<PAGE>
As filed with the U.S. Securities and Exchange Commission
on February 16, 2000
Securities Act File No. 333-87079
Investment Company Act File No. 811-9385
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF [x]
1933
Pre-Effective Amendment No. 1 [x]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 1 [x]
(Check appropriate box or boxes)
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, Esq.
388 Greenwich Street
New York, New York 10013
........................................................
(Name and Address of Agent for Service)
Copy to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
<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 February 16, 2000
PROSPECTUS
Internet Index Shares
- ---------------------------------------------------
____________ ___, 2000
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
Buying and selling shares................................................... 8
Purchase of Creation Units.................................................. 8
Redemption of Creation Units................................................ 9
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
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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-adjusted, capitalization-weighted
equity index comprised of 30 of the largest publicly-listed U.S. Internet and
Internet-related companies. The Fund seeks to achieve its objective by invest-
ing, 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.
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 December
31, 1999, the 30 Index companies covered a total market capitalization of $630
billion with float capital of $429 billion. For a list of the companies
included in the Index as of December 31, 1999, 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 capital-
2
<PAGE>
ization, industry and fundamental investment characteristics perform like those
of the Index.
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
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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 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 common stocks 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.
Comparison to a mutual fund
Rather than issuing and redeeming 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.
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. A Creation Unit con-
sists of 50,000 shares. Shareholders who buy their shares in the secondary mar-
ket will not incur expenses associated with selling and redeeming Creation
Units. Such shareholders will, however, indirectly incur the annual fund oper-
ating expenses and will pay a customary brokerage commission when buying and
selling the fund's shares.
4
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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 income, the fund may lend securities in its
portfolio to brokers, dealers and other financial organizations which meet cer-
tain 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 additional col-
lateral 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
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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 certain circumstances, including:
. 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 Citi Fund Management LLC, an
affiliate 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 subsidi-
aries of Citigroup Inc. Citigroup businesses produce a broad range of financial
services--asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading--and use diverse
channels to make them available to consumer and corporate customers around the
world.
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 and index compilation fee to Salomon Smith Barney Inc. The
licensing and index compilation fee will be calculated daily and paid quarter-
ly.
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 to Salomon Smith Barney or
its affiliate. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Year 2000 issue As the year 2000 began, there were few problems caused by the
inability of certain computer systems to tell the difference between the year
2000 and the year 1900 (commonly known as the "Year 2000" issue). It is still
possible that some computer systems could malfunction in the future because of
the Year 2000 issue or as a result of actions taken to address the Year 2000
issue. Fund management does not anticipate that its services or those of the
Fund's other service providers will be adversely affected, but Fund management
will continue to monitor the situation. If malfunctions related to the Year
2000 issue do arise, the Fund and its investments could be negatively affected.
7
<PAGE>
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.
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 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 Partici-
pant"), 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 Par-
ticipant 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
8
<PAGE>
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, including DTC settlement charges
and processing costs, 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 circum-
stances specified in the SAI in which cash can be used in lieu of Deposit Secu-
rities 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.
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
9
<PAGE>
Securities, which generally will consist of securities that comprise the Fund's
portfolio at the time of redemption, plus cash in an amount equal to the dif-
ference between the net asset value of the shares being redeemed as next deter-
mined after receipt of a redemption request in proper form, and the value of
the Fund Securities (the "Cash Redemption Amount"), less the applicable redemp-
tion 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 com-
pensating 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 Partici-
pating 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 procedures
set forth herein under "Determination of net asset value" (and in the SAI) com-
puted 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 preceeded
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.
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, including DTC settlement charges
and processing costs. These fees are expected to approximate the cost of
redemption, but 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 Proc-
ess and in the limited circumstances specified in the SAI in which cash may be
used in lieu of securities to redeem Creation Units.
10
<PAGE>
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.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
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
</TABLE>
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
11
<PAGE>
rules governing "wash sales," or on the basis that there has been no signifi-
cant 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>
SalomonSmithBarney
------------------------------
A member of citigroup [LOGO]
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, state-
ment of additional information and other filings 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 Sec-
tion of the Commission, Washington, D.C. 20549-6009 or by sending your request
electronically at [email protected]. Information about the public reference
room may be obtained by calling 202-942-8090. 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. 811-9385)
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 16, 2000
Internet Index Shares
388 Greenwich Street
New York, New York 10013
1-800-451-2010
Statement of Additional Information
- ------------------------------------ _______ __, 2000
This Statement of Additional Information ("SAI") expands upon and supplements
the information contained in the current Prospectus of Internet Index Shares
(the "Fund") dated ______ __, 2000, 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>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
GENERAL DESCRIPTION OF THE FUND......................................... 2
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES............................ 2
CONSTRUCTION AND MAINTENANCE STANDARDS FOR THE INDEX.................... 8
INVESTMENT RESTRICTIONS................................................. 10
CONTINUOUS OFFERING..................................................... 11
EXCHANGE LISTING AND TRADING............................................ 12
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY......................... 12
BOOK ENTRY ONLY SYSTEM.................................................. 18
PURCHASE OF CREATION UNITS.............................................. 19
ACCEPTANCE OF ORDERS FOR CREATION UNITS................................. 23
REDEMPTION OF CREATION UNITS............................................ 24
DETERMINATION OF NET ASSET VALUE........................................ 27
PERFORMANCE DATA........................................................ 28
DIVIDENDS, DISTRIBUTIONS AND TAXES...................................... 29
ADDITIONAL INFORMATION.................................................. 34
FINANCIAL STATEMENTS.................................................... 35
EXHIBIT A
</TABLE>
<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
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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
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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.
