CAPITAL APPRECIATION FUND/CT, 485BPOS, 2000-04-17

CAPITAL APPRECIATION FUND/CT
485BPOS, 2000-04-17

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<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. 31

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 31

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: (860) 277-0111

ERNEST J. WRIGHT
Secretary to the Board of Trustees
Capital Appreciation Fund
One Tower Square
Hartford, Connecticut 06183
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering: ______________________

It is proposed that this filing will become effective (check appropriate box):

immediately upon filing pursuant to paragraph (b).
----
X on May 1, 2000 pursuant to paragraph (b).
----
60 days after filing pursuant to paragraph (a)(1).
----
on __________ pursuant to paragraph (a)(1)
----
75 days after filing pursuant to paragraph (a)(2).
----
on __________ pursuant to paragraph (a)(2) of Rule 485.
----

If appropriate, check the following box:

____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<PAGE> 2

PART A

INFORMATION REQUIRED IN A PROSPECTUS

<PAGE> 3

CAPITAL APPRECIATION FUND

GOAL -- GROWTH OF CAPITAL

Fund shares are offered only to separate accounts of The Travelers Insurance
Company, The Travelers Life and Annuity Company or to separate accounts of
affiliated companies (together, "The Travelers"). The Fund serves as a funding
option for certain variable annuity and variable life insurance contracts issued
by The Travelers.

ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TELEPHONE 1-800-842-9368

PROSPECTUS

May 1, 2000

TABLE OF CONTENTS

<TABLE>
<S> <C>
Goals and Investments................ 2
Fund Performance..................... 2
Investments and Practices............ 3
Management........................... 5
Investment Adviser............... 5
The Subadviser and Portfolio
Manager......................... 5
Legal Proceedings.................... 5
Shareholder Transactions and
Pricing.............................. 6
Tax Consequences of Dividends and
Distributions........................ 7
Financial Highlights................. 8
Appendix............................. A-1
</TABLE>

THE SECURITIES AND EXCHANGE COMMISSION ("SEC") HAS NOT APPROVED THE FUND'S
SHARES AS AN INVESTMENT AND HAS NOT DETERMINED THAT THIS PROSPECTUS IS COMPLETE
OR ACCURATE. IT IS AGAINST THE LAW FOR ANYONE TO TELL YOU OTHERWISE. AN
INVESTMENT IN THE FUND IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT

AGENCY.
<PAGE> 4

CAPITAL APPRECIATION

Goals and Investments

INVESTMENT ADVISER: TAMIC

SUBADVISER: Janus Capital
Corporation

PORTFOLIO MANAGER: Scott
Schoelzel
FUND'S OBJECTIVE: Growth of capital

KEY INVESTMENTS: Common Stock

SELECTION PROCESS: The Fund invests at least 65% of its total
assets in common stock of issuers of any size and industry.
The portfolio manager selects stock primarily through
a company analysis, with a focus on identifying prospective capital growth. The
portfolio manager uses a growth approach to evaluate stocks demonstrating
potential capital growth based on the following characteristics:

- - earnings growth and predictability
- - leading/strong market position
- - management holds significant equity position
- - strong financial position
- - established industry position
- - healthy balance sheet
- - high return in equity with low dividend payout ratio
- - experienced/seasoned management team
- - experienced record of profitability
- - strong cash flows
- - representing industry with a positive growth outlook

PRINCIPAL RISKS: The Fund is most subject to equities risk, where market values
may change abruptly, sometimes unpredictably, and smaller companies risk, where
market values may be more erratic and stocks more thinly traded than the general
market. Other principal risks may be foreign securities risks, where market
values may be impacted by limited trading, currency exchange, political or
economic instability, or other factors, and fixed-income securities risk, where
market values move in the opposite direction of interest rates, including
lower-quality fixed-income risks, where market values are subject to credit
risks of issuers who may default or otherwise fail to make timely debt payments.
For more information on the Fund's investments and related risks, see
"Investments and Practices," the Appendix to this prospectus and the Statement
of Additional Information ("SAI").

ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: The Fund may
invest up to 35% of its assets in bonds rated below investment grade ("junk
bonds") and 25% of its total assets in foreign securities. For a complete list
of all investments available to the Fund, please refer to the Appendix of this
prospectus and the SAI.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

FUND PERFORMANCE

The chart and table below show how an investment in the Fund has varied over
time. The returns shown assume that any dividends and distributions have been
reinvested in the Fund. The returns are not reduced to reflect any variable
insurance contract charges or fees that may be assessed by The Travelers. The
table compares the Fund's performance with the Standard & Poor's 500 (S&P 500)
and the Russell 2000 Indices. Past performance can give some indication of the
Fund's risk, but does not guarantee future results.

YEAR-BY-YEAR % TOTAL RETURNS AS OF 12/31

[BAR GRAPH]

<TABLE>
<CAPTION>
CAPITAL APPRECIATION
--------------------
<S> <C>
'90 -6.24
'91 35.16
'92 17.60
'93 15.09
'94 -4.76
'95 36.37
'96 28.21
'97 26.14
'98 61.63
'99 53.52
</TABLE>

Best Quarter: (4th 99') 34.85 %
Worst Quarter: (3rd 90') (20.25)%

AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/1999

<TABLE>
<CAPTION>
1 year 5 year 10 year
------ ------ -------
<S> <C> <C> <C>
Capital Appreciation 53.52% 40.48% 24.49%
S&P 500 21.04% 28.56% 18.21%
Russell 2000 21.26% 16.69% 13.40%
</TABLE>

2
<PAGE> 5

INVESTMENTS AND PRACTICES

The Fund invests in various instruments subject to its investment policy. The
Fund may invest in all of the following, as described on page 2 of this
prospectus, and in the SAI. For a free copy of the SAI, see the back cover of
this prospectus. The Fund does not guarantee that it will reach its investment
objective, and an investment in the Fund may lose money.

EQUITIES Equity securities include common and preferred
stock, warrants, rights, depositary receipts and
shares, trust certificates, and real estate
instruments.

Equities are subject to market risk. Many factors
affect the stock market prices and dividend
payouts of equity investments. These factors
include general business conditions, investor
confidence in the economy, and current conditions
in a particular industry or company. Each company
determines whether or not to pay dividends on
common stock. Equity securities are subject to
financial risks relating to the issuer's earning
stability and overall financial soundness.
Smaller and emerging growth companies are
particularly sensitive to these factors.

When you sell your shares they may be worth more
or less than what you paid for them.

GROWTH INVESTING
This investment approach involves buying stocks
with above-average growth rates. Typically,
growth stocks are the stocks of faster growing
companies in more rapidly growing sectors of the
economy. Generally, growth stock valuation levels
will be higher than value stocks and the market
averages.

FIXED-INCOME INVESTMENTS Fixed-income securities include U.S. Government
obligations, certificates of deposit, and
short-term money market instruments. Fixed-income
securities may have all types of interest rate
payment and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent,
deferred, payment in kind and auction rate
features.

The value of debt securities varies inversely
with interest rates. This means generally that
the value of these investments increases as
short-term interest rates fall and decreases as
short-term interest rates rise. Yields from
short-term securities normally may be lower than
yields from longer-term securities. A bond's
price is affected by the credit quality of its
issuer. An issuer may not always make payments on
a fixed income security. Some fixed income
securities, such as mortgage-backed securities
are subject to prepayment risk, which occurs when
an issuer can prepay the principal owed on a
security before its maturity.

LOWER-QUALITY FIXED-INCOME SECURITIES

High-yield, high-risk securities, commonly called
"junk bonds," are considered speculative. While
generally providing greater income than
investments in higher-quality securities, these
securities will involve greater risk of principal
and

3
<PAGE> 6

income (including the possibility of default or
bankruptcy of the issuers of the security).

FOREIGN SECURITIES
INVESTMENTS An investment in foreign securities involves risk
in addition to those of U.S. securities,
including possible political and economic
instability and the possible imposition of
exchange controls or other restrictions on
investments. The Fund also bears "information"
risk associated with the different accounting,
auditing, and financial reporting standards in
many foreign countries. If a Fund invests in
securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign
currency rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's
assets. Foreign securities may be less liquid
than U.S. securities.

DERIVATIVES AND HEDGING
TECHNIQUES Derivative contracts, such as futures and options
on securities, may be used for any of the
following purposes:

- To hedge against the economic impact of
adverse changes in the market value of its
securities, due to changes in stock market
prices, currency exchange rates or interest
rates

- As a substitute for buying or selling
securities

- To enhance return

- Forward foreign currency contracts may be used
to hedge against foreign currency exposure

Even a small investment in derivative contracts
can have a big impact on a Fund's stock market,
currency and interest rate exposure. Therefore,
using derivatives can disproportionately increase
losses and reduce opportunities for gain when
stock prices, currency rates or interest rates
are changing. For a more complete description of
derivative and hedging techniques and their
associated risks, please refer to the SAI.
OTHER RISK FACTORS
SELECTION RISK Fund investors are subject to selection risk in
that a strategy used, or stock selected, may fail
to have the desired effect. Specifically, stocks
believed to show potential for capital growth may
not achieve that growth. Strategies or
instruments used to hedge against a possible risk
or loss may fail to protect against the
particular risk or loss.

TEMPORARY DEFENSIVE POSITION The Fund may depart from principal investment
strategies in response to adverse market,
economic or political conditions by taking a
temporary defensive position by investing in debt
securities including lower-risk debt securities,
and money market instruments. If a Fund takes a
temporary defensive position, it may be unable to
achieve its investment goal.

PORTFOLIO TURNOVER The Fund may actively trade portfolio securities
in an attempt to achieve their investment
objective. Active trading will cause the Fund to
have an increased portfolio turnover rate, which
is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher
rate than longer-term gains (losses). Actively
trading portfolio securities increases

4
<PAGE> 7

the Fund's trading costs and may have an adverse
impact on the Fund's performance.

INVESTMENT OBJECTIVES The Fund's investment objective and, unless noted
as fundamental, its investment policies may be
changed by the Trust's Board of Trustees
("Board") without approval of shareholders or
holders of variable annuity and variable life
insurance contracts. A change in a Fund's
investment objective or policies may result in
the Fund having a different investment objective
or policies from those that a policy owner
selected as appropriate at the time of
investment.

