same time that the Fund's shares are available for trading,
although there can be no assurance in this regard.
It is believed desirable for the net asset value per share of the Fund initially
offered to the public to be approximately one-tenth (1/10) of the value of the
Index. To accomplish this, if required, a one-time stock split or reverse stock
split may be effected with respect to the shares of the Fund held by the sole
shareholder of the Fund prior to the public offering of Creation Units of the
shares. The one-time stock split or reverse stock split will have no effect on
the net assets of the Fund. The number of shares constituting a Creation Unit
will remain 50,000.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and executive officers of the Company, 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 Fund, as defined in
the 1940 Act, is indicated by an asterisk.
[TO BE PROVIDED]
No officer, director or employee of Salomon Smith Barney Inc. ("Salomon Smith
Barney") or any parent or subsidiary receives any compensation from the Company
for serving as an officer or Director of the Company. The Company pays each
Director who is not an officer, director or employee of Salomon Smith Barney or
any of its affiliates a fee of $[ ] per annum plus $[ ] per meeting attended and
reimburses travel and out-of-pocket expenses. During the Fund's first fiscal
year ended [_______ __, 2000] such expenses are estimated to total $[ ]. For the
Fund's first fiscal year ended [________ __, 2000], the Directors of the Company
are estimated to be paid the following compensation:
<TABLE>
<CAPTION>
Total Pension or Compensation from Number of Funds for
Aggregate Retirement Benefits Company and Fund Which Director
Compensation Accrued as part of Complex Paid to Serves Within Fund
Name of Person from Company Fund Expenses Directors Complex
- -------------- ------------ ------------- --------- -------
<S> <C> <C> <C> <C>
</TABLE>
Upon attainment of age 80, Directors are required to change to emeritus status.
Directors Emeritus are entitled to serve in emeritus status for a maximum of 10
years during which time they are paid 50% of the annual retainer fee and meeting
fees otherwise applicable to the Fund Directors, together with reasonable
out-of-pocket expenses for each meeting attended.
As of [ , 1999], the Directors and officers owned, in the aggregate,
less than 1% of the outstanding shares of the Fund.
As of [ , 1999], [ ] owned 100% of the Fund's shares.
14
<PAGE>
Investment Manager - SSBC
SSBC (formerly known as Mutual Management Corp.) serves as investment manager to
the Fund pursuant to an investment management agreement (the "Investment
Management Agreement") with the Fund which was approved by the Board of
Directors, including a majority of directors who are not "interested persons" of
the Fund or the Manager. The Manager is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc. ("Holdings"), which in turn, is a wholly owned
subsidiary of Citigroup Inc. Subject to the supervision and direction of the
Company's Board of Directors, the Manager manages the Fund's portfolio in
accordance with the Fund's stated investment objective and policies, makes
investment decisions for the Fund, places orders to purchase and sell
securities, and employs professional portfolio managers and securities analysts
who provide research services to the Fund. The Manager pays the salary of any
officer and employee who is employed by both it and the Fund. The Manager bears
all expenses in connection with the performance of its services. The Manager
also: (a) assists in supervising all aspects of the Fund's operations except
those it performs under its investment advisory agreement; b) supplies the Fund
with office facilities (which may be in SSBC's own offices), statistical and
research data, data processing services, clerical, accounting and bookkeeping
services, including, but not limited to, the calculation of (i) the net asset
value of shares of the Fund, (ii) applicable contingent deferred sales charges
and similar fees and charges and (iii) distribution fees, internal auditing and
legal services, internal executive and administrative services, and stationary
and office supplies; and (c) prepares reports to shareholders of the Fund, tax
returns and reports to and filings with the SEC and state blue sky authorities.
As compensation for investment management services, the Fund pays the Manager a
fee computed daily and paid monthly at the annual rate of [ %] of the Fund's
average daily net assets.
All expenses incurred in the operation of the Fund will be borne by the Fund
except to the extent specifically assumed by the Manager or some other party.
Such expenses may include, but will not be limited to, the following: investment
advisory fees, custody fees, brokerage commissions, registration fees of the
Commission, state blue sky fees, licensing fees, fees and expenses of Directors
who are not "interested persons" (as defined in the 1940 Act) of the Company,
legal and audit fees, administration and accounting fees, costs of preparing,
printing and mailing prospectuses and SAIs, periodic reports to shareholders,
proxy statements and other documents required for regulatory purposes and for
their distribution to existing shareholders, transfer agent fees, insurance
premiums and other costs properly payable by the Fund. All operational fees and
expenses incurred by the Fund will be accrued on a daily basis, except to the
extent expenses are specifically assumed by the Manager or some other party. The
Manager has advanced [$ ] to cover the Fund's organizational expenses prior to
the public offering of shares and will be reimbursed by the Fund for such
amounts upon consummation of the initial offering of the Fund.
Index Compiler
The Index will be compiled by Salomon Smith Barney, an affiliate of the Fund.
The Fund will be entitled to use the Index pursuant to a licensing agreement
with Salomon Smith Barney pursuant to which the fund will pay a licensing fee to
Salomon Smith Barney.
Counsel and Auditors
15
<PAGE>
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019, serves
as counsel to the Company.
KPMG LLP, independent accountants, 345 Park Avenue, New York, New York 10154,
serve as auditors of the Fund and will render an opinion on the Fund's financial
statements annually beginning with the fiscal period ending [_____ __, 2000].
Custodian and Transfer Agent
PNC Bank, National Association ("PNC Bank"), located at 17th and Chestnut
Streets, Philadelphia, Pennsylvania 19103, serves as the custodian of the Fund.
Under its agreement with the Company on behalf of the Fund, PNC Bank holds the
Fund's portfolio securities and keeps all necessary accounts and records. For
its services, PNC Bank receives a monthly fee based upon the month-end market
value of securities held in custody and also receives securities transaction
charges. The assets of the Fund are held under bank custodianship in compliance
with the 1940 Act.
[TRANSFER AGENT TO BE DETERMINED]
Distributor
CFBDS, Inc., located at 20 Milk Street, Boston, Massachusetts 02109-5408 serves
as the Fund's distributor pursuant to a written agreement with the Company dated
[________ __, 1999] (the "Distribution Agreement") which was approved by the
Company's Board of Directors, including a majority of the independent directors,
on [_______ __, 1999].
Distribution Arrangements
To compensate Salomon Smith Barney for the services it provides to shareholders
and for the expense it bears in connection with activities primarily intended to
result in or required for the sale of shares, the Fund has adopted a services
and distribution plan (the "Plan") pursuant to Rule l2b-1 under the 1940 Act.
Under the Plan, the Fund pays Salomon Smith Barney a service fee, accrued daily
and paid monthly, calculated at the annual rate of 0.25% of the value of the
Fund's average daily net assets.
Under its terms, the Plan continues from year to year, provided such continuance
is approved annually by vote of the Board of Directors, including a majority of
the directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in the
Distribution Agreement (the "independent directors"). The Plan may not be
amended to increase the amount of the service and distribution fees without
shareholder approval, and all amendments of the Plan also must be approved by
the directors including all of the independent directors in the manner described
above. The Plan may be terminated at any time, without penalty, by vote of a
majority of the independent directors or by vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act). Pursuant
to the Plan, Salomon Smith Barney will provide the Board of Directors with
periodic reports of amounts expended under the Plan and the purpose for which
such expenditures were made.
16
<PAGE>
Portfolio Transactions
The Manager arranges for the purchase and sale of the Fund's securities and
selects brokers and dealers (including Salomon Smith Barney) which in its best
judgment provide prompt and reliable execution at favorable prices and
reasonable commission rates. The Manager may select brokers and dealers that
provide it with research services and may cause the Fund to pay such brokers and
dealers commissions which exceed those other brokers and dealers may have
charged, if it views the commissions as reasonable in relation to the value of
the brokerage and/or research services. In selecting a broker, including Salomon
Smith Barney, for a transaction, the primary consideration is prompt and
effective execution of orders at the most favorable prices. Subject to that
primary consideration, dealers may be selected for research statistical or other
services to enable the Manager to supplement its own research and analysis.
Decisions to buy and sell securities for the Fund are made by the Manager,
subject to the overall supervision and review of the Company's Board of
Directors. Portfolio securities transactions for the Fund are effected by or
under the supervision of the Manager.
Transactions on stock exchanges involve the payment of negotiated brokerage
commissions. There is generally no stated commission in the case of securities
traded in the over-the-counter market, but the price of those securities
includes an undisclosed commission or mark-up. Over-the-counter purchases and
sales are transacted directly with principal market makers except in those cases
in which better prices and executions may be obtained elsewhere. The cost of
securities purchased from underwriters includes an underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting brokers or dealers, it is the
Fund's policy to seek the best overall terms available. The Manager, in seeking
the most favorable price and execution, considers all factors it deems relevant,
including, for example, the price, the size of the transaction, the reputation,
experience and financial stability of the broker-dealer involved and the quality
of service rendered by the broker-dealer in other transactions. The Manager
receives research, statistical and quotation services from several
broker-dealers with which it places the Fund's portfolio transactions. It is
possible that certain of the services received primarily will benefit one or
more other accounts for which the Manager exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of services received as a
result of portfolio transactions effected for other accounts. The Manager's fee
under the Investment Management Agreement is not reduced by reason of its
receiving such brokerage and research services. The Company's Board of
Directors, in its discretion, may authorize the Manager to cause the Fund to pay
a broker that provides brokerage and research services to the Manager a
commission in excess of that which another qualified broker would have charged
for effecting the same transaction. Salomon Smith Barney will not participate in
commissions from brokerage given by the Fund to other brokers or dealers and
will not receive any reciprocal brokerage business resulting therefrom.
In accordance with Section 17(e) of the 1940 Act and Rule 17e-1 thereunder, the
Company's Board of Directors has determined that any portfolio transaction for
the Fund may be executed through Salomon Smith Barney or an affiliate of Salomon
Smith Barney if, in the Manager's
17
<PAGE>
judgment, the use of Salomon Smith Barney or an affiliate is likely to result in
price and execution at least as favorable as those of other qualified brokers
and if, in the transaction, Salomon Smith Barney or the affiliate charges the
Fund a commission rate consistent with those charged by Salomon Smith Barney or
an affiliate to comparable unaffiliated customers in similar transactions. In
addition, under SEC rules, Salomon Smith Barney may directly execute such
transactions for the Fund on the floor of any national securities exchange,
provided: (a) the Board of Directors has expressly authorized Salomon Smith
Barney to effect such transactions; and (b) Salomon Smith Barney annually
advises the Fund of the aggregate compensation it earned on such transactions.
Even though investment decisions for the Fund are made independently from those
of the other accounts managed by the Manager, investments of the kind made by
the Fund also may be made by those other accounts. When the Fund and one or more
accounts managed by the Manager are prepared to invest in, or desire to dispose
of, the same security, available investments or opportunities for sales will be
allocated in a manner believed by the Manager to be equitable. In some cases,
this procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained for or disposed of by the Fund.
The Fund will not purchase securities during the existence of any underwriting
or selling group relating to the securities, of which the Manager is a member,
except to the extent permitted by the SEC. Under certain circumstances, the Fund
may be at a disadvantage because of this limitation in comparison with other
Funds that have similar investment objectives but that are not subject to a
similar limitation.
Portfolio Turnover
Although the Fund generally seeks to invest for the long term, the Fund retains
the right to sell securities irrespective of how long they have been held.
However, because of the "passive" investment management approach of the Fund,
the portfolio turnover rate is expected to be under 50%, a generally lower
turnover rate than for most other investment companies. A portfolio turnover
rate of 50% would occur if one-half of the Fund's securities were sold within
one year. Ordinarily, securities will be sold from the Fund only to reflect
certain administrative changes in the Index (including mergers or changes in the
composition of the Index) or to accommodate cash flows into and out of the Fund
while maintaining the similarity of the Fund to the Index. Generally, the Fund
will sell securities only to respond to redemption requests or to adjust the
number of shares held to reflect a change in the fund's target index. Because of
this, the turnover rate for the Fund will be relatively low.
BOOK ENTRY ONLY SYSTEM
The Depository Trust Company ("DTC") acts as securities depository for the
shares. Shares of the Fund are represented by securities registered in the name
of DTC or its nominee and deposited with, or on behalf of, DTC. Except in the
limited circumstance provided below, certificates will not be issued for shares.
DTC, a limited-purpose trust company, was created to hold securities of its
participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities
certificates.
18
<PAGE>
DTC Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations, some of whom (and/or
their representatives) own DTC. More specifically, DTC is owned by a number of
its DTC Participants and by the New York Stock Exchange, Inc. ("NYSE"), the AMEX
and the National Association of Securities Dealers, Inc. Access to the DTC
system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly (the "Indirect Participants").
Beneficial ownership of shares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in shares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") is shown on,
and the transfer of ownership is effected only through, records maintained by
DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase of shares.
Conveyance of all notices, statements and other communications to Beneficial
Owners is effected as follows. Pursuant to the Depositary Agreement between the
Company and DTC, DTC is required to make available to the Company upon request
and for a fee to be charged to the Company a listing of the shares of the Fund
held by each DTC Participant. The Company shall inquire of each such DTC
Participant as to the number of Beneficial Owners holding shares, directly or
indirectly, through such DTC Participant. The Company shall provide each such
DTC Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Company shall pay to each such DTC Participant a fair
and reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the
registered holder of all shares. DTC or its nominee, upon receipt of any such
distributions, shall credit immediately DTC Participants' accounts with payments
in amounts proportionate to their respective beneficial interests in shares of
the Fund as shown on the records of DTC or its nominee. Payments by DTC
Participants to Indirect Participants and Beneficial Owners of shares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name," and will be the
responsibility of such DTC Participants.