Foreign Securities. Although it has no current intention of doing so, 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
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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 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.
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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.
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
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<PAGE>
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 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
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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.
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 is a 30-stock, modified float-adjusted, capitalization-weighted index.
Each stock included in the Index (the "Component Stocks") will be selected from
a universe of companies deriving at least 50% of their revenue from businesses
directly related to the Internet. Eligible Internet-related businesses are
content providers, media and advertising firms, software and general technology
providers, Internet-based financial firms, electronic commerce enterprises and
Internet service providers. The Index is based on float capital, rather than
total capital, because many Internet and Internet-related companies have limited
float relative to their total market capitalization and float weighting makes
the overall index more liquid. The weightings of the Component Stocks in the
Index are based on a modified float-adjusted, market-capitalization-weighting
algorithm which incorporates two asset diversification requirements: (i) the
weighting of any single stock may not account for more than 20% of the total
value of the Index and (ii) the aggregate weighting of those Component Stocks
that individually represent less than 4.5% of the total value of the Index must
account for at least 55% of the total value of the Index. In order to insure
that the Index and the Fund conform to the asset-diversification requirements
for
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qualification of the Fund under the Code, the float weightings of the
Component Stocks of the Index are adjusted further during the quarterly
rebalancing of the Index.
All Component Stocks in the Index are assigned a float factor. This float
factor is a measurement of each Component Stock's float (available capital) as a
percentage of its total capitalization. All data for float factor adjustments
come from publicly available, third-party sources. When applied to the total
capitalization of an issue, the float factor is a determinant of each Component
Stock's weighting in the Index.
Block capital of only 10% or greater--whether private holdings, corporate cross-
holdings, or government holdings--is excluded in determining a Component Stock'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. The float factor
for all eligible stocks is reviewed for accuracy each calendar quarter.
The Index is reconstituted after the close of regular trading on the New York
Stock Exchange on the second-to-last business day of each calendar quarter
(each, a "Quarterly Reset Date"). Ten business days prior to a Quarterly Reset
Date, Salomon Smith Barney Inc. ("Salomon Smith Barney" or the "Index
Compilation Agent"), in its capacity as the Index Compilation Agent, announces a
preliminary "candidate list" of the largest eligible companies, ranked by total
market capitalization and takes comments from the investor community pertaining
to float factor and business descriptions; however, the final determination will
be within the sole discretion of the Index Compilation Agent.
Seven business days before the quarterly reset date, a final candidate list is
announced. Only companies included on the final candidate list are eligible.
Final Index additions and deletions and new Index share quantities are announced
five business days before the Index reset date.
Existing Component Stocks of the Index whose total market capitalization rank
falls below 40 on the final candidate list, or whose free floating capital falls
below $75 million when the final candidate list is determined, are automatically
removed from the Index at the quarterly reset date. Companies slated for
deletion are announced along with the candidate list. The largest non-index
companies on the final candidate list, measured by total market capitalization,
are automatically chosen as replacements to maintain the target number of
Component Stocks in the Index.
New issues are eligible for index inclusion provided sufficient free float
information is available and the issue begins trading before the composition of
the quarterly candidate list. New issues are generally not eligible for
inclusion between quarterly reset dates. Non-member companies must have a
minimum float of $100 million to enter the candidate list.
In the event one or more companies must be added to the Index between quarterly
reset dates (e.g., because of deal activity, share trading restrictions,
----
delisting, bankruptcy or other extraordinary events), replacement constituents
are chosen from the non-index companies remaining on the revised candidate list
from the most recently completed quarterly rebalance. Companies on the revised
candidate list are marked to market five days prior to scheduled inclusion and
ranked according to total market capitalization. Each
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new constituent will be weighted relative to its free float market
capitalization versus that of the index as a whole.
The Index began calculation in August 1999 and has been continuously calculated
and disseminated since October 13, 1999 via the Consolidated Tape Association,
Tape B. The value of the Index is calculated and disseminated by the American
Stock Exchange Index Services Group. The Index is quoted on the services of
Bloomberg L.P., Reuters Limited and Bridge Information System, Inc. The
companies included in the Index are listed in Exhibit A hereto.
INVESTMENT RESTRICTIONS
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 25% or more of its total assets in securities, the issuers of which
conduct their business activities in the same industry, except that the Fund
will invest 25% or more of its total assets in the securities of the companies
comprising the Internet industry. 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. 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
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<PAGE>
Act, which currently permits securities lending in an amount not to exceed 50%
of the Fund's total assets.