MANAGEMENT

INVESTMENT ADVISER

TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY LLC ("TAMIC") provides
investment advice and, in general, supervises the management and investment
program for the Fund. TAMIC employs a subadviser to manage the Fund's daily
investment operations, subject to the supervision of the Board of Trustees and
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 Citigroup Inc. TAMIC also acts as an
investment adviser or subadviser for:

- other investment companies used to fund variable products

- individual and pooled pension and profit-sharing accounts

- domestic insurance companies affiliated with The Travelers Insurance
Company (which is affiliated with TAMIC)

- nonaffiliated insurance companies

The maximum advisory fee payable to TAMIC by the Fund is equivalent on an annual
basis to 0.75% of the average daily net assets of the Fund. For the year ended
December 31, 1999, the Fund paid TAMIC 0.75% of the Fund's average daily net
assets.

THE SUBADVISER AND PORTFOLIO MANAGER

The subadviser is Janus Capital Corporation, 100 Filmore Street, Denver,
Colorado, 80206. Janus Capital also acts as an investment adviser to other
investment companies not affiliated with the Fund, as well as to individual,
corporate, charitable and retirement accounts. Mr. Scott Schoelzel has served as
the Fund's day-to-day portfolio manager since August, 1997. Mr. Schoelzel joined
Janus Capital in January, 1994, and is Executive Vice President and Portfolio
Manager of Janus Twenty Fund, also since August, 1997.

LEGAL PROCEEDINGS

There are no material legal proceedings affecting the Fund, and it has been
advised by TAMIC and Janus Capital that neither of them have any material
pending legal proceedings affecting them.

5
<PAGE> 8

SHAREHOLDER TRANSACTIONS AND PRICING

Fund shares are currently sold only to insurance company separate accounts in
connection with the variable annuity and variable life insurance contracts
issued by The Travelers. The term "shareholder" as used in this prospectus
refers to any insurance company separate account that may use Fund shares as a
funding option now or in the future. Fund shares 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 the Fund's custodian receives payment. The
separate accounts to which shares are sold, however, may impose sales and other
charges, as described in the appropriate contract prospectus.

The Fund currently issues only one class of shares. All shares participate
equally in dividends and distributions and have equal voting, liquidation and
other rights. When issued for the consideration described in the prospectus,
shares are fully paid and nonassessable by the Fund. Shares are redeemable,
transferable and freely assignable as collateral. (See the accompanying separate
account prospectus for a discussion of voting rights applicable to purchasers of
variable annuity and variable life insurance contracts.)

PRICING OF FUND SHARES

The offering price of Fund shares is the net asset value or NAV of a single
share. Normally NAV is computed as of 4:00 p.m. Eastern time each day the New
York Stock Exchange ("Exchange") is open. NAV is calculated by adding the value
of a Fund's investments, cash and other assets, subtracting its liabilities, and
dividing the result by the number of shares outstanding.

The Fund's assets are valued primarily based on market value. Short-term money
market instruments with remaining maturities of sixty days or less are valued
using the amortized-cost method. This method approximates market value and
minimizes the effect of changes in a security's market value. Foreign securities
are valued on the basis of quotations from the primary market in which they are
traded; the value is then converted into U.S. dollars from the local currency.
In cases where market quotations are not readily available or, for foreign
securities, if the values have been materially impacted by events occurring
after the closing of a foreign market, an asset is valued at fair value as
determined in good faith by the Trust's Board of Trustees ("Board"). However,
this procedure is not used to determine the value of the securities owned by a
Fund if, in the opinion of the Board or the committee appointed by the Board,
some other method (e.g., closing over-the-counter bid prices in the case of debt
instruments traded off an exchange) would more accurately reflect the fair
market value of such securities.

PURCHASES AND REDEMPTIONS

Owners of variable annuity or variable life insurance contracts should follow
the purchase and redemption procedures described in the accompanying separate
account prospectus. The following is general information with regard to
purchases and redemptions of Fund shares by insurance company separate accounts.

Fund shares are purchased and redeemed at the NAV next determined after the Fund
receives a purchase or redemption order. NAVs are adjusted for fractions of a
cent. Upon redemption, a shareholder may receive more or less than the amount
paid at the time of purchase, depending upon changes in the value of the Fund's
investment portfolio between purchase and redemption.

6
<PAGE> 9

The Fund computes the NAV for purchases and redemptions as of the close of the
Exchange on the day that the Fund has received all proper documentation from the
shareholder. Redemption proceeds are normally wired or mailed either the same or
the next business day, but not more than seven days later.

The Fund retains the right to refuse a purchase order. The Fund may temporarily
suspend the redemption rights or postpone payments when the Exchange is closed
(other than on weekends and holidays), when trading on the Exchange is
restricted, or when permitted by the SEC.

TAX CONSEQUENCES OF DIVIDENDS AND DISTRIBUTIONS

Capital gains and dividends are distributed in cash or reinvested in additional
Fund shares, without a sales charge. The Fund expects that Fund shares will be
held under a variable annuity or variable life insurance contract. Under current
tax law, distributions that are left to accumulate in the variable annuity or
life insurance contract are not subject to federal income tax until they are
withdrawn from the contract. Contract purchasers should review the accompanying
contract prospectus for a discussion of the tax treatment applicable to variable
annuity or variable life insurance contracts.

The Fund intends to make distributions of income and capital gains in order to
qualify each year as a regulated company under Subchapter M of the Internal
Revenue Code. Further, the Fund intends to meet certain diversification
requirements applicable to mutual funds underlying variable insurance products.

7
<PAGE> 10

FINANCIAL HIGHLIGHTS

CAPITAL APPRECIATION FUND

The financial highlights table provides information to help you understand the
Fund's financial performance for the past 5 years. Certain information presents
financial results for a single Fund share. The total returns in the table
represent the rate that a Fund investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the years ended December 31, 1999, 1998 and
1997 was audited by KPMG LLP, independent auditors, whose report and the Fund's
financial statements are included in the annual report to shareholders, which is
available upon request. Other independent auditors audited the other two years
presented.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $ 72.74 $ 46.32 $ 36.72 $ 33.18 $ 24.50
Income from Investment
Operations:
Net Investment Income.......... 0.04 0.06 0.19 0.23 0.24
Net Gains on Securities (both
realized and unrealized)....... 38.08 28.07 9.41 8.49 8.61
---------- -------- -------- -------- --------
Total Income from Investment
Operations..................... 38.12 28.13 9.60 8.72 8.85
Less Distributions(1):
Dividends (from net investment
Income)........................ (0.07) (0.18) -- (0.41) (0.17)
Distributions (from capital
gains)......................... (1.99) (1.53) (0.00)* (4.77) --
---------- -------- -------- -------- --------
Total distributions.... (2.06) (1.71) (0.00)* (5.18) (0.17)
---------- -------- -------- -------- --------
Net Asset Value, End of Year..... $ 108.80 $ 72.74 $ 46.32 $ 36.72 $ 33.18
---------- -------- -------- -------- --------
Net Assets, End of Year
(thousands).................... $1,915,161 $890,861 $407,701 $224,132 $122,155

TOTAL RETURN(2).................. 53.52% 61.63% 26.14% 28.21% 36.37%
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average
Net Assets..................... 0.83% 0.85% 0.84% 0.83% 0.85%
Ratio of Net Investment Income
to Average Net Assets(3)....... 0.07% 0.18% 0.54% 0.69% 0.84%
Portfolio turnover rate........ 37% 53% 89% 84% 124%
</TABLE>

(1) For the years ended December 31, 1996 and later, distributions from realized
gains include both net realized short-term and long-term capital gains. Prior to
1996, net realized short-term capital gains were included in distributions from
net investment income.

(2) Total return is determined by dividing the increase (decrease) in value of a
share during the year, after reflecting the reinvestment of dividends during the
year, by the beginning of year share price. Fund shares are sold only 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.

(3) As a result of the voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 1.25%.

* Amount represents less than $0.01 per share.

8
<PAGE> 11

APPENDIX
CAPITAL APPRECIATION FUND

The Fund invests in various instruments subject to its investment policy. The
following techniques and practices are all available to the Fund, and are
described together with their risks in the SAI.

INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------

American, Global and European Depository Receipts
Asset-Backed Mortgage Securities
Bankers Acceptances
Buying Put and Call Options
Certificates of Deposit
Commercial Paper
Convertible Securities
Corporate Asset-Backed Securities
Emerging Market Securities
Equity Securities
Floating & Variable Rate Instruments
Foreign Securities
Forward Contracts on Foreign Currency
Futures Contracts
High-Yield, High Risk Debt Securities
Illiquid Securities
Indexed Securities
Index Futures Contracts
Investment Company Securities (including Janus money market funds)
Investment Grade Debt Securities
Investment in Unseasoned Companies
Lending Portfolio Securities
Letters of Credit
Loan Participations
Options on Foreign Currencies
Options on Index Futures Contracts
Options on Stock Indices
Other Direct Indebtedness
Real Estate-Related Instruments
Repurchase Agreements
Reverse Repurchase Agreements
Rights and Warrants

Short Sales "Against the Box"

Short-Term Money Market Instruments
Swap Agreements
Temporary Bank Borrowing
U.S. Government Obligations
Variable Amount Master Demand Notes
When-Issued Securities
Writing Covered Call Options

A-1
<PAGE> 12

CAPITAL APPRECIATION FUND

Investors who want more information about a Fund can obtain a SAI which provides
more detailed information on a number of topics and is made a part of this
prospectus. Additional information about a Fund's investments is available in
its annual and semi-annual reports to shareholders. A Fund's annual report
provides a discussion of the market conditions and investment strategies that
particularly impact the Fund's performance over the past fiscal year. These
documents are free of charge. To obtain a copy, or ask other questions about the
fund, do one of the following:
CALL -- 1-800-842-9368
- --------------------------------------------------------------------------------
WRITE -- ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
- --------------------------------------------------------------------------------
ACCESS THE SEC'S WEBSITE -- http://www.sec.gov

Investors may, for a fee, get text-only copies of the above documents from the
SEC Public Reference Room at 1-800-SEC-0330 or write to the SEC Public Reference
Room, Washington, DC, 20549-6009.