The Company has no responsibility or liability for any aspects of the records
relating to or notices to Beneficial Owners, or payments made on account of
beneficial ownership interests in such shares, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests or for
any other aspect of the relationship between DTC and the DTC Participants or the
relationship between such DTC Participants and the Indirect Participants and
Beneficial Owners owning through such DTC Participants.
19
<PAGE>
DTC may determine to discontinue providing its service with respect to shares at
any time by giving reasonable notice to the Company and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Company shall take action either to find a replacement for
DTC to perform its functions at a comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates representing ownership of
shares, unless the Company makes other arrangements with respect thereto
satisfactory to the AMEX.
PURCHASE OF CREATION UNITS
The Company issues and sells shares of the Fund only in Creation Units on a
continuous basis through the Distributor, without a sales load, at their net
asset value next determined after receipt, on any day in which the NYSE is open
for business (a "Business Day"), of an order in proper form. The NYSE currently
observes the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day (Washington's Birthday), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Fund Deposit
The consideration for purchase of a Creation Unit of the Fund generally consists
of the in-kind deposit of a designated portfolio of equity securities -- the
"Deposit Securities" -- per each Creation Unit constituting a substantial
replication, or a representation, of the stocks included in the Index and an
amount of cash -- the "Cash Component" -- computed as described below. Together,
the Deposit Securities and the Cash Component constitute the "Fund Deposit,"
which represents the minimum initial and subsequent investment amount for a
Creation Unit of the Fund. The Cash Component is an amount equal to the Dividend
Equivalent Payment (as defined below), plus or minus, as the case may be, a
Balancing Amount (as defined below). The "Dividend Equivalent Payment" enables
each Fund to make a complete distribution of dividends on the next dividend
payment date, and is an amount equal, on a per Creation Unit basis, to the
dividends on all the portfolio securities of the Fund ("Fund Securities") with
ex-dividend dates within the accumulation period for such distribution (the
"Accumulation Period"), net of expenses and liabilities for such period, as if
all of the Fund Securities had been held by the Fund for the entire Accumulation
Period. The Accumulation Period begins on the ex-dividend date for the Fund and
ends on the next ex-dividend date. The "Balancing Amount" is an amount equal to
the difference between the net asset value of the shares (per Creation Unit) and
the "Deposit Amount" -- an amount equal to the sum of the market value of the
Deposit Securities and the Dividend Equivalent Payment. If the Balancing Amount
is a positive number (i.e., the net asset value per Creation Unit exceeds the
Deposit Amount), the Cash Component shall be increased by such positive amount.
If the Balancing Amount is a negative number (i.e., the net asset value per
creation Unit is less than the Deposit Amount) , the Cash Component shall be
decreased by such negative amount. If the negative number is greater than the
Dividend Equivalent Payment, the creator will be entitled to receive cash in an
amount equal to the differential. The Balancing Amount serves the function of
compensating for any differences between the net asset value per Creation Unit
and the Deposit Amount.
The Custodian, through the National Securities Clearing Corporation ("NSCC")
(discussed below), makes available on each Business Day, prior to the opening of
business on the AMEX (currently 9:30 a.m., New York time), the list of the names
and the required number of shares of
20
<PAGE>
each Deposit Security to be included in the current Fund Deposit (based on
information at the end of the previous Business Day) for the Fund. Such Fund
Deposit is applicable, subject to any adjustments as described below, in order
to effect purchase of Creation Units of the Fund until such time as the next-
announced composition of the Deposit Securities is made available.
The identity and number of shares of the Deposit Securities required for a Fund
Deposit for the Fund changes as rebalancing adjustments and corporate action
events are reflected from time to time by the Manager with a view to the
investment objective of the Fund. The composition of the Deposit Securities may
also change in response to adjustments to the weighting or composition of the
stocks comprising the Index. In addition, the Fund reserves the right to permit
or require the substitution of an amount of cash -- i.e., a "cash in lieu"
amount -- to be added to the Cash Component to replace any Deposit Security
which may not be available in sufficient quantity for delivery or which may not
be eligible for transfer through the Clearing Process (discussed below), or
which may not be eligible for trading by an Authorized Participant (as defined
below) or the investor for which it is acting. Brokerage commissions incurred in
connection with acquisition of Deposit Securities not eligible for transfer
through the systems of DTC and hence not eligible for transfer through the
Clearing Process (discussed below) will be at the expense of the Fund and will
affect the value of all shares; but the Manager, subject to the approval of the
Company's Board of Directors, may adjust the transaction fee within the
parameters described above to protect ongoing shareholders. The adjustments
described above will reflect changes, known to the Manager on the date of
announcement to be in effect by the time of delivery of the Fund Deposit, in the
composition of the Index or resulting from certain corporate actions.
In addition to the list of names and numbers of securities constituting the
current Deposit Securities of a Fund Deposit, the Custodian, through the NSCC,
also makes available on each Business Day, the Dividend Equivalent Payment,
effective through and including the previous Business Day, per outstanding share
of the Fund.
Procedures For Purchase of Creation Units
To be eligible to place orders with the Distributor to purchase a Creation Unit
of the Fund, an entity must be (i) a "Participating Party", i.e., a
broker-dealer or other participant in the clearing process through the
Continuous Net Settlement System of the NSCC (the "Clearing Process"), a
clearing agency that is registered with the SEC; or (ii) a DTC Participant, and,
in each case, must have executed an agreement with the Fund and the Distributor
with respect to purchases and redemptions of Creation Units ("Participant
Agreement") (discussed below). A Participating Party and DTC Participant are
collectively referred to as an "Authorized Participant". Investors should
contact the Distributor for the names of Authorized Participants that have
signed a Participant Agreement. All shares of the Fund will be entered on the
records of DTC in the name of Cede & Co. for the account of a DTC Participant.
All orders to purchase the Fund must be placed for one or more Creation Unit
size aggregations of shares (50,000 shares). All orders to purchase Creation
Units, whether through the Clearing Process (through a Participating Party) or
outside the Clearing Process (through a DTC Participant), must be received by
the Distributor no later than the closing time of the regular trading session on
the NYSE ("Closing Time") (ordinarily 4:00 p.m., New York time) in each case on
the date such order is placed in order for the purchase of Creation Units to be
effected
21
<PAGE>
based on the net asset value of the Fund's shares as next determined on
such date after receipt of the order in proper form. The date on which an order
to purchase Creation Units (or an order to redeem Creation Units as discussed
below) is placed is referred to as the "Transmittal Date". Orders must be
transmitted by an Authorized Participant by telephone or other transmission
method acceptable to the Distributor pursuant to procedures set forth in the
Participant Agreement, as described below. Severe economic or market disruptions
or changes, or telephone or other communications failure, may impede the ability
to reach the Distributor or an Authorized Participant.
Orders to purchase Creation Units of the Fund shall be placed with an Authorized
Participant, as applicable, in the form required by such Authorized Participant.
In addition, the Authorized Participant may request the investor to make certain
representations or enter into agreements with respect to the order (e.g., to
provide for payments of cash, when required). Investors should be aware that
their particular broker may not have executed a Participant Agreement, and that,
therefore, orders to purchase Creation Units of the Fund have to be placed by
the investor's broker through an Authorized Participant that has executed a
Participant Agreement. At any given time there may be only a limited number of
broker-dealers that have executed a Participant Agreement. Those placing orders
for Creation Units through the Clearing Process should afford sufficient time to
permit proper submission of the order to the Distributor prior to the Closing
Time on the Transmittal Date.
Orders for purchase of a Creation Unit that are effected outside the Clearing
Process are likely to require transmittal by the DTC Participant earlier on the
Transmittal Date than orders effected using the Clearing Process. Those persons
placing orders outside the Clearing Process should ascertain the deadlines
applicable to DTC and the Federal Reserve Bank wire system by contacting the
operations department of the broker or depository institution effectuating such
transfer of Deposit Securities and Cash Component.
Authorized Participants may include Salomon Smith Barney and other registered
broker-dealers that are affiliates of the Manager. It is anticipated that such
affiliated Authorized Participants may acquire the securities comprising a Fund
Deposit on behalf of, and at the direction of, certain purchasers of Creation
Units in order to facilitate the purchase of a Creation Unit.
22
<PAGE>
Purchase of Creation Units Using Clearing Process
The Clearing Process is the process of purchasing or redeeming Creation Units
through the Continuous Net Settlement System of the NSCC. Fund Deposits made
through the Clearing Process must be delivered through a Participating Party
that has executed a Participant Agreement. The Participant Agreement authorizes
the Distributor to transmit through the Transfer Agent to NSCC, on behalf of the
Participating Party, such trade instructions as are necessary to effect the
Participating Party's purchase order. Pursuant to such trade instructions to
NSCC, the Participating Party agrees to deliver the requisite Deposit Securities
and the Cash Component to the Fund, together with such additional information as
may be required by the Distributor. An order to purchase the Fund in Creation
Units through the Clearing Process is deemed received by the Distributor on the
Transmittal Date if (i) such order is received by the Distributor not later than
the Closing Time on such Transmittal Date and (ii) all other procedures set
forth in the Participant Agreement are properly followed.
Purchase of Creation Units Outside Clearing Process
Fund Deposits made outside the Clearing Process must be delivered through a DTC
Participant that has executed a Participant Agreement with the Fund and the
Distributor. A DTC Participant who wishes to place an order to purchase Creation
Units to be effected outside the Clearing Process need not be a Participating
Party, but such orders must state that the DTC Participant is not using the
Clearing Process and that the purchase of Creation Units will instead be
effected through a transfer of securities and cash directly through DTC. The
Fund Deposit transfer must be ordered by the DTC Participant on the Transmittal
Date in a timely fashion so as to ensure the delivery of the requisite number of
Deposit Securities through DTC to the account of the Fund by no later than 11:00
a.m., New York time, of the next Business Day immediately following the
Transmittal Date. All questions as to the number of Deposit Securities to be
delivered, and the validity, form and eligibility (including time of receipt)
for the deposit of any tendered securities, will be determined by the Fund,
whose determination shall be final and binding. The cash equal to the Cash
Component must be transferred directly to the Custodian through the Federal
Reserve wire system in a timely manner so as to be received by the Custodian no
later than 2:00 p.m., New York time, on the next Business Day immediately
following such Transmittal Date. An order to purchase Creation Units of the Fund
outside the Clearing Process is deemed received by the Distributor on the
Transmittal Date if (i) such order is received by the Distributor not later than
the Closing Time on such Transmittal Date; and (ii) all other procedures set
forth in the Participant Agreement are properly followed. However, if the
Custodian does not receive both the requisite Deposit Securities and the Cash
Component by 11:00 a.m. and 2:00 p.m., respectively, on the next Business Day
immediately following the Transmittal Date, such order will be cancelled. Upon
written notice to the Distributor, such cancelled order may be resubmitted the
following Business Day using a Fund Deposit as newly constituted to reflect the
then current net asset value of the Fund. The delivery of Creation Units of the
Fund so created will occur no later than the third (3rd) Business Day following
the day on which the purchase order is deemed received by the Distributor.
Creation Units of the Fund may be created in advance of receipt by the Fund of
all or a portion of the applicable Deposit Securities as described below. In
these circumstances, the initial deposit will have a value greater than the net
asset value of the shares on the date the order is placed in
23
<PAGE>
proper form since in addition to available Deposit Securities, cash must be
deposited in an amount equal to the sum of (i) the Cash Component, plus (ii)
115% of the market value of the undelivered Deposit Securities (the "Additional
Cash Deposit"). The order shall be deemed to be received on the Business Day on
which the order is placed provided that the order is placed in proper form prior
to 4:00 p.m., New York time, on such date and federal funds in the appropriate
amount are deposited with the Fund's Custodian by 11:00 a.m., New York time, the
following Business Day. If the order is not placed in proper form by 4:00 p.m.
or federal funds in the appropriate amount are not received by 11:00 a.m. the
next Business Day, then the order may be deemed to be rejected and the investor
shall be liable to the Fund for losses, if any, resulting therefrom. An
additional amount of cash shall be required to be deposited with the Fund,
pending delivery of the missing Deposit Securities to the extent necessary to
maintain the Additional Cash Deposit with the Fund in an amount at least equal
to 115% of the daily marked to market value of the missing Deposit Securities.
To the extent that missing Deposit Securities are not received by 1:00 p.m., New
York time, on the third Business Day following the day on which the purchase
order is deemed received by the Distributor or in the event a mark to market
payment is not made within one Business Day following notification by the
Distributor that such a payment is required, the Fund may use the cash on
deposit to purchase the missing Deposit Securities. Authorized Participants will
be liable to the Fund for the costs incurred by the Fund in connection with any
such purchases. These costs will be deemed to include the amount by which the
actual purchase price of the Deposit Securities exceeds the market value of such
Deposit Securities on the day the purchase order was deemed received by the
Distributor plus the brokerage and related transaction costs associated with
such purchases. The Fund will return any unused portion of the Additional Cash
Deposit once all of the missing Deposit Securities have been properly received
by the Custodian or purchased by the Fund and deposited into the Fund. In
addition, a transaction fee of $[ ] will be charged in all cases. The delivery
of Creation Units of the Fund so created will occur no later than the third
Business Day following the day on which the purchase order is deemed received by
the Distributor.
