<PAGE> 1
Registration Statement No. 2-76640
811-3429
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 24
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 24
CAPITAL APPRECIATION FUND
-------------------------
(Exact name of Registrant)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
----------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (203) 277-0111
--------------
ERNEST J. WRIGHT
Secretary to the Board of Trustees
Capital Appreciation Fund
One Tower Square
Hartford, Connecticut 06183
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: ______________________
It is proposed that this filing will become effective (check appropriate box):
___ immediately upon filing pursuant to paragraph (b).
X on May 1, 1996 pursuant to paragraph (b).
- ---
___ 60 days after filing pursuant to paragraph (a)(1).
___ on __________ pursuant to paragraph (a)(1) of Rule 485.
___ 75 days after filing pursuant to paragraph (a)(2).
___ on __________ pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
___ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
AN INDEFINITE NUMBER OF SHARES OF BENEFICIAL INTEREST OF THE REGISTRANT WERE
REGISTERED PURSUANT TO RULE 24f-2 OF THE INVESTMENT COMPANY ACT OF 1940. A
RULE 24f-2 NOTICE FOR REGISTRANT'S FISCAL YEAR ENDED DECEMBER 31, 1995 WAS
FILED ON FEBRUARY 29, 1996.
<PAGE> 2
CAPITAL APPRECIATION FUND
Cross-Reference Sheet pursuant to Rule 495 under the Securities Act of 1933
<TABLE>
<CAPTION>
ITEM
NO. CAPTION IN PROSPECTUS
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<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Cover Page
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Fund Description; Investment
Objective and Policies
5. Management of the Fund Board of Trustees, Investment Advisers,
Fund Expenses; Additional Information
6. Capital Stock and Other Fund Description; Dividends and Taxes;
Securities Fund Shares; Pricing Shares
7. Purchase of Securities Being Offered Fund Shares
8. Redemption or Repurchase Share Redemption
9. Legal Proceedings Legal Proceedings
CAPTION IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Fund Description; Investment Objective
and Policies; Investment Restrictions;
Appendix
14. Management of the Registrant Trustees and Officers
15. Control Persons and Principal Additional Information
Holders of Securities
16. Investment Advisory and Investment Adviser; Additional
Other Services Information
17. Brokerage Allocation Brokerage
18. Capital Stock and Other Securities Declaration of Trust
19. Purchase, Redemption and Pricing Valuation of Securities
of Securities Being Offered
20. Tax Status Distributions and Taxes
21. Underwriters Not Applicable
22. Calculation of Performance Data Not Applicable
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 3
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 4
CAPITAL APPRECIATION FUND
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TELEPHONE 860-422-3985
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Capital Appreciation Fund (the "Fund") is a diversified open-end management
investment company (mutual fund) whose goal is growth of capital primarily
through the use of common stocks. Income is not an objective. The Fund invests
principally in common stocks of small to large companies that characteristically
move faster than the market during major price movements.
Shares of the Fund are currently offered without a sales charge only to separate
accounts of The Travelers Insurance Company and The Travelers Life and Annuity
Company (the "Company" or "The Travelers"). The Fund serves as one of the
investment vehicles for certain variable annuity and variable life insurance
contracts issued by the Company. The term "shareholder" as used herein refers to
any insurance company separate account that may use shares of the Fund as an
investment vehicle now or in the future.
This Prospectus concisely sets forth the information about the Fund that you
should know before investing. Please read and retain it for future reference.
Additional information about the Fund is contained in a Statement of Additional
Information ("SAI") dated May 1, 1996 which has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus. A copy may be obtained, without charge, by writing to The Travelers,
Annuity Services, One Tower Square, Hartford, Connecticut 06183-5030, or by
calling 860-422-3985.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR A VARIABLE
ANNUITY OR VARIABLE LIFE INSURANCE CONTRACT ISSUED BY THE TRAVELERS. BOTH THIS
PROSPECTUS AND THE CONTRACT PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1996.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS................................................................... 3
FUND DESCRIPTION....................................................................... 4
INVESTMENT OBJECTIVE AND POLICIES...................................................... 4
INVESTMENT RESTRICTIONS................................................................ 5
RISK FACTORS........................................................................... 5
BOARD OF TRUSTEES...................................................................... 5
INVESTMENT ADVISERS.................................................................... 6
TIMCO................................................................................ 6
JANUS CAPITAL CORPORATION............................................................ 6
Portfolio Manager................................................................. 6
SECURITIES TRANSACTIONS................................................................ 6
FUND EXPENSES.......................................................................... 7
TRANSFER AGENT......................................................................... 7
FUND SHARES............................................................................ 7
PRICING SHARES......................................................................... 8
SHARE REDEMPTION....................................................................... 8
DIVIDENDS AND TAX STATUS............................................................... 8
LEGAL PROCEEDINGS...................................................................... 9
ADDITIONAL INFORMATION................................................................. 9
EXHIBIT A.............................................................................. 10
</TABLE>
CAF-2
<PAGE> 6
FINANCIAL HIGHLIGHTS
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CAPITAL APPRECIATION FUND
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
The following information on per share data for the six years ended December 31,
1995 has been audited by Coopers & Lybrand L.L.P., Independent Accountants. All
other periods presented have been audited by the Fund's prior auditors. Coopers
& Lybrand L.L.P.'s report on the per share data for each of the applicable years
in the period ended December 31, 1995 is contained in the SAI. Refer to the
cover of this Prospectus for information on obtaining a free copy of the SAI.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1995 1994 1993+ 1992 1991 1990++
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<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of year......... $ 24.50 $ 25.87 $ 22.72 $ 19.63 $ 14.62 $ 15.76
Income from operations
Net investment income...................... 0.24 0.19 0.19 0.28 0.36 0.09
Net gains or losses on securities (realized
and unrealized).......................... 8.61 (1.41) 3.21 3.13 4.75 (1.08)
--------- -------- -------- -------- -------- --------
Total from investment operations......... 8.85 (1.22) 3.40 3.41 5.11 (0.99)
Less distributions
Distributions from net investment income
and short-term realized gains............ (0.17) (0.15) (0.25) (0.32) (0.10) (0.15)
Distributions from long-term realized
gains.................................... -- -- -- -- -- --
--------- -------- -------- -------- -------- --------
Total distributions...................... (0.17) (0.15) (0.25) (0.32) (0.10) (0.15)
Net asset value, end of year............... $ 33.18 $ 24.50 $ 25.87 $ 22.72 $ 19.63 $ 14.62
========== ========= ========= ========= ========= =========
TOTAL RETURN*............................... 36.37% (4.76)% 15.09% 17.60% 35.16% (6.24)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (thousands)........ $ 122,155 $ 78,494 $ 62,414 $ 29,506 $ 20,497 $ 13,494
Ratio of expenses to average net assets.... 0.85%** 0.89%** 0.87%** 0.56%** 0.56%** 0.82%**
Ratio of net investment income to average
net assets............................... 0.84% 0.79% 0.81% 1.39% 2.05% 0.58%
Portfolio turnover rate.................... 124% 106% 155% 126% 205% 80%
Average Commission Rate Paid (per
shares)****.............................. .0400 -- -- -- -- --
<CAPTION>
NOVEMBER 1,
YEAR ENDED DECEMBER 31, TO YEAR ENDED
------------------------------------- DECEMBER 31, OCTOBER 31,
1989 1988 1987 1986 1986
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<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of year......... $ 13.62 $ 12.54 $ 17.11 $ 20.24 $ 16.06
Income from operations
Net investment income...................... 0.14 0.11 (0.01) 0.02 (0.01)
Net gains or losses on securities (realized
and unrealized).......................... 2.00 1.15 (1.35) 0.05 4.19
-------- -------- -------- ------------ -----------
Total from investment operations......... 2.14 1.26 (1.36) 0.07 4.18
Less distributions
Distributions from net investment income
and short-term realized gains............ -- (0.18) -- -- --
Distributions from long-term realized
gains.................................... -- -- (3.21) (3.20) --
-------- -------- -------- ------------ -----------
Total distributions...................... -- (0.18) (3.21) (3.20) --
Net asset value, end of year............... $ 15.76 $ 13.62 $ 12.54 $ 17.11 $ 20.24
========= ========= ========= =============== =============
TOTAL RETURN*............................... 15.71% 10.06% (8.12)% 10.05%*** 10.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (thousands)........ $ 15,456 $ 42,470 $ 50,457 $ 67,156 $64,012
Ratio of expenses to average net assets.... 1.37% 1.01% 0.93% 0.97%*** 0.91%
Ratio of net investment income to average
net assets............................... 0.84% 0.83% (0.05)% .75%*** (0.05)%
Portfolio turnover rate.................... 75% 104% 170% 8% 166%
Average Commission Rate Paid (per
shares)****.............................. -- -- -- -- --
</TABLE>
* Total return is determined by dividing the increase (decrease) in value of a
share during the year, after reflecting the reinvestment of dividends
declared during the year, by the beginning of year share price. Shares in
the Fund are only sold to The Travelers separate accounts in connection with
the issuance of variable annuity and variable life insurance contracts.
Total Return does not reflect the deduction of any contract charges or fees
assessed by The Travelers separate accounts.
** The ratios of expenses to average net assets for 1990 and later years
reflect an expense reimbursement by The Travelers in connection with
voluntary expense limitations. Without the expense reimbursement, the ratio
of operating expenses to average net assets would have been 0.96%, 0.91%,
1.28% and 1.56% for the years ended December 31, 1993, 1992, 1991 and 1990,
respectively. For the years ended December 31, 1994 and 1995, there were no
expense reimbursements by The Travelers in connection with the voluntary
expense limitation.
*** Annualized.
**** The Average Commission Rate Paid is required for funds that have over 10%
in equities for which commissions are paid. This information is required
for funds with fiscal year ends on or after September 30, 1996; earlier
compliance is allowed.
+ Effective May 1, 1993, Janus Capital Corporation became subadviser for the
Fund.
++ On May 1, 1990, TIMCO replaced Keystone Custodian Funds, Inc. as the
investment adviser for the Fund.
CAF-3
<PAGE> 7
FUND DESCRIPTION
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Capital Appreciation Fund (the "Fund") is registered with the SEC as a
diversified open-end management investment company, commonly known as a mutual
fund. The Fund was created under Massachusetts law as a Massachusetts business
trust on March 18, 1982.
INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide growth of capital primarily
through the use of common stocks. The Fund invests principally in common stocks
of small to large companies that characteristically move faster than the market
during major price movements. It is the policy of the Fund to invest its assets
as fully as practicable in common stocks, securities convertible into common
stocks and securities having common stock characteristics, including rights and
warrants, selected primarily for prospective capital growth. The class of
securities from which these selections are made may be expected to experience
wide fluctuations in price in both rising and declining markets. While income is
not an objective, securities appearing to offer attractive possibilities for
future growth of income may be included in the portfolio whenever it seems
possible to do so without conflicting with the Fund's objective of capital
growth. The Fund may invest in domestic, foreign and restricted securities.
While the Fund may occasionally invest in foreign securities, it is not
anticipated that they will, at any time, account for more than twenty-five
percent (25%) of the investment portfolio.
Although the Fund normally invests primarily in equity securities, the Fund may
increase its cash position when the investment adviser or the sub-adviser is
unable to locate investment opportunities with desirable risk/reward
characteristics and perceives an opportunity for capital growth from such
securities so the Fund may receive a return on its idle cash. The Fund may
invest in preferred stocks; warrants; corporate bonds and debentures; U.S.
government securities; instruments of banks which are members of the Federal
Deposit Insurance Corporation and have assets of at least $1 billion, such as
certificates of deposit, demand and time deposits and bankers' acceptances;
prime commercial paper, including master demand notes; repurchase agreements
secured by U.S. government securities; or other debt securities. The Fund may
invest in debt securities rated below investment grade. (See "High Yield/High
Risk Bonds" in Exhibit A.) When the Fund invests in debt securities, investment
income will increase and may constitute a large portion of the return on the
Fund and the Fund probably will not participate in market advances or declines
to the extent that it would if it were fully invested in common stocks.
The Fund may write covered call options on securities which it owns. Such an
option on an underlying security would obligate the Fund to sell, and give the
purchaser of the option the right to buy, that security at a stated exercise
price at any time until a stated expiration date of the option. The Fund may
also purchase index or individual equity call or put options. The Fund will pay
a premium to buy call (or put) options and thereby obtain the right to buy (or
sell) a fixed number of shares of the underlying asset at the stated exercise
price on or prior to the stated expiration date.
The Fund may also use exchange-traded futures contracts as a hedge to protect
against changes in stock prices or interest rates. At no time will the Fund's
transactions in such futures be employed for speculative purposes. A stock index
futures contract is a contractual obligation to buy or sell a specified index of
stocks at a future date for a fixed price. An interest rate futures contract is
a contract to buy or sell specified debt securities at a future time for a fixed
price.
For further information about the types of investments and investment techniques
available to the Fund, including the risks associated with such investments and
investment techniques, see Exhibit A to this Prospectus.
CAF-4
<PAGE> 8
INVESTMENT RESTRICTIONS
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The Fund has adopted the following fundamental investment restrictions which may
not be changed without a vote of a majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended.
Certain other fundamental restrictions are fully set forth in the Statement of
Additional Information. Unless otherwise stated, all references to the Fund's
assets are in terms of current market value.
The Fund will not: (1) invest more than 5% of its assets in the securities of
any one issuer; (2) borrow money, except that the Fund may borrow money from
banks for temporary or emergency purposes in amounts of up to 10% of its gross
assets computed at cost; assets pledged to secure borrowings shall be no more
than the lesser of the amount borrowed or 10% of the Fund's gross assets
computed at cost; (3) invest more than 25% of its assets in the securities of
issuers in the same industry; and (4) invest more than 10% of its assets in
securities for which market quotations are not readily available, including
restricted securities.
RISK FACTORS
- --------------------------------------------------------------------------------
The risk inherent in investing in the Fund is that the net asset value will
fluctuate in response to changes in economic conditions, interest rates and the
market's perception of the underlying portfolio securities of the Fund. There
can be no assurance that the Fund will achieve its investment objective since
there is uncertainty in every investment.
The investment experience of equity investments over time will tend to reflect
levels of stock market prices and dividend payouts. Both are affected by diverse
factors, including not only business conditions and investor confidence in the
economy, but current conditions in a particular industry or company. The yield
on a common stock is not contractually determined. Equity securities are subject
to financial risks relating to the earning stability and overall financial
soundness of an issue. They are also subject to market risks relating to the
effect of general changes in the securities market on the price of a security.
In addition, there may be more risk associated with the Fund to the extent that
it invests in small or mid-sized companies. More risk is associated with
investment in small or mid-sized companies than with larger companies because
such companies may be dependent on only one or two products and may be more
vulnerable to competition from larger companies with greater resources and to
economic conditions affecting their market sector. Small or mid-sized companies
may be new, without long business or management histories, and perceived by the
market as unproven. Their securities may be held primarily by insiders or
institutional investors, which may affect marketability. The prices of these
stocks often fluctuate more than the overall stock market.
BOARD OF TRUSTEES
- --------------------------------------------------------------------------------
Under Massachusetts law, the Fund's Board of Trustees has absolute and exclusive
control over the management and disposition of all assets of the Fund. Subject
to the provisions of the Declaration of Trust, the business and affairs of the
Fund shall be managed by the Trustees or other parties so designated by the
Trustees. Information relating to the Board of Trustees, including its members
and their compensation, is contained in the SAI.
INVESTMENT ADVISERS
- --------------------------------------------------------------------------------
The Travelers Investment Management Company ("TIMCO") provides investment advice
and, in general, supervises the management and investment program of the Fund.
Janus Capital Corporation provides sub-advisory services to the Fund with
respect to its daily investment operations, subject to the supervision of the
Board of Trustees and TIMCO.
CAF-5
<PAGE> 9
TIMCO
TIMCO is a registered investment adviser which has provided investment advisory
services since its incorporation in 1967. TIMCO is an indirect wholly owned
subsidiary of Travelers Group Inc., a financial services company, and its
principal offices are located at One Tower Square, Hartford, Connecticut 06183.
In addition to serving as investment adviser for the Fund, TIMCO acts as
investment adviser or sub-adviser for other investment companies which fund
variable contracts issued by the Company. TIMCO also provides investment advice
to individual and pooled pension and profit-sharing accounts, and affiliated
companies of The Travelers Insurance Company.
Under the Investment Advisory Agreement, TIMCO will be paid an amount equivalent
on an annual basis to 0.75% of the average daily net assets of the Fund. From
that amount, TIMCO will in turn pay an amount equivalent on an annual basis to
0.55% of the average daily net assets of the Fund to Janus Capital Corporation
for its services as sub-adviser, TIMCO thus retaining 0.20% as compensation for
its services as described above. The fee is computed daily and paid weekly. Such
amounts were paid for the fiscal year ending December 1995.
JANUS CAPITAL CORPORATION
Janus Capital Corporation (Janus Capital), 100 Filmore Street, Denver, Colorado
80206, has been employed by TIMCO as a sub-adviser to manage the daily
investment operations of the Fund, subject to the supervision of both TIMCO and
the Board of Trustees. Kansas City Southern Industries, Inc., a publicly traded
holding company whose primary subsidiaries are engaged in transportation,
financial services and real estate, owns approximately 83% of the outstanding
voting stock of Janus Capital. Janus Capital also acts as investment adviser to
other investment companies not affiliated with the Fund, as well as to
individual, corporate, charitable and retirement accounts.
As described above, TIMCO, and not the Fund, will pay to Janus Capital an amount
equivalent on an annual basis to 0.55% of the Fund's average daily net assets
for its services as sub-adviser to the Fund.
PORTFOLIO MANAGER
The day-to-day portfolio management of the Fund is currently handled by Thomas
F. Marsico, a Vice President and Portfolio Manager of Janus Capital Corporation,
and has been since May 1993. Prior to joining Janus Capital in 1986, Mr. Marsico
was a Senior Portfolio Manager with Fred Alger Management and a partner with
Boettcher and Company, Inc.
SECURITIES TRANSACTIONS
- --------------------------------------------------------------------------------
Under policies established by the Board of Trustees, TIMCO or Janus Capital will
select broker-dealers to execute transactions for the Fund, subject to the
receipt of best execution. Broker-dealers may from time to time be affiliated
with the Fund, TIMCO, Janus Capital or their affiliates.
The Fund may pay higher commissions to broker-dealers which provide research
services. TIMCO and Janus Capital may use these services in advising the Fund,
as well as in advising other clients for which they provide advisory services.
FUND EXPENSES
- --------------------------------------------------------------------------------
In addition to the investment advisory fees discussed above, other expenses of
the Fund include the charges and expenses of the transfer agent, the custodian,
the independent auditors, and any outside legal counsel employed by either the
Fund or the Board of Trustees; the compensation for the disinterested members of
the Board of Trustees; the costs of printing and mailing the Fund's
prospectuses, proxy solicitation materials, and annual, semi-annual and periodic
reports; brokerage commissions, interest charges and taxes; and any
registration, filing and other fees payable to government agencies in connection
with the registration of the Fund and its shares under federal and
CAF-6
<PAGE> 10
state securities laws. Additionally, high portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs, which
will be borne directly by the Fund.
Pursuant to a Management Agreement dated May 1, 1996 between the Fund and The
Travelers Insurance Company, the Company has agreed to reimburse the Fund for
the amount by which the Fund's aggregate annual expenses, including investment
advisory fees but excluding brokerage commissions, interest charges and taxes,
exceed 1.25% of the Fund's average net assets for any fiscal year.
For the fiscal year ended December 31, 1995, the Fund paid .85% of its average
net assets in expenses.
TRANSFER AGENT
- --------------------------------------------------------------------------------
The Travelers Insurance Company, One Tower Square, Hartford, Connecticut 06183,
serves as the Fund's transfer agent and dividend disbursing agent.
FUND SHARES
- --------------------------------------------------------------------------------
The Fund currently issues one class of shares which participate equally in
dividends and distributions and have equal voting, liquidation and other rights.
When issued and paid for, the shares will be fully paid and nonassessable by the
Fund and will have no preference, conversion, exchange or preemptive rights.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares are redeemable, transferable and freely
assignable as collateral. There are no sinking fund provisions. (See the
accompanying separate account prospectus for a discussion of voting rights
applicable to purchasers of variable annuity and variable life insurance
contracts.)
Under Massachusetts law it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. However, the Fund's Declaration of
Trust provides that shareholders shall not be subject to any personal liability
for the Fund's obligations and provides indemnification from Fund assets for any
shareholder held personally liable for the Fund's obligations. Disclaimers of
such liability are included in each Fund agreement.
Shares of the Fund are currently sold only to insurance company separate
accounts in connection with variable annuity and variable life insurance
contracts issued by the Company. Shares of the Fund are not sold to the general
public. Fund shares are sold on a continuing basis, without a sales charge, at
the net asset value next computed after payment is made by the insurance company
to the Fund's custodian. However, the separate accounts to which shares are sold
may impose sales and other charges, as described in the appropriate contract
prospectus.
Although the Fund is not currently aware of any disadvantages to contract owners
of either variable annuity or variable life insurance contracts because the
Fund's shares are available with respect to both products, an irreconcilable
material conflict may conceivably arise between contract owners of different
separate accounts investing in the Fund due to differences in tax treatment,
management of the Fund's investments, or other considerations. The Fund's Board
of Trustees will monitor events in order to identify any material conflicts
between variable annuity contract owners and variable life insurance policy
owners, and will determine what action, if any, should be taken in the event of
such a conflict.