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.
If any percentage restriction described above (other than in Investment
Restruction No. 2 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
11
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AMEX upon request. The prospectus delivery mechanism provided in Rule 153 is
only available with respect to transactions on an exchange.
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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
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.
13
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name (Age) and Address With the Fund During Past 5 Years
- ------------------------------ -------------------------- -------------------------------------
<S> <C> <C>
[*+Heath B. McLendon (66) Chairman of the board, Managing Director of Salomon Smith
7 World Trade Center Chief Executive Officer Barney Inc.; director of 64
New York, NY 10048 and President Investment Companies associated with
Citigroup, Inc.; President of SSBC
and Travelers Investment Advisers,
Inc. ("TIA").
+Martin Brody (78) Director Consultant, HMK Associates; Retired
c/o HMK Associates Vice Chairman of the Board of
30 Columbia Turnpike Restaurant Associates Corp.;
Florham Park, NJ 07932 Director of Jaclyn, Inc.
+Allan J. Bloostein (69) Director President, Allan J. Bloostein
717 Fifth Avenue Associates, a consulting firm;
21st Floor formerly Vice Chairman of the Board
New York, NY 10022 of May Department Stores Company;
Director of Taubman Centers, Inc.
and CVS Corporation.
+Dwight B. Crane (61) Director Professor, Harvard Business School;
Harvard Business School Director Peer Review Analysis.
Soldiers Field Road
Boston, MA 02163
+Robert A. Frankel (72) Director Managing Partner of Robert A.
102 Grand Street Frankel Management Consultants;
Croton-on-Hudson, formerly Corporate Vice President of
New York, NY 10520 The Reader's Digest Association,
Inc.]
</TABLE>
* Director who is an "interested person" of the fund (as defined in the 1940
Act.)
+ Director and/or trustee of other registered investment companies with which
Salomon Smith Barney is affiliated.
No officer, director or employee of 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, such
expenses are estimated to total $[ ]. For the Fund's first fiscal year, the
Directors of the Company are estimated to be paid the following
compensation:
14
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total Funds for
Aggregate Benefits Accrued Compensation which director
Compensation as part of Fund from Fund and Serves Within
Director from Fund Expenses Fund Complex Fund Complex
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Martin Brody $6,100 0 $132,500 20
Dwight Crane 6,100 0 139,975 23
Allan Bloostein 6,100 0 90,500 19
Robert Frankel 6,000 0 72,250 9
William R. Hutchinson 6,000 0 42,450 7
Heath B. McLendon* ---- 0 ---- 64
</TABLE>
* Designates a director that is an "interested person" of the fund as defined
under the 1940 Act.
Upon attainment of age 80, Fund 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 Fund directors, together
with reasonable out-of-pocket expenses for each meeting attended. During the
Fund's first fiscal year, aggregate compensation paid by the Fund to directors
emeritus is estimated to total $______.
As of [ , 2000], the Directors and officers owned, in the
aggregate, less than 1% of the outstanding shares of the Fund.
As of [ , 2000], [ ] owned 100% of the Fund's
shares.
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), and (c) prepares
reports to shareholders of the Fund, tax returns and reports to and filings with
the SEC and state blue sky authorities.
15
<PAGE>
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 will pay the Fund's organizational expenses prior to the public
offering of shares.
Index Compiler
The Index, which commenced on January 1, 1998, 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 this
agreement, the Fund will pay to Salomon Smith Barney a licensing fee equal to
.03% of the Fund's average daily net assets and an index compilation fee of .03%
of the Fund's average daily net assets. These fees will be calculated daily and
paid quarterly.
Counsel and Auditors
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.
Administrator, Custodian and Transfer Agent
State Street Bank and Trust Company ("State Street"), located at 225 Franklin
Street, Boston, Massachusetts 02101, serves as the administrator, custodian and
transfer agent of the Fund. Under its agreement with the Company on behalf of
the Fund, State Street holds the Fund's portfolio securities and keeps all
necessary accounts and records. For its services, State Street 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.
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
[________ __, 2000] (the
16
<PAGE>
"Distribution Agreement") which was approved by the Company's Board of
Directors, including a majority of the independent directors, on [February 23,
2000].
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 distribution fee and
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.
Pursuant to agreements entered into with certain broker-dealers or other persons
("Service Organizations"), Salomon Smith Barney will make payments under the
Plan to Service Organizations that enter into agreements with Salomon Smith
Barney, in the form approved by the Board of Directors, to provide distribution
assistance and shareholder support, account maintenance and educational and
promotional services (which may include compensation and sales incentives to the
registered brokers or other sales personnel of the broker-dealer or other
financial entity that is a party to an investor services agreement) ("Service
Agreements"). Each Service Agreement will be a "related agreement" under the
Plan. No Service Agreement will provide for annual fees of more than [ ]% of
the Fund's average daily net assets per annum attributable to shares subject to
such agreement.
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.
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
17
<PAGE>
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 may
receive research, statistical and quotation services or special brokerage
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 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.