ACCEPTANCE OF ORDERS FOR CREATION UNITS
The Fund reserves the absolute right to reject a purchase order transmitted to
it by the Distributor in respect of the Fund if (a) the order is not in proper
form; (b) the investor(s), upon obtaining the shares ordered, would own 80% or
more of the currently outstanding shares of the Fund; (c) the Deposit Securities
delivered are not as disseminated through the facilities of the AMEX for that
date by the Custodian, as described above; (d) acceptance of the Deposit
Securities would have certain adverse tax consequences to the Fund; (e) the
acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful;
(f) the acceptance of the Fund Deposit would otherwise, in the discretion of the
Fund or the Manager, have an adverse effect on the Fund or the rights of
beneficial owners; or (g) in the event that circumstances outside the control of
the Fund, the Distributor and the Manager make it for all practical purposes
impossible to process purchase orders. Examples of such circumstances include
acts of God or public service or utility problems such as fires, floods, extreme
weather conditions and power outages resulting in telephone, telecopy and
computer failures; market conditions or activities causing trading halts;
systems failures involving computer or other information systems affecting the
Fund, the Manager, the Distributor, DTC, NSCC or any other participant in the
creation process, and similar extraordinary events. The Distributor shall notify
a prospective purchaser of a Creation Unit and/or the Authorized Participant
acting on behalf of the purchaser of a Creation Unit of its
24
<PAGE>
rejection of the order of such person. The Fund, the Transfer Agent, the
Custodian and the Distributor are under no duty, however, to give notification
of any defects or irregularities in the delivery of Fund Deposits nor shall
either of them incur any liability for the failure to give any such
notification.
All questions as to the number of shares of each security in the Deposit
Securities and the validity, form, eligibility and acceptance for deposit of any
securities to be delivered shall be determined by the Fund, and the Fund's
determination shall be final and binding.
Purchase Transactions Fee
A fixed transaction fee of $[ ] is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. This
transaction fee will be paid to the Custodian and the Manager to cover any fees
charged in connection with the transaction and any excess will be paid to the
Fund. An additional charge of up to three (3) times the fixed transaction fee
(expressed as a percentage of the value of the Deposit Securities) may be
imposed for (i) purchases effected outside the Clearing Process; and (ii) cash
purchases (to offset the Fund's brokerage and other transaction costs associated
with using cash to purchase the requisite Deposit Securities), for a total
charge of up to $[ ]. Investors are responsible for the costs of transferring
the securities constituting the Deposit Securities to the account of the Fund.
REDEMPTION OF CREATION UNITS
Shares may be redeemed only in Creation Units at their net asset value next
determined after receipt of a redemption request in proper form by the Fund
through the Transfer Agent and only on a Business Day. THE FUND WILL NOT REDEEM
SHARES IN AMOUNTS LESS THAN CREATION UNITS. Beneficial Owners must accumulate
enough shares in the secondary market to constitute a Creation Unit in order to
have such shares redeemed by the Fund. There can be no assurance, however, that
there will be sufficient liquidity in the public trading market at any time to
permit assembly of a Creation Unit. Investors should expect to incur brokerage
and other costs in connection with assembling a sufficient number of shares to
constitute a redeemable Creation Unit. Upon the commencement of the Fund's
operations, the value of the securities comprising a deposit of designated
equity securities necessary for an in-kind purchase of a Creation Unit for the
Fund is expected to be $______.
The Custodian, through the NSCC, makes available prior to the opening of
business on the AMEX (currently 9:30 am, New York time) on each Business Day,
the Fund Securities that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form (as defined below) on
that day. Fund Securities received on redemption may not be identical to Deposit
Securities which are applicable to purchases of Creation Units.
In certain circumstances the Fund may, in its sole discretion, pay a redeeming
shareholder the cash equivalent of a Fund Security. Unless cash redemptions are
available or specified for the Fund, the redemption proceeds for a Creation Unit
generally consist of Fund Securities -- as announced by the Custodian on the
Business Day of the request for redemption received in proper form -- plus cash
in an amount equal to the difference between the net asset value of the shares
being redeemed, as next determined after a receipt of a request in proper form,
and the value of the Fund Securities (the "Cash Redemption Amount"), less a
redemption transaction fee of $[ ]. In
25
<PAGE>
the event that the Fund Securities have avalue greater than the net asset value
of the shares, a compensating cash payment equal to the differential is required
to be made by or through an Authorized Participant by the redeeming shareholder.
Redemption Transaction Fee
A fixed transaction fee of $[ ] is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. This
transaction fee will be paid to the Custodian and the Manager to cover any fees
charged in connection with the transaction and any excess will be paid to the
Fund. The Fund, subject to approval by the Company's Board of Directors, may
adjust the fee from time to time based upon actual experience. An additional
charge for cash redemptions or partial cash redemptions (when cash redemptions
are available) may be imposed. Investors who use the services of a broker or
other such intermediary in addition to an Authorized Participant to effect a
redemption of a Creation Unit may be charged a fee for such services.
Placement of Redemption Orders Using Clearing Process
Orders to redeem Creation Units of the Fund through the Clearing Process must be
delivered through a Participating Party that has executed the Participant
Agreement. An order to redeem Creation Units of the Fund using the Clearing
Process is deemed received on the Transmittal Date if (i) such order is received
by the Transfer Agent not later than 4:00 p.m., New York time, on such
Transmittal Date; and (ii) all other procedures set forth in the Participant
Agreement are properly followed; such order will be effected based on the net
asset value of the Fund as next determined. An order to redeem Creation Units of
the Fund using the Clearing Process made in proper form but received by the Fund
after 4:00 p.m., New York time, will be deemed received on the next Business Day
immediately following the Transmittal Date and will be effected at the net asset
value next determined on such Business Day. The requisite Fund Securities and
the Cash Redemption Amount will be transferred by the third NSCC Business Day
following the date on which such request for redemption is deemed received.
26
<PAGE>
Placement of Redemption Orders Outside Clearing Process
Orders to redeem Creation Units of the Fund outside the Clearing Process must be
delivered through a DTC Participant that has executed the Participant Agreement.
A DTC Participant who wishes to place an order for redemption of Creation Units
of the Fund to be effected outside the Clearing Process need not be a
Participating Party, but such orders must state that the DTC Participant is not
using the Clearing Process and that redemption of Creation Units will instead be
effected through transfer of shares directly through DTC. An order to redeem
Creation Units of the Fund outside the Clearing Process is deemed received by
the Transfer Agent on the Transmittal Date if (i) such order is received by the
Transfer Agent not later than 4:00 p.m., New York time, on such Transmittal
Date; (ii) such order is accompanied or proceeded by the requisite number of
shares of the Fund specified in such order, which delivery must be made through
DTC to the Custodian no later than 11:00 a.m., New York time, on the next
Business Day following such Transmittal Date (the "DTC Cut-Off-Time"); and
(iii) all other procedures set forth in the Participant Agreement are properly
followed.
After the Transfer Agent has deemed an order for redemption outside the Clearing
Process received, the Transfer Agent will initiate procedures to transfer the
requisite Fund Securities which are expected to be delivered within three
Business Days and the Cash Redemption Amount to the Authorized Participant on
behalf of the redeeming Beneficial Owner by the third Business Day following the
Transmittal Date on which such redemption order is deemed received by the
Transfer Agent.
The calculation of the value of the Fund Securities and the Cash Redemption
Amount to be delivered upon redemption will be made by the Custodian according
to the procedures set forth under "DETERMINATION OF NET ASSET VALUE" computed on
the Business Day on which a redemption order is deemed received by the Transfer
Agent. Therefore, if a redemption order in proper form is submitted to the
Transfer Agent by a DTC Participant not later than the Closing Time on the
Transmittal Date, and the requisite number of Shares of the Fund are delivered
to the Custodian prior to the DTC Cut-Off-Time, then the value of the Fund
securities and the Cash Redemption Amount to be delivered will be determined by
the Custodian on such Transmittal Date. If, however, a redemption order is
submitted to the Distributor by a DTC Participant not later than the Closing
Time on the Transmittal Date but either (1) the requisite number of shares of
the Fund are not delivered by the DTC Cut-Off Time as described above on the
next Business Day following the Transmittal Date or (2) the redemption order is
not submitted in proper form, then the redemption order will not be deemed
received as of the Transmittal Date. In such case, the value of the Fund
Securities and the Cash Redemption Amount to be delivered will be computed on
the Business Day that such order is deemed received by the Transfer Agent, i.e.,
the Business Day on which the shares of the Fund are delivered through DTC to
the Custodian by the DTC Cut-Off-Time on such Business Day pursuant to a
properly submitted redemption order.
If it is not possible to effect deliveries of the Fund Securities, the Fund may
in its discretion exercise its option to redeem such shares in cash, and the
redeeming Beneficial Owner will be required to receive its redemption proceeds
in cash. In addition, an investor may request a redemption in cash which the
Fund may, in its sole discretion, permit. In either case, the investor will
receive a cash payment equal to the net asset value of its shares based on the
net asset value of shares of the Fund next determined after the redemption
request is received in proper form
27
<PAGE>
(minus a redemption transaction fee and additional charge for requested cash
redemptions specified above, to offset the Fund's brokerage and other
transaction costs associated with the disposition of Fund Securities). The Fund
may also, in its sole discretion, upon request of a shareholder, provide such
redeeming shareholder a portfolio of securities which differs from the exact
composition of the Fund Securities but does not differ in net asset value.
Redemptions of shares for Fund Securities will be subject to compliance with
applicable federal and state securities laws and the Fund (whether or not it
otherwise permits cash redemptions) reserves the right to redeem Creation Units
for cash to the extent that the Fund could not lawfully deliver specific Fund
Securities upon redemptions or could not do so without first registering the
Fund Securities under such laws. An Authorized Participant or an investor for
which it is acting subject to a legal restriction with respect to a particular
stock included in the Fund Securities applicable to the redemption of a Creation
Unit may be paid an equivalent amount of cash. The Authorized Participant may
request the redeeming Beneficial Owner of the shares to complete an order form
or to enter into agreements with respect to such matters as compensating cash
payment, beneficial ownership of shares or delivery instructions.
The right of redemption may be suspended or the date of payment postponed (1)
for any period during which the NYSE is closed (other than customary weekend and
holiday closings); (2) for any period during which trading on the NYSE is
suspended or restricted; (3) for any period during which an emergency exists as
a result of which disposal of the Fund's shares or determination of the shares'
net asset value is not reasonably practicable; or (4) in such other circumstance
as is permitted by the SEC.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday, respectively. The
following is a description of the procedures used by the Fund in valuing its
assets.
Securities listed on a national securities exchange will be valued on the basis
of the last sale on the date on which the valuation is made or, in the absence
of sales, at the mean between the closing bid and asked prices. Over-the-counter
securities will be valued at the mean between the closing bid and asked prices
on each day, or, if market quotations for those securities are not readily
available, at fair value, as determined in good faith by the Company's Board of
Directors. Short-term obligations with maturities of 60 days or less are valued
at amortized cost, which constitutes fair value as determined by the Company's
Board of Directors. Amortized cost involves valuing an instrument at its
original cost to the Fund 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.
The value of a futures contracts equals the unrealized gain or loss on the
contract that is determined by marking the contract to the current settlement
price for a like contract on the valuation date of the futures contract. A
settlement price may not be used if the market makes a
28
<PAGE>
limit move with respect to a particular futures contract or if the securities
underlying the futures contract experience significant price fluctuations after
the determination of the settlement price. In such event, the futures contract
will be valued at a fair market price as determined by or under the direction of
the Company's Board of Directors. All other securities and other assets of the
Fund will be valued at fair value as determined in good faith by the Company's
Board of Directors.
PERFORMANCE DATA
From time to time, the Company may advertise the Fund's total return and average
annual total return in advertisements and/or other types of sales literature.
These figures are based on historical earnings and are not intended to indicate
future performance. Total return is computed for a specified period of time
assuming deduction of the maximum sales charge, if any, from the initial amount
invested and reinvestment of all income dividends and capital gain distributions
on the reinvestment 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 for differing
periods computed in the same manner but without annualizing the total return or
taking sales charges into account. The Company may also include comparative
performance information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical Services, Inc.
and other financial publications.
From time to time, the Company may quote the Fund's yield or total return in
advertisements or in reports and other communications to shareholders. Such
performance information may also be included in the following industry and
financial publications: Barron's, Business Week, CDA Investment Technologies,
Inc., Changing Times, Forbes, Fortune, Institutional Investor, Investors Daily,
Money, Morningstar Mutual Fund Values, The New York
Times, USA Today and The Wall Street Journal.
Average Annual Total Return
"Average annual total return" figures are computed according to a formula
prescribed by the SEC. The formula can be expressed as follows:
P (1 + T)/n/ = ERV
Where: P = a hypothetical initial payment of $ 1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or
10-year period at the end of the 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
29
<PAGE>
The ERV assumes complete redemption of the hypothetical investment at the end of
the measuring period. The Fund's net investment income changes in response to
fluctuations in interest rates and the expenses of the Fund.
Aggregate Total Return
The Fund's "aggregate total return," as described below, represents the
cumulative change in the value of an investment in the Fund for the specified
period and is computed by the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of the 1-, 5- or 10-
year period at the end of the 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at the end of
the measuring period.
