<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. 25
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 25
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).
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on May 1, 1997 pursuant to paragraph (b).
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x 60 days after filing pursuant to paragraph (a)(1).
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on __________ pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2).
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on __________ pursuant to paragraph (a)(2) of Rule 485.
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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, 1996 WILL BE FILED
WITH THE COMMISSION PRIOR TO MARCH 1, 1997.
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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>
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 Securities Fund Description; Dividends and
Distributions; Shareholder Rights; Net Asset Value
7. Purchase of Securities Being Offered Shareholder Rights
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, 1997 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, 1997.
<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.................................................................... 5
TAMIC................................................................................ 6
JANUS CAPITAL CORPORATION............................................................ 6
Portfolio Manager................................................................. 6
FUND ADMINISTRATION.................................................................... 6
SECURITIES TRANSACTIONS................................................................ 6
FUND EXPENSES.......................................................................... 6
TRANSFER AGENT......................................................................... 7
SHAREHOLDER RIGHTS..................................................................... 7
NET ASSET VALUE........................................................................ 7
TAX STATUS............................................................................. 8
DIVIDENDS AND DISTRIBUTIONS............................................................ 8
LEGAL PROCEEDINGS...................................................................... 8
ADDITIONAL INFORMATION................................................................. 8
EXHIBIT A.............................................................................. 9
</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 seven years ended December
31, 1996 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, 1996 is contained in the
Fund's Annual Report which should be read along with this information and which
is incorporated by reference into the SAI.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993+ 1992
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<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of year..................... $ 24.50 $ 25.87 $ 22.72 $ 19.63
Income from operations
Net investment income.................................. 0.24 0.19 0.19 0.28
Net gains or losses on securities (realized and
unrealized).......................................... 8.61 (1.41) 3.21 3.13
--------- --------- -------- -------- --------
Total from investment operations..................... 8.85 (1.22) 3.40 3.41
Less distributions
Distributions from net investment income and short-term
realized gains....................................... (0.17) (0.15) (0.25) (0.32)
Distributions from long-term realized gains............ -- -- -- --
--------- --------- -------- -------- --------
Total distributions.................................. (0.17) (0.15) (0.25) (0.32)
Net asset value, end of year........................... $ 33.18 $ 24.50 $ 25.87 $ 22.72
========== ========== ========= ========= =========
TOTAL RETURN*........................................... 36.37% (4.76)% 15.09% 17.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (thousands).................... $ 122,155 $ 78,494 $ 62,414 $ 29,506
Ratio of expenses to average net assets................ 0.85%** 0.89%** 0.87%** 0.56%**
Ratio of net investment income to average net assets... 0.84% 0.79% 0.81% 1.39%
Portfolio turnover rate................................ 124% 106% 155% 126%
Average Commission Rate Paid (per shares)***........... .0400 -- -- --
<CAPTION>
1991 1990++ 1989 1988 1987
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<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of year..................... $ 14.62 $ 15.76 $ 13.62 $ 12.54 $ 17.11
Income from operations
Net investment income.................................. 0.36 0.09 0.14 0.11 (0.01)
Net gains or losses on securities (realized and
unrealized).......................................... 4.75 (1.08) 2.00 1.15 (1.35)
-------- -------- -------- -------- --------
Total from investment operations..................... 5.11 (0.99) 2.14 1.26 (1.36)
Less distributions
Distributions from net investment income and short-term
realized gains....................................... (0.10) (0.15) -- (0.18) --
Distributions from long-term realized gains............ -- -- -- -- (3.21)
-------- -------- -------- -------- --------
Total distributions.................................. (0.10) (0.15) -- (0.18) (3.21)
Net asset value, end of year........................... $ 19.63 $ 14.62 $ 15.76 $ 13.62 $ 12.54
========= ========= ========= ========= =========
TOTAL RETURN*........................................... 35.16% (6.24)% 15.71% 10.06% (8.12)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (thousands).................... $ 20,497 $ 13,494 $ 15,456 $ 42,470 $ 50,457
Ratio of expenses to average net assets................ 0.56%** 0.82%** 1.37% 1.01% 0.93%
Ratio of net investment income to average net assets... 2.05% 0.58% 0.84% 0.83% (0.05)%
Portfolio turnover rate................................ 205% 80% 75% 104% 170%
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 and 1996,
there were no expense reimbursements by The Travelers in connection with the
voluntary expense limitation.
*** 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
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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
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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
- --------------------------------------------------------------------------------
Travelers Asset Management International Corporation ("TAMIC") 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 TAMIC.
CAF-5
<PAGE> 9
TAMIC
TAMIC is a registered investment adviser that was incorporated in 1978. Its
principal offices are located at One Tower Square, Hartford, Connecticut, and it
is an indirect wholly owned subsidiary of Travelers Group Inc., a financial
services holding company. TAMIC also acts as investment adviser or subadviser
for other investment companies used to fund variable products, as well as for
individual and pooled pension and profit-sharing accounts, and for domestic
insurance companies affiliated with the Travelers Insurance Company and
nonaffiliated insurance companies.
Under the Investment Advisory Agreement, TAMIC will be paid an amount equivalent
on an annual basis to 0.75% of the average daily net assets of the Fund. From
this amount, TAMIC 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. TAMIC will retain 0.20% as compensation for its
services as described above. The fee is computed and paid weekly.