(1940 Act # 811-3429)

L-11171
<PAGE> 13

PART B

INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

<PAGE> 14

STATEMENT OF ADDITIONAL INFORMATION

CAPITAL APPRECIATION FUND

MAY 1, 2000

This Statement of Additional Information ("SAI") is not a prospectus. Investors
should read this SAI with the Capital Appreciation Fund's prospectus dated May
1, 2000 and 1999 annual shareholder report. Investors may obtain a free copy of
the prospectus and annual shareholder report by writing or calling us collect
at:

The Travelers Insurance Company
Annuity Services
One Tower Square
Hartford, Connecticut 06183-5030
Phone number 860-842-9368

or by accessing the Securities and Exchange Commission's website at
http://www.sec.gov.

<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PAGE
Investment Objective, Policies and Risks.................................................................. 2
Investment Restrictions...................................................................................13
Valuation and Pricing.....................................................................................15
Distributions.............................................................................................15
Trustees and Officers.....................................................................................15
Code of Ethics............................................................................................18
Declaration of Trust......................................................................................18
Investment Advisory Services..............................................................................18
Redemptions in Kind.......................................................................................20
Portfolio Turnover Rate...................................................................................20
Brokerage.................................................................................................20
Fund Administration.......................................................................................21
Shareholder Rights........................................................................................21
Tax Status................................................................................................22
Financial Statements......................................................................................24
Additional Information....................................................................................24
Appendix..................................................................................................25
</TABLE>

<PAGE> 15

INVESTMENT OBJECTIVE, POLICIES AND RISKS

Capital Appreciation Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act") with the SEC as an open-end
investment company or mutual fund. The Fund is diversified as that term is
defined under the 1940 Act. It was formed as a Massachusetts business trust on
March 18, 1982.

The Fund's investment objective is to provide growth of capital primarily
through the use of common stocks. To achieve this objective, the Fund invests
principally in common stocks of small to large companies. As described in the
prospectus, the Fund's policy generally is to be fully invested 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.

The Fund's investment objective and, unless noted as fundamental, its
investment policies may be changed by the Board of Trustees ("Board") without
approval of shareholders or holders of variable annuity and variable life
insurance contracts. A change in the Fund's investment objective or policies
may result in the Fund having a different investment objective or policies from
those that a policyowner selected as appropriate at the time of investment.

Listed below for quick reference are the other types of investments that the
Fund may make and the Fund's investment techniques. More detailed information
about the Fund's investments and investment techniques follows the chart.

<TABLE>
<CAPTION>
SECURITY/INVESTMENT TECHNIQUE
<S> <C>
- -------------------------------------------------------------------------------------------------- ----------------
Affiliated Bank Transactions
- -------------------------------------------------------------------------------------------------- ----------------
American, Global and European Depositary Receipts X
- -------------------------------------------------------------------------------------------------- ----------------
Asset-Backed Mortgage Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Bankers' Acceptances X
- -------------------------------------------------------------------------------------------------- ----------------
Buying Put and Call Options X
- -------------------------------------------------------------------------------------------------- ----------------
Certificates of Deposit X
- -------------------------------------------------------------------------------------------------- ----------------
Commercial Paper X
- -------------------------------------------------------------------------------------------------- ----------------
Convertible Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Corporate Asset-Backed Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Debt Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Emerging Market Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Equity Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Floating & Variable Rate Instruments X
- -------------------------------------------------------------------------------------------------- ----------------
Foreign Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Forward Contracts on Foreign Currency X
- -------------------------------------------------------------------------------------------------- ----------------
Futures Contracts X
- -------------------------------------------------------------------------------------------------- ----------------
High-Yield, High-Risk Debt Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Index Futures Contracts X
- -------------------------------------------------------------------------------------------------- ----------------
Indexed Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Investment Company Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Investment Grade Debt Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Investment in Unseasoned Companies X
- -------------------------------------------------------------------------------------------------- ----------------
Lending Portfolio Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Letters of Credit X
- -------------------------------------------------------------------------------------------------- ----------------
Loan Participations X
- -------------------------------------------------------------------------------------------------- ----------------
Options on Stock Indices X
- -------------------------------------------------------------------------------------------------- ----------------
Options on Index Futures Contracts X
- -------------------------------------------------------------------------------------------------- ----------------
Options on Foreign Currencies X
- -------------------------------------------------------------------------------------------------- ----------------
Other Direct Indebtedness X
- -------------------------------------------------------------------------------------------------- ----------------
Real Estate-Related Instruments X
</TABLE>

<PAGE> 16

<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------- ----------------
Repurchase Agreements X
- -------------------------------------------------------------------------------------------------- ----------------
Restricted or Illiquid Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Reverse Repurchase Agreements X
- -------------------------------------------------------------------------------------------------- ----------------
Rights and Warrants X
- -------------------------------------------------------------------------------------------------- ----------------
Short Sales "Against the Box" X
- -------------------------------------------------------------------------------------------------- ----------------
Short-Term Money Market Instruments X
- -------------------------------------------------------------------------------------------------- ----------------
Swap Agreements X
- -------------------------------------------------------------------------------------------------- ----------------
Temporary Bank Borrowing X
- -------------------------------------------------------------------------------------------------- ----------------
U.S. Government Obligations X
- -------------------------------------------------------------------------------------------------- ----------------
Variable Amount Master Demand Notes X
- -------------------------------------------------------------------------------------------------- ----------------
When-Issued & Delayed Delivery Securities X
- -------------------------------------------------------------------------------------------------- ----------------
Writing Covered Call Options X
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This section explains more about the investments and investment techniques
listed above. It also includes a brief discussion about the specific risks
associated with a particular investment or investment technique.

COMMON STOCKS. As stated in the prospectus, the Fund invests in common stocks
(equity interests) of issuers of any size. Common stocks represent generally
ownership of a corporation. Over time, equities have provided the greatest
long-term growth potential but over short periods can be subject to great
fluctuations in stock market prices. Stock funds are subject to market risk:
specifically, stock market values are more volatile generally than are bond or
money market values. Volatility means that prices will go down as well as up,
which in turn, means that investors may lose money on an investment in the
Fund. Market risks are affected by many factors, including business conditions,
investor confidence in the economy, current conditions in a particular industry
or company. Equities are subject to financial risks relating to an issuer's
earnings stability and overall soundness. To the extent that the Fund has
invested in equities issued by smaller companies, the Fund may be more subject
to more abrupt or erratic market movements than it would have if it invested
only in securities of larger, more established companies.

WARRANTS AND RIGHTS. The Fund may invest in warrants or rights (other than
those acquired in units or attached to other securities) that entitle the
purchaser to buy equity securities at a specific price for a specific period of
time. Warrants and rights have no voting rights, receive no dividends and have
no rights with respect to the assets of the issuer.

CONVERTIBLE SECURITIES. Convertible securities may include corporate notes or
preferred stock, but ordinarily are long-term debt obligations of an issuer
that are convertible at a stated price or exchange rate into the issuer's
common stock. Convertible securities have characteristics similar to both
common stock and debt obligations. Although to a lesser degree than with debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
In addition, because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the
underlying common stock and, therefore, reacts to variations in the general
stock market. However, when the market price of the common stock underlying a
convertible security exceeds the conversion price, the price of the convertible
security tends to reflect the value of the underlying common stock. As the
market price of the underlying common stock declines, the convertible security
tends to trade increasingly on a yield basis, and thus may not depreciate to
the same extent as the underlying common stock.

As fixed-income securities, convertible securities are investments that provide
a stable stream of income with generally higher yields than common stocks. Like
all fixed-income securities, there can be no assurance of the current income
because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality because of the
potential through the conversion feature for capital appreciation. There can be
no assurance of capital appreciation because securities prices fluctuate.

Convertible securities generally are subordinated to other similar but
not-convertible debt of the same issuer, although convertible bonds enjoy
seniority payment rights over all equity securities. Convertible preferred
stock is

<PAGE> 17

senior to the issuer's common stock. Because of the conversion feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.

A synthetic convertible security is comprised of two distinct securities that
together resemble convertible securities. Synthetic convertible securities
combine non-convertible bonds or preferred stock with warrants or stock call
options. The options that form a portion of the convertible security are listed
on a securities exchange or on the National Association of Securities Dealers
Automated Quotations Systems. The two components of a synthetic convertible
security generally are not offered as a unit but may be purchased and sold by
the Fund at different times. Synthetic convertible securities differ from
convertible securities in that each component of a synthetic convertible
security has a separate market value and responds differently from the other to
market fluctuations. Investing in synthetic convertible securities involves the
risks normally involved in holding the securities comprising the synthetic
convertible security.

As with all debt securities, the market value of convertible securities tends
to decline as interest rates increase and, conversely, to increase as interest
rates decline. Convertible securities generally offer lower interest or
dividend yields than non-convertible securities of similar quality.

WRITING COVERED CALL OPTIONS. The Fund may write or sell covered call options.
By writing a call option, the Fund becomes obligated during the term of the
option to deliver the securities underlying the option upon payment of the
exercise price.

The Fund may only write "covered" options. This means that as long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills.

Writing call options permits the Fund 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.

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 in
the "over-the-counter" market with a broker-dealer as the counterparty. While
the investment 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 pays 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 amount of
the option premium paid.

The Fund may sell put and call options prior to their expiration and, thereby,
realize a gain or loss. A call option expires worthless if the price of the
related security is below the contract strike price at the time of expiration;
a put option expires worthless if the price of the related security is above
the contract strike price at the time of expiration.

<PAGE> 18

The Fund uses put and call options for bona fide hedging purposes only. The
investment adviser identifies liquid securities sufficient to fulfill the call
option delivery obligation, and these securities are segregated in an account.
Similarly, the investment adviser identifies deliverable securities sufficient
to fulfill the put option obligation, which also are segregated. In the case of
put options on futures contracts, the investment adviser identifies portfolio
securities whose price volatility is expected to match that of the underlying
futures contract, and these securities are segregated.

Writing call options permits the Fund 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. Accordingly, 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 significantly impair the Fund's
ability to use such options to achieve its investment objectives.

SWAPS. Swaps are over-the-counter (OTC) agreements that typically require
counterparties to make periodic payments to each other for a specified period.
The calculation of these payments is based on an agreed-upon amount (called the
notional amount) that generally is exchanged only in currency swaps. The
periodic payments may be a fixed or floating (variable) amount. Floating
payments may change with fluctuations in interest or currency rates or equity
or commodity prices, depending on the contract terms. Swaps are used to hedge a
risk or obtain more desirable financing terms, and they can be used to profit
from correctly anticipating rate and price movements.