Performance will vary from time to time depending on market conditions, the
composition of the Fund's portfolio and operating expenses. Consequently, any
given performance quotation should not be considered representative of the
Fund'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 Fund
with certain bank deposits or other investments that pay a fixed yield for a
stated period of time.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute its net investment income and net realized
capital gains, if any, annually. The Fund may also pay additional dividends
shortly before December 31 from certain amounts of undistributed ordinary and
capital gains realized, in order to avoid a Federal excise tax liability.
The Fund may make available to shareholders the DTC book-entry Dividend
Reinvestment Service for use by beneficial owners of the Fund through DTC
Participants for reinvestment of their dividend distributions. If this service
is used, dividend distributions of both income and net realized capital gains
will be automatically reinvested in additional shares of the Fund. You may incur
additional expenses if you use this service.
Taxes
30
<PAGE>
The following is a summary of the material United States federal income tax
considerations regarding the purchase, ownership and disposition of shares of
the Fund. Each prospective shareholder is urged to consult his own tax adviser
with respect to the specific federal, state, local and foreign tax consequences
of investing in the Fund. The summary is based on the laws in effect on the date
of this SAI, which are subject to change.
The Fund and Its Investments
- ----------------------------
The Fund intends to qualify to be treated as a regulated investment company each
taxable year under the Code. To so qualify, the Fund must, among other things:
(a) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each quarter of the Fund's taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by cash, securities of other regulated
investment companies, United States government securities and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the Fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii) not more than 25% of the
value of its assets is invested in the securities (other than United States
government securities or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the Fund controls and are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses.
As a regulated investment company, the Fund will not be subject to United States
federal income tax on its net investment income (i.e., income other than its net
realized long- and short-term capital gains) and its net realized long- and
short-term capital gains, if any, that it distributes to its shareholders,
provided an amount equal to at least 90% of the sum of its investment company
taxable income (i.e., 90% of its taxable income minus the excess, if any, of its
net realized long-term capital gains over its net realized short-term capital
losses (including any capital loss carryovers), plus or minus certain other
adjustments as specified in the Code) and its net tax-exempt income for the
taxable year is distributed in compliance with the Code's timing and other
requirements but will be subject to tax at regular corporate rates on any
taxable income or gains it does not distribute. Furthermore, the Fund will be
subject to a United States corporate income tax with respect to such distributed
amounts in any year it fails to qualify as a regulated investment company or
fails to meet this distribution requirement. The Code imposes a 4% nondeductible
excise tax on the Fund to the extent it does not distribute by the end of any
calendar year at least 98% of its net investment income for that year and 98% of
the net amount of its capital gains (both long-and short-term) for the one-year
period ending, as a general rule, on October 31 of that year. For this purpose,
however, any income or gain retained by the Fund that is subject to corporate
income tax will be considered to have been distributed by year-end. In addition,
the minimum amounts that must be distributed in any year to avoid the excise tax
will be increased or decreased to reflect any underdistribution or
overdistribution, as the case may be, from the previous year. The Fund
anticipates that it will pay such dividends and will make such distributions as
are necessary in order to avoid the application of this tax.
31
<PAGE>
If, in any taxable year, the Fund fails to qualify as a regulated investment
company under the Code or fails to meet the distribution requirement, it would
be taxed in the same manner as an ordinary corporation and distributions to its
shareholders would not be deductible by the Fund in computing its taxable
income. In addition, in the event of a failure to qualify, the Fund's
distributions, to the extent derived from the Fund's current or accumulated
earnings and profits would constitute dividends (eligible for the corporate
dividends-received deduction) which are taxable to shareholders as ordinary
income, even though those distributions might otherwise (at least in part) have
been treated in the shareholders' hands as long-term capital gains. If the Fund
fails to qualify as a regulated investment company in any year, it must pay out
its earnings and profits accumulated in that year in order to qualify again as a
regulated investment company. In addition, if the Fund failed to qualify as a
regulated investment company for a period greater than one taxable year, the
Fund may be required to recognize any net built-in gains (the excess of the
aggregate gains, including items of income, over aggregate losses that would
have been realized if it had been liquidated) in order to qualify as a regulated
investment company in a subsequent year.
As a result of tax requirements, the Company on behalf of the Fund has the right
to reject an order to purchase a Creation Unit if the purchaser (or group of
purchasers) would, upon obtaining the shares so ordered, own 80% or more of the
outstanding shares of the Fund and if, in consequence, pursuant to Section 351
of the Code, the Fund would have a basis in the Deposit Securities different
from the market value of such Deposit Securities on the date of deposit. The
Company also has the right to require information necessary to determine
beneficial share ownership for purposes of the 80% determination.
The Fund's transactions in foreign currencies, forward contracts, options and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code (including
provisions relating to "hedging transactions" and "straddles") that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) will require the Fund to mark-to-market
certain types of the positions in its portfolio (i.e., treat them as if they
were closed out) and (b) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes. The Fund will monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in its books and records
when it acquires any foreign currency, forward contract, option, futures
contract or hedged investment in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
The Fund's investment in Section 1256 contracts, such as regulated futures
contracts, most forward currency forward contracts traded in the interbank
market and options on most stock indices, are subject to special tax rules. All
section 1256 contracts held by the Fund at the end of its taxable year are
required to be marked to their market value, and any unrealized gain or loss on
those positions will be included in the Fund's income as if each position had
been sold for its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or loss realized by the
Fund from positions in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were not part of a
"hedging
32
<PAGE>
transaction" nor part of a "straddle," 60% of the resulting net gain or loss
will be treated as long-term capital gain or loss, and 40% of such net gain or
loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the Fund.
Foreign Investments. Dividends or other income (including, in some cases,
capital gains) received by the Fund from investments in foreign securities may
be subject to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes in some cases. The Fund will not be eligible to elect to
treat any foreign taxes paid by it as paid by its shareholders, who therefore
will not be entitled to credits for such taxes on their own tax returns. Foreign
taxes paid by the Fund will reduce the return from the Fund's investments.
Taxation of United States Shareholders
- --------------------------------------
Dividends and Distributions. Any dividend declared by the Fund in October,
November or December of any calendar year and payable to shareholders of record
on a specified date in such a month shall be deemed to have been received by
each shareholder on December 31 of such calendar year and to have been paid by
the Fund not later than such December 31, provided such dividend is actually
paid by the Fund during January of the following calendar year. The Fund intends
to distribute annually to its shareholders substantially all of its investment
company taxable income, and any net realized long-term capital gains in excess
of net realized short-term capital losses (including any capital loss
carryovers). The Fund currently expects to distribute any excess annually to its
shareholders. However, if the Fund retains for investment an amount equal to all
or a portion of its net long-term capital gains in excess of its net short-term
capital losses and capital loss carryovers, it will be subject to a corporate
tax (currently at a rate of 35%) on the amount retained. In that event, the Fund
will designate such retained amounts as undistributed capital gains in a notice
to its shareholders who (a) will be required to include in income for United
Stares federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (b) will be entitled to credit
their proportionate shares of the 35% tax paid by the Fund on the undistributed
amount against their United States federal income tax liabilities, if any, and
to claim refunds to the extent their credits exceed their liabilities, if any,
and (c) will be entitled to increase their tax basis, for United States federal
income tax purposes, in their shares by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's income. Organizations
or persons not subject to federal income tax on such capital gains will be
entitled to a refund of their pro rata share of such taxes paid by the Fund upon
filing appropriate returns or claims for refund with the Internal Revenue
Service (the "IRS").
Dividends of net investment income and distributions of net realized short-term
capital gains are taxable to a United States shareholder as ordinary income,
whether paid in cash or in shares. Distributions of net-long-term capital gains,
if any, that the Fund designates as capital gains dividends are taxable as
long-term capital gains, whether paid in cash or in shares and regardless of how
long a shareholder has held shares of the Fund. Dividends and distributions paid
by the Fund attributable to dividends on stock of U.S. corporations received by
the Fund, with respect to which the Fund meets certain holding period
requirements, will be eligible for the deduction for dividends received by
corporations. Distributions in excess of the Fund's current and accumulated
earnings and profits will, as to each shareholder, be treated as a tax-free
return of capital to the extent of a shareholder's basis in his shares of the
Fund, and as a capital gain thereafter (if the
33
<PAGE>
shareholder holds his shares of the Fund as capital assets). Shareholders
receiving dividends or distributions in the form of additional shares should be
treated for United States federal income tax purposes as receiving a
distribution in the amount equal to the amount of money that the shareholders
receiving cash dividends or distributions will receive, and should have a cost
basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or capital gain
distribution should be aware that, although the price of shares just purchased
at that time may reflect the amount of the forthcoming distribution, such
dividend or distribution may nevertheless be taxable to them. If the Fund is the
holder of record of any stock on the record date for any dividends payable with
respect to such stock, such dividends are included in the Fund's gross income
not as of the date received but as of the later of (a) the date such stock
became ex-dividend with respect to such dividends (i.e., the date on which a
buyer of the stock would not be entitled to receive the declared, but unpaid,
dividends) or (b) the date the Fund acquired such stock. Accordingly, in order
to satisfy its income distribution requirements, the Fund may be required to pay
dividends based on anticipated earnings, and shareholders may receive dividends
in an earlier year than would otherwise be the case.
Sales of Shares. Upon the sale of his shares, a shareholder will realize a
taxable gain or loss equal to the difference between the amount realized and his
basis in his shares. Such gain or loss will be treated as capital gain or loss,
if the shares are capital assets in the shareholder's hands, and will be
long-term capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for one year or less. Any
loss realized on a sale will be disallowed to the extent the shares disposed of
are replaced, including replacement through the reinvesting of dividends and
capital gains distributions in the Fund, within a 61-day period beginning 30
days before and ending 30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of a Fund share
held by the shareholder for six months or less will be treated for United States
federal income tax purposes as a long-term capital loss to the extent of any
distributions or deemed distributions of long-term capital gains received by the
shareholder with respect to such share.
Backup Withholding. The Fund may be required to withhold, for United States
federal income tax purposes, 31% of the dividends, distributions and redemption
proceeds payable to shareholders who fail to provide the Fund with their correct
taxpayer identification number or to make required certifications, or who have
been notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.
Notices. Shareholders will be notified annually by the Fund as to the United
States federal income tax status of the dividends, distributions and deemed
distributions attributable to undistributed capital gains (discussed above in
"Taxes - Taxation of United States Shareholders -Dividends and Distributions")
made by the Fund to its shareholders. Furthermore, shareholders will also
receive, if appropriate, various written notices after the close of the Fund's
taxable year regarding the United States federal income tax status of certain
dividends, distributions and deemed
34
<PAGE>
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding taxable year.
Other Taxation
- --------------
Distributions also may be subject to additional state, local and foreign taxes
depending on each shareholder's particular situation.
The foregoing is only a summary of certain material tax consequences affecting
the Fund and its shareholders. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in the Fund.
ADDITIONAL INFORMATION
The Company was incorporated on June 14, 1999 under the laws of the state of
Maryland under the name SSBC Index Series Inc. The Company's charter authorizes
it to issue five billion shares of common stock, with a par value of $.001 per
share. The Company currently has only one series, with 500,000,000 authorized
shares, which is the Fund. The Fund currently offers one class of shares. The
Board of Directors of the Company may designate additional series or classes of
shares. Each share of the Fund represents an identical interest in the Fund's
investment portfolio and each share has the same rights, privileges and
preferences.
Shareholders are entitled to one vote for each share held. As permitted by
Maryland law, there will normally be no meetings of shareholders for the purpose
of electing directors unless and until a meeting to elect directors is required
by the 1940 Act. In accordance with the 1940 Act: (a) the Company will hold a
shareholder meeting for the election of directors at such time as less than a
majority of the directors have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Directors, less than two-thirds of the
directors have been elected by the shareholders, that vacancy will be filled
only by a vote of the shareholders. At such times, the directors then in office
will call a shareholders' meeting for the election of directors. A director may
be removed by a vote of not less than a majority of the outstanding shares of
the Fund cast at a shareholders' meeting in person or by proxy. Except as set
forth above, the directors shall continue to hold office and may appoint
directors to fill vacancies.
The secretary of the Company must call a meeting of shareholders at the request
in writing of a majority of the Board of Directors or at the request in writing
of shareholders entitled to cast at least 25 % of the votes entitled to be cast
at the meeting upon payment by such shareholders to the Company of the
reasonably estimated cost of preparing and mailing a notice of the meeting.
Notwithstanding the foregoing, unless requested by shareholders entitled to cast
a majority of the votes entitled to be cast at the meeting, a special meeting of
the shareholders need not be called at the request of shareholders to consider
any matter which is substantially the same as a matter voted on at any special
meeting of the shareholders held during the preceding 12 months. A written
request shall state the purpose or purposes of the proposed meeting.
Annual and Semi-annual Reports. The Fund sends its shareholders a semi-annual
report and an audited annual report, which include listings of investment
securities held by the Fund at the end of the period covered. In an effort to
reduce the Fund's printing and mailing costs, the Fund may consolidate the
mailing of its semi-annual and annual reports by household. This consolidation
means that a household having multiple accounts with the identical address of
record may receive
35
<PAGE>
a single copy of each report. In addition, the Fund may consolidate the mailing
of its Prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not want this consolidation to
apply to their accounts should contact their Salomon Smith Barney Financial
Consultant or the Transfer Agent.
FINANCIAL STATEMENTS
As of the date of this SAI, the Fund had not yet commenced operations.
Consequently, there are no financial statements for the Fund at this time.