PRICING SHARES
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The net asset value of a Fund share is computed as of the close of trading on
each day on which the New York Stock Exchange ("Exchange") is open, except on
days when changes in the value of the
CAF-7
<PAGE> 11
Fund's securities do not affect the current net asset value of its shares. The
net asset value per share is arrived at by determining the value of the Fund's
assets, subtracting its liabilities, and dividing the result by the number of
shares outstanding.
The Fund values short-term money market instruments with maturities of sixty
days or less at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount) which, when combined with
accrued interest receivable, approximates market. All other investments are
valued at market value or, where market quotations are not readily available, at
fair value as determined in good faith by the Fund's Board of Trustees.
SHARE REDEMPTION
- --------------------------------------------------------------------------------
Fund shares are redeemed at the redemption value next determined after the Fund
receives a redemption request. The redemption value is the net asset value
adjusted for fractions of a cent and may be more or less than the shareholder's
cost depending upon changes in the value of the Fund's portfolio between
purchase and redemption.
The Fund computes the redemption value at the close of the Exchange at the end
of the day on which it has received all proper documentation from the
shareholder. Redemption proceeds are normally wired or mailed either the same or
the next business day, but in no event later than seven days thereafter.
The Fund may temporarily suspend the right to redeem its shares when: (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists as determined by
the SEC so that disposal of the Fund's investments or determination of its net
asset value is not reasonably practicable; or (4) the SEC, for the protection of
shareholders, so orders.
DIVIDENDS AND TAX STATUS
- --------------------------------------------------------------------------------
The Fund has qualified, and intends to qualify in the future, as a regulated
investment company under Subchapter M of the Internal Revenue Code. The Fund
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for each fiscal year.
Capital gains and dividends are distributed in cash or reinvested in additional
shares of the Fund, without a sales charge. Although purchasers of variable
contracts are not subject to federal income taxes on distributions by the Fund,
they may be subject to state and local taxes and should review the accompanying
contract prospectus for a discussion of the tax treatment applicable to
purchasers of variable annuity and variable life insurance contracts.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no pending material legal proceedings affecting the Fund.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Except as otherwise stated in this Prospectus or as required by law, the Fund
reserves the right to change the terms of the offer stated in this Prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
CAF-8
<PAGE> 12
EXHIBIT A
- --------------------------------------------------------------------------------
DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND
INVESTMENT TECHNIQUES AVAILABLE TO THE FUND
FUTURES CONTRACTS
The Fund may use exchange-traded financial futures contracts either as a hedge
to protect against anticipated changes in stock prices and interest rates, or as
a hedge to facilitate the purchase or sale of securities. Financial futures
contracts consist of stock index futures contracts and futures contracts on debt
securities ("interest rate futures"). A stock index futures contract is a
contractual obligation to buy or sell a specified index of stocks at a future
date for a fixed price. An interest rate futures contract is a contract to buy
or sell specified debt securities at a future time for a fixed price. At no time
will the Fund's transactions in such financial futures be employed for
speculative purposes. When a futures contract is purchased, the Fund will set
aside, in an identifiable manner, an amount of cash and cash equivalents equal
to the total market value of the futures contract, less the amount of the
initial margin.
Hedging by use of interest rate futures seeks to establish, with more certainty
than would otherwise be possible, the effective rate of return on portfolio
securities. When hedging is successful, any depreciation in the value of
portfolio securities will substantially be offset by appreciation in the value
of the futures position. Conversely, any appreciation in the value of the
portfolio securities will substantially be offset by depreciation in the value
of the futures position.
Positions taken in the futures markets are not normally held to maturity, but
instead are liquidated through offsetting transactions which may result in a
profit or a loss. Closing out an open futures contract sale or purchase is
effected by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the stock index or security and
the same delivery date. If the offsetting purchase price is less than the
original sale price, the Fund realizes a gain; if it is more, the Fund realizes
a loss. Conversely, if the offsetting sale price is more than the original
purchase price, the Fund realizes a gain; if less, a loss. While futures
positions taken by the Fund will usually be liquidated in this manner, the Fund
may instead make or take delivery of underlying securities whenever it appears
economically advantageous for it to do so. In determining gain or loss,
transaction costs must also be taken into account. There can be no assurance
that the Fund will be able to enter into an offsetting transaction with respect
to a particular contract at a particular time.
The Fund will not purchase or sell futures contracts for which the aggregate
initial margin exceeds five percent (5%) of the fair market value of its assets,
after taking into account unrealized profits and unrealized losses on any such
contracts it has entered into.
All stock index and interest rate futures contracts will be traded on exchanges
that are licensed and regulated by the Commodity Futures Trading Commission
("CFTC"). To ensure that its futures transactions meet CFTC standards, the Fund
will enter into futures contracts for hedging purposes only, i.e., for the
purposes or with the intent specified in CFTC regulations and interpretations,
subject to the requirements of the SEC. The Fund will further seek to assure
that fluctuations in the price of any futures contracts that it uses for hedging
purposes will be substantially related to fluctuations in the price of the
securities held by it or which it expects to purchase, or for other risk
reduction strategies, though there can be no assurance that the expected result
will always be achieved.
As evidence of its hedging intent, the Fund expects that on seventy-five percent
(75%) or more of the occasions on which it purchases a long futures contract, it
will effect the purchase of securities in the cash market or take delivery as it
closes out a futures position. In particular cases, however, when it is
economically advantageous, a long futures position may be terminated without the
corresponding purchase of securities.
CAF-9
<PAGE> 13
SPECIAL RISKS RELATING TO FUTURES CONTRACTS
While certain futures contracts may be purchased and sold to reduce certain
risks, these transactions may entail other risks. Thus, while the Fund may
benefit from the use of such futures, changes in stock price movements or
interest rates may result in a poorer overall performance for the Fund than if
it had not entered into such futures contracts. Moreover, in the event of an
imperfect correlation between the futures position and the portfolio position
which is intended to be protected, the desired protection may not be obtained
and the Fund may be exposed to risk of loss. TIMCO will attempt to reduce this
risk by engaging in futures transactions, to the extent possible, where, in its
judgment, there is a significant correlation between changes in the prices of
the futures contracts and the prices of any portfolio securities sought to be
hedged. Successful use of futures contracts for hedging purposes is also subject
to TIMCO's ability to predict correctly movements in the direction of the
market.
BUYING PUT AND CALL OPTIONS
The Fund may purchase put options on securities held, or on futures contracts
whose price volatility is expected to closely match that of securities held, as
a defensive measure to preserve shareholders' capital when market conditions
warrant. The Fund may purchase call options on specific securities, or on
futures contracts whose price volatility is expected to closely match that of
securities eligible for purchase by the Fund, in anticipation of or as a
substitute for the purchase of the securities themselves. These options may be
listed on a national exchange or executed "over-the-counter" with a
broker-dealer as the counterparty. While TIMCO anticipates that the majority of
option purchases and sales will be executed on a national exchange, put or call
options on specific securities or for non-standard terms are likely to be
executed directly with a broker-dealer when it is advantageous to do so. Option
contracts will be short-term in nature, generally less than nine months in
duration.
The Fund will pay a premium in exchange for the right to purchase (call) or sell
(put) a specific number of shares of an equity security or futures contract at a
specified price (the strike price) on or before the expiration date of the
option contract. In either case, the Fund's risk is limited to the option
premium paid.
The Fund may sell the put and call options prior to their expiration and thereby
realize a gain or loss. A call option will expire worthless if the price of the
related security is below the contract strike price at the time of expiration; a
put option will expire worthless if the price of the related security is above
the contract strike price at the time of expiration.
Put and call options will be employed for bona fide hedging purposes only.
Liquid securities sufficient to fulfill the call option delivery obligation will
be identified and segregated in an account; deliverable securities sufficient to
fulfill the put option obligation will be similarly identified and segregated.
In the case of put options on futures contracts, portfolio securities whose
price volatility is expected to match that of the underlying futures contract
will be identified and segregated.
WRITING COVERED CALL OPTIONS
The Fund may write or sell covered call options. By writing a call option, the
Fund becomes obligated during the term of the option to deliver the securities
underlying the option upon payment of the exercise price.
The Fund may only write "covered" options. This means that as long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option or in the case of call options on U.S. Treasury
bills, the Fund might own substantially similar U.S. Treasury bills.
The principal reason for writing call options is to obtain, through a receipt of
premiums, a greater current return than would be realized on the underlying
securities alone. The Fund receives a premium from writing a call option which
it retains whether or not the option is exercised. By writing a
CAF-10
<PAGE> 14
call option, the Fund might lose the potential for gain on the underlying
security while the option is open.
Options on some securities are relatively new and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could impair the Fund's ability to use such
options to achieve its investment objectives.
LOANS OF SECURITIES TO BROKER DEALERS
The Fund may lend securities to brokers and dealers pursuant to agreements
requiring that the loans be continuously secured by cash, or securities of the
U.S. government, its agencies or instrumentalities or any combination of cash
and such securities, as collateral equal at all times in value to at least the
market value of the securities loaned. Such securities loans will not be made
with respect to the Fund if as a result the aggregate of all outstanding
securities loans exceeds 15% of the value of the Fund's total assets taken at
their current value. The Fund continues to receive interest or dividends on the
securities loaned and simultaneously earns interest on the investment of the
cash loan collateral in U.S. Treasury notes, certificates of deposit, other high
grade, short-term obligations or interest bearing cash equivalents. Although
voting rights attendant to securities loaned pass to the borrower, such loans
may be called at any time and will be called so that the securities may be voted
by the Fund if, in the opinion of the Fund, a material event affecting the
investment is to occur. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans may be made only to borrowers deemed to be of good standing, under
standards approved by the Board of Trustees, when the income to be earned from
the loan justifies the attendant risks.
FOREIGN SECURITIES AND AMERICAN DEPOSITORY RECEIPTS
Investing in the securities of foreign companies involves special risks and
considerations not typically associated with investing in U.S. companies. These
risks include differences in accounting, auditing and financial reporting
standards, generally higher commission rates on foreign portfolio transactions,
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. Additionally, dividends payable on foreign
securities may be subject to foreign taxes withheld prior to distribution.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Changes in
foreign exchange rates will affect the value of those securities which are
denominated or quoted in currencies other than the U.S. dollar. Many of the
foreign securities held by the Fund will not be registered with, nor will the
issuers thereof be subject to the reporting requirements of, the SEC.
Accordingly, there may be less publicly available information about the
securities and the foreign company or government issuing them than is available
about a domestic company of government entity. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment positions.
HIGH YIELD/HIGH RISK BONDS
The Fund has no pre-established minimum quality standards and may invest up to
35% of its assets in debt securities that are rated below investment grade
(securities rated Ba or lower by Moody's Investors Service, Inc. ("Moody's") or
BB or lower by Standard & Poor's Corporation ("S&P")). Such securities generally
offer a higher yield, but may be subject to a higher risk of default in interest
or principal payments and are considered speculative. The market prices of lower
rated securities are generally less sensitive to interest rate changes than
higher rated investments, but more sensitive to adverse economic or political
changes, or in the case of corporate issuers, individual corporate developments.
Lower rated securities may also have less liquid markets than higher rated
securities, and their liquidity as well as their value may be more severely
affected by adverse economic conditions, by adverse publicity and investor
perceptions of the market or by new or proposed
CAF-11
<PAGE> 15
legislation. (See the Statement of Additional Information for a more detailed
discussion of the bond ratings.)
The Fund may also invest in unrated debt securities of foreign and domestic
issuers. Unrated debt, while not necessarily of lower quality than rated
securities, may not have as broad a market. Sovereign debt of foreign
governments is generally rated by country. Because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly, the investment adviser or sub-adviser may treat such securities as
unrated debt. Unrated debt securities will be included in the 35% limit of the
Fund, unless the investment adviser or the sub-adviser deems such securities to
be the equivalent of investment-grade securities.
RISKS RELATING TO HIGH YIELD/HIGH RISK BONDS
High yield bonds are typically lower rated securities; the lower the quality of
a debt security, the higher the yield it will provide, but the greater the risk
that interest or principal payments will not be made when due. In the event of
an unanticipated default, the Fund would experience a reduction in its income,
and could expect a decline in the market value of the securities so affected.
While providing opportunities to maximize return over time, investors should be
aware of the following market, economic and credit factors influencing high
yield securities: (1) securities rated BB or lower by S&P or Ba or lower by
Moody's are considered predominantly speculative with respect to the ability of
the issuer to meet principal and interest payments; (2) the value of high yield
securities may be more susceptible to real or perceived adverse economic,
company or industry conditions than is the case for higher quality securities;
(3) widespread economic downturn could result in increased defaults in the high
yield market; (4) adverse market, credit or economic conditions could make it
difficult at certain times to sell certain high yield securities held by the
Fund; (5) the secondary market for high yield securities may be less liquid than
the secondary market for higher quality securities which may affect the value of
certain high yield securities held by the Fund at certain times; and (6) there
may not always be readily available market quotations for certain securities. At
these times, the investment adviser or sub-adviser will use its best judgment to
assign values to those securities.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of one year or
less such as bank certificates of deposit, bankers' acceptances, commercial
paper (including master demand notes) and obligations issued or guaranteed by
the United States government, its agencies or instrumentalities, some of which
may be subject to repurchase agreements.
CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate can usually be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated certificates
of United States banks which have at least $1 billion in deposits as of the date
of their most recently published financial statements (including foreign
branches of U.S. banks, U.S. branches of foreign banks which are members of the
Federal Reserve System or the Federal Deposit Insurance Corporation, and savings
and loan associations which are insured by the Federal Deposit Insurance
Corporation).
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Fund does not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
CAF-12
<PAGE> 16
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank which, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
COMMERCIAL PAPER
Commercial paper will consist of issues rated at the time of purchase A-1 or
higher by S&P or Prime-1 by Moody's; or, if not rated, will be issued by
companies which have an outstanding debt issue rated at the time of purchase
Aaa, Aa or A by Moody's, or AAA, AA or A by S&P, or will be determined by TIMCO
to be of comparable quality.
Commercial paper rated A-1 by S&P has the following characteristics: Liquidity
ratios are adequate to meet cash requirements. The issuer's long-term senior
debt is rated "A" or better, although in some cases "BBB" credits may be
allowed. The issuer has access to at least two additional channels of borrowing.
Basic earnings and cash flow have an upward trend with allowance made for
unusual circumstances. Typically, the issuer's industry is well established and
the issuer has a strong position within the industry.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public preparations to meet such
obligations. Relative strength or weakness of the above factors determines how
the issuer's commercial paper is rated within various categories.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. Treasury bills have maturities of one year or
less; Treasury notes have maturities of one to ten years; and Treasury bonds
generally have maturities of greater than ten years at the date of issuance.
Securities issued or guaranteed by the United States Government or its agencies
or instrumentalities include direct obligations of the United States Treasury
and securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal
Land Banks, Maritime Administration, The Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association and Federal National
Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities, such as
Treasury bills and Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the United States;
others, such as securities of Federal Home Loan Banks, are supported
CAF-13
<PAGE> 17
by the right of the issuer to borrow from the Treasury; still others, such as
bonds issued by the Federal National Mortgage Association, a private
corporation, are supported only by the credit of the instrumentality. Because
the U.S. government is not obligated by law to provide support to an
instrumentality it sponsors, the Fund will invest in the securities issued by
such an instrumentality only when TIMCO determines that the credit risk with
respect to the instrumentality does not make its securities unsuitable
investments. U.S. government securities will not include international agencies
or instrumentalities in which the U.S. government, its agencies or
instrumentalities participate, such as the World Bank, Asian Development Bank or
the Inter-American Development Bank, or issues insured by the Federal Deposit
Insurance Corporation.
REPURCHASE AGREEMENTS
Interim cash balances may be invested from time to time in repurchase agreements
with approved counterparties. Approved counterparties are limited to national
banks or reporting broker-dealers meeting TIMCO's credit quality standards as
presenting minimal risk of default. All repurchase transactions must be
collateralized by U.S. Government securities with market value no less than 102%
of the amount of the transaction, including accrued interest. Repurchase
transactions generally mature the next business day but, in the event of a
transaction of longer maturity, collateral will be marked to market daily and,
when required, additional cash or qualifying collateral will be required from
the counterparty.
In executing a repurchase agreement, the Fund purchases eligible securities
subject to the seller's simultaneous agreement to repurchase them on a mutually
agreed upon date and at a mutually agreed upon price. The purchase and resale
prices are negotiated with the counterparty on the basis of current short-term
interest rates, which may be more or less than the rate on the securities
collateralizing the transaction. Physical delivery or, in the case of "book
entry" securities, segregation in the counterparty's account at the Federal
Reserve for the benefit of the Fund is required to establish a perfected claim
to the collateral for the term of the agreement in the event the counterparty
fails to fulfill its obligation.
As the securities collateralizing a repurchase transaction are generally of
longer maturity than the term of the transaction, in the event of default by the
counterparty on its obligation, the Fund would bear the risks of delay, adverse
market fluctuation and transaction costs in disposing of the collateral.
CAF-14
<PAGE> 18
CAPITAL APPRECIATION FUND
PROSPECTUS
TIC Ed. 5-96
L-11171 Printed in U.S.A.
<PAGE> 19
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 20
STATEMENT OF ADDITIONAL INFORMATION
CAPITAL APPRECIATION FUND
MAY 1, 1996
This Statement of Additional Information ("SAI") is not a prospectus
but relates to, and should be read in conjunction with, the Fund's prospectus
dated May 1, 1996. A copy of the prospectus is available from The Travelers
Insurance Company, Annuity Services, One Tower Square, Hartford, Connecticut
06183-5030 or by calling 860-422-3985.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
VALUATION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
DECLARATION OF TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT ADVISORY SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Investment Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Subadviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
REDEMPTIONS IN KIND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
BROKERAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE> 21
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Capital Appreciation Fund (the "Fund")
is to provide growth of capital primarily through the use of common stocks.
The Fund invests principally in common stocks of small to large companies that
characteristically move faster than the market during major price movements.
It is the policy of the Fund to invest its assets as fully as practicable in
common stocks, securities convertible into common stocks and securities having
common stock characteristics, including rights and warrants, selected primarily
for prospective capital growth. The Fund may also invest in debt instruments
and money market instruments. The Fund may enter into repurchase agreements,
write covered call options and purchase call or put options.
INVESTMENT RESTRICTIONS
None of the restrictions enumerated in this paragraph may be changed
without a vote of the holders of a majority of the Fund's outstanding shares,
as defined in the Investment Company Act of 1940 (the "1940 Act"). The Fund
will not:
(1) invest more than 5% of its total assets, computed at market
value, in the securities of any one issuer;
(2) invest in more than 10% of any class of securities of any one
issuer;
(3) invest more than 5% of the value of its total assets in
companies which have been in operation for less than three
years;
(4) borrow money, except to facilitate redemptions or for emergency
or extraordinary purposes and then only from banks and in
amounts of up to 10% of its gross assets computed at cost; while
outstanding, a borrowing may not exceed one-third of the value
of the Fund's net assets, including the amount borrowed; the
Fund has no intention of attempting to increase its net income
by means of borrowing and all borrowings will be repaid before
additional investments are made; assets pledged to secure
borrowings shall be no more than the lesser of the amount
borrowed or 10% of the Fund's gross assets computed at cost;
(5) underwrite securities, except that the Fund may purchase
securities from issuers thereof or others and dispose of such
securities in a manner consistent with its other investment
policies; in the disposition of restricted securities the Fund
may be deemed to be an underwriter, as defined in the Securities
Act of 1933 (the "1933 Act");
(6) purchase real estate investment trusts that deal in real estate
or interests therein, or commodities or commodity contracts,
except transactions involving financial futures in order to
limit transactions and borrowing costs, and for hedging
purposes;
(7) invest for the primary purpose of control or management;
(8) make margin purchases or short sales of securities, except that
the Fund may place up to 5% of the value of its net assets in
total margin deposits for positions in futures contracts;
(9) make loans, except that the Fund may purchase money market
securities, buy publicly and privately distributed debt
securities and lend limited amounts of its portfolio securities
to broker-dealers; all such investments must be consistent with
the Fund's investment objective and policies;
(10) invest more than 25% of its total assets in the securities of
issuers in any single industry;
2
<PAGE> 22
(11) purchase the securities of any other investment company except
in the open market and at customary brokerage rates and in no
event more than 3% of the voting securities of any investment
company;
(12) invest in interests in oil, gas or other mineral exploration or
development programs; or
(13) invest more than 5% of its net assets in warrants, valued at the
lower of cost or market; warrants acquired by the Fund in
units or attached to securities will be deemed to be without
value with regard to this restriction. The Fund is subject to
restrictions in the sale of portfolio securities to, and in
its purchase or retention of securities of, companies in which
the management personnel of The Travelers Investment
Management Company Inc. ("TIMCO") have a substantial
interest.
The Fund has undertaken to a state insurance authority that, so long
as the state authority requires and shares of the Fund are offered for sale to
fund variable life insurance policies in that state, the Fund will comply with
certain foreign security diversification guidelines. These guidelines provide
that (1) as the percentage of the Fund's net asset value invested in foreign
securities increases, a corresponding increase will be made in the number of
countries in whose securities the Fund invests; and (2) the Fund will invest no
more than 20% of its net asset value in securities of issuers located in any
one country (other than the United States). Notwithstanding the above, these
guidelines permit the Fund to invest any amount in securities of issuers
located in the United States, and an additional 15% of its net asset value in
securities of issuers located in Australia, Canada, France, Japan, the United
Kingdom or Germany. These guidelines require that American Depository Receipts
be treated as if they were foreign securities. This undertaking is not a
fundamental investment restriction or policy and may be changed without a vote
of shareholders.