18
<PAGE>
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 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. 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
19
<PAGE>
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.
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,
20
<PAGE>
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 may be plus or minus a
Balancing Amount (as defined below). 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 market value of the Deposit
Securities. 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. 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 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
21
<PAGE>
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.
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 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
22
<PAGE>
contacting the operations department of the broker or depository institution
effectuating such transfer of Deposit Securities and Cash Component.
It is anticipated that Salomon Smith Barney and other registered broker-dealers
that are affiliates of the Manager 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 or purchase
securities received by certain investors that have redeemed Creation Units.
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
23
<PAGE>
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 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 up to $[ ] 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
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<PAGE>
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
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
25
<PAGE>
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 $[ ]. 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 is required to be arranged for or on behalf
of the redeeming shareholder by an Authorized Participant.
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.
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
26
<PAGE>
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 (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.
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<PAGE>
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 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.
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<PAGE>
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.
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.
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<PAGE>
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
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
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<PAGE>
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.
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
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<PAGE>
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 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.
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<PAGE>
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 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
33
<PAGE>
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 distributions that were paid (or that are
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year.
34
<PAGE>
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 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
35
<PAGE>
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 and Internet-related 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 and Internet-related companies. The Index is
intended to measure equity performance of Internet and Internet-related
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 and
Internet-related companies have limited float relative to their total market
capitalization. As of December 31, 1999, the Index consisted of the following
companies:
[LIST OF COMPANIES TO BE INSERTED]
<PAGE>
<TABLE>
<CAPTION>
PART C
OTHER INFORMATION
Item 23. Exhibits
--------
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
(a) Articles of Incorporation. *
(b) By-Laws. *
(c) Form of stock certificate. **
(d) Form of Investment Advisory Agreement.
(e) Form of Distribution Agreement.**
(f) Not applicable.
(g) Custodian Agreement.**
(h)(1) Transfer Agency Agreement.**
(2) Form of License 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
</TABLE>
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 _____________________.
- ----------------------
* Incorporated by reference to Registrant's Registration Statement on Form
N-1A filed on September 14, 1999.
** To be filed by amendment
<PAGE>
None.
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 Citi Fund Management LLC ("SSBC")
formerly SSBC Fund Management Inc.
SSBC Fund Management Inc. was incorporated in December 1968 under
the laws of the State of Delaware. On September 21, 1999, SSBC Fund Management
Inc. converted to a Delaware limited liability company and changed its name to
SSBC Citi Fund Management LLC. 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 CitiFundsSM International Growth & Income Portfolio, CitiFundsSM
International Equity Portfolio, CitiFundsSM Large Cap Growth Portfolio,
CitiFundsSM Intermediate Income Portfolio, CitiFundsSM Short-Term U.S.
Government Income Portfolio, CitiFundsSM Emerging Asian Markets Equity
Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium Liquid Reserves,
CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM Institutional
Liquid Reserves, CitiFundsSM Institutional Cash Reserves, CitiFundsSM Tax Free
Reserves, CitiFundsSM Institutional Tax Free Reserves, CitiFundsSM California
Tax Free Reserves, CitiFundsSM Connecticut Tax Free Reserves, CitiFundsSM New
York Tax Free Reserves, CitiFundsSM Balanced Portfolio, CitiFundsSM Small Cap
Value Portfolio, CitiFundsSM Growth & Income Portfolio, CitiFundsSM Small Cap
<PAGE>
Growth Portfolio, CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM
New York Tax Free Income Portfolio, CitiSelect VIP Folio 200, CitiSelect VIP
Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500, CitiFundsSM Small
Cap Growth VIP Portfolio, CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400, and CitiSelect Folio 500.
CFBDS is also the placement agent for Large Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio, Intermediate Income Portfolio,
Short-Term Portfolio, Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Emerging Asian Markets Equity Portfolio, Tax Free
Reserves Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves
Portfolio.
CFBDS, Inc. is also the distributor for the following Smith Barney
Mutual Fund registrants:
Concert Investment Series
Consulting Group Capital Markets Funds
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals 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;
<PAGE>
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
The information required by this item 27 with respect to each
director, officer and partner of CFBDS, Inc. is incorporated by reference to
Schedule A of Form BD filed by CFBDS, Inc. pursuant to the Securities Exchange
Act of 1934 (SEC File No. 8-32417).
Item 28. Location of 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) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02101
(4) 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 16th day of February, 2000.
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 February 16, 2000
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone
- ----------------------- Senior Vice President and Treasurer February 16, 2000
Lewis E. Daidone Financial and Accounting
Officer)
/s/ Christina T. Saydor
- ----------------------- Director February 16, 2000
Christina T. Sydor
</TABLE>
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Description of Exhibit
- ----------- ----------------------
(d) Form of Investment Advisory Agreement.
(h)(2) Form of License Agreement.
<PAGE>
SSBC INDEX SERIES INC.