"Salomon Smith Barney "T" Series Internet Index(TM)" is a trademark of Salomon
Smith Barney and has been licensed for use by the Fund. Salomon Smith Barney
makes no representation or warranty, express or implied, to the shareholders of
the Fund or any member of the public regarding the advisability of investing in
securities generally or in the Fund particularly or the ability of the Index to
track the performance of Internet companies. The Index is determined, composed
and calculated by Salomon Smith Barney without regard to the Fund. Salomon Smith
Barney has no obligation to take the needs of the shareholders of the Fund into
consideration in determining, composing or calculating the Index.
SALOMON SMITH BARNEY DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE INDEX OR ANY DATA INCLUDED THEREIN AND SALOMON SMITH BARNEY SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. SALOMON SMITH
BARNEY MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
THE FUND, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
INDEX OR ANY DATA INCLUDED THEREIN. SALOMON SMITH BARNEY MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
SALOMON SMITH BARNEY HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
36
<PAGE>
Exhibit A
The Index is a float-weighted equity index comprising 30 of the largest
publicly listed U.S. Internet companies. The Index is intended to measure equity
performance of Internet companies by offering a flexible, rules-driven,
benchmark that captures the rapid technological advances in Internet technology,
content, security, commerce, finance and media. Eligible companies must derive
at least 50% of their revenue from business directly related to the Internet.
Such companies include service and content providers, media and advertising
firms, software and general technology providers and electronic commerce
enterprises. The Index is based on float capital rather than total capital
because many Internet companies have limited float relative to their total
market capitalization. As of June 30, 1999, the Index consisted of the following
companies:
[LIST OF COMPANIES TO BE INSERTED]
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
--------
Exhibit No. Description of Exhibit
- ----------- ----------------------
(a) Articles of Incorporation
(b) By-Laws
(c) Form of stock certificate*
(d) Investment Advisory Agreement*
(e) Distribution Agreement*
(f) Not applicable
(g) Custodian Agreement*
(h) Transfer Agency Agreement*
(i) Opinion of Counsel*
(j) Not Applicable
(k) Not Applicable
(l) Not Applicable
(m) Form of Shareholder Services and Distribution Plan pursuant to
Rule 12b-1*
(n) Not Applicable
(o) Not Applicable
Item 24. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
All of the outstanding shares of the Registrant, representing all
of the interests in SSBC Index Series Inc., on the date Registrant's
Registration Statement becomes effective will be owned by ___________________.
None.
- ------------------------
* To be filed by amendment.
<PAGE>
Item 25. Indemnification
---------------
Under Maryland law, directors and officers of the Registrant are not
liable to the Registrant or its stockholders except for an act or omission
committed in bad faith or as a result of active and deliberate dishonesty or for
the receipt of an improper personal benefit. The Registrant's corporate charter
requires that it indemnify its directors and officers against liabilities and
advance expenses to the fullest extent permitted by Maryland law, subject to the
limitation that no director or officer may be protected against liability for
willful misfeasance, bad faith, gross negligence or reckless disregard for the
duties involved in the conduct of his office.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
Investment Adviser - SSBC Fund Management Inc. ("SSBC") formerly Mutual
Management Corp.
SSBC was incorporated in December 1968 under the laws of the State of
Delaware. SSBC is a wholly owned subsidiary of Salomon Smith Barney Holdings
Inc. ("Holdings") (formerly known as Smith Barney Holdings Inc.), which in turn
is a wholly owned subsidiary of Citigroup Inc. SSBC is registered as an
investment adviser under the Investment Advisers Act of 1940 (the "Advisers
Act"). The list required by this Item 26 of officers and directors of SSBC
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
FORM ADV filed by SSBC pursuant to the Advisers Act (SEC File No. 801-8314).
Item 27. Principal Underwriter
---------------------
(a) CFBDS, Inc., the Registrant's Distributor, is also the distributor
for CitiFunds(SM) International Growth & Income Portfolio, CitiFunds(SM)
International Equity Portfolio, CitiFunds(SM) Large Cap Growth Portfolio,
CitiFunds(SM) Intermediate Income Portfolio, CitiFunds(SM) Short-Term U.S.
Government Income Portfolio, CitiFunds(SM) Emerging Asian Markets Equity
Portfolio, CitiFunds(SM) U.S. Treasury Reserves, CitiFunds(SM) Cash Reserves,
CitiFunds(SM) Premium U.S. Treasury Reserves, CitiFunds(SM) Premium Liquid
Reserves, CitiFunds(SM) Institutional U.S. Treasury Reserves, CitiFunds(SM)
Institutional Liquid Reserves, CitiFunds(SM) Institutional Cash Reserves,
CitiFunds(SM) Tax Free Reserves, CitiFunds(SM) Institutional Tax Free Reserves,
CitiFunds(SM) California Tax Free Reserves, CitiFunds(SM) Connecticut Tax Free
Reserves, CitiFunds(SM) New York Tax Free Reserves, CitiFunds(SM) Balanced
Portfolio, CitiFunds(SM) Small Cap Value Portfolio, CitiFunds(SM) Growth &
Income Portfolio, CitiFunds(SM) Small Cap Growth Portfolio, CitiFunds(SM)
National Tax Free Income Portfolio, CitiFunds(SM) New York Tax Free Income
Portfolio, CitiSelect VIP
<PAGE>
Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP
Folio 500, CitiFunds(SM) Small Cap Growth VIP Portfolio, CitiSelect Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400, and CitiSelect Folio 500.
CFBDS is also the placement agent for Large Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio, Intermediate Income Portfolio,
Short-Term Portfolio, Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Emerging Asian Markets Equity Portfolio, Tax Free
Reserves Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves
Portfolio.
CFBDS, Inc. is also the distributor for the following Smith Barney
Mutual Fund registrants:
Concert Investment Series
Consulting Group Capital Markets Funds
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Funds Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Funds Inc.
Smith Barney Investment Trust
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS, Inc. is also the distributor for the following Salomon Brothers
funds;
Salomon Brothers Opportunity Fund Inc.
<PAGE>
Salomon Brothers Investors Fund
Inc Salomon Brothers Capital Fund Inc.
Salomon Brothers Series Funds Inc.
Salomon Brothers Institutional Series Funds Inc.
Salomon Brothers Variable Series Funds Inc.
The information required by this item 27 with respect to each director,
officer and partner of CFBDS, Inc. is incorporated by reference to Schedule A of
Form BD filed by CFBDS, Inc. pursuant to the Securities Exchange Act of 1934
(SEC File No. 8-32417).
Item 28. Location of Accounts and Records
--------------------------------
(1) SSBC Index Series Inc.
388 Greenwich Street
New York, New York 10013
(2) SSBC Fund Management Inc.
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA
(4) [TRANSFER AGENT TO BE DETERMINED]
(5) CFBDS Inc.
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
Item 29. Management Services
-------------------
Not Applicable.
Item 30. Undertakings
------------
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant, SSBC INDEX
SERIES INC., has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of New York, State of New York, on the 14th day of September, 1999.
SSBC INDEX SERIES INC.
By: /s/ Heath B. McLendon
----------------------------------------
Heath B. McLendon
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act this Amendment has
been signed below by the following persons in the capacities and on the date
indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Heath B. McLendon Chief Executive Officer and President September 14, 1999
-----------------------
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President and Treasurer (Chief September 14, 1999
-----------------------
Lewis E. Daidone Financial and Accounting Officer)
/s/ Christina T. Sydor Director September 14, 1999
-----------------------
Christina T. Sydor
</TABLE>
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Description of Exhibit
- ----------- ----------------------
(a) Articles of Incorporation
(b) By-Laws
<PAGE>
Exhibit 99.A
ARTICLES OF INCORPORATION
OF
SSBC INDEX SERIES INC.
ARTICLE I
INCORPORATOR
------------
The undersigned, J. Stephen King, Jr., whose post office address is c/o
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019, being at
least 18 years of age, does hereby act as an incorporator and forms a
corporation under the Maryland General Corporation Law.
ARTICLE II
NAME
----
The name of the corporation is SSBC Index Series Inc. (the
"Corporation").
ARTICLE III
PURPOSES AND POWERS
-------------------
The Corporation is formed for the following purposes:
(1) To conduct and carry on the business of an investment company.
(2) To hold, invest and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash.
(3) To issue and sell shares of its capital stock in such amounts, on
such terms and conditions, for such purposes and for such amount or kind of
consideration as may now or hereafter be permitted by law.
(4) To redeem, purchase or acquire in any other manner, hold, dispose
of, resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock, in any manner and
to the extent now or hereafter permitted by law and by this Charter.
(5) To do any and all additional acts and to exercise any and all
additional powers or rights as may be necessary, incidental, appropriate or
desirable for the accomplishment of all or any of the foregoing purposes.
<PAGE>
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by the
Maryland General Corporation Law now or hereafter in force, and the enumeration
of the foregoing shall not be deemed to exclude any powers, rights or privileges
so granted or conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Company Incorporated, 300
East Lombard Street, Baltimore, Maryland 21202. The name and address of the
resident agent of the Corporation in the State of Maryland is The Corporation
Trust Company Incorporated, a Maryland corporation, 300 East Lombard Street,
Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock that the Corporation
shall have authority to issue is five billion (5,000,000,000) shares, of the par
value of one tenth of one cent ($.001) per share and of the aggregate par value
of five million dollars ($5,000,000), all of which five billion (5,000,000,000)
shares are designated Common Stock.
(2) The Board of Directors of the Corporation is authorized, from
time to time, to classify or to reclassify, as the case may be, any unissued
shares of capital stock of the Corporation, whether now or hereafter authorized,
including classifying and reclassifying them into separate series and classes.
The shares of said series and classes of stock shall have such preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption as shall be
fixed and determined from time to time by the Board of Directors. The Board of
Directors is authorized to increase or decrease the number of shares of any
series or class, but the number of shares of any series or class shall not be
decreased by the Board of Directors below the number of shares thereof then
outstanding.
(3) The Board of Directors may redesignate a class or series of
shares of capital stock whether or not shares of such class or series are issued
and outstanding, provided that such redesignation does not in itself affect the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares of stock.
-2-
<PAGE>
(4) There is hereby established and classified one series of stock
comprised initially of five hundred million (500,000,000) shares, each with a
par value of one tenth of one cent ($.001), to be known initially as the
"Internet Index Shares". Without limiting the authority of the Board of
Directors set forth herein to establish and designate any further series or
classes, and to classify and reclassify any unissued shares, and subject to such
authority, shares of each series, now authorized and hereafter authorized, shall
be subject to the following provisions:
(a) As more fully set forth hereafter, the assets and
liabilities and the income and expenses of each series shall be determined
separately and, accordingly, the net asset value, the dividends payable to
holders, and the amounts distributable in the event of dissolution of the
Corporation to holders of shares of the Corporation's stock may vary from
series to series.
(b) All consideration received by the Corporation for the issue
or sale of shares of a particular series, together with all assets in which
such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof, including all proceeds derived from the
sale, exchange or liquidation thereof and all transaction fees charged by
the Corporation with respect to that series, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that series for all purposes, subject
only to the rights of creditors and shall be referred to as "assets
belonging to" that series. The assets belonging to a particular series
shall be so recorded upon the books of the Corporation.
(c) The assets belonging to each particular series shall be
charged with the liabilities of the Corporation with respect to that
series, all expenses, costs, charges and reserves attributable to that
series and that series' share of the liabilities, expenses, costs, charges
or reserves of the Corporation not attributable to any particular series,
in the latter case in the proportion that the net asset value of that
series (determined without regard to such liabilities) bears to the net
asset value of all series (determined without regard to such liabilities)
or in such other manner as shall be determined by the Board of Directors in
accordance with law. The determination of the Board of Directors shall be
conclusive as to the allocation of liabilities, including accrued expenses
and reserves, and assets to a particular series or series.
(d) Shares of each series shall be entitled to such dividends
and distributions, in shares, property (including securities) or in cash or
any combination thereof, as may be declared from time to time by the Board
-3-
<PAGE>
of Directors, acting in its sole discretion, with respect to such series,
provided that dividends and distributions shall be paid on shares of a
series only out of lawfully available assets belonging to that series.
Dividends may be declared daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Board of Directors may determine. Any such dividend or distribution paid in
shares will be paid at the current net asset value thereof.
(e) The Board of Directors shall have the power, in its sole
discretion, to distribute in any fiscal year as dividends (including
dividends designated in whole or in part as capital gain distributions) an
amount sufficient, in the opinion of the Board of Directors, to enable each
series of the Corporation to qualify as a regulated investment company
under the Internal Revenue Code of 1986, as from time to time amended, or
any successor or comparable statute thereto, and regulations promulgated
thereunder, and to avoid liability of each series of the Corporation for
federal income and excise taxes in respect of that year. However, nothing
in the foregoing shall limit the authority of the Board of Directors to
make distributions greater than or less than the amount necessary to
qualify as a regulated investment company and to avoid liability of any
series of the Corporation for such taxes.
(f) In the event of the liquidation or dissolution of the
Corporation, the stockholders of a series shall be entitled to receive, as
a single class, out of the assets of the Corporation available for
distribution to stockholders, the assets belonging to that series. The
assets so distributable to the stockholders of a series shall be
distributed among such stockholders in proportion to the number of shares
of that series held by them and recorded on the books of the Corporation
or, in the event that the series is divided into classes, in the manner
determined by the Board of Directors in accordance with the Investment
Company Act of 1940, as amended. In the event that there are any assets
available for distribution that are not attributable to any particular
series, such assets shall be allocated to all series in proportion to the
net assets of the respective series, or in such other manner as shall be
determined by the Board of Directors in accordance with law, and then
distributed to the holders of stock of each series as aforesaid.