The Fund may make investments in an amount of up to 10% of the value
of the Fund's net assets in restricted securities which may not be publicly
sold without registration under the 1933 Act. In most instances such
securities are traded at a discount from the market value of unrestricted
securities of the same issuer until the restriction is eliminated. If and when
the Fund sells such portfolio securities, it may be deemed an underwriter, as
such term is defined in the 1933 Act, with respect thereto, and registration of
such securities under the 1933 Act may be required. The Fund will not bear the
expense of such registration. The Fund intends to reach agreements with all
such issuers whereby they will pay all expenses of registration. In
determining securities subject to the 10% limitation, the Fund will include, in
addition to restricted securities, repurchase agreements maturing in more than
seven days and other securities not having readily available market quotations.
VALUATION OF SECURITIES
Current value for the Fund's portfolio securities is determined as
follows. Securities that are traded on an established exchange are valued on
the basis of the last sales price on the exchange where primarily traded prior
to the time of valuation. Securities traded in the over-the-counter market,
for which complete quotations are readily available, are valued at the mean of
the bid and asked prices at the time of valuation. Short-term money market
instruments having maturities of sixty days or less are valued at amortized
cost (original purchase cost as adjusted for amortization of premium or
accretion of discount) which, when combined with accrued interest, approximates
market; should this valuation of a security not approximate market, TIMCO will
value the security at a price deemed in good faith to be fair by the Board of
Trustees. Short-term money market instruments having maturities of more than
sixty days, for which complete quotations are readily available, are valued at
market. The Board of Trustees of the Fund values the following at prices it
deems in good faith to be fair: (1) securities, including restricted
securities, for which complete quotations are not readily available, (2) listed
securities if in the Fund's opinion the last sales price does not reflect a
current market value or if no sale occurred, and (3) other assets.
3
<PAGE> 23
DISTRIBUTIONS AND TAXES
The Fund has qualified, and intends to qualify in the future, as a
regulated investment company under Subchapter M of the Internal Revenue Code.
Thus the Fund is relieved of any federal income tax liability by distributing
all of its net investment income and net capital gains, if any, to its
shareholders.
When the Fund makes a distribution, it intends to distribute only its
net capital gains and such income as has been predetermined to the best of the
Fund's ability to be taxable as ordinary income. Therefore, net investment
income distributions will not be made on the basis of distributable income as
computed on the Fund's books, but will be made on a federal taxation basis.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Name Present Position and Principal Occupation During Last Five Years
- ---- ----------------------------------------------------------------
<S> <C>
*Heath B. McLendon Managing Director (1993-present), Smith Barney Inc. ("Smith Barney");
Chairman and Member Chairman (1993-present), Smith Barney Strategy Advisors, Inc.;
388 Greenwich Street President (1994-present), Smith Barney Mutual Funds Management Inc.;
New York, New York Chairman and Director of forty-one investment companies associated with
Age 62 Smith Barney; Chairman, Board of Trustees, Drew University; Trustee,
The East New York Savings Bank; Advisory Director, First Empire State
Corporation; Chairman, Board of Managers, seven Variable Annuity
Separate Accounts of The Travelers Insurance Company+; Chairman, Board
of Trustees, five Mutual Funds sponsored by The Travelers Insurance
Company++; prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc.
Knight Edwards Of Counsel (1988-present), Partner (1956-1988), Edwards & Angell,
Member Attorneys; Member, Advisory Board (1973-1994), thirty-one mutual funds
2700 Hospital Trust Tower sponsored by Keystone Group, Inc.; Member, Board of Managers, seven
Providence, Rhode Island Variable Annuity Separate Accounts of The Travelers Insurance Company+;
Age 72 Trustee, five Mutual Funds sponsored by The Travelers Insurance
Company.++
Robert E. McGill, III Retired manufacturing executive. Director (1983-1995), Executive Vice
Member President (1989-1994) and Senior Vice President, Finance and
295 Hancock Street Administration (1983-1989), The Dexter Corporation (manufacturer of
Williamstown, Massachusetts specialty chemicals and materials); Vice Chairman (1990-1992), Director
Age 64 (1983-1995), Life Technologies, Inc. (life science/biotechnology
products); Director, (1994-present), The Connecticut Surety Corporation
(insurance); Director (1995-present), Calbiochem Novachem International
(life science/biotechnology products); Director (1995-present), Chemfab
Corporation (specialty materials manufacturer); Member, Board of
Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Trustee, five Mutual Funds sponsored by The
Travelers Insurance Company.++
</TABLE>
4
<PAGE> 24
<TABLE>
<S> <C>
Lewis Mandell Dean, College of Business Administration (1995-present), Marquette
Member University; Professor of Finance (1980-1995) and Associate Dean
606 N. 13th Street (1993-1995), School of Business Administration, and Director, Center
Milwaukee, WI 53233 for Research and Development in Financial Services (1980-1995),
Age 53 University of Connecticut; Director (1992-present), GZA
Geoenvironmental Tech, Inc. (engineering services); Member, Board of
Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Trustee, five Mutual Funds sponsored by The
Travelers Insurance Company.++
Frances M. Hawk Portfolio Manager (1992-present), HLM Management Company, Inc.
Member (investment management); Assistant Treasurer, Pensions and Benefits.
222 Berkeley Street Management (1989-1992), United Technologies Corporation (broad- based
Boston, Massachusetts designer and manufacturer of high technology products); Member, Board
Age 48 of Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Trustee, five Mutual Funds sponsored by The
Travelers Insurance Company.++
Ernest J. Wright Assistant Secretary (1994-present), Counsel (1987-present), The
Secretary to the Board Travelers Insurance Company; Secretary, Board of Managers, seven
One Tower Square Variable Annuity Separate Accounts of The Travelers Insurance Company+;
Hartford, Connecticut Secretary, Board of Trustees, five Mutual Funds sponsored by The
Age 55 Travelers Insurance Company.++
Kathleen A. McGah Assistant Secretary and Counsel (1995-present), The Travelers Insurance
Assistant Secretary to the Board Company; Assistant Secretary, Board of Managers, seven Variable Annuity
One Tower Square Separate Accounts of The Travelers Insurance Company+; Assistant
Hartford, Connecticut Secretary, Board of Trustees, five Mutual Funds sponsored by The
Age 45 Travelers Insurance Company.++ Prior to January 1995, Counsel, ITT
Hartford Life Insurance Company.
Ian R. Stuart Vice President and Chief Financial Officer, The Travelers Insurance
Treasurer Company (1996-present); Vice President and Financial Officer, Financial
One Tower Square Services Department (1994-1995), Second Vice President and Assistant
Hartford, Connecticut Financial Officer, Financial Services Department (1991-1993), The
Age 39 Travelers Insurance Company; Senior Manager (1986-1991), Price
Waterhouse; Treasurer, Board of Trustees, five Mutual Funds sponsored
by The Travelers Insurance Company.++
</TABLE>
+ These seven Variable Annuity Separate Accounts are: The Travelers Growth
and Income Stock Account for Variable Annuities, The Travelers Quality
Bond Account for Variable Annuities, The Travelers Money Market Account
for Variable Annuities, The Travelers Timed Growth and Income Stock
Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock
Account for Variable Annuities and The Travelers Timed Bond Account for
Variable Annuities.
++ These five Mutual Funds are: Capital Appreciation Fund, Cash Income
Trust, High Yield Bond Trust, Managed Assets Trust and The Travelers
Series Trust.
* Mr. McLendon is an "interested person" within the meaning of
the 1940 Act by virtue of his position as Managing Director of Smith Barney
Inc., an indirect wholly owned subsidiary of Travelers Group Inc. and also owns
shares and options to purchase shares of Travelers Group Inc., the indirect
parent of The Travelers Insurance Company.
5
<PAGE> 25
Members of the Board of Trustees who are also officers or employees of
Travelers Group Inc. or its subsidiaries are not entitled to any fee. Members
of the Board of Trustees who are not affiliated as employees of Travelers Group
Inc. or its subsidiaries receive an aggregate retainer of $17,000 for service
on the Boards of the five Mutual Funds sponsored by The Travelers Insurance
Company and the seven Variable Annuity Separate Accounts established by The
Travelers Insurance Company. They also receive an aggregate fee of $2,000 for
each meeting of such Boards attended.
DECLARATION OF TRUST
The Fund is organized as a Massachusetts business trust. Pursuant to
certain decisions of the Supreme Judicial Court of Massachusetts, shareholders
of such a trust may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. However, even if the Fund were held
to be a partnership, the possibility of its shareholders incurring financial
loss for that reason appears remote because the Fund's Declaration of Trust
contains an express disclaimer of shareholder liability for obligations of the
Fund and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or the Trustees,
and because the Declaration of Trust provides for indemnification out of Fund
property for any shareholder held personally liable for the obligations of the
Fund.
The Declaration of Trust provides that a Trustee shall be liable only
for his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, a Trustee
shall not be liable for the neglect or wrongdoing of any such person; provided,
however, that nothing in the Declaration of Trust shall protect a Trustee
against any liability for his willful misfeasance, bad faith, gross negligence
or the reckless disregard of his duties.
Shareholders first elected Trustees at a meeting held on August 16,
1985, and most recently elected Trustees on April 23, 1993. No further
meetings of shareholders for the purpose of electing Trustees will be held,
unless required by law, and unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely, unless otherwise required by law, and may appoint successor
Trustees. Trustees may voluntarily resign from office, or a Trustee may be
removed from office (1) at any time by two-thirds vote of the Trustees; (2) by
a majority vote of Trustees where any Trustee becomes mentally or physically
incapacitated; and (3) either by declaration in writing or at a meeting called
for such purpose by the holders of not less than two-thirds of the outstanding
shares or other voting interests of the Fund. The Trustees are required to
call a meeting for the purpose of considering the removal of a person serving
as trustee, if requested in writing to do so by the holders of not less than
10% of the outstanding shares or other voting interests of the Fund. The Fund
is required to assist in Shareholders' communications. In accordance with
current laws, insurance companies using the Fund as an underlying investment
option within their variable contracts will request voting instructions from
contract owners participating in such contracts and will vote shares of the
Fund in the same proportion as the voting instructions received.
Voting rights are not cumulative, so that the holders of more than 50%
of the shares voting in the election of Trustees can, if they choose to do so,
elect all of the Trustees of the Fund, in which event the holders of the
remaining shares will be unable to elect any person as a Trustee.
No amendment may be made to the Declaration of Trust without a "vote
of a majority of the outstanding voting securities" of the Fund (as defined in
the 1940 Act).
6
<PAGE> 26
INVESTMENT ADVISORY SERVICES
THE INVESTMENT ADVISER
The Travelers Investment Management Company (TIMCO), an indirect
wholly owned subsidiary of Travelers Group Inc., furnishes investment
management and advisory services to the Fund in accordance with the terms of an
Investment Advisory Agreement which was approved by shareholders on April 23,
1993.
As required by the 1940 Act, the Advisory Agreement will continue in
effect for a period more than two years from the date of its execution only so
long as its continuance is specifically approved at least annually (i) by a
vote of a majority of the Board of Trustees, or (ii) by a vote of a majority of
the outstanding voting securities of the Fund. In addition, and in either
event, the terms of the Advisory Agreement must be approved annually by a vote
of a majority of the Board of Trustees who are not parties to, or interested
persons of any party to, the Advisory Agreement, cast in person at a meeting
called for the purpose of voting on such approval and at which the Board of
Trustees is furnished such information as may be reasonably necessary to
evaluate the terms of the Advisory Agreement. The Advisory Agreement further
provides that it will terminate automatically upon assignment; may be amended
only with prior approval of a majority of the outstanding voting securities of
the Fund; may be terminated without the payment of any penalty at any time upon
sixty days' notice by the Board of Trustees or by a vote of a majority of the
outstanding voting securities of the Fund; and may not be terminated by TIMCO
without prior approval of a new investment advisory agreement by a vote of a
majority of the outstanding voting securities of the Fund.
Under the terms of the Advisory Agreement, TIMCO shall:
(1) obtain and evaluate pertinent economic, statistical and
financial data and other information relevant to the investment
policy of the Fund affecting the economy generally and
individual companies or industries, the securities of which are
included in the Fund's portfolio or are under consideration for
inclusion therein;
(2) be authorized to purchase supplemental research and other
services from brokers at an additional cost to the Fund;
(3) regularly furnish recommendations to the Board of Trustees with
respect to an investment program for approval, modification or
rejection by the Board of Trustees;
(4) take such steps as are necessary to implement the investment
program approved by the Board of Trustees;
(5) regularly report to the Board of Trustees with respect to
implementation of the approved investment program and any other
activities in connection with the administration of the assets
of the Fund; and
(6) be authorized to engage a sub-adviser to furnish investment
management information and advice to assist TIMCO in carrying
out its responsibilities under this agreement.
ADVISORY FEES
For furnishing investment management and advisory services to the
Fund, TIMCO is paid an amount equivalent on an annual basis to 0.75% of the
average daily net assets of the Fund. From that amount, TIMCO pays to Janus
Capital Corporation an amount equivalent on an annual basis to 0.55% of the
average daily net assets of the Fund for Janus Capital's services as
subadviser, TIMCO thus retaining 0.20% as compensation for its services (see
"subadviser" below). The advisory fee is computed daily and paid to TIMCO
weekly.
7
<PAGE> 27
For the fiscal years ended December 31, 1993, 1994 and 1995 were
$292,573, $526,483 and $752,372, respectively.
THE SUBADVISER
Janus Capital Corporation (Janus Capital), 100 Fillmore Street,
Denver, Colorado, has been employed by TIMCO as a subadviser to manage the
daily investment operations of the Fund, subject to the supervision of both
TIMCO and the Board of Trustees. Kansas City Southern Industries, Inc., a
publicly traded holding company whose primary subsidiaries are engaged in
transportation, financial services and real estate, owns approximately 83% of
the outstanding voting stock of Janus Capital. Janus Capital also acts as
investment adviser to other investment companies not affiliated with the Fund,
as well as to individual, corporate, charitable and retirement accounts.
As described above, TIMCO, and not the Fund, will pay to Janus Capital
an amount equivalent on an annual basis to 0.55% of the Fund's average daily
net assets for its services as a subadviser to the Fund. For the period May 1,
1993 to December 31, 1993, and for the years ended December 31, 1994 and 1995,
Janus Capital Corporation received $182,573, $263,242 and $413,805,
respectively in advisory fees.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund may authorize payment to be made in
portfolio securities or other property.
However, the Fund has obligated itself under the 1940 Act to redeem
for cash all shares presented for redemption by any one shareholder up to
$250,000, or 1% of the Fund's net assets if that is less, in any 90-day period.
Securities delivered in payment of redemptions would be valued at the same
value assigned to them in computing the net asset value per share.
Shareholders receiving such securities would incur brokerage costs when these
securities are sold.
BROKERAGE
Subject to approval of the Board of Trustees, and in accordance with
the Advisory Agreement and Subadvisory Agreement, TIMCO or Janus Capital will
place purchase and sale orders for portfolio securities of the Fund through
brokerage firms which it may select from time to time with the objective of
seeking the best execution by responsible brokerage firms at reasonably
competitive rates. To the extent consistent with this policy, certain
brokerage transactions may be placed with firms which provide brokerage and
research services to TIMCO or Janus Capital, and such services may be paid for
at higher rates than other firms would charge. The term "brokerage and
research services" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities for purchasers or sellers of securities; furnishing
analyses and reports concerning issues, industries, securities, economic
factors and trends, portfolio strategy and performance of accounts; and
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement). These brokerage and research services may
be utilized in providing investment advice to the Fund, and they may also be
utilized in providing investment advice and management to all accounts over
which TIMCO or Janus Capital exercise investment discretion, but not all of
such services will necessarily be utilized in providing investment advice to
the Fund. This practice may be expected to result in greater costs to the Fund
than might otherwise be the case if brokers whose charges were based on
execution alone were used for such transactions. TIMCO and Janus Capital
believe that brokers' research services are very important in providing
investment advice to the Fund but are unable to give the services a dollar
value. While research services are not expected to reduce the expenses of
TIMCO or Janus Capital, either would, through the use of these services, avoid
the additional expenses which would be incurred if they should attempt to
develop comparable information through their own staff.
8
<PAGE> 28
Transactions in the over-the-counter market are placed with the
principal market makers unless better price and execution may be obtained
otherwise. Brokerage fees will be incurred in connection with futures
transactions and the Fund will be required to deposit and maintain funds with
brokers as margin to guarantee performance of future obligations.
The overall reasonableness of brokerage commissions paid is evaluated
by the personnel of TIMCO or Janus Capital responsible for trading and managing
the Fund's portfolio by comparing brokerage firms utilized by TIMCO or Janus
Capital and other firms with respect to the following factors: the prices paid
or received in securities transactions; the speed of execution and settlement;
the size and difficulty of the brokerage transactions; the financial soundness
of the firms; and the quality, timeliness and quantity of research information
and reports.
The total brokerage commissions paid by the Fund for the fiscal years
ended December 31, 1993, 1994 and 1995 were $202,557, $132,061 and $298,469,
respectively. For the fiscal year ended December 31, 1995, portfolio
transactions in the amount of $237,676,435 were directed to certain brokers
because of research services, of which $298,469 was paid in commissions with
respect to these transactions. No formula was used in placing such
transactions and no specific amount of transactions was allocated for research
services. No brokerage business was placed with any brokers affiliated with
the Fund's investment adviser during the past three fiscal years.
ADDITIONAL INFORMATION
The Travelers Insurance Company acts as transfer agent and dividend disbursing
agent for the Fund. The The Travelers Insurance Company is a stock insurance
company chartered in 1864 in Connecticut and continuously engaged in the
insurance business since that time. It is a wholly owned subsidiary of The
Travelers Insurance Group Inc., which is indirectly owned, through a wholly
owned subsidiary, by Travelers Group Inc., a financial services holding
company. The Travelers Insurance Company's Home Office is located at One Tower
Square, Hartford, Connecticut 06183, telephone 860-422-3985. On April 1, 1996,
The Travelers Insurance Company and an affiliate owned 100% of the Fund's
outstanding shares.
Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York
11245, is custodian of all securities and cash of the Fund.
Coopers & Lybrand L.L.P., independent accountants, 100 Pearl Street,
Hartford, Connecticut 06103, are the independent auditors for the Fund. The
services provided to the Fund include primarily the examination of the Fund's
financial statements. The financial statements have been audited by Coopers &
Lybrand L.L.P., as indicated in their reports thereon, and are included
beginning on page F-1 in reliance upon the authority of said firm as experts in
accounting and auditing.
Except as otherwise stated in its prospectus or as required by law,
the Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or
change fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, this SAI or any supplemental sales literature issued by the Fund,
and no person is entitled to rely on any information or representation not
contained therein.
The Fund's prospectus and this SAI omit certain information contained
in the Fund's registration statement filed with the Securities and Exchange
Commission which may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fee prescribed by the Rules and
Regulations promulgated by the Commission.
9
<PAGE> 29
APPENDIX
CORPORATE BOND RATINGS
S&P CORPORATE BOND RATINGS
A Standard & Poor's Corporation (S&P) corporate bond rating is a
current assessment of the creditworthiness of an obligor, including obligors
outside the United States, with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees. Ratings of foreign obligors do not take into account currency
exchange and related uncertainties. The ratings are based on current
information furnished by the issuer or obtained by S&P from other sources it
considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
a. Likelihood of default capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "A" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Although it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation, and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
MOODY'S CORPORATE BOND RATINGS ARE AS FOLLOWS:
1. Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
10
<PAGE> 30
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes are not likely to impair
the fundamentally strong position of such issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, or there may be
other elements present which make the long term risks appear somewhat larger
than in Aaa securities.