FOREIGN AND EMERGING MARKETS SECURITIES AND ADRS. The Fund may invest up to 25%
of its total assets in foreign securities. These securities may include U.S.
dollar-denominated securities, debt securities of foreign governments
(including provinces and municipalities) or their agencies or
instrumentalities, securities issued or guaranteed by international
organizations designated or supported by multiple governments or entities to
promote economic reconstruction or development, and securities of foreign
corporations and financial institutions.

The Fund may invest in American Depositary Receipts ("ADRs"). Due to the
absence of established securities markets in certain foreign countries and
restrictions in certain countries on direct investment by foreign countries and
restrictions in certain countries on direct investment by foreign entities, a
Fund may invest in certain issuers through the purchase of sponsored and
unsponsored ADRs or other similar securities, such as American Depositary
Shares, Global Depositary Shares of International Depositary Receipts. ADRs are
receipts typically issued by U.S. banks evidencing ownership of the underlying
securities into which they are convertible. These securities may or may not be
denominated in the same currency as the underlying securities. Unsponsored ADRs
may be created without the participation of the foreign issuer. Holders of
unsponsored ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company depository of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights.

Subject to any limit on the Fund's investments in foreign securities, there may
be no limit on the amount of assets that may be invested in securities of
issuers domiciled in a single country or market. To the extent that the Fund's
assets are invested substantially in a single country or market, the Fund is
more susceptible to the risks of investing in that country or market than it
would be if its assets were geographically more diversified.

<PAGE> 19

Investments in foreign securities may offer the Fund an opportunity to pursue
the performance potential of an overseas market. Such securities, however, also
entail risks in addition to the risks of U.S. securities. These risks include
differences in accounting, auditing and financial reporting standards, the
possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability that 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. Foreign
settlement procedures and trade regulations may involve higher commission rates
and risks and expenses not present in U.S. settlements. Changes in foreign
exchange rates affects the value of those securities that are denominated or
quoted in currencies other than the U.S. dollar.

Many of the foreign securities held by the Fund are not registered with, nor
are the issuers thereof subject to SEC reporting requirements. 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 or 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. 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.

FUTURES CONTRACTS. The Fund may use financial futures contracts either as a
hedge to protect against anticipated changes in stock prices and interest
rates, or to facilitate the purchase or sale of securities or, to a limited
extent, to seek to enhance return. 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. When a futures contract is
purchased, the Fund sets aside cash or liquid 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 protect the portfolio against
potential adverse movements in interest rates. When hedging is successful, any
depreciation in the value of portfolio securities is substantially offset by
appreciation in the value of the futures position. Conversely, any appreciation
in the value of the portfolio securities is substantially offset by
depreciation in the value of the futures position.

Positions taken in the futures markets normally are not held to maturity but
instead are liquidated through offsetting transactions that 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 usually are 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 or related options for
non-hedging purposes if the aggregate initial margin and premiums required to
establish such positions exceeds five percent (5%) of the fair market value of
its net assets, after taking into account unrealized profits and unrealized
losses on any such contracts into which it has entered.

All stock index and interest rate futures contracts are traded on exchanges
that are licensed and regulated by the Commodity Futures Trading Commission
("CFTC"). The Fund further seeks to assure that fluctuations in the price of
any futures contracts that it uses for hedging purposes are substantially
related to fluctuations in the price of the securities it holds or expects to
purchase, or for other risk reduction strategies, although there can be no
assurance that the expected result will always be achieved.

<PAGE> 20

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 investment adviser attempts 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 investment adviser's ability to predict correctly movements in
the direction of the market.

FORWARD CONTRACTS. A forward contract is an agreement between two parties where
one party is obligated to deliver a stated amount of a particular asset at a
specified future time, 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 to the contract. The
contracting parties 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 total net assets. A forward currency contract is an
obligation to buy (sell) an amount of a specified currency for an agreed price,
which may be in U.S. dollars or a foreign currency. In the normal course of
business, the Fund exchanges foreign currencies for U.S. dollars and for other
foreign currencies; it 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 engage in a "position hedge" whereby
it hedges some or all of its investments denominated in a foreign currency (or
exposed to foreign currency fluctuations) against a decline in the value of the
foreign currency relative to the U.S. dollar by entering into forward currency
contracts to sell an amount of that currency approximating the value of some or
all of its portfolio securities denominated in that currency or by
participating in options or futures contracts with respect to the currency. The
Fund also may engage in position hedging with a "proxy" currency (one whose
performance is expected to replicate or exceed the performance of the foreign
currency relative to the U.S. dollar). The Fund also may enter into an
"anticipatory" position hedge with respect to a currency when the Fund is
considering the purchase or sale of investments denominated in that currency.
In any of these circumstances, the Fund may enter into a "cross hedge" whereby
it uses 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.

These types of hedging can minimize the effect of currency appreciation as well
as depreciation but do not eliminate fluctuations in the underlying U.S.-dollar
value of the proceeds of or rates of return on the Fund's foreign securities.
It is difficult to match precisely the increase in value of a forward contract
to the decline in the U.S.-dollar value of the foreign asset that is the
subject of the hedge. 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 the 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 in a similar manner 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 unable 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
foreign contracts' commitments with respect to position hedges, cross-hedges
and anticipatory hedges. If the value

<PAGE> 21

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.

U.S. GOVERNMENT OBLIGATIONS. As used in this SAI, "U.S. government securities"
include securities issued by the U.S. Government, its agencies,
instrumentalities and government-sponsored enterprises. U.S. government
securities include a variety of Treasury securities that differ only in their
interest rates, initial maturities and dates of issuance. Treasury bills have
initial maturities of one year or less; Treasury notes have initial maturities
of one to ten years; and Treasury bonds generally have initial maturities of
greater than ten years at the date of issuance.

U.S. government securities include direct obligations of the U.S. Treasury and
securities issued or guaranteed by the Federal Housing Administration,
Export-Import Bank of the U.S., Small Business Administration, Government
National Mortgage Association, Federal Home Loan Mortgage Corporation, The
Tennessee Valley Authority, Student Loan Marketing Association and Federal
National Mortgage Association.

Some U.S. government securities, such as Treasury bills and Government National
Mortgage Association pass-through certificates, are supported by the full faith
and credit of the U.S.; 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 or government-sponsored enterprise, a Fund will invest in those
U.S. government securities only when the Fund's investment adviser, Travelers
Asset Management International Company, LLC ("TAMIC"), determines that the
credit risk with respect to the instrumentality or enterprise 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, instrumentalities or government-sponsored enterprises participate,
such as the World Bank, the Asian Development Bank or the Inter-American
Development Bank, or issues insured by the Federal Deposit Insurance
Corporation.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. The Fund may, from time to time,
purchase new-issue government or agency securities on a "when-issued,"
"delayed-delivery," or "to-be-announced" basis ("when-issued securities"). The
prices of such securities are fixed at the time the commitment to purchase is
made and may be expressed in either dollar-price or yield- maintenance terms.
Delivery and payment may be at a future date beyond customary settlement time.
It is the Fund's customary practice to make when-issued purchases for
settlement no more than 90 days beyond the commitment date.

The commitment to purchase a when-issued security may be viewed as a senior
security, which is marked to market and reflected in the Fund's net asset value
daily from the commitment date. While the adviser intends for the Fund to take
physical delivery of these securities, offsetting transactions may be made
prior to settlement, if it is advantageous to do so. The Fund does not make
payment or begin to accrue interest on these securities until settlement date.
To invest its assets pending settlement, the Fund normally invests in
short-term money market instruments and other securities maturing no later than
the scheduled settlement date.

The Fund does not intend to purchase when-issued securities for speculative or
"leverage" purposes. Consistent with Section 18 of the 1940 Act and the
position of the SEC thereunder, when the Fund commits to purchase a security on
a when-issued basis, the adviser identifies and places in a segregated account
high-grade money market instruments and other liquid securities equal in value
to the purchase cost of the when-issued securities.

<PAGE> 22

The adviser believes that purchasing securities in this manner will be
advantageous to the Fund. However, this practice entails certain additional
risks, namely the default of the counterparty on its obligations to deliver the
security as scheduled. In this event, the Fund would experience a gain or loss
equal to the appreciation or depreciation in value from the commitment date.
The adviser employs a rigorous credit quality procedure in determining the
counterparties to deal with in purchasing when-issued securities and, in some
circumstances, require the counterparty to post cash or some other form of
security as margin to protect the value of the delivery obligation pending
settlement.

DEBT SECURITIES. Debt securities held by the Fund may be subject to several
types of investment risk, including market or interest rate risk, which relates
to the change in market value caused by fluctuations in prevailing interest
rates and credit risk, which relates to the ability of the issuer to make
timely interest payments and to repay the principal upon maturity. Call or
income risk relates to corporate bonds during periods of falling interest
rates, and involves the possibility that securities with high interest rates
will be prepaid or "called" by the issuer prior to maturity. Investment-grade
debt securities are generally regarded as having adequate capacity to pay
interest and repay principal, but have speculative characteristics.
Below-investment-grade debt securities (sometimes referred to as
"high-yield/high-risk" or "junk" bonds) have greater speculative
characteristics. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay principal.

The yield on debt instruments over a period of time should reflect prevailing
interest rates, which depend on a number of factors, including government
action in the capital markets, government fiscal and monetary policy, needs of
businesses for capital goods for expansion, and investor expectations as to
future inflation. The yield on a particular debt instrument is also affected by
the risk that the issuer will be unable to pay principal and interest.

The Fund may invest in corporate debt obligations that are rated below the
three highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P and Aaa, AA, or A for Moody's (see the
Appendix for more information) or, if unrated, of comparable quality) and may
have speculative characteristics or be speculative. Lower-rated or comparable
unrated bonds include bonds rated BBB by S&P or BAA by Moody's or below and are
commonly referred to as "junk bonds". There is no minimum acceptable rating for
a security to be purchased or held by the Fund, and it may, from time to time,
purchase or hold securities rated in the lowest rating category, including
bonds in default. Credit ratings evaluate the safety of the principal and
interest payments but not the market value of high yield bonds. Further, the
value of such bonds is likely to fluctuate over time.

Lower-rated bonds usually offer higher yields with greater risks than
higher-rated bonds. Lower-rated bonds have more risk associated with them than
the issuer of such bonds will default on principal and interest payments. This
is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities that react
primarily to fluctuations in the general level of interest rates. Short-term
corporate and market developments affecting the price or liquidity of
lower-rated securities could include adverse news affecting major issuers,
underwriters, or dealers of lower-rated corporate debt obligations. In
addition, since there are fewer investors in lower-rated securities, it may be
harder to sell the securities at an optimum time.