(g) If a series is divided into multiple classes, the classes
may be invested with one or more other classes in the common investment
portfolio comprising the series. Notwithstanding the foregoing provisions
of this Article V(4) of these Articles of Incorporation, if two or more
classes are invested in a common investment portfolio, the shares of each
such class of stock of the Corporation shall
-4-
<PAGE>
be subject to the following preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption, and, if there are other classes of
stock invested in a different investment portfolio comprising a different
series, shall also be subject to the provisions of Article V(4)(a) through
(f) of these Articles of Incorporation at the series level as if the
classes invested in the common investment portfolio were one class:
(i) The income and expenses of the series shall be
allocated among the classes comprising the series in such manner as may
be determined by the Board of Directors in accordance with law.
(ii) The liabilities and expenses of the classes
comprising the series shall be determined separately from those of each
other and, accordingly, the net asset values, the dividends and
distributions payable to holders, and the amounts distributable in the
event of liquidation of the Corporation or termination of a series to
holders of shares of the Corporation's stock may vary within the
classes comprising the series. Except for these differences and certain
other differences set forth in these Articles of Incorporation, the
classes comprising a series shall have the same preferences, conversion
and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption.
(iii) The dividends and distributions of investment income
and capital gains with respect to the classes comprising a series shall
be in such amounts as may be declared from time to time by the Board of
Directors, and such dividends and distributions may vary among the
classes comprising the series to reflect differing allocations of the
expenses and liabilities of the Corporation among the classes and any
resultant differences among the net asset values per share of the
classes, to such extent and for such purposes as the Board of Directors
may deem appropriate. The allocation of investment income and losses,
capital gains and losses, expenses and liabilities of the Corporation
among the classes comprising a series shall be determined by the Board
of Directors in a manner that is consistent with applicable law.
(h) The proceeds of the redemption of the shares of any series
or class of stock of the Corporation may be reduced by the amount of any
transaction fee, contingent deferred sales charge, liquidation charge, or
other charge (which charges may vary within and among the classes) payable
on such redemption pursuant to the terms of issuance
-5-
<PAGE>
of such shares, all in accordance with the Investment Company Act of 1940,
as amended, and applicable rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD").
(i) At such times (which may vary between and among the holders
of particular classes) as may be determined by the Board of Directors (or
with the authorization of the Board of Directors, by the officers of the
Corporation) in accordance with the Investment Company Act of 1940, as
amended, applicable rules and regulations thereunder and applicable rules
and regulations of the NASD and reflected in the pertinent registration
statement of the Corporation, shares of any particular class of stock of
the Corporation may be automatically converted into shares of another class
of stock of the Corporation based on the relative net asset values of such
classes at the time of conversion, subject, however, to any conditions of
conversion that may be imposed by the Board of Directors (or with the
authorization of the Board of Directors, by the officers of the
Corporation) and reflected in the pertinent registration statement of the
Corporation as aforesaid.
Except as provided above, all provisions of the Articles of Incorporation
relating to stock of the Corporation shall apply to shares of, and to the
holders of, all classes of stock.
(5) All holders of shares of stock shall vote as a single class
except (i) with respect to any matter which affects only one or more classes or
series of stock, in which case only the holders of shares of the classes or
series affected shall be entitled to vote, or (ii) as otherwise may be required
by the Investment Company Act of 1940, as amended.
(6) The presence in person or by proxy of the holders of one-third
(1/3) of the shares of capital stock of the Corporation outstanding and entitled
to vote thereat shall constitute a quorum for the transaction of business at a
stockholders' meeting, except that where any provision of law or of the Charter
of the Corporation permit or require that holders of any series or class shall
vote as a separate series or class, then one-third (1/3) of the aggregate number
of shares of capital stock of that series or class, as applicable, outstanding
and entitled to vote shall constitute a quorum for the transaction of business
by that series or class, as applicable.
(7) The Corporation may issue shares in fractional denominations to
the same extent as its whole shares, and any fractional share shall carry
proportionately the rights of a whole share including, without limitation, the
right to vote, the right to receive dividends and distributions and the right to
participate upon liquidation of the Corporation. A fractional
-6-
<PAGE>
share shall not, however, have the right to receive a certificate evidencing it.
(8) No holder of stock of the Corporation by virtue of being such a
holder shall have any right to purchase, subscribe for, or otherwise acquire any
shares of the Corporation or any other security that the Corporation may issue
or sell (whether out of the number of shares authorized by the Charter of the
Corporation or out of any shares of the Corporation's capital stock that the
Corporation may acquire) other than a right that the Board of Directors in its
discretion may determine to grant.
(9) Notwithstanding any provision of the Maryland General Corporation
Law requiring any action to be taken or authorized by the affirmative vote of a
greater proportion than a majority of the votes of all series and classes or of
any series or class of stock of the Corporation, such action shall be effective
and valid if taken or authorized by the affirmative vote of a majority of the
total number of votes entitled to be cast thereon, except as otherwise provided
in the Charter of the Corporation or by law.
(10) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of the Charter of Corporation and the
By-Laws of the Corporation, as from time to time amended or supplemented.
ARTICLE VI
REDEMPTION
----------
(1) All shares of Common Stock now or hereafter authorized shall be
subject to redemption and redeemable at the option of the stockholder in
accordance with and pursuant to procedures or methods prescribed or approved by
the Board of Directors and, in the case of any series or class now or hereafter
authorized, if so determined by the Board of Directors, shall be redeemable only
in aggregations of such number of shares and on such days as may be determined
by, or determined pursuant to procedures or methods prescribed by or approved
by, the Board of Directors from time to time with respect to such series or
class. The number of shares comprising an aggregation for purposes of redemption
or repurchase so determined from time to time with respect to any series or
class shall be referred to herein as a "Creation Unit" and collectively, as
"Creation Units". Initially, the number of shares of Common Stock that will
comprise a Creation Unit for the Internet Index Shares shall be 50,000.
(2) The Board of Directors shall have the unrestricted power to alter
the number of shares constituting a Creation Unit by resolutions adopted by the
Board of Directors at any time, including prior to the time the Corporation
commences operations. Each holder of shares of a series or class, upon
-7-
<PAGE>
request to the Corporation accompanied by surrender of the appropriate stock
certificate or certificates in proper form for transfer if certificates have
been issued to such holder, or in accordance with such other procedures as may
from time to time be in effect if certificates have not been issued, shall be
entitled to require the Corporation to redeem all or any number of such holder's
shares of Common Stock standing in the name of such holder on the books of the
Corporation, but in the case of shares of any series or class as to which these
Articles of Incorporation so provide or the Board of Directors has determined
that such shares shall be redeemable only in Creation Unit aggregations, only in
such Creation Unit aggregations of shares of such series or class as the Board
of Directors may determine from time to time in accordance with this Article VI,
at a redemption price per share equal to an amount determined by the Board of
Directors in accordance with any applicable laws and regulations; provided that
--------
(i) such amount shall not exceed the net asset value per share, and (ii) if so
authorized by the Board of Directors, the Corporation may, at any time and from
time to time, charge fees for effecting such redemption or repurchase, at such
rate or rates as the Board of Directors may establish, as and to the extent
permitted under the Investment Company Act of 1940. Such rates may vary
depending on the type of redemption or repurchase in question (e.g., a
redemption or repurchase for cash as opposed to a redemption or repurchase for
portfolio securities). The redemption price may be payable in cash, securities
or a combination thereof, as determined by or pursuant to the direction of the
Board of Directors from time to time and no stockholder shall have the right,
other than as determined by the Board of Directors, to have shares redeemed in
portfolio securities or in cash or in any particular combination thereof.
(3) Except as otherwise permitted by the Investment Company Act of
1940 or any applicable rule, regulation or order of the Securities and Exchange
Commission, payment of the redemption price of shares surrendered to the
Corporation for redemption pursuant to the provisions of this Article VI shall
be made by the Corporation within seven (7) days after surrender of such shares
to the Corporation for such purpose.
(4) Notwithstanding the foregoing provisions of this Article VI (or
any other provision of these Articles of Incorporation), the Board of Directors
of the Corporation may suspend the right of the holders of Creation Unit size
aggregations of shares of any series or class and any other right of the
stockholders to require the Corporation to redeem shares (or may suspend any
voluntary purchase of shares pursuant to the provisions of these Articles of
Incorporation) or postpone the date of payment of satisfaction upon redemption
of such shares during any Financial Emergency.
(5) For the purpose of these Articles of Incorporation, a "Financial
Emergency" is defined as the whole or part of any period (i) during which the
New York Stock Exchange
-8-
<PAGE>
is closed other than customary weekend and holiday closings, (ii) during which
trading on the New York Stock Exchange is suspended or restricted, (iii) during
which an emergency exists as a result of which disposal by the Corporation of
securities owned with respect to the series or class is not reasonably
practicable or it is not reasonably practicable for the Corporation fairly to
determine the value of the net assets of the series or class, or (iv) during any
other period when the Securities and Exchange Commission (or any succeeding
governmental authority) may for the protection of security holders of the
Corporation by order permit suspension of the right of redemption or
postponement of the date of payment on redemption.
(6) All shares now or hereafter authorized shall be redeemable at the
option of the Corporation. From time to time the Board of Directors may by
resolution, without the vote or consent of stockholders, authorize the
redemption of all or any part of any outstanding shares (including through the
establishment of standards with respect to the minimum net asset value of a
stockholder account) upon the sending of written notice thereof to each
stockholder any of whose shares are to be so redeemed and upon such terms and
conditions as the Board of Directors shall deem advisable, out of funds legally
available therefor, at net asset value per share less any pertinent fees or
charges, all determined in accordance with the provisions of law and may take
all other steps deemed necessary or advisable in connection therewith. Without
limiting the foregoing, the Board of Directors may authorize the closing and
redemption of all shares of any accounts not meeting the specified minimum
standards of net asset value. The redemption price may be payable in cash or
portfolio securities or in any combination thereof as may be determined by the
Board of Directors.
ARTICLE VII
BOARD OF DIRECTORS
------------------
(1) The number of directors constituting the Board of Directors shall
be one or such other number as may hereafter be set forth in the By-Laws or
determined by the Board of Directors pursuant to the By-Laws. The number of
Directors shall at no time be less than the minimum number required under the
Maryland General Corporation Law. Christina T. Sydor has been appointed initial
director of the Corporation to hold office until the first annual meeting of
stockholders or until her successor is elected and qualified.
(2) In furtherance, and not in limitation, of the powers conferred by
the Maryland General Corporation Law, the Board of Directors is expressly
authorized:
(i) To make, alter or repeal the By-Laws of the
Corporation, except where such power is reserved-by
-9-
<PAGE>
the By-Laws to the stockholders, and except as otherwise required by
the 1940 Act.
(ii) From time to time to determine whether and to what extent
and at what times and places and under what conditions and regulations
the books and accounts of the Corporation, or any of them other than
the stock ledger, shall be open to the inspection of the stockholders.
No stockholder shall have any right to inspect any account or book or
document of the Corporation, except as conferred by law or authorized
by resolution of the Board of Directors.
(iii) Without the assent or vote of the stockholders, to
authorize the issuance from time to time of shares of the stock of any
series or class of the Corporation, whether now or hereafter
authorized, and securities convertible into shares of stock of the
Corporation of any series or class or classes, whether now or hereafter
authorized, for such consideration (which may consist of, among other
things, cash and/or securities) and on such terms as the Board of
Directors may deem advisable. Without limiting the authority of the
Board of Directors, the Board of Directors may determine that shares of
any series or class of the Corporation may be issued only in specified
aggregations of shares.
(iv) Without the assent or vote of the stockholders, to
authorize and issue obligations of the Corporation, secured and
unsecured, as the Board of Directors may determine, and to authorize
and cause to be executed mortgages and liens upon the real or personal
property of the Corporation.
(v) Notwithstanding anything in this Charter to the contrary,
to establish in its absolute discretion the basis or method for
determining the value of the assets belonging to or attributable to any
series or class, the value of the liabilities belonging to or
attributable to any series or class and the net asset value of each
share of any series or class of the Corporation's stock.
(vi) To determine in accordance with generally accepted
accounting principles and practices what constitutes net profits,
earnings, surplus or net assets in excess of capital, and to determine
what accounting periods shall be used by the Corporation for any
purpose; to set apart out of any funds of the Corporation reserves for
such purposes as it shall determine and to abolish the same; to declare
and pay any dividends and distributions in cash, securities or other
property from surplus or any other funds legally
-10-
<PAGE>
available therefor, at such intervals as it shall determine; to declare
dividends or distributions by means of a formula or other method of
determination, at meetings held less frequently than the frequency of
the effectiveness of such declarations; and to establish payment dates
for dividends or any other distributions on any basis, including dates
occurring less frequently than the effectiveness of declarations
thereof.
(vii) In addition to the powers and authorities granted herein
and by statute expressly conferred upon it, the Board of Directors is
authorized to exercise all powers and do all acts that may be exercised
or done by the Corporation pursuant to the provisions of the laws of
the State of Maryland, this Charter and the By-Laws of the Corporation.