3. A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
5. Ba - Bonds which are rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may be
small.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
8. Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
market shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a midrange ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
11
<PAGE> 31
FINANCIAL STATEMENTS
F-1
<PAGE> 32
CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (identified cost $105,543,730) . . . . . . . . $ 126,763,906
Receivables:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,032
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,104
Investment securities sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,129
---------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,908,171
---------------
LIABILITIES:
Cash overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,721,430
Payable for investment management and advisory fees . . . . . . . . . . . . . . . . . 12,475
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,834
---------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,752,739
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 122,155,432
===============
NET ASSETS REPRESENTED BY:
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,267,304
Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 811,421
Accumulated net realized gains (losses) on investment security transactions . . . . . 7,856,531
Net unrealized appreciation on investment securities . . . . . . . . . . . . . . . . 21,220,176
---------------
Total net assets (applicable to 3,681,224 shares outstanding at $33.18 per share) $ 122,155,432
===============
</TABLE>
See Notes to Financial Statements
-31-
<PAGE> 33
CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends..................................................................... $ 939,493
Interest ..................................................................... 724,635
--------------
Total income ......................................................... $ 1,664,128
EXPENSES:
Investment management and advisory fees....................................... 752,372
Accounting and audit fees .................................................... 66,339
Printing and postage ......................................................... 23,201
Trustees' fees ............................................................... 8,379
Registration fees ............................................................ 360
Legal fees ................................................................... 2,056
--------------
Total expenses ........................................................... 852,707
---------------
Net investment income ................................................ 811,421
---------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENT SECURITIES:
Realized gain from investment security transactions:
Proceeds from investment securities sold ................................. 152,626,630
Cost of investment securities sold ....................................... 139,773,866
--------------
Net realized gain .................................................... 12,852,764
Change in unrealized gain on investment securities:
Unrealized gain at December 31, 1994 ......................................... 4,796,334
Unrealized gain at December 31, 1995 ......................................... 21,220,176
--------------
Net change in unrealized gain for the year ............................... 16,423,842
---------------
Net realized gain and change in unrealized gain ...................... 29,276,606
---------------
Net increase in net assets resulting from operations ............................. $ 30,088,027
===============
</TABLE>
See Notes to Financial Statements
-32-
<PAGE> 34
CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income ............................................................ $ 811,421 $ 559,581
Net realized gain (loss) from investment security transactions ................... 12,852,764 (4,598,572)
Net change in unrealized gain on investment securities ........................... 16,423,842 752,650
--------------- ---------------
Net increase (decrease) in net assets resulting from operations ............... 30,088,027 (3,286,341)
--------------- ---------------
DISTRIBUTION TO SHAREHOLDERS FROM NET INVESTMENT INCOME ............................. (540,784) (359,166)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ........................................................ 26,600,150 29,010,545
Dividend reinvestment ............................................................ 540,784 359,166
Payments for shares redeemed ..................................................... (13,026,347) (9,644,753)
--------------- ---------------
Net increase in net assets resulting from capital share transactions ,......... 14,114,587 19,724,958
--------------- ---------------
Net increase in net assets ................................................. 43,661,830 16,079,451
NET ASSETS:
Beginning of year ................................................................ 78,493,602 62,414,151
--------------- ---------------
End of year (including undistributed net investment income as follows:
December, 1995 $811,421 and December, 1994 $559,581)........................... $ 122,155,432 $ 78,493,602
=============== ===============
</TABLE>
See Notes to Financial Statements
-33-
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Capital Appreciation Fund ("Fund CA") is a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. Shares of
Fund CA are currently offered, without a sales charge, to separate
accounts of The Travelers Insurance Company ("The Travelers"), an
indirect wholly owned subsidiary of Travelers Group Inc., in
connection with the issuance of certain variable annuity and variable
life insurance contracts.
The following is a summary of significant accounting policies
consistently followed by Fund CA in the preparation of its financial
statements.
SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last-reported sale price as of
the close of business of the New York Stock Exchange on the last
business day of the year; securities traded on the over-the-counter
market and listed securities with no reported sales are valued at the
mean between the last-reported bid and asked prices or on the basis
of quotations received from a reputable broker or other recognized
source.
When market quotations are not considered to be readily available for
long-term corporate bonds and notes, such investments are generally
stated at fair value on the basis of valuations furnished by a pricing
service. These valuations are determined for normal
institutional-size trading units of such securities using methods
based on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders. Securities, including restricted securities,
for which pricing services are not readily available are valued by
management at prices which it deems in good faith to be fair.
Short-term investments for which a quoted market price is available
are valued at market. Short-term investments for which there is no
reliable quoted market price are valued by computing a market value
based upon quotations from dealers or issuers for securities of a
similar type, quality and maturity.
OPTIONS. Fund CA may purchase index or individual equity put or call
options, thereby obtaining the right to sell or buy a fixed number of
shares of the underlying asset at the stated price on or before the
stated expiration date. Fund CA may sell the options before
expiration. Options held by Fund CA are listed on either national
securities exchanges or on over-the-counter markets, and are
short-term contracts with a duration of less than nine months. The
market value of the options will be the latest sale price at the close
of the New York Stock Exchange, or in the absence of such sale, the
latest bid quotation.
REPURCHASE AGREEMENTS. When Fund CA enters into a repurchase
agreement (a purchase of securities whereby the seller agrees to
repurchase the securities at a mutually agreed-upon date and price),
the repurchase price of the securities will generally equal the amount
paid by Fund CA plus a negotiated interest amount. The seller under
the repurchase agreement will be required to provide to Fund CA
securities (collateral) whose market value, including accrued
interest, will be at least equal to 102% of the repurchase price.
Fund CA monitors the value of collateral on a daily basis. Repurchase
agreements will be limited to transactions with national banks and
reporting broker dealers believed to present minimal credit risks.
Fund CA's custodian will take actual or constructive receipt of all
securities underlying repurchase agreements until such agreements
expire.
-34-
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS - CONTINUED
TAXES. Fund CA has qualified, and intends to continue to qualify each
year, as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended. As a regulated investment
company, Fund CA is relieved of any federal income tax liability by
distributing all of its net taxable investment income and net taxable
capital gains, if any, to its shareholders. Fund CA further intends
to avoid excise tax liability by distributing substantially all of its
investment income. Therefore, no federal income tax provision has
been made by Fund CA in its financial statements.
OTHER. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Security transactions are accounted for on the trade date. Interest
income is recorded on the accrual basis and dividend income is
recorded on the ex-dividend date. Distributions to shareholders are
recorded at the close of business on the record date.
2. INVESTMENTS
Purchases and sales of securities other than short-term investments
aggregated $128,860,523 and $109,731,302, respectively, for the year
ended December 31, 1995. Realized gains and losses from security
transactions are reported on an identified-cost basis.
3. FUND CHARGES
Investment management and advisory fees are calculated daily at an
annual rate of 0.75% of Fund CA's average net assets. These fees are
paid to The Travelers Investment Management Company ("TIMCO"), an
indirect wholly owned subsidiary of Travelers Group Inc.
Pursuant to a sub-advisory agreement between TIMCO and Janus Capital
Corporation ("Janus Capital"), TIMCO pays Janus Capital an amount
equivalent on an annual basis to 0.55% of Fund CA's average net assets
for investment management and advisory services as sub-adviser.
The Travelers has agreed to reimburse Fund CA for the amount by which
Fund CA's aggregate annualized operating expenses, excluding brokerage
commissions and any interest charges and taxes, exceed 1.25% of Fund
CA's average net assets. Trustees and officers of Fund CA who are
also officers or employees of Travelers Group Inc. or its subsidiaries
receive no compensation directly from Fund CA.
-35-
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest without par value.
Transactions in shares of Fund CA were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,317 1,167,145
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . (445,510) (388,338)
Shares issued in reinvestment of distributions from net investment . . . 22,109 13,442
---------- -----------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476,916 792,249
========== ===========
</TABLE>
As of December 31, 1995, all outstanding shares of beneficial interest
were owned by The Travelers Fund U for Variable Annuities and The
Travelers Fund UL for Variable Life Insurance, both of which are
separate accounts of The Travelers.
5. SUBSEQUENT EVENT
On January 23, 1996, in accordance with the Board of Trustees, a
dividend was declared with a distribution of net investment income and
net short-term realized gains of $1.33 per share and a distribution
from net long-term realized gains of $0.99 per share, payable on
January 23, 1996, to shareholders of record as of January 22, 1996.
These distributions are not reflected in the accompanying financial
statements.
-36-
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. FINANCIAL HIGHLIGHTS*
(Selected data for a share outstanding throughout each year.)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1995 1994 1993# 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year . . . . . . . . . . . . . . . . $ 24.50 $ 25.87 $ 22.72 $ 19.63 $ 14.62
Income from operations
Net investment income . . . . . . . . . . . . . . . . . . . . . 0.24 0.19 0.19 0.28 0.36
Net gains or losses on securities (realized and unrealized) . . 8.61 (1.41) 3.21 3.13 4.75
-------- ------- ------- ------- -------
Total from investment operations . . . . . . . . . . . . . . 8.85 (1.22) 3.40 3.41 5.11
Less distributions
Distributions from net investment income . . . . . . . . . . . (0.17) (0.15) (0.25) (0.32) (0.10)
-------- ------- ------- ------- -------
Net asset value, end of year . . . . . . . . . . . . . . . . . . . $ 33.18 $ 24.50 $ 25.87 $ 22.72 $ 19.63
======== ======= ======= ======= =======
TOTAL RETURN** 36.37 % (4.76) % 15.09 % 17.60 % 35.16 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (thousands) . . . . . . . . . . . . . . $122,155 $78,494 $62,414 $29,506 $20,497
Ratio of expenses to average net assets *** . . . . . . . . . . 0.85 % 0.89 % 0.87 % 0.56 % 0.56 %
Ratio of net investment income to average net assets . . . . . 0.84 % 0.79 % 0.81 % 1.39 % 2.05 %
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . 124 % 106 % 155 % 126 % 205 %
</TABLE>
* The information set forth in Note 6 replaces the data presented in prior
years as supplementary information.
** Total return is determined by dividing the increase (decrease) in value of
a share during the year, after reflecting the reinvestment of the
dividends declared during the year, by the beginning of year share price.
As described in Note 1, shares in Fund CA are only sold to The Travelers
separate accounts in connection with the issuance of variable annuity and
variable life insurance contracts. The total return does not reflect the
deduction of any contract charges or fees assessed by The Travelers
separate accounts.
*** The ratio of expenses to average net assets for 1991-1993 reflects an
expense reimbursement by The Travelers in connection with voluntary
expense limitations. Without the expense reimbursement, the ratios of
expenses to average net assets would have been 0.96%, 0.91%, and 1.28% for
the years ended December 31, 1993, 1992, and 1991, respectively. For the
years ended December 31, 1995 and 1994, there were no expense
reimbursements by The Travelers in connection with the voluntary expense
limitations described in Note 3.
# Effective May 1, 1993, Janus Capital Corporation became sub-adviser for
Fund CA.
-37-
<PAGE> 39
CAPITAL APPRECIATION FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------ -----------
<S> <C> <C>
COMMON STOCKS (85.2%)
AGRICULTURE (0.3%)
Pioneer Hi-Bred International, Inc. 6,575 $ 365,734
------------
AMUSEMENTS (2.5%)
Walt Disney Co. 52,750 3,112,250
------------
BANKING (10.2%)
Chemical Banking Corp. 81,475 4,786,656
Citicorp 67,390 4,531,977
First Bank Systems, Inc. 26,050 1,292,731
First Chicago NBD 13,325 526,338
First Interstate Bancorp 13,150 1,794,975
------------
12,932,677
------------
CHEMICALS, PHARMACEUTICALS AND
ALLIED PRODUCTS (14.9%)
Amgen (A) 64,300 3,813,794
Bristol-Myers Squibb Co. 13,950 1,197,956
Cytec Industries, Inc. (A) 25,525 1,592,122
Hercules, Inc. 21,350 1,203,606
Lynx Therapeutics (A)(C) 2,592 518
Merck & Co., Inc. 48,975 3,220,106
Monsanto Co. 19,700 2,413,250
Pfizer, Inc. 65,050 4,098,150
Warner-Lambert Co. 13,425 1,303,903
------------
18,843,405
------------
COMMUNICATION (1.6%)
Infinity Broadcasting (A) 5,362 199,735
Sprint Corp. 30,800 1,228,150
Telecommunications
International, Inc. (A) 24,350 552,441
------------
1,980,326
------------
CONSTRUCTION (0.1%)
D.R. Horton (A) 10,920 128,310
------------
ELECTRICAL AND
ELECTRONIC MACHINERY (5.5%)
Altera Corp. (A) 46,675 2,319,164
Duracell International, Inc. 21,700 1,122,975
General Electric Co. 8,050 579,600
National Semiconductor (A) 34,025 757,056
U.S. Robotics, Inc. 25,050 2,201,269
------------
6,980,064
------------
FINANCE (10.6%)
American Express Co. 1,000 55,500
Federal Home Loan Mortgage Corp. 4,375 365,313
Federal National Mortgage Assoc. 29,070 3,608,314
HFS Inc. (A) 19,075 1,559,381
Merrill Lynch & Co., Inc. 88,915 4,534,665
Morgan Stanley Group, Inc. 16,975 1,368,609
Reuters Holding PLC 7,425 410,695
Schwab Charles Corp. 39,150 787,894
Smithkline Beecham PLC 14,100 782,550
------------
13,472,921
------------
FOOD (6.5%)
Coca-Cola Co. 46,625 3,461,906
Coca-Cola Enterprises, Inc. 43,600 1,166,300
PepsiCo, Inc. 65,275 3,647,241
------------
8,275,447
------------
<CAPTION>
NO. OF MARKET
SHARES VALUE
--------- ------------
INSURANCE (0.6%)
Oxford Health Plans, Inc. (A) 11,125 $ 820,469
------------
LUMBER AND WOOD PRODUCTS (0.2%)
Georgia-Pacific Corp. 3,575 245,334
------------
MACHINERY (9.8%)
Ascend Communications, Inc. (A) 28,150 2,285,428
Caterpillar, Inc. 13,050 766,687
Cisco Systems, Inc. (A) 47,850 3,573,797
Diebold, Inc. 15,450 855,544
Sun Microsystems (A) 108,350 4,950,241
------------
12,431,697
------------
METAL PRODUCTS (1.7%)
Phelps Dodge Corp. 33,925 2,111,831
------------
MISCELLANEOUS MANUFACTURING (1.6%)
Fila Holdings SpA 32,950 1,499,225
Medtronic, Inc. 10,450 583,894
------------
2,083,119
------------
PAPER AND ALLIED PRODUCTS (0.6%)
Willamette Industries 13,575 763,594
------------
RETAIL (4.7%)
Boston Chicken, Inc. (A) 22,125 709,383
Lowe's Co.'s, Inc. 51,925 1,739,487
McDonalds Corp. 76,925 3,471,241
------------
5,920,111
------------
RUBBER AND PLASTIC PRODUCTS (0.7%)
Nike, Inc. 12,800 891,200
------------
SERVICES (7.2%)
CUC International, Inc. (A) 38,000 1,296,750
First Data Corp. 62,625 4,188,047
Gartner Group, Inc. (A) 75,000 3,590,625
------------
9,075,422
------------
TRANSPORTATION (3.6%)
AMR, Inc. (A) 38,450 2,854,912
Delta Airlines, Inc. 14,075 1,039,791
UAL Corp. (A) 3,900 696,150
------------
4,590,853
------------
TRANSPORTATION MANUFACTURING (2.3%)
Lockheed Martin Corp. 32,050 2,531,950
McDonnell Douglas Corp. 4,650 427,800
------------
2,959,750
------------
TOTAL COMMON STOCKS
(COST $86,763,576) 107,984,514
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
SHORT-TERM INVESTMENTS (14.8%)
COMMERCIAL PAPER (2.3%)
Ford Motor Credit Co.,
5.75% due January 2, 1996 $ 2,900,000 2,898,167
------------
</TABLE>
-38-
<PAGE> 40
STATEMENT OF INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
<S> <C> <C>
U.S. GOVERNMENT
AGENCY SECURITIES (12.5%)
Federal Home Loan Banks,
5.45% due February 27, 1996 $2,000,000 $ 1,981,083
Federal Home Loan Banks,
5.50% due January 16, 1996 2,000,000 1,993,382
Federal Home Loan Banks,
5.66% due January 12, 1996 2,000,000 1,982,614
Federal Mortgage Corp.,
5.56% due March 7, 1996 2,000,000 1,971,991
Federal Mortgage Corp.,
5.69% due January 16, 1996 2,000,000 1,988,680
FNMA,
5.48% due February 13, 1996 2,000,000 1,985,652
FNMA,
5.68% due January 16, 1996 2,000,000 1,989,558
FNMA,
5.70% due January 19, 1996 2,000,000 1,988,265
------------
15,881,225
------------
TOTAL SHORT-TERM
INVESTMENTS
(COST $18,780,154) 18,779,392
------------
TOTAL INVESTMENTS (100%)
(COST $105,543,730)(B)(D) $126,763,906
============
</TABLE>
NOTES
(A) Non-income Producing Security.
(B) At December 31, 1995, net unrealized appreciation for all securities
was $21,220,176. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over cost of $21,885,319 and aggregate gross unrealized
depreciation for all securities in which there was an excess of cost
over market value of $665,143.
(C) Management Priced Security.
(D) The cost of investments for federal income tax purposes amounted to
$105,548,172. Gross unrealized appreciation and depreciation of
investments, based on identified tax cost at December 31, 1995, were
as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 21,885,319
Gross unrealized depreciation (669,585)
------------
Net unrealized appreciation $ 21,215,734
============
</TABLE>
See Notes to Financial Statements
-39-
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of Capital Appreciation Fund:
We have audited the accompanying statement of assets and liabilities of Capital
Appreciation Fund including the statement of investments as of December 31,
1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Capital Appreciation Fund as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 7, 1996
-40-
<PAGE> 42
CAPITAL APPRECIATION FUND
STATEMENT OF ADDITIONAL INFORMATION
L-11171S TIC Ed. 5-96
Printed in U.S.A.
<PAGE> 43
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements of the Registrant and the Report of
Independent Accountants are contained in the Statement of Additional
Information. The Registrant's financial statements include:
Statement of Assets and Liabilities as of December 31, 1995
Statement of Operations for the year ended December 31, 1995
Statement of Changes in Net Assets for the years ended
December 31, 1995 and 1994
Statement of Investments as of December 31, 1995
Notes to Financial Statements
(b) Exhibits
1. Declaration of Trust.
2. By-Laws of Capital Appreciation Fund.
5(A). Investment Advisory Agreement between the Registrant and The
Travelers Investment Management Company.
5(B). Sub-Advisory Agreement between The Travelers Investment
Management Company and Janus Capital Corporation.
8. Custody Agreement dated February 1, 1995 between the Registrant
and Chase Manhattan Bank, N.A., of Brooklyn, New York.
(Incorporated herein by reference to Exhibit 8 Post Effective
Amendment No. 23 to the Registration Statement on Form N-1A filed
on April 25, 1995.)
9. Transfer and Recordkeeping Agreement between the Registrant and
The Travelers Insurance Company
10. An opinion and consent of counsel as to the legality of the
securities registered by the Registrant. (Incorporated herein by
reference to the Registrant's most recent Form 24f-2 Notice filed
on February 29, 1996.)
11(A). Consent of Coopers & Lybrand L.L.P., Independent Accountants, to
the use of their name and opinion in Part A and Part B of this
Form N-1A and to the inclusion of their report.
11(B). Powers of Attorney authorizing Ernest J. Wright or Kathleen A
McGah as signatories for Heath B. McLendon, Knight Edwards,
Robert E. McGill III, Lewis Mandell, Frances M. Hawk and Ian R.
Stuart.
27. Financial Data Schedule.
<PAGE> 44
Item 25. Persons Controlled By or Under Common Control With the Registrant
Not Applicable.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of February 16, 1996
-------------- -----------------------
<S> <C>
Shares of beneficial interest, Two (2)
without par value
</TABLE>
Item 27. Indemnification
Provisions for the indemnification of the Fund's Trustees and officers are
contained in the Fund's Declaration of Trust which is being filed with the
Fund's Registration Statement as Exhibit 1.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liability (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE> 45
Item 28. Business and Other Connections of Investment Adviser
Officers and Directors of The Travelers Investment Management Company (TIMCO),
the Registrant's Investment Adviser, are set forth in the following table:
<TABLE>
<CAPTION>
Name Position with TIMCO Other Business
- ---- ------------------- --------------
<S> <C> <C>
Jeffrey B. Lane Director and Chairman Vice Chairman
Smith Barney Inc.*
Kent A. Kelley Director and Chief Not Applicable
Executive Officer**
Sandip A. Bhagat Director and President** Not Applicable
Heath B. McLendon Director Managing Director
Smith Barney Inc.*
Jacob E. Hurwitz Senior Vice President** Not Applicable
Emil Molinaro Vice President Vice President
Travelers Group Inc.*
Daniel Willey Vice President** Not Applicable
Gloria G. Williams Assistant Vice President** Not Applicable
James W. Churm Corporate Secretary Senior Vice President
Smith Barney Inc.*
Michael Day Treasurer Managing Director
Smith Barney Inc.*
</TABLE>
* Address: 388 Greenwich Street, New York, New York 10013
** Address: One Tower Square, Hartford, Connecticut 06183
<PAGE> 46
Executive Officers and Directors of Janus Capital Corporation, the Registrant's
Sub-Adviser, are set forth in the following table:
<TABLE>
<CAPTION>
Position with Janus
Name Capital Corporation Other Business
- ---- ------------------- --------------
<S> <C> <C>
Thomas H. Bailey President, Director Chairman and President
and Chairman, Janus Aspen Series
Chief Executive Officer Denver, Colorado
Chairman and Director
IDEX Management, Inc.
Largo, Florida
James P. Craig, III Vice President, Executive Vice President
Director and and Trustee
Chief Investment Officer Janus Aspen Series
Janus Investment Fund
Denver, Colorado
Michael E. Herman Independent Director Chairman
Finance Committee
Ewing Marion Kauffman
Foundation
Kansas City, Missouri
Thomas A. McDonnell Independent Director President, CEO and
Director,
DST Systems Inc.
Kansas City, Missouri
Executive Vice President
and Director
Kansas City Southern
Industries, Inc.
Kansas City, Missouri
Michael Stolper Independent Director President,
Stolper & Co., Inc.
San Diego, California
David C. Tucker Vice President, General Vice President and
Counsel and Secretary General Counsel
Janus Aspen Series
Janus Investment Fund
Janus Service Corp.
Janus Distributors, Inc.
Denver, Colorado
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
Position with Janus
Name Capital Corporation Other Business
- ---- ------------------- --------------
<S> <C> <C>
Steven R. Goodbarn Vice President of Finance, Vice President and Chief
Treasurer and Chief Financial Officer of
Financial Officer Janus Aspen Series
Janus Investment Fund
Vice President of Finance
and Treasure of
Janus Service Corp.
Janus Distributors
Denver. Colorado
Landon H. Rowland Independent Director President and Chief
Executive Officer
Kansas City Southern
Industries, Inc.