FORM OF INVESTMENT MANAGEMENT AGREEMENT
February [ ], 2000
SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
Dear Sirs:
This Investment Management Agreement (the "Agreement") is made on this [ ] day
of February, 2000, by and between SSBC Index Series Inc. , a corporation
organized under the laws of the State of Maryland (the "Corporation"), in
respect of its new series, Internet Index Shares (the "Fund"), and SSB Citi Fund
Management LLC (the "Manager") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in: (i)
the Corporation's Charter as amended from time to time (the "Charter of the
Corporation"); (ii) the Fund's Prospectus (the "Prospectus"); and (iii) the
Fund's Statement of Additional Information (the "Statement") filed with the
Securities and Exchange Commission (the "SEC") as part of the Fund's
Registration Statement on Form N-1A, as amended from time to time, and in such
manner and to such extent as may from time to time be approved by the Board of
Directors of the Corporation (the "Board"). Copies of the Fund's Prospectus and
the Statement and the Charter of the Corporation have been or will be submitted
to the Manager. The Corporation desires to employ and hereby appoints the
Manager to act as investment manager for the Fund. The Manager accepts the
appointment and agrees to furnish the services for the compensation set forth
below. The Manager is hereby authorized to retain third parties and is hereby
authorized to delegate some or all of its duties and obligations hereunder to
such persons, provided such persons shall remain under the general supervision
of the Manager.
2. Services as Investment Manager
Subject to the supervision and direction of the Board, the Manager will: (a)
manage the Fund's holdings in accordance with the Fund's investment objective
and policies as stated in the Charter and the Registration Statement; (b) assist
in supervising all aspects of the Fund's operations; (c) supply the Fund with
office facilities (which may be in SSB Citi'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, and (ii) distribution fees, internal auditing and
legal services, internal executive and administrative services, and stationery
and office supplies; and (d) prepare reports to shareholders of the Fund, tax
returns and reports to and filings with the SEC and state blue sky authorities.
The Manager is hereby authorized to retain third parties and to delegate some or
all of its duties and obligations under this
<PAGE>
paragraph 2 to such persons provided that such persons shall remain under the
general supervision of the Manager.
3. Compensation
In consideration of the services rendered pursuant to this Agreement, the
Corporation will pay the Manager, on the first business day of each calendar
quarter, a fee for the previous quarter at an annual rate of [0.__]% of the
Fund's average daily net assets. The fee for the period from the date the Fund
commences its investment operations to the end of the month during which the
Fund commences its investment operations shall be pro-rated according to the
proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for such part
of that month shall be pro-rated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
the Manager, the value of the Fund's net assets shall be computed at the times
and in the manner specified in the Fund's Prospectus and/or the Statement, as
from time to time in effect.
4. Expenses
The Manager will bear all expenses in connection with the performance of its
services under this Agreement. The Fund will bear certain other expenses to be
incurred in its operation, including: investment advisory and administration
fees; charges of custodians and transfer and dividend disbursing agents; fees
for necessary professional services, such as the Fund's and Board members'
proportionate share of insurance premiums, professional associations, dues
and/or assessments; and brokerage services, including taxes, interest and
commissions; costs attributable to investor services, including without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; the costs of regulatory
compliance, such as SEC fees and state blue sky qualifications fees; outside
auditing and legal expenses and costs associated with maintaining the Fund's
legal existence; costs of shareholders' reports and meetings of the officers or
Board; fees of the members of the Board who are not officers, directors or
employees of Salomon Smith Barney, Inc. or its affiliates or any person who is
an affiliate of any person to whom duties may be delegated hereunder and any
extraordinary expenses. In addition, the Fund will pay all service and
distribution fees pursuant to a Services and Distribution Plan adopted under
Rule 12b-1 of the Investment Company Act of 1940, as amended (the "1940 Act").
5. Brokerage
In selecting brokers or dealers to execute transactions on behalf of the Fund,
the Manager will seek the best overall terms available. In assessing the best
overall terms available for any transaction, the Manager will consider factors
it deems relevant, including, but not limited to, the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing basis. In selecting
brokers or dealers to execute a particular transaction, and in evaluating the
best overall terms available, the Manager is authorized to consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of
<PAGE>
1934, as amended) provided to the Fund and/or other accounts over which the
Manager or its affiliates exercise investment discretion.
6. Information Provided to the Fund
The Manager will keep the Corporation informed of developments materially
affecting the Fund's portfolio, and will, on its own initiative, furnish the
Corporation from time to time with whatever information the Manager believes is
appropriate for this purpose.
7. Standard of Care
The Manager shall exercise its best judgment in rendering the services listed in
paragraph 2 above. The Manager shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, provided that nothing in this Agreement
shall be deemed to protect or purport to protect the Manager against any
liability to the Corporation or to the Fund's shareholders to which the Manager
would otherwise be subject by reason of willful malfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of the
Manager's reckless disregard of its obligations and duties under this Agreement.