(3) Any determination made in good faith, and in accordance with
applicable law and generally accepted accounting principles and practices, if
applicable, by or pursuant to the direction of the Board of Directors, with
respect to the amount of assets, obligations or liabilities of the Corporation,
as to the amount of net income of the Corporation from dividends and interest
for any period or amounts at any time legally available for the payment of
dividends, as to the amount of any reserves or charges set up and the propriety
thereof, as to the time of or purpose for creating reserves or as to the use,
alteration or cancellation of any reserves or charges (whether or not any
obligation or liability for which the reserves or charges have been created has
been paid or discharged or is then or thereafter required to be paid or
discharged), as to the value of any security owned by the Corporation, the
determination of the net asset value of shares of any series or class of the
Corporation's capital stock, or as to any other matters relating to the
issuance, sale or other acquisition or disposition of securities or shares of
capital stock of the Corporation, and any reasonable determination made in good
faith by the Board of Directors regarding whether any transaction constitutes a
purchase of securities on "margin," a sale of securities "short," or an
underwriting of the sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of its capital stock, past, present and future, and shares of the capital stock
of the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of this Charter shall be effective to (i) require a
waiver of compliance with any provision of the Securities Act of 1933, as
amended, or the 1940 Act, or of any valid rule, regulation or order of the
Securities and Exchange Commission under those Acts or (ii) protect or purport
to protect any director or officer of the Corporation against any liability to
-11-
<PAGE>
the Corporation or its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
ARTICLE VIII
INDEMNIFICATION AND LIMITATION OF LIABILITY
-------------------------------------------
(1) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, no
director or officer of the Corporation shall have any liability to the
Corporation or its stockholders for money damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
(2) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that indemnification of
directors and advancement of expenses to directors is permitted by the Maryland
General Corporation Law. The Corporation shall indemnify and advance expenses to
its officers to the same extent as its directors and to such further extent as
is consistent with such law. The board of directors may, through a by-law,
resolution or agreement, make further provisions for indemnification of
directors, officers, employees and agents to the fullest extent permitted by the
Maryland General Corporation Law.
(3) No provision of this Article VIII shall be effective to protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
(4) References to the Maryland General Corporation Law in this Article
VIII are to the law as from time to time amended. No amendment to this Charter
shall affect any right of any person under this Article VIII based on any event,
omission or proceeding prior to such amendment. The term "Charter" as used
herein shall have the meaning set forth in the Maryland General Corporation Law
and includes these Articles of Incorporation and all amendments and supplements
thereto.
ARTICLE IX
AMENDMENTS
----------
The Corporation reserves the right from time to time to make any
amendment to its Charter, now or hereafter authorized by
-12-
<PAGE>
law, including any amendment that alters the contract rights, as expressly set
forth in the Charter, of any outstanding stock, and all rights at any time
conferred upon the stockholders of the Corporation by its Charter are granted
subject to the provisions of this Article and the reservation of the right to
amend the Charter herein contained.
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.
/s/ J. Stephen King, Jr.
------------------------------------------------
Incorporator
Dated the 11th day of June, 1999
-13-
<PAGE>
EXHIBIT 99.B
BY-LAWS
OF
SSBC INDEX SERIES INC.
A Maryland Corporation
ARTICLE I.
STOCKHOLDERS
------------
SECTION 1. Annual Meetings. No annual meeting of the stockholders of the
---------------
Corporation shall be held unless required by applicable law or otherwise
determined by the Board of Directors. An annual meeting may be held at any place
within the United States as may be determined by the Board of Directors and as
shall be designated in the notice of the meeting, and at the time specified by
the Board of Directors. Any business of the Corporation may be transacted at an
annual meeting without being specifically designated in the notice unless
otherwise provided by statute, the Corporation's Charter, as amended or
supplemented (the "Charter"), or these By-Laws.
SECTION 2. Special Meetings. Special meetings of the stockholders for any
----------------
purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Charter, may be held at any place within the United States, and
may be called at any time by the Board of Directors or by the President, and
shall be called by the Secretary at the request in writing of a majority of the
Board of Directors or at the request in writing of stockholders entitled to cast
at least 25 (twenty five) percent of the votes entitled to be cast at the
meeting upon payment by such stockholders to the Corporation of the reasonably
estimated cost of preparing and mailing a notice of the meeting (which estimated
cost shall be provided to such stockholders by the Secretary of the
Corporation). Notwithstanding the foregoing, unless requested by stockholders
entitled to cast a majority of the votes entitled to be cast at the meeting, a
special meeting of the stockholders need not be called at the request of
stockholders to consider any matter which is substantially the same as a matter
voted on at any special meeting of the stockholders held during the preceding 12
(twelve) months. A written request shall state the purpose or purposes of the
proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of the purpose
------------------
or purposes and of the time and place of every meeting of the stockholders shall
be given by the Secretary of the Corporation to each stockholder of record
entitled to vote at the meeting, by placing the notice in the mail at least 10
(ten) days, but not more than 90 (ninety) days, prior to the date
<PAGE>
designated for the meeting addressed to each stockholder at his address
appearing on the books of the Corporation or supplied by the stockholder to the
Corporation for the purpose of notice. The notice of any meeting of stockholders
may be accompanied by a form of proxy approved by the Board of Directors in
favor of the actions or persons as the Board of Directors may select. Notice of
any meeting of stockholders shall be deemed waived by any stockholder who
attends the meeting in person or by proxy, or who before or after the meeting
submits a signed waiver of notice that is filed with the records of the meeting.
SECTION 4. Quorum. Except as otherwise provided by law or by the
------
Corporation's Charter, the presence in person or by proxy of stockholders of the
Corporation entitled to cast at least one-third of the votes entitled to be cast
shall constitute a quorum at each meeting of the stockholders; provided,
however, that where any provision of law or the Charter permits or requires that
stockholders of any series or class of capital stock of the Corporation shall
vote as a separate series or class, stockholders of one-third of the aggregate
number of shares of capital stock of that series or class outstanding and
entitled to vote shall constitute a quorum at such meeting. Except as otherwise
required by law, all questions shall be decided by a majority of the votes cast
on such questions, except for the election of directors. A plurality of all the
votes cast at a meeting at which a quorum is present is sufficient to elect a
director. In the absence of a quorum, the stockholders present in person or by
proxy, by majority vote and without notice other than by announcement at the
meeting, may adjourn the meeting from time to time as provided in Section 5 of
this Article I until a quorum shall attend. The stockholders present at any duly
organized meeting may continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. The absence
from any meeting in person or by proxy of holders of the number of shares of
stock of the Corporation in excess of one-third that may be required by the laws
of the State of Maryland, the Investment Company Act of 1940, as amended, or
other applicable statute, the Corporation's Charter or these By-Laws, for action
upon any given matter shall not prevent action at the meeting on any other
matter or matters that may properly come before the meeting, so long as there
are present, in person or by proxy, holders of the number of shares of stock of
the Corporation required for action upon the other matter or matters.
SECTION 5. Adjournment. Any meeting of the stockholders may be adjourned
-----------
from time to time, without notice other than by announcement at the meeting at
which the adjournment is taken, to a date not more than 120 (one hundred twenty)
days after the original record date. At any adjourned meeting at which a quorum
shall be present any action may be taken that could have been taken at the
meeting originally called.
2
<PAGE>
SECTION 6. Organization. At every meeting of the stockholders, the
------------
Chairman of the Board, or in his absence or inability to act, the President, or
in his absence or inability to act, a Vice President, or in the absence or
inability to act of the Chairman of the Board, the President and all the Vice
Presidents, a Chairman chosen by the stockholders, shall act as Chairman of the
meeting. The Secretary, or in his absence or, inability to act, a person
appointed by the Chairman of the meeting, shall act as secretary of the meeting
and keep the minutes of the meeting.
SECTION 7. Order of Business. The order of business at all meetings of
-----------------
the stockholders shall be as determined by the chairman of the meeting.
SECTION 8. Voting. Except as otherwise provided by statute or the
------
Corporation's Charter, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of stock standing in his name on the
records of the Corporation as of the record date determined pursuant to Section
9 of this Article I; provided, however, that when required by the Corporation's
Charter, the Investment Company Act of 1940, as amended, or the laws of the
State of Maryland or when the Board of Directors has determined that the matter
affects only the interest of one series or class of stock, matters may be
submitted only to a vote of the stockholders of that particular series or class,
and each stockholder thereof shall be entitled to votes equal to the shares of
stock of that series or class registered in his name on the books of the
Corporation.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by the
stockholder or his attorney-in-fact or in such other manner as may be permitted
by Maryland law. No proxy shall be valid after the expiration of eleven months
from the date thereof, unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the stockholder providing it, except in those
cases in which the proxy states that it is irrevocable and in which an
irrevocable proxy is permitted by law.
If a vote shall be taken on any question then unless required by statute
or these By-Laws, or determined by the Chairman of the meeting to be advisable,
any such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, and shall state the number of
shares voted.
SECTION 9. Fixing of Record Date. The Board of Directors may set a record
---------------------
date for the purpose of determining stockholders entitled to notice of and to
vote at any meeting of the stockholders. The record date for a particular
meeting shall be not more than 90 (ninety) nor fewer than 10 (ten) days before
3
<PAGE>
the date of the meeting. All persons who are otherwise entitled to vote on the
matter and who were holders of record of shares as of the record date of a
meeting, and no others, shall be entitled to notice of and to vote at such
meeting and any adjournment thereof.
SECTION 10. Inspectors. The Board of Directors may, in advance of any
----------
meeting of stockholders, appoint one or more inspectors to act at the meeting or
at any adjournment of the meeting. If the inspectors shall not be so appointed
or if any of them shall fail to appear or act, the chairman of the meeting may
appoint inspectors. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath to execute faithfully the duties of
inspector at the meeting with strict impartiality and according to the best of
his ability. The inspectors shall determine the number of shares outstanding and
the voting power of each share, the number of shares represented at the meeting,
the existence of a quorum and the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do those acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting or any stockholder entitled to vote at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No Director or candidate for the office of Director shall act as
inspector of an election of Directors. Inspectors need not be stockholders of
the Corporation.
SECTION 11. Consent of Stockholders in Lieu of Meeting. Except as
------------------------------------------
otherwise provided by statute, any action required to be taken at any meeting of
stockholders, or any action that may be taken at any meeting of the stockholder,
may be taken without a meeting, without prior notice and without a vote, if the
following are filed with the records of stockholders' meetings. (i) a unanimous
written consent that sets forth the action and is signed by each stockholder
entitled to vote on the matter and (ii) a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at the meeting.
SECTION 12. Participation in Meetings by Conference Telephone.
-------------------------------------------------
Stockholders may be allowed to participate in a meeting of the stockholders by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time. Participation by such means shall constitute presence in person at the
meeting.
4
<PAGE>
ARTICLE II.
BOARD OF DIRECTORS
------------------
SECTION 1. General Powers. Except as otherwise provided in the
--------------
Corporation's Charter, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the stockholder by law, by the
Corporation's Charter or by these By-Laws.
SECTION 2. Number of Directors. The number of Directors initially shall
-------------------
be one, and thereafter shall be fixed from time to time by resolution of the
Board of Directors adopted by a majority of the entire Board of Directors;
provided however, that the number of Directors shall in no event be fewer than
the number required by the Maryland General Corporation Law nor more than
fifteen. Any vacancy created by an increase in Directors may be filled in
accordance with Section 6 of this Article II. No reduction in the number of
Directors shall have the effect of removing any Director from office prior to
the expiration of his term unless the Director is specifically removed pursuant
to Section 5 of this Article II at the time of the decrease. A Director need not
be a stockholder of the Corporation, a citizen of the United States or a
resident of the State of Maryland.
SECTION 3. Election and Term of Directors. The term of office of each
------------------------------
director shall be from the time of his election and qualification until his
successor shall have been elected and shall have qualified, or until his death,
or until he shall have resigned or have been removed as provided in these
By-Laws, or as otherwise provided by statute or the Corporation's Charter.
SECTION 4. Resignation. A Director of the Corporation may resign at any
-----------
time by giving written notice of his resignation to the Board of Directors or
the Chairman of the Board or to the President or the Secretary of the
Corporation. Any resignation shall take effect at the time specified in it or,
should the time when it is to become effective not be specified in it,
immediately upon its receipt. Acceptance of a resignation shall not be necessary
to make it effective unless the resignation states otherwise.
SECTION 5. Removal of Directors. Any Director of the Corporation may be
--------------------
removed by the stockholders with or without cause at any time by a vote of a
majority of the votes entitled to be cast for the election of Directors.
SECTION 6. Vacancies. Subject to the provisions of the Investment Company
---------
Act of 1940, as amended, any vacancies in the Board of Directors, whether
arising from death, resignation, removal or any other cause except an increase
in the number of
5
<PAGE>
Directors, shall be filled by a vote of the majority of the Board of Directors
then in office even though that majority is less than a quorum, provided that no
vacancy or vacancies shall be filled by action of the remaining Directors if,
after the filling of the vacancy or vacancies, fewer than two-thirds of the
Directors then holding office shall have been elected by the stockholders of the
Corporation. A majority of the entire Board in office at the time of increase
may fill a vacancy which results from an increase in the number of Directors. In
the event that at any time a vacancy exists in any office of a Director that may
not be filled by the remaining Directors, a special meeting of the stockholders
shall be held as promptly as possible and in any event within 60 (sixty) days,
for the purpose of filling the vacancy or vacancies. Any Director elected or
appointed to fill a vacancy shall hold office until a successor has been chosen
and qualifies or until his earlier resignation or removal.