JANUS CAPITAL CORPORATION
Janus Capital Corporation (Janus Capital), 100 Filmore Street, Denver, Colorado
80206, has been employed by TAMIC as a sub-adviser to manage the daily
investment operations of the Fund, subject to the supervision of both TAMIC 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, TAMIC, 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.
FUND ADMINISTRATION
- --------------------------------------------------------------------------------
Capital Appreciation Fund ("Fund") has entered into an Administrative Services
Agreement, whereby Travelers Insurance will be responsible for the pricing and
bookkeeping services for the Fund at an annualized rate of 0.06% of the daily
net assets of the Fund. The Travelers Insurance Company, at its expense, may
appoint a sub-administrator to perform these services. The sub-administrator may
be affiliated with The Travelers Insurance Company.
SECURITIES TRANSACTIONS
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Under policies established by the Board of Trustees, TAMIC 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, TAMIC, Janus Capital or their affiliates.
The Fund may pay higher commissions to broker-dealers which provide research
services. TAMIC 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
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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
CAF-6
<PAGE> 10
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 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, 1993 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, 1996, the Fund paid % of its average
net assets in expenses.
TRANSFER AGENT
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First Data Investor Services Group, Inc., Exchange Place, Boston, MA 02109,
serves as the Fund's transfer agent and dividend disbursing agent.
SHAREHOLDER RIGHTS
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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.
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.)
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.
NET ASSET VALUE
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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 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.
CAF-7
<PAGE> 11
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.
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.
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.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
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
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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, such
as liquid high grade debt securities 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. The adviser 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 the adviser's ability to predict correctly movements in the direction of the
market.
FORWARD CONTRACTS
Forward contracts are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis.
The Funds may enter into forward currency contracts to hedge against declines in
the value of securities denominated in, or whose value is tied to, a currency
other than the U.S. dollar or to reduce the impact of currency appreciation on
purchases of such securities. They may also enter into forward contracts to
purchase or sell securities or other financial indices.
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 the adviser 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.
CAF-10
<PAGE> 14
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 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")).
CAF-11
<PAGE> 15
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
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).
CAF-12
<PAGE> 16
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.
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 the
adviser 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
CAF-13
<PAGE> 17
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 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 the adviser 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 the advisers 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
L-11171 Printed in U.S.A.
TIC Ed. 5-97
<PAGE> 19
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 20
STATEMENT OF ADDITIONAL INFORMATION
CAPITAL APPRECIATION FUND
MAY 1, 1997
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, 1997. 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. This SAI should be read in conjunction
with the accompanying 1996 Annual Report for the Fund.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . 1
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . 1
FORWARD CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
VALUATION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . 3
DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . . . . . 4
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 4
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . . 6
DECLARATION OF TRUST . . . . . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT ADVISORY SERVICES . . . . . . . . . . . . . . . . . . . . 7
The Investment Adviser . . . . . . . . . . . . . . . . . . . . 7
Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . 8
The Subadviser . . . . . . . . . . . . . . . . . . . . . . . . 8
REDEMPTIONS IN KIND . . . . . . . . . . . . . . . . . . . . . . . . . 8
BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 9
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</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;
1
<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.
FORWARD CONTRACTS
A forward contract is an agreement between two parties in which one
party is obligated to deliver a stated amount of a stated asset at a specified
time in the future and the other party is obligated to pay a specified amount
for the assets at the time of delivery. The Fund may enter into forward
contracts to purchase and sell government securities, equity or income
securities, foreign currencies or other financial instruments. Forward
contracts generally are traded in an interbank market conducted directly
between traders (usually large commercial banks) and their customers. Unlike
futures contracts, which are standardized contracts, forward contracts can be
specifically drawn to meet the needs of the parties that enter into them. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated exchange.
The following discussion summarizes the Fund's principal uses of
forward foreign currency exchange contracts ("forward currency contracts").
The Fund may enter into forward currency contracts with stated contract values
of up to the value of the Fund's assets. A forward currency contract is an
obligation to buy or sell an amount of a specified currency for an agreed price
(which may be in U.S. dollars or a foreign currency). The Fund will exchange
foreign currencies for U.S. dollars and for other foreign currencies in the
normal course of business and may buy and sell currencies through forward
currency contracts in order to fix a price for securities it has agreed to buy
or sell ("transaction hedge"). The Fund also may hedge some or all of its
investments denominated
2
<PAGE> 23
in a foreign currency or exposed to foreign currency fluctuations
against a decline in the value of that currency relative to the U.S. dollar by
entering into forward currency contracts to sell an amount of that currency (or
a proxy currency whose performance is expected to replicate or exceed the
performance of that currency relative to the U.S. dollar) approximating the
value of some or all of its portfolio securities denominated in that currency
("position hedge") or by participating in options or futures contracts with
respect to the currency. The Fund also may enter into a forward currency
contract with respect to a currency where the Fund is considering the purchase
or sale of investments denominated in that currency but has not yet selected
the specific investments ("anticipatory hedge"). In any of these circumstances
the Fund may, alternatively, enter into a forward currency contract to purchase
or sell one foreign currency for a second currency that is expected to perform
more favorably relative to the U.S. dollar if the portfolio manager believes
there is a reasonable degree of correlation between movements in the two
currencies ("cross-hedge").