</TABLE>
Item 29. Principal Underwriter
Not Applicable.
Item 30. Location of Accounts and Records
(1) The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
(2) Chase Manhattan Bank, N.A.
Chase MetroTech Center
Brooklyn, New York
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
The undersigned Registrant hereby undertakes to provide to each person to whom
a prospectus is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Capital Appreciation Fund, certifies that
it meets all of the requirements for effectiveness of this post-effective
amendment to this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, State of Connecticut, on April 11, 1996.
CAPITAL APPRECIATION FUND
-------------------------
(Registrant)
By: *HEATH B. McLENDON
-----------------------------
Heath B. McLendon
Chairman, Board of Trustees
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment to this Registration Statement has been signed below by the following
persons in the capacities indicated on April 11, 1996.
<TABLE>
<S> <C>
*HEATH B. McLENDON Chairman of the Board
------------------------------------------
(Heath B. McLendon)
*KNIGHT EDWARDS Trustee
------------------------------------------
(Knight Edwards)
*ROBERT E. McGILL III Trustee
------------------------------------------
(Robert E. McGill III)
*LEWIS MANDELL Trustee
------------------------------------------
(Lewis Mandell)
*FRANCES M. HAWK Trustee
------------------------------------------
(Frances M. Hawk)
*IAN R. STUART Treasurer and Chief Accounting Officer
------------------------------------------
(Ian R. Stuart)
*By: /s/ Ernest J. Wright
-------------------------------------------------------
Ernest J. Wright, Attorney-in-Fact
Secretary, Board of Trustees
</TABLE>
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
1. Declaration of Trust. Electronically
2. By-Laws of Capital Appreciation Fund Electronically
5(A). Investment Advisory Agreement between the Registrant Electronically
and The Travelers Investment Management Company.
5(B). Sub-Advisory Agreement between The Travelers Investment Electronically
Management Company and Janus Capital Corporation.
8. Custody Agreement dated February 1, 1995 between the
Registrant and Chase Manhattan Bank, N.A., of
Brooklyn, New York. (Incorporated herein by reference
to Exhibit No. 8 to Post-Effective Amendment No. 23
to the Registration Statement on Form N-1A, filed on
April 25, 1995.)
9. Transfer and Recordkeeping Agreement between the Electronically
Registrant and The Travelers Insurance Company.
10. An opinion and consent of counsel as to the legality of
the securities registered by the Registrant. (Incorporated
herein by reference to the Registrant's most recent
Form 24f-2 Notice filed on February 29, 1996.)
11(A). Consent of Coopers & Lybrand L.L.P., Independent Electronically
Accountants, to the use of their name and opinion in
Part A and Part B of this Form N-1A and to the inclusion
of their report.
11(B). Powers of Attorney authorizing Ernest J. Wright or Electronically
Kathleen A. McGah as signatory for Heath B.
McLendon, Knight Edwards, Robert E. McGill III,
Lewis Mandell, Frances M. Hawk and Ian R. Stuart.
27. Financial Data Schedule. Electronically
</TABLE>
<PAGE> 1
EXHIBIT 1
CAPITAL APPRECIATION FUND
(formerly Aggressive Stock Trust)
(formerly Keystone Stock Trust)
FIRST SUPPLEMENTAL DECLARATION OF TRUST
Dated August 19, 1985
FIRST SUPPLEMENTAL DECLARATION OF TRUST, made at Boston, Massachusetts
on August 19, 1985 by George S. Bissell, Knight Edwards, Andrew J. Simonds,
Leroy Keith, Jr., Donald T. Ellis and Everett P. Pope (hereinafter with their
successors referred to as the "Trustees").
WHEREAS, Article 8, Section 9 of the Declaration provides that if
authorized by vote of a majority or other percentage of the shares as there
specified, a majority of the Trustees may alter or amend the Declaration by
signing a Declaration of Trust supplemental thereto; and
WHEREAS, at a Shareholders' Meeting dated August 16, 1985, a majority
of shareholders entitled to vote approved a proposal to amend the Declaration
of Trust to change the name of the Trust to Aggressive Stock Trust; and
WHEREAS, at said meeting, a Majority of shareholders entitled to vote
approved a proposal to amend the Declaration as provided in this First
Supplemental Declaration of Trust to amend and restate the Declaration in its
entirety;
NOW, THEREFORE, the Declaration of Trust is amended and restated in
its entirety to read as follows:
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as the "CAPITAL
APPRECIATION FUND" and the Trustees shall conduct the business of this Trust
under that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise
required by the context or specifically provided
(a) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person" and "Principal underwriter" shall have the
meanings given them in the Investment Company Act of 1940 ("1940
Act");
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(b) The "Trust" refers to the Massachusetts business trust
established by this Declaration of Trust, as amended from time to
time;
(c) "Declaration of Trust" shall mean this Declaration of Trust
as amended or restated from time to time;
(d) "Majority Shareholder Vote" means the vote of a majority of
Shares of a Series entitled to vote on a matter at a meeting or a
special meeting of Shareholders not less than the "vote of a majority"
as defined in the 1940 Act;
(e) "Net Asset Value Per Share" means the net asset value per
share of the Trust determined in the manner provided or authorized in
Article VI, Section 5;
(f) "Shareholder" means a record owner of Shares of the Trust;
(g) "Shares" means the equal proportionate units of interest
into which the beneficial interest in the Trust shall be divided from
time to time or, if more than one class of Shares is authorized by the
Trustees, the equal proportionate units into which each class of
Shares shall be divided from time to time, and includes where
appropriate such fractions of a Share as the Trustees may from time to
time authorize as well as a whole Share;
(h) "Trustees" refers to the Trustee or Trustees of the Trust
named or elected in accordance with Article IV and where appropriate
means a majority or other portion of them acting in accordance with
this Declaration of Trust or the By-Laws of the Trust; and
(i) The "1940 Act" refers to the Investment Company Act of 1940
and the Rules and Regulations thereunder, all as amended from time to
time.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide shareholders growth of capital.
ARTICLE III
Beneficial Interest
Section 1. Shares of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into
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transferable Shares, without par value, each of which shall represent an equal
proportionate interest in the Trust with each other Share outstanding, none
having priority or preference over another, except to the extent modified by
the Trustees under the provisions of this section. The number of Shares which
may be issued is unlimited. The Trustees may from time to time divide or
combine the outstanding Shares into a greater or lesser number without thereby
changing the proportionate beneficial interest in the Trust. Contributions to
the Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or fractions.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded in the books of the Trust or a transfer agent or a similar agent. The
Trustees may make such rules as they consider appropriate for the transfer of
Shares and similar matters. The record books of the Trust as kept by the Trust
or any transfer agent or similar agent, as the case may be, shall be conclusive
as to who are the holders and as to the number of Shares held from time to time
by each.
Section 3. Investments in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and, subject to
any requirements of law, for such consideration as the Trustees from time to
time authorize and may cease offering Shares to the public at any time. After
such acceptance, the number of Shares to represent the contribution may in the
Trustees' discretion be considered as outstanding and the amount receivable by
the Trustees on account of the contribution may be treated as an asset of the
Trust.
After the initial investment in the Trust, Shares (including Shares
which may have been redeemed or repurchased by the Trust) may be issued or sold
at a price which will net the Trust, before paying any taxes in connection with
such issue or sale, not less than the Net Asset Value per Share thereof;
provided, however, that the Trustees may in their discretion impose a sales
charge upon investments in the Trust.
Section 4. No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 5. Limitation of Personal Liability. The Trustees shall have
no power to bind any Shareholder personally or to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription to
any Shares or otherwise. Every note, bond, contract or other undertaking
issued by or on behalf of the Trust or the Trustees relating to the Trust shall
include a recitation limiting the
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obligation represented thereby to the Trust and its assets (but the omission of
such a recitation shall not operate to bind any Shareholder).
ARTICLE IV
The Trustees
Section 1. Election. At the annual meeting of shareholders in 1985
the Shareholders shall elect a Board of Trustees.
Section 2. Term of Office of Trustees. After election, each Trustee
shall hold office during the lifetime of this Trust, or until the election of
his or her successor at a meeting of Shareholders; except (a) that any Trustee
may resign his or her Trust by written instrument signed by him or her and
delivered to the other Trustees which shall take effect upon such delivery or
upon such later date as is specified therein; (b)) that any Trustee may be
removed at any time by written instrument signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date when such removal
shall become effective; (c) that any Trustee who requests in writing to be
retired or who has become mentally or physically incapacitated may be retired
by written instrument signed by a majority of the other Trustees, specifying
the date of his or her retirement; and (d) that a Trustee may be removed at any
special meeting of Shareholders of the Trust by a vote of two-thirds of the
outstanding Shares.
Section 3. Termination of Service and Appointment of Trustees. In
case of the death, resignation, retirement, removal or mental or physical
incapacity of any of the Trustees, or in case a vacancy shall, by reason of an
increase in number, or for any other reason, exist, the remaining Trustees
shall fill such vacancy by appointing for the remaining term of the predecessor
Trustee such other person as they in their discretion shall see fit. An
appointment of a Trustee may be made by the Trustees then in office in
anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that such
appointment shall become effective only at or after the effective date of such
retirement, resignation or increase in number of Trustees. As soon as any
Trustee so appointed shall have accepted this Trust, the Trust estate shall
vest in the new Trustee or Trustees, together with the continuing Trustees,
without any further act or conveyance, and he or she shall be deemed a Trustee
hereunder. Any appointment authorized by this Section 3 is subject to the
provisions of Section 16(a) of the an 1940 Act.
Section 4. Number of Trustees. The number of Trustees serving
hereunder at any time shall be determined by the Trustees
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themselves, but shall not be less than three (3) nor more than fifteen (15).
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled or while any Trustee is absent from the Commonwealth of
Massachusetts or, if not a domiciliary of Massachusetts, is absent from his
state of domicile, or is physically or mentally incapacitated, the other
Trustees shall have all the powers hereunder and the certificate signed by a
majority of the other Trustees of such vacancy, absence or incapacity, shall be
conclusive, provided, however, that no vacancy which reduces the number of
Trustees below three (3) shall remain unfilled for a period longer than six
calendar months.
Section 5. Effect of Death, Resignation, etc. of a Trustee. The
death, resignation, retirement, removal, or mental or physical incapacity of
the Trustees, or any one of them, shall not operate to annul the Trust or to
revoke any existing agency created pursuant to the terms of this Declaration of
Trust
Section 6. Management of the Trust. Subject to the provisions of
this Declaration of Trust, the business and affairs of the Trust shall be
managed by the Trustees, and they shall have all powers necessary and desirable
to carry out that responsibility.
Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business of the Trust and may amend and repeal them to the extent that they do
not reserve that right to the Shareholders; they may fill vacancies in or add
to their own number and may elect and remove such officers and appoint and
terminate such agents as they consider appropriate; they may appoint from their
own number and terminate any one or more committees; they may employ one or
more custodians of the assets of the Trust and may authorize such custodians to
employ subcustodians and to deposit all or any part of such assets in a system
or systems for the central handling of securities, retain a transfer agent or a
Share-holder servicing agent, or both, provide for the distribution of Shares
by the Trust, through one or more principal underwriters or otherwise, set
record dates, and in general delegate such authority as they consider desirable
to any officers of the Trust and committees of the Trustees and to any agent or
employee, custodian or underwriter.
Without limiting the foregoing, the Trustees in addition to all powers
granted by law shall have power and authority:
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(a) to invest and reinvest cash, and to hold cash uninvested,
without in any wise being bound or limited by any present or future
law or custom in regard to investments by trustees;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate or
lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and
to execute and deliver proxies or powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities or
property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form;
or in its own name or in the name of a custodian or subcustodian or a
nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern
any security of which is held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale of property by such
corporation or concern, and to pay calls or subscriptions with respect
to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depository, voting Trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to,
any such committee, depository or Trustee, and to delegate to them
such power and authority with relation to any security (whether or not
so deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depository or Trustee as the Trustees
shall deem proper;
(h) To compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust for any matter in controversy, including
but not limited to claims for taxes; and
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(i) To borrow funds.
The Trustees shall not be required to obtain any court order to deal
with any assets of the Trust or take any other action hereunder
Section 7. Ownership of Assets of the Trust. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or by any successor
Trustees. All of the assets of the Trust shall at all times by considered as
vested in the Trustees. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or any right of partition or
possession thereof, but each Shareholder shall have a proportionate undivided
beneficial interest in the assets of the Trust.
Section 8. Payment of Expenses. The Trustees shall pay or cause to
be paid out of the principal or income of the Trust, or partly out of principal
and partly out of income, as they deem fair, all expenses, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including but not limited to the Trustees'
compensation and such expenses and charges for the services of the Trust's
investment adviser or manager, administrator, auditor, counsel, custodian,
transfer agent, shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees may
deem necessary or proper to incur.
Section 9. Investment Management and Other Services. Subject to a
favorable majority Shareholder Vote, the Trustees may enter into a contract
with any person or persons, including any firm, corporation, trust or
association in which any Trustee, Shareholder or officer of the Trust may be
interested, to act as investment advisers and/or managers of the Trust and to
provide such investment advice and/or management as the Trustees may from time
to time consider appropriate (the "Adviser"). Any such contract may authorize
the Adviser to determine from time to time what securities shall be acquired,
held or disposed of by the Trust and what portion of assets of the Trust shall
be held uninvested and to take, on behalf of the Trust, actions which the
Adviser deems necessary to implement the investment policies of the Trust,
including the placement of all orders for the purchase, sale or loan of
portfolio securities for the Trust's account with brokers or dealers or others
selected by the Adviser and the giving of instructions to the custodian of the
Trust's assets as to deliveries of securities and payments of cash for the
account of the Trust.
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Subject to a favorable majority Shareholder Vote, the Adviser may
enter into an agreement to retain at its own expense any person or persons,
including any firm, corporation, trust or association in which any Trustee,
Shareholder or officer of the Trust may be interested, to provide the Trust
investment advice and/or management and any person or persons so retained may
be granted all authority which has been granted to the Adviser under the
contract which the Adviser entered in to pursuant to the preceding paragraph.
The Trustees may enter into a contract with any person or persons
including any firm, corporation, trust or association in which any Trustee,
Shareholder or officer of the Trust be interested, to act as principal
underwriter for the Shares.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote
(i) for the election or removal of Trustees as provided in Article IV, Section
1, (ii) with respect to any Adviser or person whom the Adviser may retain to
provide the Trust investment advice and/or management as provided in Article
IV, Section 9, (iii) with respect to any amendment of this Declaration of Trust
as provided in Article IX, Section 7, (iv) to the same extent as the
stockholders of a Massachusetts business corporation, as to whether or not a
court action, proceeding or claim should be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, and (v) with
respect to such additional matters relating to the Trust as may be required by
law, by this Declaration of Trust, or the By-Laws of the Trust or any
registration of the Trust with the Commission or any state, or as the Trustees
may consider desirable. Each whole Share shall be entitled to one vote as to
any matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy.
A proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the
proxy the Trust receives a specific written notice to the contrary from any one
of them. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required by law, this Declaration of Trust or any By-Laws of the Trust
to be taken by Shareholders.
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Section 2. Meetings. Meetings of Shareholders shall be held as
specified in Article IV, Sections 1 and 2 and in the By-Laws at the principal
office of the Trust or such other place as the Trustees may designate. Special
meetings of the Shareholders may be called by the Trustees or such other person
or persons as may be specified in the By-Laws and shall be called by the
Trustees upon the written request of Shareholders owning at least 25% of the
outstanding Shares entitled to vote. Shareholders shall be entitled to at least
seven days' notice of any meeting.
Section 3. Quorum and Required Vote. Except as otherwise provided by
law, to constitute a quorum for the transaction of business at a Shareholders'
meeting there must be present in person or by proxy, holders of one fourth of
the total number of Shares of the Trust then outstanding and entitled to vote
at the meeting, but any lesser number shall be sufficient for adjournment and
any adjourned session or sessions may be held within 90 days after the date set
for the original meeting without the necessity of further notice. Subject to
any applicable requirements of law, a majority of the Shares entitled to vote
on a question which were voted shall decide any questions and a plurality shall
elect a Trustee, except when a larger vote is required by any provision of this
Declaration of Trust, the By-Laws of the Trust, or any applicable provision of
law.
Section 4. Action by Written Consent. Any action required or
permitted to be taken at any meeting may be taken without a meeting, if a
consent in writing, setting forth such action is signed by all the Shareholders
entitled to vote on the subject matter thereof and such consent is filed with
the records of the Trust.
Section 5. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Distributions and Redemptions
Section 1. Distributions. The Trustees may each year distribute to
the Shareholders of a Portfolio such interest income accrued on the assets of
that Portfolio and unrealized gains and losses on that Portfolio's assets as
determined by the Trustees or as they may authorize and as herein provided,
after providing for actual and accrued expenses and liabilities (including such
reserves as the Trustees may establish) of that Portfolio chargeable against
income determined in accordance with good accounting practices (Net Income).
The Trustees shall have full discretion to determine which items shall be
treated as income and which items as capital and their determination shall
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be binding upon the Shareholders. Distributions of each year's Net Income may
be made in one or more payments, which shall be in Shares, in cash, or
otherwise and on a date or dates and as of a record date or dates determined by
the Trustees. Each distribution pursuant to this Section 1 shall be made
ratably according to the number of Shares held by the several Shareholders on
the record date for such distribution.
Section 2. Redemptions. Upon offer by any Shareholder of all or part
of the Shares held by the Shareholder for redemption hereunder, in accordance
with such methods, upon such terms and subject to such conditions as the
Trustees may from time to time determine, the Trustees shall redeem the Shares
so offered by distributing to the Shareholder the Net Asset Value per Share
thereof next determined. The Trust shall have the right at its option and at
any time to redeem the Shares of any Shareholder for their Net Asset Value per
Share if the Shareholder owns Shares having an aggregate value or cost
(determined in such manner as the Trustees may from time to time prescribe) of
less than an amount determined from time to time by the Trustees. The right to
redemption or the date for payment may, however, be delayed or suspended by the
Trustees if there is an extraordinary closing or restriction of trading on the
New York Stock Exchange as determined under rules and regulations of the
Commission, or an emergency exists as a result of which it is not reasonably
practicable for the Trust to dispose of securities or fairly to determine the
value of its net assets, or as the Commission may permit. The completion of
such distribution on redemption of Shares shall constitute a full discharge of
the Trust and Trustees with respect to such Shares, and the Trustees may
require that any certificate or certificates issued by the Trust to evidence
the ownership of the Shares shall be surrendered to the Trustees for
cancellation or notation. Shares so redeemed shall be cancelled or held by the
Trust for reissue, as the Trustees may from time to time determine.
Section 3. Payment in Kind. Subject to any generally applicable
limitation imposed by the Trustees, any distribution on redemption may, if
authorized by the Trustees, be made wholly or partly in kind, instead of in
cash. Such distribution in kind shall be made by distributing investments
constituting, in the opinion of the Trustees, a fair representation of the
various types of securities then held by the Trust being redeemed (but not
necessarily including a portion of each particular investment) and in each case
having an aggregate value equal to the amount of cash instead of which such
distribution in kind is made.
Section 4. Determination of Net Asset Value per Share. The Net Asset
Value per Share shall be computed as of the close of
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trading on the New York Stock Exchange on each day on which such Exchange is
open by determining the value of all the Trust's investments, adding any other
assets of the Trust, subtracting all liabilities of the Trust and dividing the
result by the number of Shares outstanding.
Current value for portfolio securities shall be determined as follows.
Securities that are traded on an established exchange shall be valued on the
basis of the last sales price on the exchange where primarily traded prior to
the time of the valuation. Securities traded in the over-the-counter market
and for which complete quotations are readily available shall be valued at the
mean of the bid and asked prices at the time of valuation. Subject to
instructions of the Board of Trustees, the Trust shall value the following at
prices deemed in good faith to be fair: (1) securities (including restricted
securities) for which complete quotations are not readily available, (2) listed
securities if in the Trustees' opinion the last sales price does not reflect a
current market value or if no sale occurred, and (3) other assets. The fair
value for listed securities will normally be the mean between the closing bid
and asked prices on the exchange or primary market, where available.
Money market or short-term tax free securities for which market
quotations are readily available shall be valued at prices which, in the
opinion of the person making the determination, most nearly represents the
market value of such securities which may, but need not, be the most recent bid
price obtained from one or more of the market markers for such securities.
Other securities and assets shall be valued at fair value as determined by or
pursuant to the direction of the Trustees which in the case of short-term debt
obligations, commercial paper and repurchase agreements may, but need not be,
on the basis of quoted yields for securities of comparable maturity, quality
and type, or on the basis of amortized cost.
Expenses and liabilities of the Trust shall be accrued each day. The
manner of determining the Net Asset Value per Share may from time to time be
altered if necessary or desirable in the Trustees' judgment to conform to any
other method prescribed or permitted by any applicable law or regulation.
The Net Asset value per Share may be computed as of such other times
as the Trustees may determine and in such event the Net Asset Value per Share
may, but need not, be determined by adjusting the Net Asset Value per Share
last determined pursuant to this Section in such manner (based upon changes in
selected security prices determined by the Trustees to be relevant to the Trust
or in averages or in other standard and readily ascertainable market data
since the last determination) as is deemed
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adequate to reflect a fair approximate estimate of the probable change in Net
Asset Value per Share which has occurred since such last determination.
In determination of Net Asset Value per Share and Net Income,
liabilities may include such reserves for taxes, estimated accrued expenses and
contingencies as the Trustees or their designates may in their sole discretion
deem fair and reasonable and attributable to the Trust under the circumstances.