SECTION 7. Place of Meetings. Meetings of the Board may be held at any
-----------------
place that the Board of Directors may from time to time determine or that is
specified in the notice of the meeting.
SECTION 8. Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held without notice at the time and place determined by the Board of
Directors.
SECTION 9. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by two or more Directors of the Corporation or by the Chairman of
the Board or the President.
SECTION 10. Notice of Special Meetings. Notice of each special meeting of
--------------------------
the Board of Directors shall be given by the Secretary as hereinafter provided.
Each notice shall state the time and place of the meeting and shall be delivered
to each Director, either personally or by telephone or other standard form of
telecommunication, at least 24 (twenty-four) hours before the time at which the
meeting is to be held, or by first-class mail, postage prepaid, addressed to the
Director at his residence or usual place of business, and mailed at least 3
(three) days before the day on which the meeting is to be held.
SECTION 11. Waiver of Notice of Meetings. Notice of any special meeting
----------------------------
need not be given to any Director who shall, either before or after the meeting,
sign a written waiver of notice that is filed with the records of the meeting or
who shall attend the meeting.
SECTION 12. Quorum and Voting. One-third (but not fewer than 2 (two)) of
-----------------
the members of the entire Board of Directors shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at the meeting (unless there is only one director, in which case that
one will constitute a quorum for the transaction of
6
<PAGE>
business), and except as otherwise expressly required by statute, the
Corporation's Charter, these By-Laws, the Investment Company Act, of 1940, as
amended, or any other applicable statute, the act of a majority of the Directors
present at any meeting at which a quorum is present shall be the act of the
Board. In the absence of a quorum at any meeting of the Board, a majority of the
Directors present may adjourn the meeting to another time and place until a
quorum shall be present. Notice of the time and place of any adjourned meeting
shall be given to all Directors. At any adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted at the
meeting as originally called.
SECTION 13. Organization. The Board of Directors may designate a Chairman
------------
of the Board, who shall preside at each meeting of the Board. In the absence or
inability of the Chairman of the Board to act, the President, or, in his absence
or inability to act, another Director chosen by a majority of the Directors
present, shall act as chairman of the meeting and preside at the meeting. The
Secretary, or, in his absence or inability to act, any person appointed by the
chairman, shall act as secretary of the meeting and keep the minutes thereof.
SECTION 14. Committees. The Board of Directors may designate one or more
----------
committees of the Board of Directors, each consisting of 2 (two) or more
Directors. To the extent provided in the resolution, and permitted by law, the
committee or committees shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation and
may authorize the seal of the Corporation to be affixed to all papers that may
require it. Any committee or committees shall have the name or names determined
from time to time by resolution adopted by the Board of Directors. Each
committee shall keep regular minutes of its meetings and report the same to the
Board of Directors when required. The members of a committee present at any
meeting, whether or not they constitute a quorum, may appoint a Director to act
in the place of an absent member.
SECTION 15. Written Consent of Directors in Lieu of a Meeting. Subject to
-------------------------------------------------
the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee of the Board may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
or committee.
SECTION 16. Telephone Conference. Members of the Board of Directors or
--------------------
any committee of the Board may participate in any Board or committee meeting by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at
7
<PAGE>
the same time. Participation by such means shall constitute presence in person
at the meeting.
SECTION 17. Compensation. Each Director shall be entitled to receive
------------
compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by the
Corporation for all reasonable expenses incurred in traveling to and from the
place of a Board or committee meeting.
ARTICLE III.
OFFICERS, AGENTS AND EMPLOYEES
------------------------------
SECTION 1. Number and Qualifications. The officers of the Corporation
-------------------------
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint any other officers, agents and
employees it deems necessary or proper. Any two or more offices may be held by
the same person, except the offices of President and Vice President, but no
officer shall execute, acknowledge or verify in more than one capacity any
instrument required by law to be executed, acknowledged or verified by more than
one officer. Officers shall be elected by the Board of Directors to hold office
until their successors shall have been duly elected and shall have qualified.
Officers shall serve at the pleasure of the Board of Directors. The Board of
Directors may from time to time elect, or delegate to the President the power to
appoint, such officers (including one or more Assistant Vice Presidents, one or
more Assistant Treasurers and one or more Assistant Secretaries) and such agents
as may be necessary or desirable for the business of the Corporation. Such other
officers and agents shall have such duties and shall hold their offices for such
terms as may be prescribed by the Board or by the appointing authority.
SECTION 2. Resignations. Any officer of the Corporation may resign at any
------------
time by giving written notice of his resignation to the Board of Directors, the
Chairman of the Board, the President or the Secretary. Any resignation shall
take effect at the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. Acceptance of
a resignation shall not be necessary to make it effective unless the resignation
states otherwise.
SECTION 3. Removal of Officer, Agent or Employee. Any officer, agent or
-------------------------------------
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate the power of removal as to
agents and employees not elected or appointed by the Board of Directors.
8
<PAGE>
Removal shall be without prejudice to the person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office whether arising from death,
---------
resignation, removal or any other cause, may be filled in the manner prescribed
in these By-Laws for the regular election or appointment to the office.
SECTION 5. Compensation. The compensation of the officers of the
------------
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.
SECTION 6. Bonds or Other Security. If required by the Board, any
-----------------------
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in an amount and with any
surety or sureties as the Board may require.
SECTION 7. President. The President shall be the chief executive officer
---------
of the Corporation. In the absence or inability of the Chairman of the Board to
act (or if there is none), the President shall preside at all meetings of the
stockholders and of the Board of Directors. The President shall have, subject to
the control of the Board of Directors, general charge of the business and
affairs of the Corporation, and may employ and discharge employees and agents of
the Corporation, except those elected or appointed by the Board, and he may
delegate these powers.
SECTION 8. Vice President. Each Vice President shall have the powers and
--------------
perform the duties that the Board of Directors or the President may from time to
time prescribe.
SECTION 9. Treasurer. Subject to the provisions of any contract that may
---------
be entered into with any custodian pursuant to authority granted by the Board of
Directors, the Treasurer shall have charge of all receipts and disbursements of
the Corporation and shall have or provide for the custody of the Corporation's
funds and securities; he shall have full authority to receive and give receipts
for all money due and payable to the Corporation, and to endorse checks, drafts
and warrants, in its name and on its behalf and to give full discharge for the
same, he shall deposit all funds of the Corporation, except those that may be
required for current use, in such banks or other places of deposit as the Board
of Directors may from time to time designate; and, in general, he shall perform
all duties incident to the office of Treasurer and such other duties as may from
time to time be assigned to him by the Board of Directors or the President.
9
<PAGE>
SECTION 10. Secretary. The Secretary shall
---------
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the Board of Directors or the President.
SECTION 11. Delegation of Duties. In case of the absence of any
--------------------
officer of the Corporation, or for any other reason that the Board of Directors
may deem sufficient, the Board may confer for the time being the powers or
duties, or any of them, of such officer upon any other officer or upon any
Director.
ARTICLE IV.
STOCK
-----
SECTION 1. Stock Certificates. Each registered holder of stock of the
------------------
Corporation shall be entitled upon specific written request to such person as
may be designated by the Corporation to have a certificate or certificates in a
form approved by the Board, representing the number of shares of stock of the
Corporation owned by him; provided, however, that certificates for fractional
shares will not be delivered in any case. The certificates representing shares
of stock shall be signed by or in the name of the Corporation by the Chairman of
the Board, the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the seal on the
certificate may be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a
10
<PAGE>
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in the office at the date of issue.
SECTION 2. Transfers of Shares. Transfers of shares of stock of the
-------------------
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for the shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of the share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions and
to vote as the owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
SECTION 3. Regulations. The Board of Directors may make any additional
-----------
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation. It may appoint or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer clerks
and one or more registrars and may require all certificates for shares of stock
to bear the signature or signatures of any of them.
SECTION 4. Stolen, Lost, Destroyed or Mutilated Certificates. The
-------------------------------------------------
holder of any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of its theft, loss, destruction or mutilation
and the Corporation may issue a new certificate of stock in the place of any
certificate issued by it that has been alleged to have been stolen, lost or
destroyed or that shall have been mutilated. The Board may, in its discretion,
require the owner (or his legal representative) of a stolen, lost, destroyed or
mutilated certificate to give to the Corporation a bond in a sum, limited or
unlimited, and in a form and with any surety or sureties, as the Board in its
absolute discretion shall determine, to indemnify the Corporation against any
claim that may be made against it on account of the alleged theft, loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board of Directors, in its absolute
discretion, may refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Maryland.
11
<PAGE>
SECTION 5. Fixing of Record Date for Dividends, Distributions, etc.
-------------------------------------------------------
The Board may fix, in advance, a date not more than 90 (ninety) days preceding
the date fixed for the payment of any dividend or the making of any distribution
or the allotment of rights to subscribe for securities of the Corporation, or
for the delivery of evidences of rights or evidences of interests arising out of
any change, conversion or exchange of common stock or other securities entitled
to receive any such dividend, distribution, allotment, rights or interests, and
in such case only the stockholders of record at the time so fixed shall be
entitled to receive such dividend, distribution, allotment, rights or interests.
SECTION 6. Information to Stockholders and Others. Any stockholder of
--------------------------------------
the Corporation or his agent may inspect and copy during the Corporation's usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs and voting trust agreements on
file at its principal office.
ARTICLE V.
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 1. Indemnification of Directors and Officers. Any person who
-----------------------------------------
was or is a party or is threatened to be made a party in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is a current or former
Director or officer of the Corporation or is or was serving while a Director or
officer of the Corporation at the request of the Corporation as a Director,
officer, partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, enterprise or employee benefit plan, shall be
indemnified by the Corporation against judgments, penalties, fines, excise
taxes, settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under the Maryland General Corporation Law, the
Securities Act of 1933 and the Investment Company Act of 1940, as such statutes
are now or hereafter in force, except that such indemnity shall not protect any
such person against any liability to the Corporation or any stockholder thereof
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling conduct").
SECTION 2. Advances. Any current or former Director or officer of the
--------
Corporation claiming indemnification within the scope of this Article V shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by
12
<PAGE>
him in connection with proceedings to which he is a party in the manner and to
the full extent permissible under the Maryland General Corporation Law, the
Securities Act of 1933 and the Investment Company Act of 1940, as such statutes
are now or hereafter in force; provided, however, that the person seeking
indemnification shall provide to the Corporation a written affirmation of his
good faith belief that the standard of conduct necessary for indemnification by
the Corporation has been met and a written undertaking to repay any such advance
unless it is ultimately determined that he is entitled to indemnification, and
provided further that at least one of the following additional conditions are
met: (1) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his undertaking; (2) the Corporation is
insured against losses arising by reason of the advance; or (3) a majority of a
quorum of Directors of the Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the Investment Company Act of 1940 as amended,
nor parties to the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall determine, based on a
review of facts readily available to the Corporation at the time the advance is
proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
SECTION 3. Procedure. At the request of any current or former Director
---------
or officer, or any employee or agent whom the Corporation proposes to indemnify,
the Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the Securities Act of 1933
and the Investment Company Act of 1940, as such statutes are now or hereafter in
force, whether the standards required by this Article V have been met; provided,
however, that indemnification shall be made only following: (1) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the person to be indemnified was not liable by reason of disabling conduct
or (2) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified was not liable by
reason of disabling conduct, by (a) the vote of a majority of a quorum of
disinterested non-party Directors or (b) an independent legal counsel in a
written opinion.
SECTION 4. Indemnification of Employees and Agents. Employees and
---------------------------------------
agents who are not officers or Directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, in
accordance with the procedures set forth in this Article V to the extent
permissible under the Investment Company Act of 1940, the Securities Act of 1933
and the Maryland General Corporation Law, as such statutes are now or hereafter
in force, and to such further extent, consistent with the foregoing, as may be
provided by action of the Board of Directors or by contract.
13
<PAGE>
SECTION 5. Other Rights. The indemnification provided by this Article
------------
V shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a Director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 6. Insurance. The Corporation shall have the power to purchase
---------
and maintain insurance on behalf of any person who is or was a Director,
officer, employee or agent of the Corporation, or who, while a Director,
officer, employee or agent of the Corporation, is or was serving at the request
of the Corporation as a Director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, against any liability asserted against and incurred by
him in any such capacity, or arising out of his status as such.
SECTION 7. Constituent, Resulting or Surviving Corporations. For the
------------------------------------------------
purposes of this Article V, references to the "Corporation" shall include all
constituent corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is or was a Director
or officer of a constituent corporation or is or was serving at the request of a
constituent corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise shall stand
in the same position under this Article V with respect to the resulting or
surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.
ARTICLE VI.
SEAL
----
The seal of the Corporation shall be circular in form and shall bear
the name of the Corporation, the year of its incorporation, the words "Corporate
Seal" and "Maryland" and any emblem or device approved by the Board of
Directors. The seal may be used by causing it or a facsimile to be impressed or
affixed or in any other manner reproduced, or by placing the word "(seal)",
adjacent to the signature of the authorized officer of the Corporation.
14
<PAGE>
ARTICLE VII.
FISCAL YEAR
-----------
The Corporation's fiscal year shall be fixed by the Board of
Directors.
ARTICLE VIII.
AMENDMENTS
----------
These By-Laws may be amended or repealed by the affirmative vote of a
majority of the Board of Directors at any regular or special meeting of the
Board of Directors, subject to the requirements of the Investment Company Act of
1940, as amended.
Dated: June 14, 1999
15