These types of hedging minimize the effect of currency appreciation as
well as depreciation, but do not eliminate fluctuations in the underlying U.S.
dollar equivalent value of the proceeds of or rates of return on the Fund's
foreign currency denominated portfolio securities. The matching of the
increase in value of a forward contract and the decline in the U.S. dollar
equivalent value of the foreign currency denominated asset that is the subject
of the hedge generally will not be precise. Shifting the Fund's currency
exposure from one foreign currency to another removes the Fund's opportunity to
profit from increases in the value of the original currency and involves a risk
of increased losses to the Fund if its portfolio manager's projection of future
exchange rates is inaccurate. Proxy hedges and cross-hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which hedged securities are denominated. Unforeseen changes in currency
prices may result in poorer overall performance for the Fund than if it had not
entered into such contracts.
The Fund will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in or whose value is tied
to the currency underlying the forward contract or the currency being hedged.
To the extent that the Fund is not able to cover its forward currency positions
with underlying portfolio securities, the Fund's custodian will segregate cash
or other liquid assets having a value equal to the aggregate amount of the
Fund's commitments under forward contracts entered into with respect to
position hedges, cross-hedges and anticipatory hedges. If the value of the
securities used to cover a position or the value of segregated assets declines,
the Fund will find alternative cover or segregate additional cash or liquid
assets on a daily basis so that the value of the covered and segregated assets
will be equal to the amount of the Fund's commitments with respect to such
contracts. As an alternative to segregating assets, the Fund may buy call
options permitting the Fund to buy the amount of foreign currency subject to a
forward buy contract.
While forward contracts are not currently regulated by the CFTC, the
CFTC may in the future assert authority to regulate forward contracts. In such
event, the Fund's ability to utilize forward contracts may be restricted. In
addition, the Fund may not always be able to enter into forward contracts at
attractive prices and may be limited in its ability to use these contracts to
hedge Fund assets.
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> 24
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 63 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), Edwards & Angell, Attorneys; Member,
Member Advisory Board (1973-1994), thirty-one mutual funds sponsored by
2700 Hospital Trust Tower Keystone Group, Inc.; Member, Board of Managers, seven Variable Annuity
Providence, Rhode Island Separate Accounts of The Travelers Insurance Company+; Trustee, five
Age 73 Mutual Funds sponsored by The Travelers Insurance Company.++
Robert E. McGill, III Retired manufacturing executive. Director (1983-1995), Executive Vice
Member President (1989-1994), The Dexter Corporation (manufacturer of
295 Hancock Street specialty chemicals and materials); Vice Chairman (1990-1992), Director
Williamstown, Massachusetts (1983-1995), Life Technologies, Inc. (life science/biotechnology
Age 65 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> 25
<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, Wisconsin for Research and Development in Financial Services (1980-1995),
Age 54 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 49 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 56 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 46 Travelers Insurance Company.++ Prior to January 1995, Counsel, ITT
Hartford Life Insurance Company.
Lewis E. Daidone Managing Director of Smith Barney, Senior Vice President and Treasurer
Treasurer of 41 investment companies associated with Smith Barney, Director
388 Greenwich Street and Vice President of SBMFM and TIA; Treasurer, Board of Trustees, five
New York, NY Mutual Funds sponsored by The Travelers Insurance Company.++
Age 38
Irving David Vice President of Smith Barney, Asset Management Division (March
Controller 1994-present); Controller, Board of Trustees, five Mutual Funds
388 Greenwich Street sponsored by The Travelers Insurance Company.++
New York, NY
Age 35
Thomas M. Reynolds Director of Smith Barney, Asset Management Division; Controller and
Controller Assistant Secretary of 35 investment companies associated with Smith
388 Greenwich Street Barney, (September 1991-present); Controller, Board of Trustees, five
New York, NY Mutual Funds sponsored by The Travelers Insurance Company.++
Age 36
</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
5
<PAGE> 26
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.
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 $19,000 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. Once a Board Member retires, 50% of the retainer
amount will be paid monthy. They also receive an aggregate fee of $2,500 for
each meeting of such Boards attended.
PORTFOLIO TURNOVER
The Fund's portfolio turnover for the fiscal years ended December 31,
1996, 1995 and 1994 were ___, 124% and 106% respectively. High portfolio
turnover involves correspondingly greater brokerage commissions and other
transaction costs, which will be borne directly by the Fund.
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
6
<PAGE> 27
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).
INVESTMENT ADVISORY SERVICES
THE INVESTMENT ADVISER
Travelers Asset Management International Corporation ("TAMIC"), 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 TAMIC
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, TAMIC 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;
7
<PAGE> 28
(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 TAMIC in carrying
out its responsibilities under this agreement.
ADVISORY FEES
For furnishing investment management and advisory services to the
Fund, TAMIC is paid an amount equivalent on an annual basis to 0.75% of the
average daily net assets of the Fund. From that amount, TAMIC 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, TAMIC thus retaining 0.20% as compensation for its services (see
"subadviser" below). The advisory fee is computed daily and paid to TAMIC
weekly.
For the fiscal years ended December 31, 1994, 1995 and 1996, these
advisory fees were $526,483, $752,372, and $_____ respectively.
THE SUBADVISER
Janus Capital Corporation (Janus Capital), 100 Fillmore Street,
Denver, Colorado, has been employed by TAMIC as a subadviser to manage the
daily investment operations of the Fund, subject to the supervision of both
TAMIC 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, TAMIC, 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 years ended
December 31, 1994, 1995 and 1996, Janus Capital Corporation received $263,242,
$413,805, and $_____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, TAMIC 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 TAMIC
8
<PAGE> 29
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 TAMIC 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. TAMIC 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 TAMIC 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.