8. Services to Other Companies or Accounts
The Corporation understands that the Manager now acts, will continue to act and
may act in the future as: investment adviser to fiduciary and other managed
accounts, as well as to other investment companies; and the Corporation has no
objection to the Manager's so acting, provided that whenever the Fund and one or
more other investment companies advised by the Manager have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each company. The
Corporation recognizes that in some cases this procedure may adversely affect
the size of the position obtainable for the Fund. In addition, the Corporation
understands that the persons employed by the Manager to assist in the
performance of the Manager's duties under this Agreement will not devote their
full time to such service and nothing contained in this Agreement shall be
deemed to limit or restrict the right of the Manager or any affiliate of the
Manager to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective as of the date the Fund commences its
investment operations and continue for an initial two-year term and shall
continue thereafter so long as such continuance is specifically approved at
least annually by (i) the Board or (ii) a vote of a "majority" (as defined in
the 1940 Act) of the Fund's outstanding voting securities, provided that in
either event the continuance is also approved by a majority of the Board members
who are not "interested persons" (as defined in the 1940 Act) of any party to
this Agreement, by vote cast in person or by proxy at a meeting called for the
purpose of voting on such approval. This Agreement is terminable, without
penalty, on 60 days' written notice, by the Board or by vote of holders of a
<PAGE>
majority of the Fund's shares, or upon 90 days' written notice, by the Manager.
This Agreement will also terminate automatically in the event of its assignment
(as defined in the 1940 Act).
10. Representation by the Corporation
The Corporation represents that a copy of the Charter of Corporation is on file
with the State of Maryland Department of Assessments and Taxation.
If the foregoing is in accordance with your understanding, kindly indicate your
acceptance hereof by signing and returning the enclosed copy of this Agreement
to us.
Very truly yours,
SSBC Index Series Inc.,
on behalf of
Internet Index Shares
---------------------
By: Heath B. McLendon
Title: Chairman of the Board
Accepted:
SSB Citi Fund Management LLC
---------------------
By: Lewis E. Daidone
Title: Senior Vice President
<PAGE>
Exhibit 99.(h)(2)
LICENSE AGREEMENT
-----------------
LICENSE AGREEMENT effective as of February ___, 2000 ("Effective
Date"), by and between Salomon Smith Barney, Inc. ("SSB"), a Delaware
corporation having an office at 388 Greenwich Street, New York, New York 10013,
and SSBC Index Series, Inc. ("Licensee"), a Maryland corporation having an
office at 388 Greenwich Street, New York, NY 10013.
WHEREAS, SSB compiles, calculates, maintains, and owns rights in and
to a composite stock index known as the Salomon Smith Barney "T" Series Internet
Index and to the proprietary data therein contained (such rights being
hereinafter individually and collectively referred to as the "T Series Index");
and
WHEREAS, SSB uses in commerce and owns trade name and trademark rights
to the designations "Salomon Smith Barney," "SSB," and "Salomon Smith Barney T
Series Internet Index" in connection with the T Series Index (such trade names,
trademarks and rights being individually and collectively referred to as the
"SSB Marks"); and
WHEREAS, Licensee now wishes to use the T Series Index in connection
with the investment operation and offering of its initial series, Internet Index
Shares (the "Fund"); and
WHEREAS, Licensee now wishes to use the SSB Marks for disclosure under
federal and state securities laws to indicate that SSB is the source of the T
Series Index; and
NOW, THEREFORE, it is agreed as follows:
<PAGE>
1. Grant of License.
----------------
(a) Subject to the terms and conditions of this Agreement, SSB
hereby grants to Licensee a non-transferable, non-exclusive license: (i) to use
the T Series Index in connection with the Fund; and (ii) to use and refer to the
T Series Index and SSB Marks in the United States in registration statements and
prospectuses in connection with the marketing and promotion of the Fund and to
make such disclosure and use of such documents as Licensee deems necessary or
desirable under federal and state securities laws, and in other offering and
promotional material in connection with the Fund in order to indicate the source
of the T Series Index.
(b) Licensee acknowledges that the T Series Index and SSB Marks are
the exclusive property of SSB, and that the T Series Index and its compilation
and composition and changes thereof are in the exclusive control and exclusive
discretion of SSB.
(c) Except as otherwise specifically provided herein, this
Agreement shall not transfer to Licensee any right to, or interest in, the SSB
Marks or T Series Index, or in any copyright, trademark or proprietary rights
pertaining thereto.
2. Term. This Agreement shall become effective upon the Effective Date
----
and shall unless and until terminated in accordance with paragraph 4 thereafter
remain in full force and effect for the life of the Fund, so long as the Fund
continues to utilize the T Series Index and the SSB Marks.
2
<PAGE>
3. License Fees.
------------
(a) In consideration of the rights granted, and services performed
by SSB under Agreement, Licensee shall pay SSB a license fee at the annual rate
of 0.03% of the average daily net assets of the Fund ("Usage Fee").
(b) In further consideration of the rights granted, and services
performed, by SSB under this Agreement, Licensee shall also pay SSB an index
compilation fee at the annual rate of 0.03% of the average daily net assets of
the Fund for maintenance and rebalancing of the index ("Compilation Fee") (the
Usage Fee and Compilation Fee are collectively referred to as the "License
Fee(s)").