As a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal and income than higher-rated
securities.

An economic downturn may adversely affect the value of some lower-rated bonds.
Such a downturn may especially affect highly leveraged companies or companies
in cyclically sensitive industries, where deterioration in a company's cash
flow may impair its ability to meet its obligations to pay principal and
interest to bondholders in a timely fashion. From time to time, as a result of
changing conditions, issuers of lower-rated bonds may seek or may be required
to restructure the terms and conditions of securities they have issued. As a
result of these restructuring, holders of lower-rated securities may receive
less principal and interest than they had bargained for at the time such bonds
were purchased. In the event of a restructuring, the Fund may bear additional
legal or administrative expenses in order to maximize recovery from an issuer.
Additionally, an increase in interest rates may also adversely impact the value
of high yield bonds.

<PAGE> 23

The secondary trading market for lower rated bonds is generally less liquid
than the secondary trading market for higher-rated bonds. Adversely publicity
and the perception of investors relating to issuers, underwriters, dealers or
underlying business conditions, whether or not warranted by fundamental
analysis, may affect the price of liquidity of lower-rated bonds. On occasion,
therefore, it may become difficult to price or dispose of a particular security
in the portfolio.

Many corporate debt obligations, including many lower rated bonds, permit the
issuers to call the security and therefore redeem their obligations earlier
than the stated maturity dates. Issuers are more likely to call bonds during
periods of declining interest rates. In these cases, if the Fund owns a bond
that is called, the Fund will receive its return of principal earlier than
expected and would likely be required to reinvest the proceeds at a lower
interest rates, thus reducing income to the Fund.

EVALUATING THE RISKS OF LOWER-RATED SECURITIES. The Fund's adviser generally
follows certain steps to evaluate the risks associated with investing in
lower-rated securities. These techniques include:

CREDIT RESEARCH. The adviser performs its own credit analysis
in addition to using nationally recognized statistical rating
organizations and other sources, including discussions with the
issuer's management, the judgment of other investment analysts, and
its own informed judgment. The credit analysis will consider the
issuer's financial soundness, its responsiveness to changes in
interest rates and business conditions, and its anticipated cash flow,
interest or dividend coverage and earnings. In evaluating an issuer,
the adviser or subadviser places special emphasis on the estimated
current value of the issuer's assets rather than historical costs.

DIVERSIFICATION. The Fund generally invests in securities of
many different issuers, industries, and economic sectors to reduce
portfolio risk.

ECONOMIC ANALYSIS. The adviser also analyzes current
developments and trends in the economy and in the financial markets.
When investing in lower-rated securities, timing and selection are
critical and analysis of the business cycle can be important.

Achievement by the Fund's of its investment objective through investing in
these bonds may be more dependent on the credit analysis of a lower-rated bond
than would be the case if the Fund invested exclusively in higher-rated bonds.

MONEY MARKET INSTRUMENTS. Money market instruments are those with remaining
maturities of 397 days or less, such as commercial paper (including master
demand notes), bank certificates of deposit, bankers' acceptances, and U.S.
government securities, 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 are limited to U.S. dollar-denominated certificates of
U.S. banks that 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 that are members of the Federal
Reserve System or the Federal Deposit Insurance Corporation, and savings and
loan associations that are insured by the Federal Deposit Insurance
Corporation).

The Fund does 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.

<PAGE> 24

OBLIGATIONS OF FOREIGN BRANCHES OF U.S. BANKS. The obligations of foreign
branches of U.S. banks may be general obligations of the parent bank as well as
of the issuing branch. They also may be limited by the terms of a specific
obligation and by government regulation. Payment of interest and principal upon
these obligations may also be affected by governmental action in the country of
domicile of the branch (generally referred to as sovereign risk). In addition,
if evidences of ownership of such securities are held outside the U.S., the
Fund is subject to the risks associated with the holding of such property
overseas. Various provisions of federal law governing domestic branches do not
apply to foreign branches of domestic banks.

OBLIGATIONS OF U.S. BRANCHES OF FOREIGN BANKS. Obligations of U.S. branches of
foreign banks may be general obligations of the parent bank as well as of the
issuing branch. They also may be limited by the terms of a specific obligation
and by federal and state regulation as well as by governmental action in the
country in which the foreign bank has its head office. In addition, there may
be less publicly available information about an U.S. branch of a foreign bank
than about a domestic bank.

BANKERS' ACCEPTANCES. Bankers' acceptances in which the Fund may invest are
issued by domestic banks (including their branches located outside the United
States and subsidiaries located in Canada), domestic branches of foreign banks,
savings and loan associations and similar institutions. 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 importer to obtain
a stated amount of funds to pay for specific merchandise. The draft is then
"accepted" by the bank that, 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 RATINGS. The Fund's investments in commercial paper are
limited to those rated A-1 by S&P or PRIME-1 by Moody's. These and other
ratings of money market instruments are described as follows.

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.

See the Appendix for information with respect to ratings for other debt or
equity securities.

OTHER INVESTMENT COMPANIES. The Fund may invest in other investment companies
to the extent permitted by the 1940 Act, including investing some or all of its
assets in one or more other such investment companies. The Fund indirectly
bears its pro rata share of any investment advisory and other fund expenses
paid by the funds in which it invests.

ILLIQUID SECURITIES. The Fund may make investments in illiquid securities in an
amount not exceeding 15% of the Fund's net assets. Illiquid securities are
those that are not readily marketable within seven days in the ordinary

<PAGE> 25

course and include restricted securities that may not be publicly sold without
registration under the Securities Act of 1933 (the "1933 Act") and Rule 144A
securities. 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 the Fund sells such portfolio securities, it may
be deemed an underwriter, as such term is defined in the 1933 Act, with respect
to those sales, and registration of such securities under the 1933 Act may be
required. The Fund will not bear the expense of such registration. In
determining securities subject to the percentage 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, including options traded over-the-counter and other
securities subject to restrictions on resale.

RULE 144A SECURITIES. Certain Rule 144A securities may be considered illiquid
and, therefore, their purchase is subject to the Fund's limitation on the
purchase of illiquid securities, unless the adviser under guidelines approved
by the Board determines on an ongoing basis that an adequate trading market
exists for the securities. If qualified institutional buyers become
uninterested for a time in purchasing Rule 144A securities held by the Fund,
the Fund's level of illiquidity could increase. The Board has established
standards and procedures for determining the liquidity of Rule 144A securities
and periodically monitors the adviser's implementation of the standards and
procedures. The ability to sell to qualified institutional buyers under Rule
144A has developed in recent years, and the adviser cannot predict how this
market will develop.

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, liquid securities, or any combination of cash and liquid
securities, as collateral equal at all times in value to at least 102% of the
market value of the securities loaned. The Fund will not loan securities if,
after a loan, the aggregate of all outstanding securities loans exceeds 15% of
the value of the Fund's total assets taken at their current market value. The
Fund continues to receive interest or dividends on the securities loaned and
simultaneously earns interest on the investment of any 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 Fund may vote the securities if, in
the opinion of the investment adviser, a material event affecting the
investment would occur. There may be risks of delay in receiving additional
collateral, 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, when the income to be earned from the loan
justifies the risks.

REPURCHASE AGREEMENTS. The Fund may invest from time to time in repurchase
agreements with approved counterparties. Approved counterparties are limited to
national banks or broker-dealers on the Federal Reserve Bank of New York's list
of primary reporting dealers, in each case meeting the investment adviser's
credit quality standards as presenting minimal risk of default. All repurchase
transactions must be collateralized by U.S. government securities with market
value no less than 102% of the amount of the transaction, including accrued
interest. Repurchase transactions generally mature the next business day but,
in the event of a transaction of longer maturity, collateral will be
marked-to-market daily and, when required, the counterparty will provide
additional cash or qualifying collateral.

In executing a repurchase agreement, the Fund purchases eligible securities
subject to the counterparty's 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. The Fund will engage in repurchase agreements
only where it takes physical delivery or, in the case of "book-entry"
securities, the security is segregated in the counterparty's account at the
Federal Reserve for the benefit of the Fund, to perfect the Fund's claim to the
collateral for the term of the repurchase 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 any transaction costs in disposing of the
collateral.

TEMPORARY INVESTMENTS. Permissible temporary investments pending investment or
for defensive or cash management purposes may include debt securities,
including high-yield, high risk debt securities and money market

<PAGE> 26

instruments. These investments also may include preferred stock, corporate
bonds and debentures; U.S. government securities; instruments of banks that are
members of the Federal Deposit Insurance Corporation with 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. When the Fund is so invested, investment income may increase and
constitute a large portion of the Fund's return, and the Fund probably will not
participate in market advances or declines to the extent that it would if it
were fully invested in stocks.

INVESTMENT RESTRICTIONS

At a meeting held April 30, 1999, the Fund adopted the following investment
policies as fundamental (those that may not be changed without shareholder
approval).

FUNDAMENTAL POLICIES

The Fund, irrespective of any fundamental or non-fundamental operating
investment policies, may invest all or a portion of its assets in one or more
investment companies without a shareholder vote. The Fund may not:

1. DIVERSIFICATION: with respect to 75% of its assets, purchase a
security other than a security issued or guaranteed by the U. S. Government,
its agencies, instrumentalities, government-sponsored enterprises or a security
of an investment company if, as a result: (1) more than 5% of the Fund's total
assets would be invested in the securities of a single issuer, or (2) the Fund
would own more than 10% of the outstanding voting securities of any single
issuer.

2. INDUSTRY CONCENTRATION: purchase a security if, as a result, more than
25% of the Fund's total assets would be invested in securities of issuers
conducting their principal business activities in the same industry. For
purposes of this policy, there is no limit on : (1) investments in U. S.
government securities, in repurchase agreements covering U. S. government
securities, in securities issued by the states, territories or possessions of
the United States ("municipal securities") or in foreign government securities;
or (2) investment in issuers domiciled in a single jurisdiction.
Notwithstanding anything to the contrary, to the extent permitted by the 1940
Act, the Fund may invest in one or more investment companies; provided that,
except to the extent that it invests in other investment companies pursuant to
Section 12(d)(1)(A) of the 1940 Act, the Fund treats the assets of the
investment companies in which it invests as its own for purposes of this
policy.