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 TAMIC or Janus Capital responsible for trading and managing
the Fund's portfolio by comparing brokerage firms utilized by TAMIC 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, 1994, 1995 and 1996 were $132,06, $298,469 and $______,
respectively. For the fiscal year ended December 31, 1996, portfolio
transactions in the amount of $___________ were directed to certain brokers
because of research services, of which $________ 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
On April 1, 1997, The Travelers Insurance Company and its affiliates
owned 100% of the Fund's outstanding shares. 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.
First Data Investor Services Group, Inc., Exchange Place, Boston, MA,
02109, acts as transfer agent and dividend disbursing agent for the Fund.
PNC Bank NA, 200 Stevens Drive, Lester, PA 19113 and Barclay's Bank
PLC, 75 Wall Street, New York, NY, 10265 are custodians of the securities and
cash of the Fund.
Beginning on January 1, 1997, KPMG Peat Marwick LLP, independent
certified public accountants, 345 Park Avenue, New York, NY, 10154, became the
Fund's auditors. Coopers & Lybrand L.L.P., independent
9
<PAGE> 30
accountants, 100 Pearl Street, Hartford, Connecticut 06103, were the
independent auditors for the Fund through December 31, 1996. 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 in the Fund's
Annual Report, which is incorporated herein by reference.
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.
10
<PAGE> 31
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
11
<PAGE> 32
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.
12
<PAGE> 33
CAPITAL APPRECIATION FUND
STATEMENT OF ADDITIONAL INFORMATION
L-11171S TIC Ed. 5-97
Printed in U.S.A.
<PAGE> 34
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements of the Registrant and the Report of Independent
Accountants will be provided in a subsequent Post-Effective Amendment.
(b) Exhibits
1. Declaration of Trust. (Incorporated herein by reference to
Exhibit 1 to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A filed on April 11, 1996.)
2. By-Laws of Capital Appreciation Fund. (Incorporated herein
by reference to Exhibit 2 to Post-Effective Amendment No. 24 to
the Registration Statement on Form N-1A filed on April 11, 1996.)
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 Agreements between the Registrant and PNC Bank,
N.A. of Lester, PA and and Barclay's Bank, PLC of New York, NY.
(To be filed by amendment.)
9. Administrative Services 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. (To be filed by
amendment.)
11(A). Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants. (To be filed in a subsequent Post-Effective
Amendment.)
11(A). Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants. (To be filed in a subsequent Post-Effective
Amendment.)
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. (Incorporated herein by reference to Exhibit 11(B) to
Post-Effective Amendment No. 24 to the Registration Statement on
Form N-1A filed on April 11, 1996.)
Power of Attorney authorizing Ernest J. Wright or Kathleen A.
McGah as signatory for Lewis E. Daidone.
27. Financial Data Schedule. (To be filed by amendment.)
<PAGE> 35
Item 25. Persons Controlled By or Under Common Control With the Registrant
Not Applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of February 20, 1997
-------------- -----------------------
Shares of beneficial interest, Seven (7)
without par value
Item 27. Indemnification
Provisions for the indemnification of the Fund's Trustees and officers are
contained in the Fund's Declaration of Trust which was filed with Post-Effective
Amendment No. 24 to the Fund's Registration Statement as Exhibit 1 on April 11,
1996.
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> 36
Item 28. Business and Other Connections of Investment Adviser
Officers and Directors of Travelers Asset Management International Corporation
(TAMIC), the Investment Adviser for Capital Appreciation Fund, are set forth in
the following table:
<TABLE>
<CAPTION>
Name Position with TAMIC Other Business
- ---- ------------------- --------------
<S> <C> <C>
Marc P. Weill Director and Chairman Senior Vice President **
David A. Tyson Director, President and Senior Vice President *
Chief Investment Officer
Kent A. Kelley Director, Chairman and Director and Chief Executive
Senior Vice President Officer, The Travelers Invest-
Capital Appreciation Division ment Management Company
Sandip A. Bhagat Senior Vice President Director and President
Capital Appreciation Division The Travelers Investment
Management Company
Joseph E. Ruelli, Jr. Director, Vice President and Vice President
Chief Financial Officer
F. Denney Voss Director and Vice President Senior Vice President*
David Amaral Vice President Assistant Director*
John R. Calcagni Vice President Second Vice President*
Gene Collins Vice President Vice President*
Edward Hinchliffe III Vice President Cashier
Kathryn D. Karlic Vice President Vice President*
David R. Miller Vice President Vice President*
Joseph Mullally Vice President Vice President*
Emil J. Molinaro Vice President Vice President*
Jordan M. Stitzer Vice President Vice President
William H. White Treasurer Vice President and Treasurer *
Charles B. Chamberlain Assistant Treasurer Assistant Treasurer *
George C. Quaggin, Jr. Assistant Treasurer Assistant Treasurer *
John R. Britt Secretary Assistant Secretary *
Marla A. Berman Assistant Secretary Assistant Secretary**
</TABLE>
<PAGE> 37
<TABLE>
<S> <C> <C>
Patricia A. Uzzel Compliance Officer Assistant Director*
Frank J. Fazzina Controller Director *
</TABLE>
* Positions are held with The Travelers Insurance Group Inc., One Tower
Square, Hartford, Connecticut 06183.
** Positions are held with Travelers Group Inc., 388 Greenwich Street,
New York, N.Y. 10013.