(c) Both the Usage Fee and Compilation Fee are payable quarterly in
arrears on the first business day of each calendar quarter. The License Fees for
the period from the date the Fund commences its investment operations to the end
of the first quarter of operation shall be pro-rated according to the proportion
that such period bears to the full quarterly period.
(d) Licensee shall provide SSB with full documentation in support
of Licensee's calculation of the License Fees paid to SSB by Licensee under this
paragraph 3. SSB shall have the right, in its discretion, to inspect and audit
at SSB's sole expense Licensee's records, upon advance written request to
Licensee during normal business hours, to verify the accuracy of the License Fee
calculations performed by Licensee.
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4. Termination.
-----------
(a) In the case of material breach of any of the terms and
conditions of this Agreement by either party, the other party may terminate this
Agreement by giving thirty (30) days prior written notice, and the Agreement
shall be terminated if the breaching party shall not have corrected such
material breach within the notice period.
(b) SSB shall have the right, in its sole discretion to cease
compilation and publication of the T Series Index and, in such event, to
terminate this Agreement, provided, however, that SSB does not replace the T
Series Index or substitute another SSB index to track the performance of
Internet stocks. In the event that SSB intends to discontinue the T Series
Index, SSB shall give Licensee at least one (1) year's written notice prior to
such discontinuance, which notice shall specify whether a replacement or
substitute index will be available. In such event, Licensee shall have the
option to use such new index under this Agreement provided Licensee exercises
its option hereunder within sixty (60) days of receiving written notice from SSB
respecting the replacement index. Unless Licensee exercises such option,
Licensee's obligations to make any further License Fee payments to SSB hereunder
with respect to the discontinued T Series Index shall terminate as of the
effective date of the termination described above provided all License Fee
payments due SSB as of such date have been fully paid by Licensee.
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(c) Licensee may terminate this Agreement at the end of any
calendar quarter, provided that it has given SSB at least ninety (90) days
written notice of its intention to do so.
(d) Termination as herein provided shall not relieve Licensee of
its obligation to pay the License Fees, if any, relating to periods prior to
termination, at the time and in the amount provided in subparagraph 3(c) above.
(e) Upon termination of this Agreement as provided in this
paragraph 4, Licensee shall not use the SSB Marks or the T Series Index in
connection with any new series it may offer.
5. SSB Obligations.
---------------
(a) Employees of SSB who are directly responsible for changes in
the components of the T Series Index shall be expressly prohibited by SSB from
directly or indirectly purchasing or beneficially owning any interest in the
Fund.
(b) In accordance with the limitations set forth in paragraph 9(c)
herein, SSB shall not and is in no way obliged to engage in any marketing or
promotional activities in connection with the sale of the Fund or in making any
representation or statement in connection with the sale by Licensee of the Fund
to holders or prospective Fund holders.
6. Licensee Obligations.
--------------------
(a) Licensee shall use its best efforts to protect the goodwill and
reputation of SSB and of the SSB Marks in connection with their use under this
Agreement, and use the
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SSB marks at a level of quality at least as high as that established prior to
the date of this Agreement.
(b) Licensee shall use the SSB Marks and T Series Index in
compliance with the terms and conditions of this Agreement to ensure that SSB's
rights in the SSB Marks and T Series Index are in no way diminished and/or
jeopardized and to ensure that the public is in no way confused or misled as to
such rights.
7. Protection of Value of License.
------------------------------
(a) During the term of this Agreement, SSB shall use its best
efforts to obtain and/or to maintain in full force and effect all federal and
state registrations, if any, of the SSB Marks and shall at SSB's own expense and
sole discretion exercise SSB's common law and statutory rights against any
infringement of the SSB Marks and/or T Series Index, copyrights or other
proprietary rights insofar as such infringements conflict with or impair
Licensee's rights and privileges hereunder.
(b) In the event that SSB is informed by Licensee or otherwise
learns that a third party intends to market, or is marketing to the public an
index fund based upon the T Series Index in violation of rights of Licensee and
SSB in the T Series Index and/or SSB Marks, SSB shall use reasonable efforts to
prevent and/or stop any such third party from marketing such a fund, including,
if SSB considers it advisable, initiating litigation against such third party in
the event that the third party refuses to cease offering such a fund. In the
event that
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SSB is unsuccessful in its efforts to prevent any such use of the T Series Index
and SSB Marks by any such third party, SSB and Licensee agree to enter into good
faith negotiations to establish a reduction in the License Fees payable by
Licensee to SSB.
(c) Licensee shall reasonably cooperate with SSB, at SSB's sole
cost and expense, in the maintenance of such rights and registration, including
any reasonable proprietary notices required by SSB, and in any such litigation
without compensation to Licensee, except for ordinary expenses, and shall do
such acts and execute such instruments as are reasonably necessary and
appropriate to such purposes.
8. Proprietary Rights. Licensee acknowledges that the T Series Index
------------------
is selected, arranged and prepared by SSB through the application of methods and
standards of judgment used and developed through the expenditure of considerable
work, time and money by SSB. Licensee also acknowledges that the SSB Marks and T
Series Index are valuable assets of SSB and, therefore, with respect to such
information which is received by Licensee pursuant to this Agreement, Licensee
shall take such security measures as it takes to protect its own proprietary
data, provided such actions are reasonable, to prevent any use other than as
authorized herein.