No accruals shall be made in respect of taxes on unrealized appreciation of
securities owned unless the Trustees shall otherwise determine. Dividends
payable by the Trust shall be deducted as at the time of but immediately prior
to the determination of Net Asset Value per Share on the record date therefor
or as the Trustees shall otherwise determine.
Determination of Net Asset Value per Share so made in good faith and
pursuant to the provisions of the 1940 Act shall be binding on all parties
concerned.
Section 5. Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article VI, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the Net
Asset Value per Share of the Trust's Shares or Net Income, or the declaration
and payment of dividends and distributions as they may deem necessary or
desirable to enable the Trust to comply with any provision of the 1940 Act, or
any rule or regulation thereunder, including any rule or regulation adopted
pursuant to Section 22 of the 1940 Act by the Commission or any securities
association registered under the Securities Exchange Act of 1934, or any order
of exemption issued by said Commission, all as in effect now or as hereafter
amended or modified
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees shall be entitled to
reasonable compensation from the Trust; they may fix the amount of their
compensation.
Section 2. Limitation of Liability. Provided they have exercised
reasonable care in their selection, the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any officer, agent,
employee or Adviser of the Trust nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall
protect any Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith,
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gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Every note, bond, contract, instrument, certificate, share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in their or his
capacity as Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
ARTICLE VIII
Indemnification
Section 1. Trustees, Officers, etc. The Trust shall indemnify each
of its Trustees and officers and any persons who serve at the Trust's request
as Directors, officers or Trustees of another organization in which the Trust
has any interest as a shareholder, creditor or otherwise (hereinafter referred
to as a "Covered Person") against all liabilities and expenses, including but
not limited to, amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and counsel fees reasonably incurred by any such person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such person may be or may have been involved as a
party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer or Director, except with respect to any matter as to
which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests
of the Trust and except that no person shall be indemnified against any
liability to the Trust or its Shareholders to which such Covered Person shall
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
office. Expenses, including counsel fees so incurred by any Covered Person (but
excluding amounts paid in satisfaction of judgments, in compromise or as fines
or penalties), may be paid from time to time by the Trust in advance of the
final disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person, secured by an appropriate
deposit or a surety bond approved by independent legal counsel for the Trust,
to repay amounts so paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this Article.
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Except as otherwise provided by law, the Trust shall have power to
purchase and maintain insurance on behalf of a Covered Person against any
liability asserted against him and incurred by him in his capacity as a Covered
Person, or arising out of his status as such, whether or not the Trust would
have the power to indemnify him against the liability under the provisions of
this section.
Section 2. Compromise Payment. As to any matter disposed of by a
compromise payment by any Covered person referred to in Section 1 above,
pursuant to a consent decree or otherwise, no such indemnification either for
such payment or for any other expenses shall be provided unless such compromise
shall be approved as in the best interests of the Trust, after notice that it
involved such indemnification, (a) by a disinterested majority of the Trustees
then in office; or (b) by a majority of the disinterested Trustees then in
office; or (c) by any disinterested person or persons to whom the question may
be referred by the Trustees, provided that in the case of approval pursuant to
clause (b) or (c) there has been obtained an opinion in writing of independent
legal counsel to the effect that such Covered Person appears to have acted in
good faith in the reasonable belief that his action was in the best interests
of the Trust and that such indemnification would not protect such person
against any liability to the Trust to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of office; or (d) by
vote of Shareholders holding a majority of the Shares entitled to vote thereon,
exclusive of any Shares beneficially owned by any interested Covered Person.
Approval by the Trustees pursuant to clause (a) or (b) or any disinterested
person or persons pursuant to clause (c) of this Section shall not prevent the
recovery from any Covered Person of any amount paid to such person in
accordance with either of such clauses as indemnification if such person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such person's action was in the
best interests of the Trust or to have been liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of office.
Section 3. Indemnification Not Exclusive. The right of
indemnification hereby provided shall not be exclusive or affect any other
rights to which any such Covered Person may be entitled. As used in this
Article VIII, the term "Covered Person" shall include such person's heirs,
executors and administrators, an "interested Covered Person" is one against
whom the action, suit or other proceeding in question or another action, suit
or other proceeding on the same or similar grounds
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is then or has been pending, and a "disinterested person" is a person against
whom none of such actions, suits or other proceedings or another action, suit
or other proceeding on the same or similar grounds is then or has been pending.
Nothing contained in this Article shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and officers or other persons
may be entitled by contract or otherwise under law.
Section 4. Shareholders. In case any Shareholder or former
Shareholder shall be held to be personally liable solely by reason of his being
or having been a Shareholder and not because of his acts or omissions or for
some other reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the assets of the Trust to be held harmless from and
indemnified against all loss and expense arising from such liability.
ARTICLE IX
Miscellaneous
Section 1. Trust Not a Partnership. It is hereby expressly declared
that a trust and not a partnership is created hereby. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust shall have any
power to bind personally either the Trust's Trustees or officers or any
Shareholders. All persons extending credit to, contracting with or having any
claim against the Trust shall look only to the assets of the Trust for payment
under such credit, contract or claim, and neither the Shareholders nor the
Trustees, nor any of the Trust's officers, employees or agents, whether past,
present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee hereunder.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
in good faith and with reasonable care under the circumstances then prevailing,
shall be binding upon everyone interested. Subject to the provisions of
Section 1 of this Article IX, a Trustee shall be liable for his own willful
defaults, and for nothing else, and shall not be liable for errors of judgment
or mistakes of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust,
and subject
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<PAGE> 16
to the provisions of said Section 1 shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor any surety if
a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees pursuant
hereto or to see to the application of any payments made or property
transferred to the Trust or upon its order.
Section 4. Termination of Trust.
(a) This Trust shall continue without limitation of time but
subject to the provisions of paragraphs (b), (c) and (d) of this
Section 4.
(b) Subject to a Majority Shareholder Vote, the Trustees, may
merge, consolidate, or sell and convey the assets of the Trust
including its goodwill to another trust or corporation organized under
the laws of any state of the United States, which is a diversified
open-end management investment company as defined in the 1940 Act, for
an adequate consideration which may include the assumption of all
outstanding obligations, taxes and other liabilities, accrued or
contingent, of the Trust and which may include shares of beneficial
interest or stock of such trust or corporation. Upon making provision
for the payment of all such liabilities, by such assumption or
otherwise, the Trustees shall distribute the net proceeds of the
transaction ratably among the holders of the Shares of the Trust then
outstanding.
(c) Subject to a Majority Shareholder Vote, the Trustees may at
any time sell and convert into money all the assets of the Trust.
Either the Trustees, or the Shareholders acting by a Majority
Shareholder Vote, may at any time sell and convert into money all the
assets of the Trust. Upon making provision for the payment of all
outstanding obligations, taxes and other liabilities, accrued or
contingent, of the Trust, the Trustees shall distribute the remaining
assets of the Trust ratably among the holders of the outstanding
Shares.
(d) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in paragraphs (b) and
(c), the Trust shall terminate and the Trustees shall be discharged of
any and all further
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<PAGE> 17
liabilities and duties hereunder and the right, title and interest of
all parties shall be canceled and discharged.
Section 5. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each Declaration of Trust supplemental hereto or
Amendment hereof shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each such
Supplemental Declaration of Trust or Amendment shall be filed by the Trust with
the Massachusetts Secretary of State and the Boston City Clerk, as well as any
other governmental office where such filing may from time to time be required.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any Supplemental Declarations of Trust or Amendments
have been made, and as to any matters in connection with the trust hereunder;
and, with the same effect as if it were the original, may rely on a copy
certified by an officer of the Trust to be a copy of this instrument or of any
such Supplemental Declaration of Trust or Amendment. In this instrument or in
any such Amendment or Supplemental Declaration of Trust, references to this
instrument, and all expressions such as "herein," "hereof," and "hereunder,"
shall be deemed to refer to this instrument as amended or affected by any such
Supplemental Declaration of Trust or Amendment. Headings are placed herein for
convenience of reference only and in case of any conflict, the text of this
instrument, rather than the headings, shall control. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 6. Applicable Law. The Trust set forth in this instrument is
made in the Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of such
Commonwealth. The Trust shall be of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a Trust.
Section 7. Amendments. This Declaration of Trust may be altered or
amended at any time by an instrument in writing signed by a majority of the
Trustees when authorized so to do by vote of Shareholders holding a majority of
the Shares entitled to vote or by any larger vote which may be required by
applicable law in any particular case except that Amendments having the purpose
of changing the name of the Trust or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by Shareholder vote.
Copies of the Supplemental Declaration of Trust shall be filed as specified in
Section 5 of this Article IX.
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<PAGE> 18
IN WITNESS WHEREOF, the undersigned being a majority of the Trustees
of the Trust have hereunto set their hands and seals in the City of Boston,
Massachusetts, for themselves and their assigns, as of the day and year first
above written.
/s/George S. Bissell /s/Andrew J. Simons
- ---------------------------------- ----------------------------------
George S. Bissell Andrew J. Simons
/s/Knight Edwards /s/Everett P. Pope
- ---------------------------------- ----------------------------------
Knight Edwards Everett P. Pope
/s/Donald T. Ellis /s/Peter K. Simonds
- ---------------------------------- ----------------------------------
Donald T. Ellis Peter K. Simonds
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<PAGE> 19
AGGRESSIVE STOCK TRUST
DECLARATION OF TRUST
AMENDMENT EFFECTIVE MAY 1, 1994
VOTED: That, pursuant to the authority of Article IX, Section 7 of the
Declaration of Trust, Article I, Section 1, Name, be amended
effective May 1, 1994 to read as follows (deletion bracketed,
addition underlined):
This Trust shall be known as the ["AGGRESSIVE STOCK TRUST"]
"CAPITAL APPRECIATION FUND" and the Trustees shall conduct the
business of this Trust under that name or any other name as they
may from time to time determine.
<PAGE> 1
EXHIBIT 2
CAPITAL APPRECIATION FUND
BY-LAWS
ARTICLE 1.
Declaration of Trust and Principal Office
1.1 Declaration of Trust. These By-laws are adopted pursuant to and are
subject to the terms of the Declaration of Trust dated August 6, 1982 (the
"Declaration of Trust") of Capital Appreciation Fund the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located in Hartford, Connecticut.
ARTICLE 2.
Meetings of Shareholders
2.1 Meeting. The meeting of Shareholders specified in Article V, Section 2 of
the Declaration of Trust shall be held for the purpose of electing Trustees and
for such other purposes as may be prescribed by law, by the Declaration of
Trust or hereby or as may be specified by the Trustees. If the meeting is not
held, a special meeting may be held in lieu thereof or may be called by
Trustees as provided in Article V, Section 2 of the Declaration of Trust and
any business transacted or election held at the special meeting shall have the
same effect as if transacted or election held at the meeting.
2.2 Special Meetings. Special meetings may be called by the Trustees and
shall be called by the Trustees upon the written request of Shareholders owning
at least one quarter of the outstanding Shares entitled to vote. Every such
request shall state the purpose of the meeting and shall be delivered at the
principal office of the Trust addressed to the Trustees of the Trust, and in
case the Trustees shall refuse or fail, for fourteen (14) days after the
request shall have been so delivered, to call such special meeting to be held
within sixty (60) days after the delivery of the request, the same may be
called by the person or persons signing such request or by any three of them.
<PAGE> 2
2.3 Business to be Transacted. At any meeting or special meeting of
Shareholders, no business shall be transacted other than such as is referred to
in the notice of the meeting.
2.4 Notice. A written notice of each meeting of the Shareholders, specifying
the time, place and purposes thereof, shall be given as hereinafter provided by
the Secretary of the Trust or any Assistant Secretary or by a person or persons
designated by either of them, to each Shareholder who is entitled to vote
(including Sundays and holidays) before such meeting. Notice of a meeting need
not be given to any Shareholder if a written waiver of notice, executed by the
Shareholder or his attorney thereunto duly authorized before or after the
meeting, is filed with the records of the meeting, or to any Shareholder who
attends the meeting either in person or by proxy without protesting, prior
thereto or at its commencement, the lack of notice to such Shareholder. Every
notice to any Shareholder required or provided for herein may be given to him
personally or by mailing it to him prepaid, addressed to him at his address
specified in the records of the Trustee or any transfer or Shareholder
servicing agent. Notice shall be deemed to have been given at the time when it
is so mailed. In respect of any Share held jointly by several persons notice
so given to any one of them shall be sufficient notice to all of them. Any
notice so sent to the address of any Shareholder shall be deemed to have been
duly sent in respect of any such Share whether held by him solely or jointly
with others, notwithstanding he be then deceased or be bankrupt or insolvent or
legally incompetent, and whether or not the Trustees or any person sending such
notice have knowledge of his death, bankruptcy or insolvency or legal
incompetence, until some other person or persons shall be registered as
holders. The certificate of the person or persons giving such notice shall be
sufficient evidence thereof, and shall protect all persons acting in good faith
in reliance on such certificate.
2.5 Voting. Shares may be voted in person by the Shareholder or by proxy in
form reasonably acceptable to the Secretary or any transfer or shareholder
servicing agent. If the holder of any Share is a minor or a person of unsound
mind, or subject to guardianship or to the legal control of any other person as
regards the charge or management of such Share, he may vote by his guardian or
such other person appointed or having such control, and such vote may be given
in person or by proxy.
2.6 Record Dates. For the purpose of determining the Shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix a time, which shall be not more than
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<PAGE> 3
seventy-five (75) days before the date of any meeting of Shareholders or the
date for the payment of any dividend or of any other distribution, as the
record date for determining the Shareholders having the right to notice of and
to vote at such meeting and any adjournment thereof or the right to receive
such dividend or distribution, and in such case only Shareholders of record on
such record date shall have such right, notwithstanding any transfer of Shares
on the books of the Trust after the record date; or without fixing such record
date the Trustees may for any of such purposes close the register or transfer
books for all or any part of such period.
ARTICLE 3.
Meetings of Trustees
3.1 Regular Meetings. Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the Trustees may from time
to time determine, provided that notice of the first regular meeting following
any such determination shall be given to absent Trustees.
3.2 Special Meetings. Special meetings of the trustees may be held at any
time and at any place designated in the call of the meeting when called by the
Chairman, the President or the Treasurer or by two or more Trustees, sufficient
notice thereof being given to each Trustee by the Secretary or an Assistant
Secretary or by the officer or one of the Trustees calling the meeting.
3.3 Notice. It shall be sufficient notice to a Trustee of a special meeting
to send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to him at his usual or last
known business or residence address or to give notice to him in person or by
telephone at least twenty-four hours before the meeting. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to
any Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. Neither notice of a meeting nor a
waiver of a notice need specify the purposes of the meeting.
3.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to
time by a majority of the votes cast upon the question, whether or not a quorum
is present and the meeting may be held as adjourned without further notice.
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<PAGE> 4
3.5 Action by Vote. When a quorum is present at any meeting, a majority of
the Trustees present may take any action, except when a larger vote is required
by the Declaration of Trust or any applicable law.
3.6 Participation by Conference Telephone. The Trustees may participate in a
meeting of the Trustees by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
3.7 Action by Writing. The Trustees may act without a meeting and the action
of a majority of the Trustees then in office evidenced by a writing signed by
such a majority shall be valid and binding as the action of the Trustees.
ARTICLE 4.
Officers
4.1 Election. The President, the Treasurer and the Secretary shall be elected
annually by the Trustees and shall serve until their successors are elected and
qualified or until their earlier death, resignation or removal. Other
officers, if any, including if desired a Chairman of the Board and a
Controller, may be elected or appointed by the Trustees at said meeting or at
any other time. Vacancies in any office may be filled at any time.
4.2 Tenure. Each officer and each agent shall hold office at the pleasure of
the Trustees.
4.3 Powers. Subject to law and to the other provisions of these By-Laws, each
officer shall have, in addition to any duties and powers set forth herein and
in the Declaration of Trust, such duties and powers as are commonly incident to
the office occupied by him as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
4.4 Chairman; President. Unless the Trustees otherwise provide, the Chairman
or, if there is none or in his absence, the President shall preside at all
meetings of Shareholders and of the Trust. The Chairman shall be the chief
executive officer.
4.5 Treasurer. The Treasurer shall be the chief financial officer of the
Trust. In the absence of the Treasurer, or if there is then no person serving
in such office, the Controller of the Trust shall be the chief financial
officer of the Trust. He
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<PAGE> 5
shall, subject to the provisions of the Declaration of Trust and subject to any
arrangement made by the Trustees with a bank or other trust company or
organization as custodian, be in charge of valuable papers, books of account
and accounting records, and shall have such other duties and powers as may be
designated from time to time by the Trustees or by the President.
4.6 Secretary. The Secretary shall record all proceedings of the Shareholders
and Trustees in books to be kept therefor, which books shall be kept at the
principal office of the Trust. In the absence of the Secretary, an Assistant
Secretary, or if there be none of if he is absent, a Temporary Secretary chosen
by the Shareholders or the Trustees, as the case may be, shall record the
proceedings in the aforesaid books.
4.7 Resignation and Removals. Any Trustee or officer may resign at any time
by written instrument signed by him and deposited with the Trustees by
delivering such resignation to the President or the Secretary or to a meeting
of the Trustees. Such resignation shall be effective upon receipt unless
specified to be effective at some other time. The Trustees may remove any
officer elected by them with or without cause by vote of a majority of the
Trustees then in office. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee or officer resigning and no officer
removed shall have any right to compensation for any period following his
resignation or removal, or any right to damages on account of such removal.
ARTICLE 5.
Committees
5.1 General. The Trustees may appoint from their number an executive
committee of not less than three to serve during their pleasure. The executive
committee may, when the Trustees are not in session at a meeting, exercise such
of the powers and authority of the Trustees as may be conferred from time to
time by the Trustee. Rules governing the actions of the executive committee may
be adopted by the Trustees from time to time as they deem appropriate.
The Trustees may appoint from their number such other committees from time to
time as they deem appropriate. The number composing such committees, the
powers and authority conferred upon such committees and the rules governing the
actions of such committees shall be determined by the Trustees at their
discretion.
5.2 Quorum; Voting. A majority of the members of any committee of the
Trustees shall constitute a quorum for the transaction of
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<PAGE> 6
business, and any action of such a committee may be taken at a meeting by a
vote of a majority of the members present (a quorum being present) or evidenced
by one or more writings singed by such a majority.
Members of a committee may participate in a meeting of such committee by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE 6.
Fiscal Year and Seal
6.1 Fiscal Year. The fiscal year of the Trust shall end on the last day of
December in each year.
6.2 Seal. The seal of the Trust shall consist of a flat-faced die with the
name of the Trust and 1982 cut or engraved thereon.
ARTICLE 7.
Provisions Relating to the Conduct of the Trust's Business
7.1 Dealings with Affiliates. The Trust shall not purchase or retain
securities issued by an issuer if one or more of the holders of the securities
of such issuer or one or more of the officers or directors of such issuer is an
officer or Trustee of the trust or an officer or director of any other
organization, association or corporation which is an investment adviser, as
defined in the Investment Company Act of 1940, to the Trust {"investment
adviser"), and if to the knowledge of the Trust one or more of such officers or
Trustees of the Trust or officers or directors of any investment adviser owns
beneficially more than one half of one percent of the shares or securities of
such issuer and such officers, Trustees and directors owning more than one half
of one percent of such shares or securities together own beneficially more than
five percent of such outstanding shares or securities. Each Trustee and
officer of the Trust and each director and officer of any investment adviser
shall give notice to the Secretary of the Trust of the identity of all issuers
of which such officer, Trustee or director owns as much as one half of one
percent of the outstanding securities, and the Trust shall not be charged with
the knowledge of such holdings in the absence of receiving such notice if the
Trust has requested such information not less often than quarterly.
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<PAGE> 7
Subject to the provisions of the preceding paragraph, no officer or Trustee of
the Trust or officer or director of any investment adviser shall deal for or on
behalf of the Trust with himself as principal or agent, or with any
partnership, association or corporation in which he has a material financial
interest; provided that the foregoing provisions shall not prevent (a) officers
and Trustees of the Trust or officers and directors of any investment adviser
from buying, holding or selling shares in the Trust, or from being partners,
officers or directors of or financially interested in any investment adviser or
in any corporation, firm or association which may at any time have an
underwriting contract with the Trust; (b) purchases of investments for the
portfolio of the Trust or sales of investments owned by the Trust through a
securities dealer who is, or one or more of whose partners, stockholders,
officers or directors is, an officer or Trustee of the Trust or an officer or
director of any investment adviser or firm which has an underwriting contract
with the Trust, if such transactions are handled in the capacity of broker only
and commissions charged to the Trust do not exceed customary brokerage charges
for such services; (c) employment of legal counsel, registrar, transfer agent,
dividend disbursing agent or custodian who is, or has a partner, stockholder,
officer or director who is, an officer or Trustee of the Trust or an officer or
director of any investment adviser, if only customary fees are charged for
services to the Trust; (d) sharing statistical, research and management
expenses, including office hire and services, with any other company in which
an officer or Trustee of the Trust or an officer or director of any investment
adviser is an officer, trustee, or director or financially interested.
7.2 Limitation on Certain Loans. The Trust shall make no loans to any
officer, Trustee or employee of the Trust or to any investment adviser or their
respective officers, directors or partners or employees.