<PAGE> 38
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 of Trustees and
and Chairman President of Janus Aspen Series
Chief Executive Officer and Janus Investment Fund
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, Treasurer and
Director,
DST Systems Inc.
Kansas City, Missouri
Executive Vice President
and Director
Kansas City Southern Industries, Inc.
Kansas City, Missouri
Director - First of Michigan
Capital Corporation
Detroit, MI
Michael Stolper Independent Director President,
Stolper & Co., Inc.
San Diego, California
President, Seaport Venture, Inc.
San Diego, CA
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
Position with Janus
Name Capital Corporation Other Business
- ---- ------------------- --------------
<S> <C> <C>
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
Vice President, Secretary and
Director of Janus Capital
International Ltd.
Denver, Colorado
Steven R. Goodbarn Vice President of Finance, Vice President and Chief
Treasurer and Chief Financial Officer of
Financial Officer Janus Aspen Series and
Janus Investment Fund
Vice President of Finance
and Treasurer and CFO of
Janus Service Corp.,
Janus Distributors and Janus
Capital International Ltd., and
Director of Janus Capital
International Ltd.
Denver. Colorado
Landon H. Rowland Independent Director President and Chief
Executive Officer
Kansas City Southern
Industries, Inc.
Mark B. Whiston Vice President and Director, President and CEO
Chief Marketing Officer Janus Capital International Ltd.
Denver, Colorado
Marjorie G. Hurd Vice President and President of Janus Service Corp.
Chief Operating Officer
</TABLE>
<PAGE> 40
Item 29. Principal Underwriter
Not Applicable.
Item 30. Location of Accounts and Records
(1) Smith Barney
388 Greenwich St.
New York, NY 10013
(2) PNC Bank, N.A.
200 Stevens Drive
Lester, PA 19113
Barclay's Bank, PLC
75 Wall Street
New York, New York 10265
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> 41
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant, Capital Appreciation Fund, 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 February 20,
1997.
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 February 20, 1997.
*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)
*LEWIS E. DAIDONE Treasurer
-----------------------------
(Lewis E. Daidone)
*By:
Ernest J. Wright, Attorney-in-Fact
Secretary, Board of Trustees
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------ ----------- ----------------
<S> <C>
1. Declaration of Trust. (Incorporated herein by reference
to Exhibit 1 to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A filed on
April 11, 1996.)
2. By-Laws of Capital Appreciation Fund. (Incorporated
herein by reference to Exhibit 2 to Post-Effective
Amendment No. 24 to the Registration Statement on
Form N-1A filed on April 11, 1996.)
5(A). Investment Advisory Agreement between the Registrant Electronically
and Travelers Asset Management International Corporation.
5(B). Sub-Advisory Agreement between Travelers Asset Electronically
Management International Corporation and Janus Capital
Corporation.
8. Custody Agreement between the Registrant and To be filed by
PNC Bank, N.A. of Lester, PA and Barclay's Bank, PLC amendment
of New York, NY.
9. Administrative Services Agreement between the Electronically
Registrant and The Travelers Insurance Company.
10. An opinion and consent of counsel as to the legality of To be filed by
the securities registered by the Registrant. amendment
11(A). Consent of Coopers & Lybrand L.L.P., Certified To be filed by
Public Accountants. amendment
Consent of KPMG Peat Marwick LLP, Independent To be filed by
Certified Public Accountants. by amendment
11(B). Powers of Attorney authorizing Ernest J. Wright or
Kathleen A. McGah as signatory for Heath B.
McLendon, Knight Edwards, Robert E. McGill III,
Lewis Mandell, Frances M. Hawk and Ian R. Stuart.
(Incorporated herein by reference to Exhibit 11(B) to
Post-Effective Amendment No. 24 to the Registration
Statement on Form N-1A filed on April 11, 1996.)
Power of Attorney authorizing Ernest J. Wright or Electronically
Kathleen A. McGah as signatory for Lewis E. Daidone.
27. Financial Data Schedule. To be filed by
amendment
</TABLE>
<PAGE> 1
EXHIBIT 5A
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT made as of this 1st day of July, 1996,
between Travelers Asset Management International Corporation, a New York general
business corporation (hereinafter "TAMIC") and Capital Appreciation Fund
(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 TAMIC wish to enter into an agreement setting
forth the terms upon which TAMIC 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 TAMIC 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. TAMIC 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, TAMIC 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. TAMIC may engage a sub-adviser to furnish investment management
information and advice to assist TAMIC in carrying out its
responsibilities under this Agreement.
<PAGE> 2
4. Any investment program undertaken by TAMIC pursuant to this Agreement
and any other activities undertaken by TAMIC 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, TAMIC 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 TAMIC to the Trust hereunder are not to be deemed
exclusive and TAMIC 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 TAMIC, 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. TAMIC 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. TAMIC 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 TAMIC'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 TAMIC, as of the day and year
first above written.
CAPITAL APPRECIATION FUND
By:
------------------------------
Chairman, Board of Trustees
WITNESS:
- ---------------------------------
Secretary, Board of Trustees
TRAVELERS ASSET MANAGEMENT
INTERNATIONAL CORPORATION
By:
------------------------------
President
ATTEST: (Seal)
- ---------------------------------
Corporate Secretary
<PAGE> 1
EXHIBIT 5B
SUB-ADVISORY AGREEMENT
This Sub-Advisory Agreement (this "Agreement") is entered into as of
January 7, 1997 by and between Travelers Asset Management International
Corporation, a New York general business corporation ("TAMIC"), and Janus
Capital Corporation, a Colorado corporation ("Sub-Adviser").