9. Warranties; Disclaimers.
-----------------------
(a) SSB represents and warrants that SSB is the owner of, and has
the right to grant the licenses contained in this Agreement to Licensee to use
the SSB Marks and the T Series Index, as provided herein. SSB further represents
and warrants
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that to its knowledge, the SSB Marks and the T Series Index do not infringe any
intellectual property rights of any third party.
(b) SSB shall promptly correct, or instruct its agent to
correct, any mathematical errors made in SSB's computation of the T Series Index
which are brought to SSB's attention by Licensee, provided that nothing in this
paragraph 10(b) shall give Licensee the right to exercise any judgment or
require any changes with respect to-the methods of composing, calculating or
determining the T Series Index.
(c) SSB shall obtain information for inclusion in or for use in
the calculation of the T Series Index from sources which SSB considers reliable,
but SSB does not guarantee the accuracy and/or the completeness of the T Series
Index or any data included therein. SSB DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE T SERIES INDEX OR ANY DATA INCLUDED THEREIN AND SSB
SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. SSB
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 T SERIES
INDEX OR ANY DATA INCLUDED THEREIN. SSB 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 T SERIES INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL SSB
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The Fund's
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<PAGE>
prospectuses or statements of additional information filed with the SEC shall
expressly include the disclaimer language contained in this paragraph 10(c).
(d) Neither party shall have any liability for lost profits or
consequential damages arising out of this Agreement.
(e) The provisions of this paragraph 10 shall survive any termination
of this Agreement.
10. Indemnification.
---------------
(a) SSB agrees to defend, by counsel of its choosing, indemnify and
hold Licensee harmless from any and all claims, proceedings and damages arising
from claims that Licensee's permitted use of the T Series Index or SSB Marks
infringe upon the intellectual property rights of any third party, provided that
SSB is given written notice of such claim. Licensee shall have the option, at
its own expense to participate in the defense of such claim.
(b) Each party shall defend by counsel of its choosing, indemnify and
hold harmless the other party from any and all claims, proceedings and damages
arising out of any personal injury or damage to tangible personal property
caused by the negligence or intentional misconduct of personnel of the
indemnifying party in the course of their performance under this Agreement. The
indemnified party shall have the option, at its own expense to participate in
the defense of such claim.
(c) Each party shall comply with all federal, state and local
government rules, regulations, ordinances and
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<PAGE>
laws, now or hereafter in effect, relating to the performance of its obligations
under the Agreement, and agrees to indemnify and to hold the other party
harmless from any and all liability loss, cost and expense arising out of
or resulting from its failure to comply with any such rules, regulations
ordinances or laws.
11. Force Majeure. Neither SSB nor Licensee shall bear any
-------------
responsibility or liability for any losses arising out of any delay in or
interruptions of their respective performance of their obligations under this
Agreement due to any act of God, act of governmental authority, act of the
public enemy or due to war, riot, fire, flood, civil commotion, insurrection,
labor difficulty (including, without limitation, any strike or other work
stoppage or slow down), severe or adverse weather conditions or other cause
beyond the reasonable control of the party so affected.
12. Other Matters.
-------------
(a) This Agreement is solely and exclusively between the parties
as presently constituted and shall not be assigned or transferred by either
party, without the prior written consent of the other party, and any attempt to
so assign or transfer this Agreement, without such written consent, shall be
null and void .
(b) This Agreement constitutes the entire agreement of the parties
hereto with respect to its subject matter and may be amended or modified only by
a writing signed by duly authorized officers of both parties. This Agreement
supersedes all previous agreements between the parties with
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<PAGE>
respect to the subject matter of this Agreement. There are no oral or written
collateral representations, agreements or understandings except as provided
herein.
(c) No breach, default or threatened breach of this Agreement
by either party shall relieve the other party of its obligations or liabilities
under this Agreement with respect to the protection of the property or
proprietary nature of any property which is the subject of this Agreement.
(d) All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered by hand or five (5)
days after mailing, postage prepaid, by registered or certified mail, return
receipt requested, to the below address or such addresses as either party shall
specify by a written notice to the other.
Notice to SSB: Salomon Smith Barney Inc.
- ------------- 388 Greenwich Street, 20th Fl.
New York, NY 10013
Attn: General Counsel
Notice to Licensee: SSBC Index Series Inc.
- ------------------ c/o SSBC Fund Management Inc.
388 Greenwich Street, 22nd Fl.
New York, NY 10013
Attn:
(e) This Agreement shall be interpreted, construed and enforced
in accordance with the laws of the State of New York, and shall be binding upon
the parties hereto and their successors and consented assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first set forth above.
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SALOMON SMITH BARNEY, INC.
By:____________________________
Title:_________________________
SSBC INDEX SERIES, INC.
By:____________________________
Title:_________________________
12