7.3 Limitation on Dealing in Securities of the Trust. Neither any
organization, association or corporation which may at any time have an
exclusive distributor's contract with the Trust (the "distributor"), nor any
investment adviser to the Trust, nor any officer or Trustee of the Trust nor
any officer or director of the distributor or any investment adviser shall take
long or short positions in securities issued by the Trust, provided, however,
that:
(a) the distributor may place orders for securities issued by the
Trust equivalent to orders received by the distributor;
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<PAGE> 8
(b) there shall be no limitation on the purchase of securities issued
by the Trust by any Shareholder acting in such capacity;
(c) any officer or Trustee of the Trust or officer or director of the
distributor or any investment adviser may at any time, or from time to
time, purchase from the Trust or from the distributor securities
issued by the Trust at the price available to the public or to such
officer, Trustee or director in accordance with the effective
prospectus at the moment of such purchase or, to the extent that such
person is a securityholder, at the price available to securityholders
of the Trust generally at the moment of such purchase, no such
purchase to be in contravention of any applicable state or federal
requirement;
(d) prior to the public offering of securities issued by the Trust,
the distributor or any investment adviser may at any time, or from
time to time, purchase securities issued by the Trust.
7.4 Custodian. All securities and cash owned by the Trust shall be maintained
in the custody of one or more banks or trust companies having (according to
their last published reports) not less than two million dollars ($2,000,000)
aggregate capital, surplus and undivided profits (which banks or trust
companies are hereinafter referred to as a "custodian").
The Trust shall upon the resignation or inability to serve of a custodian or
upon change of the custodian:
(a) in the case of such resignation or inability to serve, use its
best efforts to obtain a successor custodian;
(b) require that the cash and securities owned by the Trust be
delivered directly to the successor custodian; and,
(c) in the event that no successor custodian can be found, summit to
the Shareholders, before permitting delivery of the cash and
securities owned by the Trust otherwise than to a successor custodian,
the question whether or not the Trust shall be liquidated or shall
function without a custodian.
Notwithstanding the foregoing, but subject to such rules, regulations and
orders, if any, as the Securities and Exchange Commission may adopt, the Trust
may, or may permit the custodian to, deposit all or any part of the securities
owned by the Trust in a system for the central handling of securities
established by a national securities exchange or national securities
association registered with said Commission under the Securities Exchange Act
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<PAGE> 9
of 1934, or such other person as may be permitted by said Commission, pursuant
to which system all securities of any particular class or series of any issue
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry, without physical delivery of such securities.
7.5 Limitations on Investments. The Trust shall not purchase for its
portfolio the securities of any issuer if immediately after such purchase and
as a result thereof more than five percent (5%) of its total assets valued at
their current market value would be invested in the securities of any one
issuer, except that up to twenty-five percent (25%) of its total assets valued
in the manner set forth above may be invested without regard to this
limitation.
The Trust shall not purchase for its portfolio the securities of any issuer if
as a result of such purchase the Trust would thereupon hold more than ten
percent (10%) of the outstanding voting securities (as that term is defined
Section 2(a)(42) of the Investment Company Act of 1940) of any issuer. The
provisions of this paragraph and the preceding paragraph shall not apply to
obligations issued or guaranteed by the government of the United States of
America or to obligations of any corporation organized under a general act of
Congress if such corporation is an instrumentality of the United States.
The Trust shall not purchase for its portfolio the securities of companies
which have a record of less than three years' continuous operation is as a
result of such of such purchase the Trust's total investment in such companies,
valued at their current market value, would thereupon amount to more than five
percent (5%) of the Trust's total assets, valued in the same manner. Such
period of three years may include the operation of any predecessor company or
companies, partnership or individual enterprise, if the company whose
securities are taken as an investment for funds of the Trust has come into
existence as a result of a merger, consolidation, reorganization or the
purchase of substantially all of the assets of such predecessor company or
companies, partnership or individual enterprise.
The Trust shall not purchase securities on margin, except such short-term
credits as are necessary for the clearance of transactions and except in
connection with transactions involving financial futures in order to limit
transaction and borrowing costs and for hedging purposes.
7.6 Limitation on Borrowings. The Trust may from time to time borrow money
from banks as a temporary measure to facilitate redemptions or for
extraordinary or emergency purposes, but only
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in amount not to exceed ten per cent (10%) of its total assets valued at their
current market value.
7.7 Limitation on Pledges and Short Sales The Trust shall not pledge,
mortgage or hypothecate more than fifteen percent of its total assets valued at
their current market value, and any pledge, mortgage or hypothecation shall be
made only to secure borrowings permitted by Section 7.6 hereof.
The Trust shall not make short sales of securities or maintain a short position
for the account of the Trust unless at all times when a short position is open,
the Trust owns an equal amount of such securities or of securities which
without the payment of further consideration are convertible into or
exchangeable for securities of the same issue as, and equal in amount to, the
securities sold short.
7.8 Reports to Shareholders: Distributions from Realized Gains. The Trust
shall send to each Shareholder of record at least semi-annually a statement of
the condition of the Trust and of the results of its operations, containing all
information required by applicable laws or regulations. Whenever the Trust
pays distri-butions from realized gains, such fact shall be clearly revealed to
the Shareholders and the basis of calculation shall be set forth.
7.9 Underwriting Contract. The Trustees may at any time and from time to time
enter into a contract or contracts providing for the sale of Shares of the
Trust. Such contract shall contain a provision that the offering price of the
Shares shall not exceed Net Asset Value per Share (determined as set forth in
the Declaration of Trust) plus, if the Trustees so determine, a sales charge
not to exceed nine per cent (9%) of the offering Price. Any such contract may
contain such terms and conditions, not inconsistent herewith and with
applicable laws and regulations, as may be prescribed in the Declaration of
Trust or these By-Laws, or as the Trustees may in their discretion determine.
7.10 Dividends and Distributions. The Chairman, President or Treasurer of the
Fund are each authorized to declare and authorize the payment of dividends and
distributions of the Fund and to report such payments to the Board of Trustees.
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ARTICLE 8.
Amendments
8.1 Amendment by Trustees or Shareholders. These By-Laws may be altered,
amended or repealed at any time by vote of the Shareholders. These By-Laws may
also be altered, amended or repealed by vote of the Trustees, except with
respect to any provision which by law, the Declaration of Trust or these
By-laws requires action by the Shareholders. Such action by the Shareholders is
hereby declared necessary to amend, alter or repeal this Section 8.1 so as to
increase the power of the Trustees or reduce the power of the Shareholders to
amend, alter or repeal these By-Laws.
8.2 Further Amendment by the Shareholders. Any By-law so altered, amended or
repealed by the Trustees may be further altered or reinstated by the
Shareholders.
As last amended May 1, 1994.
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EXHIBIT 5(A)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT made as of this 1st day of May, 1993,
between The Travelers Investment Management Company, a Connecticut general
business corporation (hereinafter "TIMCO") and Aggressive Stock Trust
(hereinafter the "Trust"), a Massachusetts business trust established in
Massachusetts by a Declaration of Trust dated March 19, 1982, as amended and/or
restated from time to time (the "Declaration of Trust").
WITNESSETH:
WHEREAS, the Trust and TIMCO wish to enter into an agreement setting
forth the terms upon which TIMCO will perform certain services for the Trust.
NOW, THEREFORE, in consideration of the promise and the mutual
agreements herein contained, the parties hereto agree as follows:
1. The Trust hereby employs TIMCO to manage the investment and reinvestment
of the assets of the Trust and to perform the other services herein set
forth, subject to the supervision of the Board of Trustees of the Trust
(hereinafter the "Board") for the period and on the terms herein set
forth. TIMCO hereby accepts such employment and agrees during such
period, at its own expense, to render the services and to assume the
obligations herein set forth for the compensation herein provided.
2. In carrying out these obligations to manage the investment and
reinvestment of the assets of the Trust, TIMCO shall:
a. obtain and evaluate pertinent economic, statistical and financial
data and other information relevant to the investment policy of
the Trust, affecting the economy generally and individual
companies or industries, the securities of which are included in
the Trust's portfolio or are under consideration for inclusion
therein;
b. be authorized to purchase supplemental research and other
services from brokers at additional cost to the Trust;
c. regularly furnish to the Board recommendations with respect to
any investment program for approval, modification or rejection by
the Board;
d. take such steps as are necessary to implement the investment
program approved by the Board; and
e. regularly report to the Board with respect to implementation of
the approved investment program and any other activities in
connection with the administration of the assets of the Trust.
3. TIMCO may engage a sub-adviser to furnish investment management
information and advice to assist TIMCO in carrying out its
responsibilities under this Agreement.
<PAGE> 2
4. Any investment program undertaken by TIMCO pursuant to this Agreement
and any other activities undertaken by TIMCO on behalf of the Trust
shall at all times be subject to any directives of the Board or any duly
constituted committee thereof acting pursuant to like authority.
5. For the services rendered hereunder, TIMCO will receive an amount
equivalent on an annual basis to 0.75% of the average daily net assets
of the Trust, such fees to be deducted on each valuation date.
6. The services of TIMCO to the Trust hereunder are not to be deemed
exclusive and TIMCO shall be free to render similar services to others
so long as its services hereunder are not impaired or interfered with
thereby.
7. If approved by a vote of a majority of the outstanding voting securities
of the Trust (as defined in the Investment Company Act of 1940), this
Investment Advisory Agreement:
a. may not be terminated by TIMCO, without the prior approval of a
new Investment Advisory Agreement by a vote of a majority of the
outstanding voting securities of the Trust, and shall be subject
to termination, without the payment of any penalty, upon sixty
days' written notice to the investment adviser, by the Board or
by a vote of a majority of the outstanding voting securities of
the Trust;
b. shall not be amended without prior approval of a majority of the
outstanding voting securities of the Trust;
c. shall automatically terminate upon assignment by either party; and
d. shall continue in effect for a period of more than two years from
the date of its execution, only so long as such continuance is
specifically approved (i) at least annually by a vote of a
majority of the Board who are not parties to, or interested
persons of any party to, such agreement, cast in person at a
meeting called for the purpose of voting on such approval and at
which the Board has been furnished such information as may be
reasonably necessary to evaluate the terms of said agreement, or
(ii) by a vote of a majority of the outstanding voting securities
of the Trust.
8. This Agreement is made on behalf of the Trust by an officer or Trustee
of the Trust, not individually, but solely as an officer or Trustee
under the Declaration of Trust, and the obligations under this Agreement
are not binding upon, nor shall resort be had to the private property
of, any of the Trustees, shareholders, officers, employees or agents of
the Trust personally, but shall bind only the Trust's property.
9. TIMCO agrees that it shall furnish to the California Commissioner of
Insurance any information or reports concerning the Trust as the
Commissioner, in the performance of his or her duties, may request.
10. TIMCO hereby acknowledges that all books and records relating to the
services provided to the Trust hereunder are the property of the Trust
and subject to its control; provided, however, that during the term of
the
<PAGE> 3
Agreement, the Trust shall not exercise such control so as to interfere
with the performance of TIMCO's duties hereunder.
11. This Investment Advisory Agreement is subject to the provisions of the
Investment Company Act of 1940, as amended, and the rules and
regulations of the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused this Investment
Advisory Agreement to be signed by their respective officials thereunto duly
authorized and seals to be affixed, in the case of TIMCO, as of the day and
year first above written.
AGGRESSIVE STOCK TRUST
By:/s/Robert W. Crispin
Chairman, Board of Trustees
WITNESS:
/s/Thomas A. Klee
Secretary, Board of Trustees
THE TRAVELERS INVESTMENT
MANAGEMENT COMPANY
By:Kent A. Kelley
President
ATTEST: (Seal)
/s/Thomas A. Klee
Corporate Secretary
<PAGE> 1
EXHIBIT 5(B)
SUB-ADVISORY AGREEMENT
This Sub-Advisory Agreement (this "Agreement") is entered into as of May
1, 1993 by and between The Travelers Investment Management Company, a
Connecticut general business corporation ("TIMCO"), and Janus Capital
Corporation, a Colorado corporation ("Sub-Adviser").
WHEREAS, TIMCO has entered into an Investment Advisory Agreement (the
"Investment Advisory Agreement") with Aggressive Stock Trust, a Massachusetts
business trust (the "Trust"), pursuant to which TIMCO provides investment
management and advisory services to the Trust;
WHEREAS, the Investment Advisory Agreement provides that TIMCO may engage
a sub-adviser to furnish investment information and advice to assist TIMCO in
carrying out its responsibilities under the Investment Advisory Agreement;
WHEREAS, TIMCO desires to retain Sub-Adviser to render investment
advisory services to TIMCO in the manner and on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, TIMCO and Sub-Adviser agree as follows:
1. Sub-Adviser Services.
(a) Sub-Adviser shall, subject to the supervision of TIMCO and the
Board of Trustees of the Trust (the "Board"), manage the
investment and reinvestment of the assets of the Trust. Subject
to the investment objectives, policies and restrictions set
forth in the Trust's Declaration of Trust and in its
registration statement under the Securities Act of 1933 and the
Investment Company Act of 1940, and to the statement of
investment guidelines to be agreed upon from time to time
between TIMCO and Sub-Adviser, and subject further to the
requirements under the Internal Revenue Code of 1986, as amended
(the "Code") described in Section l(b) below, Sub-Adviser is
authorized, in its discretion and without prior consultation
with TIMCO, to buy, sell, lend and otherwise trade in any
stocks, bonds and other securities and investment instruments on
behalf of the Trust, and the majority or the whole of the
Trust's assets may be invested in such proportions of stocks,
bonds, other securities or investment instruments, or cash as
Sub-Adviser shall determine. Sub-Adviser shall furnish TIMCO
quarterly and annual reports concerning transactions and
performance of the Trust.
(b) Sub-Adviser shall manage the investment and reinvestment of the
assets of the Trust in compliance with the diversification
requirements of Sections 817(h) and 851(b)(4) of the Code, and
with the annual gross income qualification requirements of
Sections 851(b)(2) and 851(b)(3) of the Code.
2. Obligations of TIMCO.
<PAGE> 2
(a) TIMCO shall provide timely information to Sub-Adviser regarding
such matters as the composition of assets in the Trust, cash
requirements and cash available for investment in the Trust, and
all other information as may be reasonably necessary for
Sub-Adviser to perform its responsibilities hereunder.
(b) TIMCO shall furnish Sub-Adviser a copy of the Trust's
registration statement currently in effect and agrees during the
continuance of this Agreement to furnish Sub-Adviser copies of
any amendments or supplements thereto before or at the time the
amendments or supplements become effective. TIMCO shall also
furnish Sub-Adviser with minutes of meetings of the Board to the
extent they may affect the duties of Sub-Adviser, a certified
copy of any financial statements or reports prepared for the
Trust by certified or independent public accountants, and with
copies of any financial statements or reports made by the Trust
to its shareholders or to any governmental body or securities
exchange, and any further materials or information which
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. TIMCO shall provide Sub-Adviser with a copy of the Trust's
agreement with the Custodian (the "Custodian") designated to hold the
Trust's assets and any modification thereto (the "Custody Agreement") in
advance. The Trust's assets shall be maintained in the custody of the
Custodian identified in, and in accordance with the terms and conditions
of, the Custody Agreement. Sub-Adviser shall have no liability for the
acts or omissions of the Custodian. Any assets added to the Trust shall
be delivered to the Custodian in accordance with the Custody Agreement.
4. Proprietary Rights. TIMCO agrees and acknowledges that Sub-Adviser is
the sole owner of the name and mark "Janus" and that all use of any
designation comprised in whole or part of Janus (a "Janus Mark") under
this Agreement shall inure to the benefit of Sub-Adviser. The use by
TIMCO on its own behalf or on behalf of the Trust of any Janus Mark in
any advertisement or sales literature or other materials promoting the
Trust shall be with the prior written consent of Sub-Adviser. TIMCO
shall not, and TIMCO shall use its best efforts to cause the Trust not
to, without the prior written consent of Sub-Adviser, make
representations regarding Sub-Adviser in any disclosure document,
advertisement or sales literature or other materials promoting the Trust.
Upon termination of this Agreement for any reason, TIMCO shall cease, and
TIMCO shall use its best efforts to cause the Trust to cease, all use of
any Janus Mark(s) as soon as reasonably practicable.
5. Expenses. The Trust shall pay all, and Sub-Adviser shall not be
obligated to pay any, of the Trust's organizational, operational and
business expenses pursuant hereto, including, without limitation: (a)
interest and taxes; (b) brokerage fees and commissions and other costs in
connection with the purchase or sale of securities or other investment
instruments with respect to the Trust; and (c) transfer agent, dividend
disbursing agent, and custodian fees and expenses. Any reimbursement of
advisory fees required by any expense limitation provision shall be the
sole responsibility of The Travelers Insurance Company, and shall not be
<PAGE> 3
the responsibility of Sub-Adviser. Sub-Adviser shall pay its own expenses
for the services to be provided pursuant to this Agreement.
6. Purchase and Sale of Assets. Absent instructions from TIMCO to the
contrary, Sub-Adviser shall place all orders for the purchase and sale of
securities for the Trust with brokers or dealers selected by Sub-Adviser
which may include brokers or dealers affiliated with Sub-Adviser.
Purchase or sell orders for the Trust may be aggregated with
contemporaneous purchase or sell orders of other clients of Sub-Adviser,
provided that any such purchase or sell orders executed contemporaneously
shall be allocated in a manner that Sub-Adviser reasonably deems to be
equitable to all accounts involved. Sub-Adviser shall use its best
efforts to insure that the Trust shall not be disadvantaged by
Sub-Adviser buying or selling a security for another client before buying
or selling such security for the Trust. Sub-Adviser shall use its best
efforts to obtain execution of Trust transactions at prices which are
advantageous to the Trust and at commission rates that are reasonable in
relation to the benefits received. However, Sub-Adviser may select
brokers or dealers on the basis that they provide brokerage, research, or
other services or products to the Trust and/or other accounts serviced by
Sub-Adviser. Sub-Adviser may pay a broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount
of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the
value of the brokerage and research products and/or services provided by
such broker or dealer. This determination, with respect to brokerage and
research services or products, may be viewed in terms of either that
particular transaction or the overall responsibilities which Sub-Adviser
and its affiliates have with respect to the Trust and to accounts over
which they exercise investment discretion, and not all such services or
products may be used by Sub-Adviser in managing the Trust.
7. Compensation of Sub-Adviser. TIMCO shall pay to Sub-Adviser a monthly
fee equivalent on an annual basis to 0.55% of the average daily net
assets of the Trust. Monthly fees shall be calculated by TIMCO based
upon the average daily net assets of the Trust (including cash or cash
equivalents) for the preceding month for investment advisory services
rendered during that preceding month, and shall be payable to Sub-Adviser
by the fifteenth day of the succeeding month. The fee for the first month
during which Sub-Adviser shall render investment advisory services under
this Agreement shall be based upon the number of days the Trust was open
in that month. If this Agreement is terminated, the fee shall be based
upon the number of days the Trust was open during the month in which the
Agreement is terminated.
8. Non-Exclusivity. TIMCO agrees that the services of Sub-Adviser are not
to be deemed exclusive and that Sub-Adviser and its affiliates are free
to act as investment manager and provide other services to various
investment companies and managed accounts. This Agreement shall not in
any way limit or restrict Sub-Adviser or any of its directors, officers,
employees, or agents from buying, selling or trading any securities or
other investment instruments for its or their own account or for the
account of others for whom it or they may be acting, provided that such
<PAGE> 4
activities will not adversely affect or otherwise impair the performance
by Sub-Adviser of its duties and obligations under this Agreement. TIMCO
recognizes and agrees that Sub-Adviser may provide advice to or take
action with respect to other clients, which advice or action, including
the timing and nature of such action, may differ from or be identical to
advice given or action taken with respect to the Trust.
9. Liability. Except as may otherwise be provided by the Investment Company
Act of 1940 or federal securities laws, neither Sub-Adviser nor any of
its officers, directors, employees or agents shall be subject to any
liability to TIMCO, the Trust or any shareholder of the Trust for any
error of judgment, mistake of law, or any loss arising out of any
investment or other act or omission in the course of, connected with, or
arising out of any services to be rendered under this Agreement, except
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of reckless disregard of its
obligations and duties under this Agreement. TIMCO shall hold harmless
and indemnify Sub-Adviser for any loss, liability, cost, damage or
expense (including reasonable attorneys fees and costs) arising from any
claim or demand by the Trust or any past or present shareholder of the
Trust that is not based upon the Sub-Adviser's willful misfeasance, bad
faith, or gross negligence in the performance of its duties or the
reckless disregard of its obligations and duties under this Agreement.
TIMCO acknowledges and agrees that Sub-Adviser makes no representation or
warranty, express or implied, that any level of performance or investment
results will be achieved by the Trust or that the Trust will perform
comparably with any standard or index, including other clients of
Sub-Adviser, whether public or private.
10. Termination. If approved by a vote of a majority of the outstanding
voting securities of the Trust (as defined in the Investment Company Act
of 1940), this Agreement shall become effective on May 1, 1993, and:
(a) shall be subject to termination, without the payment of any
penalty, upon sixty days' written notice, by (i) TIMCO or
Sub-Adviser, (ii) the Board, or (iii) by a vote of a majority of
the outstanding voting securities of the Trust;
(b) shall not be amended without prior approval of the Board, a
majority of the outstanding voting securities of the Trust, and
Sub-Adviser;
(c) shall automatically terminate upon assignment by either party;
and
(d) shall continue in effect for so long as such continuance is
specifically approved (i) at least annually by the vote of a
majority of the Board who are not parties to such agreement or
interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval and at
which the Board has been furnished such information as may be
reasonably necessary to evaluate the terms of said agreement; or
(ii) by a vote of a majority of the outstanding voting
securities of the Trust.