WHEREAS, TAMIC has entered into an Investment Advisory Agreement (the
"Investment Advisory Agreement") with Capital Appreciation Fund, a Massachusetts
business trust (the "Trust"), pursuant to which TAMIC provides investment
management and advisory services to the Trust;
WHEREAS, the Investment Advisory Agreement provides that TAMIC may engage
a sub-adviser to furnish investment information and advice to assist TAMIC in
carrying out its responsibilities under the Investment Advisory Agreement;
WHEREAS, TAMIC desires to retain Sub-Adviser to render investment
advisory services to TAMIC 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, TAMIC and Sub-Adviser agree as follows:
1. Sub-Adviser Services.
(a) Sub-Adviser shall, subject to the supervision of TAMIC 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 TAMIC 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 TAMIC, 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 TAMIC
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.
<PAGE> 2
2. Obligations of TAMIC.
(a) TAMIC 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) TAMIC 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. TAMIC 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. TAMIC 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. TAMIC 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
TAMIC 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. TAMIC shall
not, and TAMIC 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, TAMIC shall cease, and TAMIC 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
2
<PAGE> 3
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 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 TAMIC 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. TAMIC shall pay to Sub-Adviser a monthly
fee equivalent on an annual basis to the following:
<TABLE>
<CAPTION>
Annual Aggregate Net Asset
Management Fee Value of the Account
-------------- --------------------
<C> <S> <C>
0.55% of the first $100,000,000
0.50% of the next $400,000,000
0.45% of the amount over $500,000,000
</TABLE>
The advisory fees will be deducted on each valuation date.
3
<PAGE> 4
8. Non-Exclusivity. TAMIC 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
activities will not adversely affect or otherwise impair the performance
by Sub-Adviser of its duties and obligations under this Agreement. TAMIC
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 TAMIC, 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. TAMIC 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.
TAMIC 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 January 7, 1997, and:
(a) shall be subject to termination, without the payment of any
penalty, upon sixty days' written notice, by (i) TAMIC 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
4
<PAGE> 5
(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.
11. General.
(a) Sub-Adviser may perform its services through any employee,
officer, or agent of Sub-Adviser, and TAMIC 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
5
<PAGE> 6
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.
TRAVELERS ASSET MANAGEMENT
INTERNATIONAL CORPORATION
By:
----------------------------
Name: David A. Tyson
Title: Senior Vice President
Attest:
- ----------------------------
Title: Corporate Secretary
JANUS CAPITAL CORPORATION
By:
----------------------------
Name:
Title:
Attest:
- ----------------------------
Title:
6
<PAGE> 1
EXHIBIT 9
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement (the "Agreement") is hereby made
as of November 4, 1996, by and between The Travelers Insurance Company,
("Travelers") a Connecticut corporation with its principal offices in Hartford,
Connecticut, and Capital Appreciation Fund (the "Trust") which is a registered
open end management investment company with its principal office in Hartford,
Connecticut.
In consideration of the premises and the mutual promises hereinafter
set forth, Travelers and the Trust hereby agree as follows:
1. Appointments. Trust hereby appoints and employs Travelers as agent to
provide the services described in this Agreement for the Trust. Travelers shall
perform the obligations and the services set forth herein in accordance with the
terms and conditions hereto.
2. Services to be Performed
A. Travelers shall be responsible for performing as agent, as of
the date of this Agreement, the pricing and bookkeeping services
commonly referred to as "back office" services described as
follows:
(1) Accounting relating to portfolio transactions of the
Trust.
(2) The determination of net asset value per share of the
outstanding shares of the Trust and the offering price, if
any, at which shares are to be sold, at the times and in
the manner described in the declaration of trust or other
organizational document, as amended, and the Prospectus of
the Trust.
(3) The determination of distributions, if any.
(4) Maintaining the books of account of the Trust.
(5) In conjunction with the Trust's custodian ("Custodian"),
receiving information and keeping records about all
corporate actions, including, but not limited to, cash and
stock distributions or dividends, stock splits and reverse
stock splits, taken by companies whose securities are held
by the Trust.
(6) Monitoring foreign corporate actions and foreign trades
and entering orders to convert foreign currency or
establish contracts for future settlement of foreign
currency.
(7) Processing and monitoring of settlement of Variable Rate
Demand Notes, GNMA's and similar instruments.
(8) Monitoring and accounting for futures and options.
<PAGE> 2
B. Travelers shall be responsible for administering a program of
securities lending for the Trust by:
(1) Carrying out security loan transactions between approved
borrowers and the Trust, including assisting the Custodian
in receiving and returning collateral for loans;
(2) Marking to market loans outstanding each day; and
(3) Ensuring that the value of collateral for loans is 100%
or more of loaned securities at market price and issuing
demands for additional collateral should the percentage
fall below 100%.
C. Travelers shall not be responsible for any other services
provided to the Trust, including, but not limited to, investment
advisory, legal, auditing and clerical services.