3. BORROWING: borrow money if, as a result, outstanding borrowings would
exceed an amount equal to one-third of the Fund's total assets.

4. REAL ESTATE: purchase or sell real estate unless acquired as a result
of ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate or
in securities of companies engaged in the real estate business).

5. LENDING: make loans to other parties if, as a result, more than
one-third of its total assets would be loaned to other parties. For purposes of
this policy, entering into repurchase agreements, lending securities and
acquiring any debt security are not deemed to be the making of loans.

6. COMMODITIES: purchase or sell physical commodities unless acquired as
a result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options and futures contracts and
options on futures or from investing in securities or other instruments backed
by physical commodities).

7. UNDERWRITING: be an underwriter (as that term is defined in the 1933
Act) of securities issued by other persons except, to the extent that in
connection with the disposition of its assets, the Fund may be deemed to be an
underwriter.

<PAGE> 27

8. SENIOR SECURITIES: issue any class of senior securities except to the
extent consistent with the 1940 Act.

NONFUNDAMENTAL POLICIES

Effective May 1, 1999, the Fund also complies with the following nonfundamental
investment policies. The Fund will not:

1. BORROWING: for purpose of the borrowing limitation, the following are
not treated as borrowings to the extent they are fully collateralized: (1) the
delayed delivery of purchased securities (such as the purchase of when-issued
securities); (2) reverse repurchase agreements; (3) dollar-roll transactions;
and (4) the lending of securities ("leverage transactions"). (See Fundamental
Policy No. 3 "Borrowing.")

2. LIQUIDITY: invest more than 15% of its net assets in: (1) securities
that cannot be disposed of within seven days at their then-current value; (2)
repurchase agreements not entitling the holder to payment of principal within
seven days; and (3) securities subject to restrictions on the sale of the
securities to the public without registration under the 1933 Act ("restricted
securities") that are not readily marketable. The Fund may treat certain
restricted securities as liquid pursuant to guidelines adopted by the Trust's
Board of Trustees.

3. EXERCISING CONTROL OF ISSUERS: make investments for the purpose of
exercising control of an issuer. Investments by the Fund in entities created
under the laws of foreign countries solely to facilitate investment in
securities in that country will not be deemed the making of investments for the
purpose of exercising control.

4. OTHER INVESTMENT COMPANIES: invest in securities of another investment
company, except to the extent permitted by the 1940 Act.

5. SHORT SALES: sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities sold short
(short sales "against the box"), provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.

6. PURCHASING ON MARGIN: purchase securities on margin, except that the
Fund may use short-term credit for the clearance of its portfolio transactions,
and provided that initial and variation margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.

7. LENDING: lend a security if, as a result, the amount of loaned
securities would exceed an amount equal to one-third of the Fund's total
assets.

8. PLEDGING: pledge its assets except as permitted by the 1940 Act.

<PAGE> 28

VALUATION AND PRICING

VALUATION. We determine current value for the Fund's portfolio securities as
follows: securities traded on national securities markets are valued at the
closing prices on such markets; securities for which no sales prices were
reported and U.S. government and agency obligations are valued at the mean
between the last reported bid and ask prices or on the basis of quotations
received from unaffiliated reputable brokers or other recognized sources; and,
securities that have a remaining maturity of more than 60 days are valued at
prices based on market quotations for securities of similar type, yield and
maturity. The Fund values short-term money market instruments with maturities
of 60 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 fair value as determined in good faith by the Board.

PRICING. We compute the Fund's net asset value per share as of 4:00 p.m.
Eastern time each day the New York Stock Exchange ("Exchange") is open. 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. 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.

We compute the Fund's redemption value as of 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.

DISTRIBUTIONS

The adviser intends to distribute dividends from net investment income and all
net realized capital gains annually in shares or, at the option of the
shareholder, in cash. When the investment adviser makes a distribution, it
intends to distribute only net capital gains and such income as the investment
adviser has determined, to the best of its ability, to be taxable as ordinary
income. Therefore, the investment adviser will not make net investment income
distributions on the basis of distributable income as computed on the Fund's
books but on a federal taxation basis.

TRUSTEES AND OFFICERS

Under Massachusetts law, the Fund's Board has absolute and exclusive control
over the management and disposition of all the Fund's assets. Subject to the
provisions of its Declaration of Trust, the Fund's business and affairs are
managed by the trustees or other parties so designated by the trustees. The
Fund's trustees and officers are listed below.

<PAGE> 29

<TABLE>
<CAPTION>
Name and Position
With the Fund Principal Occupation During Last Five Years
- --------------- --------------------------------------------
<S> <C>
*Heath B. McLendon Managing Director (1993-present), Salomon Smith Barney, Inc. ("Salomon Smith
Chairman and Trustee Barney"); President and Director (1994-present), SSB Citi Fund Management LLC;
7 World Trade Center (successor to SSBC Fund Management Inc.); Director and President
New York, NY (1996-present), Travelers Investment Adviser, Inc.; Chairman and Director of
Age 66 sixty investment companies associated with Salomon Smith Barney; Trustee (1999)
of 6 Trusts of Citifunds' family of Trusts; Trustee, Drew University; Advisory
Director, M&T Bank; Chairman, Board of Managers, seven Variable Annuity
Separate Accounts of The Travelers Insurance Company+; Chairman, Board of
Trustees, five Mutual Funds sponsored by The Travelers Insurance Company++;
prior to July 1993, Senior Executive Vice President of Shearson Lehman Brothers
Inc.

Knight Edwards Of Counsel (1988-present), Partner (1956-1988), Edwards & Angell, Attorneys;
Trustee Member, Advisory Board (1973-1994), thirty-one mutual funds sponsored by
154 Arlington Avenue Keystone Group, Inc.; Member, Board of Managers, seven Variable Annuity
Providence, RI Separate Accounts of The Travelers Insurance Company+; Trustee, five Mutual
Age 76 Funds sponsored by The Travelers Insurance Company.++

Robert E. McGill, III Retired manufacturing executive. Director (1983-1995), Executive Vice President
Trustee (1989-1994) and Senior Vice President, Finance and Administration (1983-1989),
295 Hancock Street The Dexter Corporation (manufacturer of specialty chemicals and materials);
Williamstown, MA Vice Chairman (1990-1992), Director (1983-1995), Life Technologies, Inc. (life
Age 68 science/biotechnology products); Director, (1994-1999), The Connecticut Surety
Corporation (insurance); Director (1995-present), Chemfab Corporation
(specialty materials manufacturer); Director (1999-present), Ravenwood Winery,
Inc.; Director (1999-present), Lydall Inc. (manufacturer of fiber materials);
Member, Board of Managers, seven Variable Annuity Separate Accounts of The
Travelers Insurance Company+; Trustee, five Mutual Funds sponsored by The
Travelers Insurance Company.++

Lewis Mandell Dean, School of Management (1998-present), University at Buffalo; Dean, College
Trustee of Business Administration (1995-1998), Marquette University; Professor of
160 Jacobs Hall Finance (1980-1995) and Associate Dean (1993-1995), School of Business
Buffalo, NY Administration, and Director, Center for Research and Development in Financial
Age 57 Services (1980-1995), University of Connecticut; Director (2000-present),
Delaware North Corp. (hospitality business); 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, Private Investor, (1997-present); Portfolio Manager (1992-1997, HLM Management
CFA, CFP Company, Inc. (investment management); Assistant Treasurer, Pensions and
Trustee Benefits. Management (1989-1992), United Technologies Corporation (broad-based
28 Woodland Street designer and manufacturer of high technology products); Member, Board of
Sherborn, MA Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance
Age 52 Company+; Trustee, five Mutual Funds sponsored by The Travelers Insurance
Company.++

Ernest J. Wright Vice President and Secretary (1996-present), Assistant Secretary (1994-1996),
Secretary to the Board Counsel (1987-present), The Travelers Insurance Company; Secretary, Board of
One Tower Square Managers, seven Variable Annuity Separate Accounts of The Travelers Insurance
Hartford, Connecticut Company+; Secretary, Board of Trustees, five Mutual Funds sponsored by The
Age 59 Travelers Insurance Company.++
</TABLE>

<PAGE> 30

<TABLE>
<S> <C>
Kathleen A. McGah Deputy General Counsel (1999 - present); Assistant Secretary (1995-present),
Assistant Secretary to The Travelers Insurance Company; Assistant Secretary, Board of Managers, seven
The Board Variable Annuity Separate Accounts of The Travelers Insurance Company+;
One Tower Square Assistant Secretary, Board of Trustees, five Mutual Funds sponsored by The
Hartford, Connecticut Travelers Insurance Company.++ Prior to January 1995, Counsel, ITT Hartford
Age 49 Life Insurance Company.

Lewis E. Daidone Managing Director of Salomon Smith Barney Inc. since 1990. Director and Senior
Treasurer Vice President of SSB Citi Fund Management Inc. and Travelers Investment
388 Greenwich Street Adviser Inc.; Senior Vice President and Treasurer of Salomon and Smith Barney
New York, New York sponsored funds and Chief Financial Officer of the mutual fund complex;
Age 41 Treasurer, Board of Trustees, five Mutual Funds sponsored by The Travelers
Insurance Company.++ Prior to 1990, he was Senior Vice President and CFO of
Cortland Financial Group, Inc. (1984-1990), Assistant Controller, Reserve Group
(1982-1984); Ernst & Young (1980-1982).

Irving David Controller and Director of Salomon Smith Barney Inc. since 1994. Controller of
Controller several investment companies associated with Salomon Smith Barney Inc.;
388 Greenwich Street Controller, Board of Trustees, five Mutual Funds sponsored by The Travelers
New York, New York Insurance Company.++ Prior to 1994 , Assistant Treasurer at First Investment
Age 38 Management Company (1988-1994).
</TABLE>

+ The seven Variable Annuity Separate Accounts are: The Travelers Growth
and Income Stock Account for Variable Annuities, The Travelers Quality
Bond Account for Variable Annuities, The Travelers Money Market Account
for Variable Annuities, The Travelers Timed Growth and Income Stock
Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock
Account for Variable Annuities and The Travelers Timed Bond Account for
Variable Annuities.

++ The five Mutual Funds are: Capital Appreciation Fund, Money Market
Portfolio, 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 Salomon Smith
Barney, Inc., an indirect wholly owned subsidiary of Citigroup Inc., and
his ownership of shares and options to purchase shares of Citigroup
Inc., the indirect parent of The Travelers Insurance Company.