<PAGE> 5
11. General.
(a) Sub-Adviser may perform its services through any employee,
officer, or agent of Sub-Adviser, and TIMCO shall not be
entitled to the advice, recommendation or judgment of any
specific person.
(b) If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or
unenforceable to any extent, the remainder of this Agreement or
the application of such provision to other persons or
circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
(c) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Colorado, exclusive of
conflicts of laws.
(d) Sub-Adviser agrees that it shall furnish to the California
Commissioner of Insurance any information or reports concerning
the Trust as the Commissioner, in the performance of his or her
duties, may reasonably request .
(e) Sub-Adviser acknowledges that all books and records which it
maintains for the Trust in performing its duties under this
Agreement are the property of the Trust and subject to its
control; provided, however, that during the term of this
Agreement the Trust shall not exercise such control so as to
interfere with the performance of Sub-Adviser's duties
hereunder.
(f) This Agreement is subject to the provisions of the Investment
Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder
IN WITNESS WHEREOF, the parties hereto have caused this Sub-Advisory
Agreement to be signed by their respective officials thereunto duly authorized
as of the day and year first above written.
THE TRAVELERS INVESTMENT
MANAGEMENT COMPANY
By: /s/Kent A. Kelley
Name: Kent A. Kelley
Title: President
Attest:
/s/Thomas A. Klee
Title: Corporate Secretary
JANUS CAPITAL CORPORATION
<PAGE> 6
By: /s/Stephen L. Stieneker
Name: Stephen L. Stieneker
Title: Assistant Vice President
Attest:
/s/Darlene Treijillo
Title: Legal Assistant
<PAGE> 1
EXHIBIT 9
TRANSFER AND RECORDKEEPING AGREEMENT
AGREEMENT made as of the 1st day of July, 1991 by and between
Aggressive Stock Trust, a business trust organized and existing under the laws
of Massachusetts, (hereinafter called the "Trust") and The Travelers Insurance
Company, a Connecticut stock insurance company, (hereinafter called "The
Travelers") both parties having their principal place of business at One Tower
Square, Hartford, Connecticut 01683.
WITNESSETH THAT
WHEREAS, the Trust desires The Travelers to perform certain services
for the Trust and The Travelers is willing to perform such services.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, each party, for itself and not jointly, agrees as follows:
1. SERVICES - The Travelers shall perform for the Trust the services set
forth in Exhibit A which is attached hereto and made a part hereof. Such
services shall be performed at no charge to the Trust. The Travelers shall
perform such other services in addition to those set forth in Exhibit A hereto
as the Trust shall request in writing. Any of the services to be performed
hereunder, and the manner in which such services are to be performed, shall be
changed only pursuant to a written agreement sinned by the parties hereto.
The Travelers will undertake no activity which, in its judgment, will
adversely affect the performance of its obligations to the Trust under this
Agreement.
2. EFFECTIVE DATE - This Agreement shall become effective as of the date
set forth above.
3. TERM - This Agreement shall be in effect until terminated in
accordance with Section 14 hereof.
4. STANDARD OF CARE - The Travelers shall at all times use its best
efforts and act in good faith and without negligence in performing all services
pursuant to this Agreement. The Travelers shall indemnify and hold harmless
the Trust against any losses, claims, damages, judgments, liabilities or
expenses (including reasonable counsel fees and expenses) resulting from any
action taken by The Travelers that does not meet the standard of care described
in this Section 4.
5. UNCONTROLLABLE EVENTS - The Travelers shall not be liable for damage,
loss of data, delays or errors occurring by reason of circumstances beyond its
control, including but not limited to acts of civil or military authority,
national emergencies, fire, flood or catastrophe, acts of God, insurrection,
war, riots, or failure of transportation, communication or power supply.
<PAGE> 2
However, The Travelers shall keep in a separate and safe place additional
copies of all records required to be maintained pursuant to this Agreement or
additional tapes or discs necessary to reproduce all such records. The
Travelers shall use reasonable care to minimize the likelihood of all damage,
loss of data, delays and errors resulting from an uncontrollable event, and
should such damage, loss of data, delays or errors occur, The Travelers shall
use its best efforts to mitigate the effects of such occurrence.
Representatives of the Trust shall be entitled to inspect The Travelers
premises and operating capabilities within reasonable business hours and upon
reasonable notice to The Travelers.
6. INDEMNIFICATION - The Trust shall indemnify and hold The Travelers,
its employees and agents harmless against any losses, claims, damages,
judgments, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from (1) transactions which occurred prior to the date The
Travelers began serving as Transfer Agent to the Trust; (2) action taken or
permitted by The Travelers in good faith with due care and without negligence
in reliance upon instructions received from the Trust in accordance with
Section 7 hereof or with respect to the Trust upon the opinion of counsel for
the Trust, as to anything arising in connection with its performance under this
Agreement; or (3) any act done or suffered by The Travelers with respect to the
Trust in good faith with due care and without negligence in connection with its
performance under this Agreement in reliance upon any instruction, order, stock
certificate or other instrument reasonably believed by it to be genuine and to
bear the genuine signature of any person or persons authorized to sign,
countersign, or execute same, and which complies with any governing documents
provided to The Travelers by the Trust and with all applicable requirements of
the Trust's current prospectus and statement of additional information, this
Agreement and instructions (it being specifically agreed that for the purpose
of this indemnification if any instruction received by The Travelers in
accordance with Section 7 hereof differs from the requirements set forth in the
current prospectus or statement of additional information then, with regard to
that difference, The Travelers need only comply with such instruction and not
the current prospectus or statement of additional information).
7. INSTRUCTIONS - The Travelers shall comply with all instructions issued
by the Trust in the form prescribed below which are permitted or required under
Exhibit A attached hereto. Whenever The Travelers takes action hereunder
pursuant to instructions of the Trust, The Travelers shall be entitled to rely
upon such instructions only when such instructions are signed by the President
or Treasurer of the Trust or by an individual designated in writing by the
President or Treasurer as a person authorized to give instructions hereunder.
The Trust may waive the requirement that all instructions be in writing, if
such waiver defines the occurrences not requiring written instruction,
indicates the persons authorized to give such non-written instructions, and is
signed by one of the persons pursuant to the immediately preceding sentence of
this Section 7. In the event The Travelers obtains the Trust's written waiver,
it may rely on non-written instructions received pursuant thereto.
8. CONFIDENTIALITY - The Travelers agrees to treat all records and other
information relative to the Trust and the Trust's shareholders confidentially,
and The Travelers on behalf of itself and its employees agrees to keep
confidential all such information, except, after prior notification to and
approval by the Trust, which approval shall not be unreasonably withheld and
2
<PAGE> 3
may not be withheld where The Travelers may be exposed to civil or criminal
contempt proceedings, when requested to divulge such information by duly
constituted authorities or when so requested by a shareholder of the Trust
seeking information about his own or an appropriately related account.
9. REPORTS - The Travelers will furnish to the Trust and to properly
authorized auditors, examiners, investment companies, dealers, salesmen,
insurance companies, transfer agents, registrars, investors and others
designated by the Trust in writing, such reports at such times as are
prescribed for each service in Exhibit A attached hereto.
In addition, The Travelers will furnish to the California Commissioner
of Insurance any information or reports in connection with the services
provided by The Travelers to the Trust which the Commissioner, in the
performance of his or her duties, may reasonably request.
10. RIGHT OF OWNERSHIP - The Travelers agrees that all records and other
data received, computed, developed, used and/or stored pursuant to this
Agreement are the exclusive property of the Trust and that all such records and
other data will be furnished without additional charge to the Trust in
available machine readable data form immediately upon termination of this
Agreement with respect to such Trust for any reason whatsoever. Furthermore,
upon the Trust's request at any time or times while this Agreement is in
effect, The Travelers shall deliver to such Trust at the Trust's expense, any
or all of the data and records held by The Travelers pursuant to this
Agreement, in the form as requested by the Trust. On the effective date of
termination of this Agreement with respect to the Trust or, if later, on the
date the Trust ceases to use The Travelers services, The Travelers will
promptly return to the Trust any and all records and other data belonging to
the Trust, free of any claim or retention of rights by The Travelers.
11. REDEMPTION OF SHARES - The parties hereto agree that The Travelers
shall process liquidations, redemptions or repurchases of shares of the Trust,
as the agent for the Trust, in the manner as described in the then current
prospectus and statement of additional information for the Trust.
Notwithstanding the foregoing, The Travelers shall be liable for any losses,
damages, claims or expenses resulting from The Traveler's failure to obtain the
appropriate signature guarantee with regard to any redemption or transfer
processed by The Travelers even if the current prospectus or statement of
additional information authorizes The Travelers to waive the requirement of a
signature guarantee unless The Travelers is authorized in writing by an
appropriate party to waive such a requirement.
12. SUBCONTRACTING - The Travelers may, with the prior written consent of
the Trust, subcontract with one or more of its affiliates or other persons to
perform all or part of its obligations hereunder, provided, however, that,
notwithstanding any such subcontract, The Travelers shall be fully responsible
to the Trust hereunder.
13. ASSIGNMENT - This Agreement and the rights and duties hereunder shall
not be assignable by The Travelers or the Trust hereto except by the specific
written consent of the other party.
3
<PAGE> 4
14. TERMINATION - This Agreement may be terminated on such date of which
The Travelers has given the Trust not less than 180 days prior written notice
or of which the Trust has given The Travelers not less than 90 days prior
written notice. Upon such termination, The Travelers will use its best efforts
to cooperate and assist in accomplishing a timely, efficient and accurate
conversion to the person or firm which will provide the services described
hereunder. This Agreement may be terminated by any Trust without the payment
of any penalty, forfeiture, compulsory buyout amount or performance of any
other obligation which could deter termination .
This Agreement may be terminated after written notice to The Travelers
by the Trust if there is material breach or violation of this Agreement of if
The Travelers fails to perform any of its obligations under this Agreement and
the failure continues for more than thirty (30) days after the Trust gives
notice of the failure to The Travelers or bankruptcy or insolvency proceedings
of any nature are instituted by or against The Travelers.
15. NOTICE - Any notice shall by sufficiently given when sent by
registered or certified mail to any party at the address of such party set
forth above or at such other address as such party may from time to time
specify in writing to the other party.
16. SECTION HEADINGS - Section headings are included for convenience only
and are not to be used to construe or interpret this Agreement.
17. INTERPRETIVE PROVISIONS - In connection with the operation of this
Agreement, The Travelers and the Trust may agree from time to time on such
provisions interpretive of or in addition to the provisions of this Agreement
as may in their combined opinion be consistent with the general tenor of this
Agreement, Furthermore, The Travelers and the Trust may agree to add to, delete
from or change the services set forth with respect to the Trust in Exhibit A of
the Agreement. Each such interpretive or additional provision, and each
addition, deletion or change is to be signed by all parties affected and
annexed hereto, and no such provision, addition, deletion or change shall
contravene any applicable federal or state law or regulation and no such
provision, addition, deletion or change shall be deemed to be an amendment of
any provision of this Agreement with the exception of Exhibit A hereto.
19. GOVERNING LAW - The Agreement shall be governed by and its provisions
shall be construed in accordance with the laws of the State of Connecticut.
20. MASSACHUSETTS BUSINESS TRUST - The Trust is a Massachusetts business
trust established under a Declaration of Trust. The obligations of the Trust
are not personally binding upon, nor shall recourse by had against the private
property of, any of the Trustees, shareholders, officers, employees or agents
of the Trusts, but only the property of the Trust shall be bound.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE TRAVELERS INSURANCE COMPANY
By: /s/Robert E. Evans
ATTEST: (Seal)
/s/George Caspar
Corporate Secretary
AGGRESSIVE STOCK TRUST
By /s/ Richard J. Shima
WITNESS:
/s/Thomas A. Klee
Secretary, Board of Trustees
5
<PAGE> 6
EXHIBIT A - SERVICES
The offices of The Travelers shall be open to perform the services
pursuant to this Agreement on all days when the Trust is open to transact
business.
The services under this Agreement will include, by way of illustration
but not limitation:
1. Establishing, maintaining, safeguarding and reporting on
shareholder account information and account histories, (including
registration, name and address recorded in generally accepted
form, dealer, representative, branch, and territory information,
mailing address, distribution address, various codes and specific
information.)
2. Recording and controlling shares outstanding in certificate
("issued") and non certificate ("issued") form.
3. Maintaining a record for each certificate issued to include
certificate number, account number, issued date, number of
shares, cancelled date, or stop date, where appropriate.
4. Reconciling the number of outstanding shares of each Trust, on a
daily basis with the Trust and the Trust's custodian, promptly
correcting any differences noted.
5. Establishing and maintaining a trade file on behalf of each Trust
based on trade information furnished to the transfer agent by the
Trust or its distributors.
6. Passing upon the adequacy of documents properly endorsed and
guaranteed submitted by or on behalf of a shareholder to transfer
ownership or redeem shares.
7. Transferring ownership of shares upon the books of the Trust.
8. Redeeming shares.
9. Preparing and promptly mailing account statements to the
shareholder or such other authorized address.
10. Checking surrendered certificates for stop transfer instructions.
11. Cancelling certificates surrendered.
12. Balancing outstanding shares of record with the custodian prior
to each distribution and calculating and paying or reinvesting
distributions to shareholders of record and to open trade
receivable and free stock.
6
<PAGE> 7
13. Processing exchanges of shares of one Trust for another.
14. Reporting to the Trust and its custodian daily the capital stock
activities and dollar amount of transactions.
15. Promptly answering inquiries from shareholders, dealers, Trust
personnel, and others as requested in accordance with the terms
of this Agreement as to account matters, referring policy or
investment matters to the Trust.
16. Maintaining tax information for each account, deducting amounts
where required and furnishing to the Trust, its shareholders,
dealers and, when appropriate, regulatory bodies, the necessary
tax information all in compliance with the various applicable
laws.
17. Calculating and processing Trust mergers or stock dividends, as
directed by the Trust.
18. Maintaining all Trust records as outlined in the record and tape
retention schedule delivered by the Trust.
19. Reconciling all investment, distribution and redemption accounts
20. Making available to the Trust and its distributors at their
locations, CRTs which will provide immediate electronic access to
computerized records maintained for the Trust.
21. Providing space and such technical expertise as may be required
to enable the Trust and its properly authorized auditors,
examiners and others designated by the Trust in writing to
properly understand and examine all books, records, computer
files, microfilm and other items maintained pursuant to this
Agreement, and to assist as required in such examination.
22. Assigning a single account number to each shareholder regardless
of the number of Trusts or Portfolios owned for which the Trust
or one of its affiliates is the trustee, investment adviser or
manager (except as instructed otherwise.)
7
<PAGE> 8
The Transfer Agent will produce reports as required by the Trust
including but not limited to the following:
Shareholder Account Confirmation As required
Transaction journals Daily
Record date position control Daily
Daily and (monthly) cash proof Daily
Daily (monthly) share proof Daily
Daily master control Daily
Account information reports When requested
(Monthly) Cumulative transaction Monthly
Shareholder master list When requested
Dividend account check reconciliation As required
8
<PAGE> 1
EXHIBIT 11(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 24 of this
Registration Statement on Form N-1A of our report dated February 7, 1996, on
our audits of the financial statements and financial highlights of Capital
Appreciation Fund. We also consent to the reference to our Firm as experts in
accounting and auditing under the caption "Additional Information" in the
Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
April 11, 1996
<PAGE> 1
EXHIBIT 11(B)
CAPITAL APPRECIATION FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Heath B. McLendon of Summit, New Jersey, Chairman of
the Board of Trustees of Capital Appreciation Fund, do hereby make, constitute
and appoint ERNEST J. WRIGHT, Secretary of said Trust, and KATHLEEN A. McGAH,
Assistant Secretary of said Trust, either one of them acting alone, my true and
lawful attorney-in-fact, for me, and in my name, place and stead, to sign
registration statements of said Trust on Form N-1A or other applicable form
under the Securities Act of 1933 for the registration of shares of Beneficial
Interest of Capital Appreciation Fund and to sign any and all amendments,
including post-effective amendments thereto, that may be filed.
IN WITNESS WHEREOF I have hereunto set my hand this 28th day
of July, 1995.
/s/Heath B. McLendon
Chairman of the Board of Trustees
Capital Appreciation Fund
<PAGE> 2
CAPITAL APPRECIATION FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Knight Edwards of Providence, Rhode Island, a member
of the Board of Trustees of Capital Appreciation Fund, do hereby make,
constitute and appoint ERNEST J. WRIGHT, Secretary of said Trust, and KATHLEEN
A. McGAH, Assistant Secretary of said Trust, either one of them acting alone,
my true and lawful attorney-in-fact, for me, and in my name, place and stead,
to sign registration statements of said Trust on Form N-1A or other applicable
form under the Securities Act of 1933 for the registration of shares of
Beneficial Interest of Capital Appreciation Fund and to sign any and all
amendments, including post-effective amendments thereto, that may be filed.
IN WITNESS WHEREOF I have hereunto set my hand this 28th day
of July, 1995.
/s/Knight Edwards
Member of the Board of Trustees
Capital Appreciation Fund
<PAGE> 3
CAPITAL APPRECIATION FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Robert E. McGill, III of Williamstown, Massachusetts,
a member of the Board of Trustees of Capital Appreciation Fund, do hereby make,
constitute and appoint ERNEST J. WRIGHT, Secretary of said Trust, and KATHLEEN
A. McGAH, Assistant Secretary of said Trust, either one of them acting alone,
my true and lawful attorney-in-fact, for me, and in my name, place and stead,
to sign registration statements of said Trust on Form N-1A or other applicable
form under the Securities Act of 1933 for the registration of shares of
Beneficial Interest of Capital Appreciation Fund and to sign any and all
amendments, including post-effective amendments thereto, that may be filed.
IN WITNESS WHEREOF I have hereunto set my hand this 28th day
of July, 1995.
/s/Robert E. McGill III
Member of the Board of Trustees
Capital Appreciation Fund
<PAGE> 4
CAPITAL APPRECIATION FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Lewis Mandell of Shorewood, Wisconsin, a member of the
Board of Trustees of Capital Appreciation Fund, do hereby make, constitute and
appoint ERNEST J. WRIGHT, Secretary of said Trust, and KATHLEEN A. McGAH,
Assistant Secretary of said Trust, either one of them acting alone, my true and
lawful attorney-in-fact, for me, and in my name, place and stead, to sign
registration statements of said Trust on Form N-1A or other applicable form
under the Securities Act of 1933 for the registration of shares of Beneficial
Interest of Capital Appreciation Fund and to sign any and all amendments,
including post-effective amendments thereto, that may be filed.
IN WITNESS WHEREOF I have hereunto set my hand this 28th day
of July, 1995.
/s/Lewis Mandell
Member of the Board of Trustees
Capital Appreciation Fund
<PAGE> 5
CAPITAL APPRECIATION FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Frances M. Hawk of Sherborn, Massachusetts, a member
of the Board of Trustees of Capital Appreciation Fund, do hereby make,
constitute and appoint ERNEST J. WRIGHT, Secretary of said Trust, and KATHLEEN
A. McGAH, Assistant Secretary of said Trust, either one of them acting alone,
my true and lawful attorney-in-fact, for me, and in my name, place and stead,
to sign registration statements of said Trust on Form N-1A or other applicable
form under the Securities Act of 1933 for the registration of shares of
Beneficial Interest of Capital Appreciation Fund and to sign any and all
amendments, including post-effective amendments thereto, that may be filed.
IN WITNESS WHEREOF I have hereunto set my hand this 28th day
of July, 1995.
/s/Frances M. Hawk
Member of the Board of Trustees
Capital Appreciation Fund
<PAGE> 6
CAPITAL APPRECIATION FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Ian R. Stuart of East Hampton, Connecticut, Treasurer
of Capital Appreciation Fund, do hereby make, constitute and appoint ERNEST J.
WRIGHT, Secretary of said Trust, and KATHLEEN A. McGAH, Assistant Secretary of
said Trust, either one of them acting alone, my true and lawful
attorney-in-fact, for me, and in my name, place and stead, to sign registration
statements of said Trust on Form N-1A or other applicable form under the
Securities Act of 1933 for the registration of shares of Beneficial Interest of
Capital Appreciation Fund and to sign any and all amendments, including
post-effective amendments thereto, that may be filed.
IN WITNESS WHEREOF I have hereunto set my hand this 31st day
of July, 1995.
/s/Ian R. Stuart
Treasurer
Capital Appreciation Fund
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 105,543,730
<INVESTMENTS-AT-VALUE> 126,763,906
<RECEIVABLES> 144,265
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
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<PAID-IN-CAPITAL-COMMON> 92,267,304
<SHARES-COMMON-STOCK> 3,681,244
<SHARES-COMMON-PRIOR> 3,204,308
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<EXPENSES-NET> 852,707
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<REALIZED-GAINS-CURRENT> 12,852,764
<APPREC-INCREASE-CURRENT> 16,423,842
<NET-CHANGE-FROM-OPS> 30,088,027
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (540,784)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 900,317
<NUMBER-OF-SHARES-REDEEMED> (445,510)
<SHARES-REINVESTED> 22,109
<NET-CHANGE-IN-ASSETS> 43,661,830
<ACCUMULATED-NII-PRIOR> 559,581
<ACCUMULATED-GAINS-PRIOR> (5,015,030)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 852,707
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<PER-SHARE-NAV-BEGIN> 24.50
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> 8.61
<PER-SHARE-DIVIDEND> (.17)
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