The Trust will be responsible for the following expenses,
including, but not limited to, (i) interest and taxes; (ii)
brokerage commissions and other costs in connection with the
purchase or sale of securities and other investment instruments;
(iii) fees and expenses of the Trust's trustees other than those
who are "interested persons" of the Trust, the Manager, the
Subadviser; (iv) legal and audit expenses; (v) custodian and
registrar fees and expenses; (vi) fees and expenses related to
the registration and qualification of the Trust's shares for
distribution under state and federal securities laws; (vii)
expenses of printing and mailing reports and notices and proxy
material to shareholders of the Trust; (viii) all other expenses
incidental to holding meetings of the Trust's shareholders,
including proxy solicitations therefor; (ix) insurance premiums
for fidelity bond and other coverage; (x) investment management
fees; (xi) expenses of typesetting for printing prospectuses and
statements of additional information and supplements thereto;
(xii) expenses of printing and mailing prospectuses and
statements of additional information and supplements thereto;
and (xiii) such non-recurring or extraordinary expenses as may
arise, including those relating to actions, suits or proceedings
to which the Trust is a party and any legal obligation that the
Trust may have to indemnify the Trust's trustees, officers
and/or employees or agents with respect thereto.
Operating procedures and standards to be followed for each function may
be established from time to time by agreement between the Trust and Travelers.
3. Record Keeping and Other Information. Travelers shall create and
maintain all records required by all applicable laws, rules and regulations
relating to the services to be performed herein, including but not limited to,
all applicable records required by Section 31(a) of the Investment Company Act
of 1940 ("1940 Act") and the rules thereunder, as the same be amended from time
to time. All records shall be the property of the Trust and shall be available
for inspection and use by the Trust at all times. Where applicable, such
records shall be maintained by Travelers for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
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4. Audits, Inspections and Visits. Travelers shall make available during
regular business hours all records and other data created and maintained
pursuant to this Agreement for reasonable audit and inspection by each Trust,
any agent or person designated by the Trust, or any regulatory agency having
authority over the Trust. Upon reasonable notice by the Trust, Travelers shall
make available during regular business hours its facilities and premises
employed in connection with its performance of this Agreement for reasonable
visits by the Trust, any agent or person designated by the Trust, or any
regulatory agency having authority over the Trust.
5. Compensation. For the performance of its obligations hereunder, the
Trust agrees to pay fees to Travelers at the annualized rate of .06% of the
daily net assets. Fees will be accrued daily and quarterly within ten days of
the end of each calendar quarter.
6. Appointment of Agents. Travelers, at its expense, may at any time or
times in its discretion appoint (and may at any time remove) one or more other
parties as agent to perform any or all of the services specified hereunder and
carry out such provisions of this Agreement as Travelers may from time to time
direct; provided, however, that the appointment of any such agent shall not
relieve Travelers of any of its responsibilities or liabilities hereunder.
7. Security. Travelers represents and warrants that, to the best of its
knowledge, the various procedures and systems which Travelers has implemented
with regard to the safeguarding from loss or damage attributable to fire, theft
or any other cause (including provision for twenty-four hours a day restricted
access) of the Trust's blank checks, certificates, records and other data and
Travelers records, data, equipment, facilities and other property used in the
performance of its obligations hereunder are adequate, and that it will make
such changes therein from time to time as in its judgment are required for the
secure performance of its obligations hereunder. Travelers shall review such
systems and procedures on a periodic basis and the Trust shall have access to
review these systems and procedures.
8. Insurance. Travelers shall maintain insurance of the types and in the
amounts deemed by it to be appropriate and shall notify the Trust should any of
its insurance coverage be changed for any reason. Such notification shall
include the date of change and the reason or reasons therefor. Travelers shall
notify the Trust of any material claims against Travelers whether or not they
may be covered by insurance, and shall notify the Trust from time to time as may
be appropriate of the total outstanding claims made by Travelers under its
insurance coverage. To the extent that policies of insurance may provide for
coverage of claims for liability or indemnity by the parties set forth in this
Agreement, the contracts of insurance shall take precedence, and no provision of
this Agreement shall be construed to relieve any insurer of any obligation to
pay claims to the Trust, Travelers or other insured party which would otherwise
be a covered claim in the absence of any provision of this Agreement.
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9. Indemnification.
A. The Trust shall indemnify and hold Travelers harmless against
any losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person
other than the Trust, including by a shareholder, which
names Travelers and/or the Trust as a party and is not
based on and does not result from Travelers willful
misfeasance, bad faith or reckless disregard of its
duties, and arises but of or in connection with Travelers
performance hereunder, or
(2) any claim, demand, action or suit (except to the extent
contributed to by Travelers willful misfeasance, bad faith
or reckless disregard of its duties) which results from
the negligence of the Trust, or from Travelers acting upon
any instruction(s) reasonably believed by it to have been
executed or communicated by any person duly authorized by
the Trust, or as a result of Travelers acting in reliance
with advice reasonably believed by Travelers to have been
given by counsel for the Trust, or as a result of
Travelers acting in reliance upon any instrument or stock
certificate reasonably believed by it to have been genuine
and signed, countersigned or executed by the proper
person.
B. Travelers shall indemnify and hold the Trust harmless against
any losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any claim,
demand, action or suit brought by any person other than
Travelers, which names the Trust and/or Travelers as a party and
is based upon and arises out of Travelers willful misfeasance,
bad faith or reckless disregard of its duties in connection with
its performances hereunder.