COMMITTEES. To operate more efficiently, the Board established two operating
committees. The Nominating Committee recommends candidates for the nomination
as members of the Board. The Audit Committee reviews the scope and results of
the Fund's annual audits with the Fund's independent auditors and recommends
the engagement of the auditors. For the year ended December 31, 1999, the
members of the Nominating and Audit Committees were Knight Edwards, Robert E.
McGill III, Lewis Mandell, and Frances M. Hawk. Trustees do not receive any
additional compensation for their committee services.

COMPENSATION. Members of the Board who are also officers or employees of
Citigroup Inc. or its subsidiaries are not entitled to any fee for their
services to the Fund. Board members who are not employees of Citigroup 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
("The Travelers") and the seven Variable Annuity Separate Accounts established
by The Travelers. They also receive an aggregate fee of $2,500 for each meeting
of such Boards attended. Board members with 10 years of service may agree to
provide services as an emeritus director at age 72 or upon reaching 80 years of
age and will receive 50% of the annual retainer and 50% of meeting fees, if
attended. The chart below shows the compensation paid to Board members for the
year ended December 31, 1999.

COMPENSATION TABLE

<PAGE> 31

<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits From Fund and Fund
Compensation From Accrued As Part of Complex Paid to
Name of Person, Position Fund(1) Fund Expenses Directors
- ------------------------------------- ---------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Heath B. McLendon
Chairman and Trustee N/A N/A N/A
- ------------------------------------- ---------------------- ---------------------- ------------------------
Knight Edwards
Trustee $2,625 N/A $31,500
- ------------------------------------- ---------------------- ---------------------- ------------------------
Robert E. McGill, III
Trustee $2,417 N/A $29,000
- ------------------------------------- ---------------------- ---------------------- ------------------------
Lewis Mandell
Trustee $2,625 N/A $31,500
- ------------------------------------- ---------------------- ---------------------- ------------------------
Frances M. Hawk, CFA, CFP
Trustee $2,625 N/A $31,500
- ------------------------------------- ---------------------- ---------------------- ------------------------
</TABLE>
- ------------------
(1) No compensation was deferred for any trustee or officer under a deferred
compensation plan.

CODE OF ETHICS

Pursuant to Rule 17j-1 of the 1940 Act, the Fund and its investment advisers
have adopted codes of ethics that permit personnel to invest in securities for
their own accounts, including securities that may be purchased or held by the
funds. All personnel must place the interest of clients first and avoid
activities, interests and relationships that might interfere with the duty to
make decisions in the best interests of the clients. All personnel securities
transactions by employees must adhere to the requirements of the codes and must
be conducted in such a manner as to avoid any actual or potential conflict of
interest, the appearance of such a conflict, or the abuse of an employee's
position of trust and responsibility.

DECLARATION OF TRUST

The Fund is organized as a Massachusetts business trust. In accordance with
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 the Fund's
obligations 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 Fund's
obligations.

INVESTMENT ADVISORY SERVICES

INVESTMENT ADVISER. Travelers Asset Management International Company LLC
("TAMIC"), furnishes the Fund with investment management and advisory services
in accordance with the terms of an investment advisory agreement that was
approved by shareholders on April 23, 1993 (the "Agreement"). TAMIC was
incorporated in 1978 under the laws of the State of New York. On February 15,
2000 TAMIC was converted into a Delaware Limited Liability Company. TAMIC is a
registered investment adviser which has provided investment advisory services
since its incorporation in 1978. TAMIC is an indirect wholly owned subsidiary
of Citigroup Inc., and its principal offices are located at One Tower Square,
Hartford, Connecticut, 06183. TAMIC also provides investment advice to
individual and pooled pension and profit-sharing accounts and non-affiliated
insurance companies.

As required by the 1940 Act, the Agreement continues in effect each year so
long as its continuance is specifically approved at least annually: (1) by a
vote of a majority of the Board, or (2) by a vote of a majority of the
outstanding

<PAGE> 32

voting securities of the Fund. In addition, and in either event, the terms of
the Agreement must be approved annually by a vote of a majority of the trustees
who are not parties to, or interested persons of any party to, the Agreement,
cast in person at a meeting called for the purpose of voting on such approval
and at which the Board is furnished such information as may be reasonably
necessary to evaluate the terms of the Agreement. The Agreement further
provides that it terminates 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 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 Fund's outstanding voting securities.

Under the terms of the Agreement, TAMIC shall:

(1) obtain and evaluate pertinent economic, statistical and
financial data and other information relevant to the Fund's
investment policy 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 with respect
to an investment program for approval, modification or
rejection by the Board;

(4) take such steps as are necessary to implement the investment
program approved by the Board;

(5) 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
Fund; and

(6) be authorized to engage a subadviser 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 a fee, computed daily and payable weekly, at an annual
rate of 0.75% of the Fund's average daily net assets. For the years ended
December 31, 1997, 1998 and 1999, the Fund paid TAMIC investment advisory fees
of $2,436,487, $4,360,310 and $9,612,677, respectively.

THE SUBADVISER. Janus Capital, 100 Fillmore Street, Denver, Colorado, has been
employed by TAMIC as a subadviser to manage the Fund's daily investment
operations, subject to the supervision of both TAMIC and the Board. Kansas City
Southern Industries, Inc., a publicly traded holding company whose primary
subsidiaries are engaged in transportation, financial services and real estate,
owns approximately 82% 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.

TAMIC pays Janus Capital Corporation ("Janus Capital") a subadvisory fee, at an
annual rate of 0.55% of the Fund's average daily net assets for Janus Capital's
services as subadviser. For the years ended December 31, 1997, 1998 and 1999,
TAMIC paid Janus Capital subadvisory fees of $1,786,757, $2,909,592 and
$7,049,296, respectively.

Under a management agreement dated May 1, 1993 with the Fund, The Travelers has
agreed to reimburse the Fund for the amount by which its 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 year. For the years ended December 31, 1999, 1998 and 1997, the
Fund received no reimbursements from The Travelers.

<PAGE> 33

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. The Fund has obligated itself under the 1940 Act,
however, 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.

PORTFOLIO TURNOVER RATE

The Fund's portfolio turnover rates for the years ended December 31, 1998 and
1999 were 53% and 37%, respectively.

BROKERAGE

Subject to the Board's approval, TAMIC's and Janus Capital's policy, in
executing transactions in portfolio securities, is to seek best execution of
orders at the most favorable prices. Determining what may constitute best
execution and price in the execution of a securities transaction by a broker
involves considering, without limitation:

- the overall direct net economic result to the Fund, involving
both price paid or received and any commissions and other
cost paid;

- the efficiency with which the transaction is effected;

- the ability to effect the transaction at all where a large
block is involved;

- the availability of the broker to stand ready to execute
potentially difficult transactions in the future; and

- the financial strength and stability of the broker.

Such considerations are judgmental and are weighed by management in determining
the overall reasonableness of brokerage commissions paid. Subject to the
foregoing, a factor in the selection of brokers is the receipt of research
services, analyses and reports concerning issuers, industries, securities,
economic factors and trends, and other statistical and factual information. Any
such research and other statistical and factual information provided by brokers
is considered to be in addition to and not in lieu of services TAMIC or Janus
Capital is required to perform under its investment advisory or subadvisory
agreement. The cost, value, and specific application of such information are
indeterminable and hence are not practicably allocable among the Fund and other
clients of TAMIC or Janus Capital who may indirectly benefit from the
availability of such information. Similarly, the Fund may indirectly benefit
from information made available as a result of transactions for such clients.

Purchases and sales of bonds and money market instruments are usually principal
transactions and normally are purchased directly from the issuer or from the
underwriter or market maker for the securities. There usually are no brokerage
commissions paid for such purchases. Purchases from the underwriters do include
the underwriting commission or concession, and purchases from dealers serving
as market makers do include the spread between the bid and asked prices. Where
transactions are made in the over-the-counter market, the Fund deals with
primary market makers unless more favorable prices are otherwise obtainable.
Brokerage fees are incurred in connection with futures transactions, and the
Fund is required to deposit and maintain funds with brokers as margin to
guarantee performance of future obligations.

TAMIC or Janus Capital may follow a policy of considering the sale of shares of
the Fund a factor in the selection of broker-dealers to execute portfolio
transactions, subject to the requirements of best execution described above.

TAMIC's or Janus Capital's policy with respect to brokerage is and will be
reviewed by the Board periodically. Because of the possibility of further
regulatory developments affecting the securities exchanges and brokerage
practices generally, the foregoing practices may be changed, modified or
eliminated.

<PAGE> 34

The Fund's total brokerage commissions for the years ended December 31, 1997,
1998, and 1999 were $1,166,544, $561,843 and $758,381, respectively. No
portfolio transactions were directed to brokers for research services. No
brokerage business was placed with any brokers affiliated with the Fund's
investment adviser during the past three years.

FUND ADMINISTRATION

The Fund entered into an administrative services agreement during 1996 with The
Travelers to provide pricing and bookkeeping services at an annualized rate of
0.06% of the daily net assets of the Fund. The Travelers at its expense has
appointed a subadministrator, SSB Citi Fund Management LLC ("SSB Citi") an
affiliate of The Travelers, to provide these services. The Travelers pays SSB
Citi, as subadministrator, a fee at an annual rate of 0.06% of the Fund's
average daily net assets of the Fund. For the three years ended December 31,
1997, 1998 and 1999, the Fund paid administration fees to The Travelers of
$183,798, $380,360 and $769,014, respectively.

SHAREHOLDER RIGHTS

Fund shares are currently sold only to insurance company separate accounts in
connection with variable annuity and variable life insurance contracts issued
by The Travelers. Fund shares 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 the insurance company makes payment 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 that participate equally in
dividends and distributions and have equal voting, liquidation and other
rights. When issued for the consideration described in the prospectus, the
shares are fully paid and nonassessable by the Fund. Shares 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
separate account prospectus that accompanies the Fund's 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 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.

<PAGE> 35

TAX STATUS

GENERAL TAX INFORMATION

The Fund qualified in its last taxable year as a regulated investment company
("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and the Fund intends to so qualify in the future so long as such
qualification is in the best interest of shareholders. If the Fund qualifies as
a regulated investment company and distributes substantially all of its net
income and gains to its shareholders (which it intends to do), then under the
provisions of Subchapter M, the Fund should have little or no income taxable to
it under the Code.