In the event that either party requests the other to indemnify or hold
it harmless hereunder, the party requesting indemnification (the "Indemnified
Party") shall inform the other party (the "Indemnifying Party") of the relevant
facts known to the Indemnified Party concerning the matter in question. The
Indemnified Party shall use reasonable care to identify and promptly to notify
the Indemnifying Party concerning any matter which presents, or appears likely
to present, a claim for indemnification. The Indemnifying Party shall have the
election of defending the Indemnified Party against any claim which may be the
subject of indemnification or of holding the Indemnified Party harmless
hereunder. In the event the Indemnifying Party so elects, it will so notify the
Indemnified Party and thereupon the Indemnifying Party shall take over defense
of the claim and, if so requested by the Indemnifying Party, the Indemnified
Party shall incur no further legal or other expenses related thereto for which
it shall be entitled to indemnify or to being held harmless hereunder; provided,
however, that nothing herein shall prevent the Indemnified Party from retaining
counsel at its own expense to defend any claim. Except with the Indemnifying
Party's prior written consent, the Indemnified Party shall in no event confess
any claim or make any compromise in any matter in which the Indemnifying Party
will be asked to indemnify or hold the Indemnified Party harmless hereunder.
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10. Acts of God, etc. Travelers shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication equipment of common carriers or power supply. In the
event of equipment breakdowns beyond it control, Travelers shall, at no
additional expense to the Trust, take reasonable steps to minimize service
interruptions and mitigate their effects but shall have no liability with
respect thereto. Travelers shall enter into and shall maintain in effect with
appropriate parties one or more agreements making reasonable provision for
emergency use of electronic data processing equipment.
11. Amendments. Travelers and the Trust shall regularly consult with each
other regarding Travelers performance of its obligations and its compensation
hereunder. In connection therewith, the Trust shall submit to Travelers at a
reasonable time in advance of filing with the Securities and Exchange
Commission copies of any amended or supplemented registration statements
(including exhibits) under the Securities Act of 1933, as amended, and the 1940
Act and, a reasonable time in advance of their proposed use, copies of any
amended or supplemented forms relating to any plan, program or service offered
by the Trust. Any change in such material which would require any change in
Travelers obligations hereunder shall be subject to Travelers approval, which
shall not be unreasonably withheld. In the event that a change in such
documents or in the procedures contained therein materially increases the cost
to Travelers of performing its obligations hereunder, Travelers shall be
entitled to receive reasonable compensation therefor.
12. Duration, Termination, etc. Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated, except by written
instrument which shall make specific reference to this Agreement and which
shall be signed by the party against which enforcement of such change, waiver,
discharge or termination is sought.
This Agreement shall continue in effect with respect to the Trust until
October 31, 1998 and indefinitely thereafter so long as such continuance is
approved at least annually by vote of such Trust's Board of Trustees; provided,
however, that this Agreement may be terminated at any time with respect to such
Trust by sixty (60) days' written notice given by Travelers to the Trust or
sixty (60) days' written notice given by the Trust to Travelers,; and provided
further that this Agreement may be terminated immediately at any time for cause
either by the Trust or by Travelers in the event that such cause remains
unremedied for a reasonable period of time not to exceed ninety (90) days after
receipt of written specification of such cause. Any such termination shall not
affect the rights and obligations of the parties under Paragraph 9 hereof.
Upon the termination hereof, the Trust shall pay to Travelers such
compensation as may be due for the period prior to the date of such termination.
In the event that the Trust designates a successor to any Traveler's obligations
hereunder, Travelers shall, at the expense and direction of the Trust, transfer
to such successor all relevant books, records and other data established or
maintained by Travelers hereunder. To the extent that Travelers incurs expenses
related to a transfer of responsibilities to a successor, Travelers shall be
entitled to be reimbursed for such expenses, including any out-of-pocket
expenses reasonably incurred by Travelers in connection with the transfer.
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13. LIABILITY. NOTICE IS HEREBY GIVEN THAT THIS AGREEMENT IS NOT EXECUTED
ON BEHALF OF THE TRUSTEES OF ANY TRUST AS INDIVIDUALS, AND THE OBLIGATIONS OF
THIS AGREEMENT ARE NOT BINDING UPON ANY OF THE TRUSTEES, OFFICERS OR
SHAREHOLDERS OF A TRUST INDIVIDUALLY, BUT ARE BINDING ONLY UPON THE ASSETS AND
PROPERTY OF THE TRUST. TRAVELERS AGREES THAT NO SHAREHOLDER, TRUSTEE, OR
OFFICER OF THE TRUST MAY BE HELD PERSONALLY LIABLE OR RESPONSIBLE FOR ANY
OBLIGATIONS OF THE TRUST ARISING OUT OF THIS AGREEMENT. WITH RESPECT TO ANY
OBLIGATIONS OF THE TRUST ARISING OUT OF THIS AGREEMENT, TRAVELERS SHALL LOOK
FOR PAYMENT OR SATISFACTION OF ANY OBLIGATION SOLELY TO THE ASSETS AND PROPERTY
OF THE TRUST.
15. Miscellaneous. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Connecticut, without giving effect to the
choice of laws provisions thereof. The captions in this Agreement are intended
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in counterparts, each of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement by
their respective officials thereunto duly authorized and seals to be affixed, in
the case of the Company.
CAPITAL APPRECIATION FUND
By:
-----------------------------
Name:
--------------------------
Title:
--------------------------
THE TRAVELERS INSURANCE COMPANY
By:
-----------------------------
Name:
--------------------------
Title:
--------------------------
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EXHIBIT 11b
CAPITAL APPRECIATION FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Lewis E. Daidone of Holmdel, New Jersey, 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 18th day
of February, 1997.
/s/Lewis E. Daidone
Treasurer
Capital Appreciation Fund