The Fund must meet several requirements to maintain its status as a regulated
investment company. These requirements include the following: (1) at least 90%
of the Fund's gross income must be derived from dividends, interest, payments
with respect to securities loaned, and gains from the sale or disposition of
securities; and (2) at the close of each quarter of the Fund's taxable year,
(a) at least 50% of the value of the Fund's total assets must consist of cash,
U.S. government securities and other securities (no more than 5% of the value
of the Fund may consist of such other securities of any one issuer, and the
Fund must not hold more than 10% of the outstanding voting stock of any
issuer), and (b) the Fund must not invest more than 25% of the value of its
total assets in the securities of any one issuer (other than U.S. government
securities).

In order to maintain the qualification of the Fund's status as a regulated
investment company, in its business judgment, the investment adviser may
restrict the Fund's ability to invest in certain types of financial
instruments. For the same reason, the investment adviser may, in its business
judgment, require the Fund to maintain or dispose of its investment in certain
types of financial instruments beyond the time when it might otherwise be
advantageous to do so.

The Fund also intends to comply with section 817(h) of the Code and the
regulations issued thereunder, which impose certain investment diversification
requirements on life insurance companies' separate accounts (such as the
account) that are used to fund benefits under variable life insurance and
variable annuity contracts. These requirements are in addition to the
requirements of subchapter M and of the 1940 Act and may affect the securities
in which the Fund may invest. In order to comply with the current or future
requirements of section 817(h) (or related Code provisions), the Fund may be
required, for example, to alter its investment objective or policies. No such
change of investment policies will take place without notice to the Fund's
shareholders, the approval of a majority of the outstanding voting shares if
necessary, and the approval of the SEC, to the extent legally required.

ADDITIONAL TAX CONSIDERATIONS

If the Fund fails to qualify as a regulated investment company, the Fund will
be subject to federal, and possibly state, corporate taxes on its taxable
income and gains (without any deduction for its distributions to its
shareholders), and distributions to its shareholders will constitute ordinary
income to the extent of the Fund's available earnings and profits. Owners of
variable life insurance and annuity contracts that have invested in such a Fund
might be taxed currently on the investment earnings under their contracts and
thereby lose the benefit of tax deferral. In addition, if the Fund failed to
comply with the diversification requirements of section 817(h) of the Code and
the regulations thereunder, owners of variable life insurance and annuity
contracts that have invested in the Fund would be taxed on the investment
earnings under their contracts and thereby lose the benefit of tax deferral.
Accordingly, compliance with the above rules is carefully monitored by the
Fund's adviser, and it is intended that the Fund will comply with these rules
as they exist or as they may be modified from time to time. Compliance with the
tax requirements described above may result in a reduction in the return under
the Fund, since, to comply with the above rules, the investments utilized (and
the time at which such investments are entered into and closed out) may be
different from what the Fund's adviser might otherwise believe to be desirable.

The Fund should not be subject to the 4% federal excise tax imposed on
regulated investment companies that do not distribute substantially all their
income and gains each calendar year because the tax does not apply to a
regulated investment company whose only shareholders are segregated asset
accounts of life insurance companies held in connection with variable annuity
contracts and/or variable life insurance policies.

<PAGE> 36

FOREIGN INVESTMENTS. Funds investing in foreign securities or currencies may be
required to pay withholding or other taxes to foreign governments. Foreign tax
withholding from dividends and interest, if any, is generally at a rate between
10% and 35%. The investment yield of any fund that invests in foreign
securities or currencies is reduced by these foreign taxes. Owners of variable
life insurance and annuity contracts investing in such fund bear the cost of
any foreign taxes but will not be able to claim a foreign tax credit or
deduction for these foreign taxes. Funds investing in securities of passive
foreign investment companies may be subject to U.S. federal income taxes and
interest charges, and the investment yield of a fund making such investments is
reduced by these taxes and interest charges. Owners of variable life insurance
and annuity contracts investing in such funds bear the cost of these taxes and
interest charges.

OTHER INFORMATION. The discussion of "Tax Consequences of Dividends and
Distributions" in the prospectus and the foregoing discussion of federal income
tax consequences is a general and abbreviated summary based on tax laws and
regulations in effect on the date of the prospectuses. Tax law is subject to
change by legislative, administrative or judicial action. Each prospective
investor should consult his or her own tax advisor as to the tax consequences
of investments in the Fund.

It is not feasible to comment on all of the federal tax consequences concerning
the Fund. No further discussion of those consequences is included in this SAI.
For information concerning the federal income tax consequences to the owners of
variable life insurance and annuity contracts, see the prospectuses for the
contracts.

The following is a partial list of publications that may be noted in the Funds'
sales literature or shareholder materials that contain articles describing
investment results or other data relative to one or more of the insurance
products that purchase Fund shares. Other publications may also be cited.

<TABLE>
<S> <C>
Across the Board Advertising Age
American Banker Barron's
Best's Review Broker World
Business Insurance Business Month
Business Week Changing Times
Consumer Reports The Economist
Financial Planning Financial World
Forbes Fortune
Inc. Institutional Investor
Insurance Forum Insurance Sales
Insurance Week Journal of Accountancy
Journal of the American Society of CLU & ChFC Journal of Commerce
Life Insurance Selling Life Association News
Manager's Magazine MarketFacts
Money Morningstar, Inc.
National Underwriter Nation's Business
New Choices (formerly 50 Plus) The New York Times
Pensions & Investments Pension World
Rough Notes Round the Table
U.S. Banker VARDs
The Wall Street Journal Working Woman
</TABLE>

<PAGE> 37

FINANCIAL STATEMENTS

The Fund's year-end is December 31st. Financial statements for the Fund's
annual and semi-annual periods will be distributed to shareholders of record.

KPMG LLP, 757 Third Avenue, New York, NY 10017, has been selected as
independent auditors to examine and report on the Fund's financial statements.
The financial statements for the Fund have been audited by KPMG LLP for the
fiscal year ended December 31, 1999. The financial statements of the Registrant
and the Report of Independent Accountants are contained in the Fund's Annual
Report, which is incorporated in the Statement of Additional Information by
reference.

ADDITIONAL INFORMATION

On April 1, 2000, The Travelers owned 100% of the Fund's outstanding shares.
The Travelers 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 an indirect
wholly owned subsidiary of Citigroup Inc., a bank holding company. The
Travelers' home office is located at One Tower Square, Hartford, Connecticut
06183, telephone number 860-277-0111.

Smith Barney Private Trust Company, 388 Greenwich Street, New York, NY 10013,
will maintain the records relating to its function as transfer agent for the
Fund.

PFPC Global Fund Services (formerly First Data Investor Services Group, Inc.),
101 Federal Street, Boston, MA, 02110, will maintain records relating to its
function as the sub-transfer agent for the Fund.

PNC Bank NA, 17th and Chestnut Streets, Philadelphia, PA 19103 and The Chase
Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, NY, 11245 are the Fund's
custodians.

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 in the prospectus.

The Fund's prospectus and this SAI omit certain information contained in the
Fund's registration statement filed with the SEC, which investors may obtain
from the SEC's principal office in Washington, D.C. upon payment of the fee
prescribed by the rules and regulations promulgated by the SEC. Otherwise,
investors may obtain the Fund's registration for free by accessing the SEC's
website at http//www.sec.gov.

<PAGE> 38

APPENDIX

COMMERCIAL PAPER RATINGS

The Fund's investments in commercial paper are limited to those rated A-1 or
A-2 by S&P or PRIME-1 or PRIME-2 by Moody's. These ratings and other money
market instruments are described as follows.

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.

Commercial paper rated A-2 by S&P indicates that capacity for timely payment is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.

Commercial paper rated 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.

Commercial paper rated PRIME-2 has a strong capacity for repayment of
short-term promissory obligations.

COMMON AND PREFERRED STOCK RATINGS

MOODY'S COMMON STOCK RATINGS

Moody's presents a concise statement of the important characteristics of a
company and an evaluation of the grade (quality) of its common stock. Data
presented include: (a) capsule stock information which reveals short and long
term growth and yield afforded by the indicated dividend, based on a recent
price; (b) a long term price chart which shows patterns of monthly stock price
movements and monthly trading volumes; (c) a breakdown of a company's capital
account which aids in determining the degree of conservatism or financial
leverage in a company's balance sheet; (d) interim earnings for the current
year to date, plus three previous years; (e) dividend information; (f) company
background; (g) recent corporate developments; (h) prospects for a company in
the immediate future and the next few years; and (I) a ten year comparative
statistical analysis.

This information provides investors with information on what a company does,
how it has performed in the past, how it is performing currently, and what its
future performance prospects appear to be.

These characteristics are then evaluated and result in a grading, or indication
of quality. The grade is based on an analysis of each company's financial
strength, stability of earnings and record of dividend payments. Other
considerations include conservativeness of capitalization, depth and caliber of
management, accounting practices, technological capabilities and industry
position. Evaluation is represented by the following grades:

(1) High Grade
(2) Investment Grade
(3) Medium Grade
(4) Speculative Grade

<PAGE> 39

MOODY'S PREFERRED STOCK RATINGS

Preferred stock ratings and their definitions are as follows:

1. aaa: An issue that is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.

2. aa: An issue that is rated aa is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance that earnings and
asset protection will remain relatively well maintained in the foreseeable
future.

3. a: An issue that is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.

4. baa: An issue that is rated baa is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.

5. ba: An issue that is rated ba is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty
of position characterizes preferred stocks in this class.

6. b: An issue that is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

Moody's applies numerical modifiers 1, 2 and 3 in each rating classification:
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.

CORPORATE BOND RATINGS

S&P CORPORATE BOND RATINGS

An 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.

<PAGE> 40

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 and B - Debt rated BB and B 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. While such debt likely will have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

MOODY'S CORPORATE BOND RATINGS

Moody's ratings are as follows:

1. Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are not likely to
impair the fundamentally strong position of such issues.

2. Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
that make the long term risks appear somewhat larger than in Aaa securities.

3. A - Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

4. Baa - Bonds that are rated Baa are considered as medium grade obligations,
that is, 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 that 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 that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

<PAGE> 41

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.

FITCH CORPORATE BOND RATINGS

Fitch ratings are as follows -

1. AAA - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

2. AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-l+".

3. A - Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

4. BBB - Bonds considered investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances are more
likely to have adverse impact on these bonds and impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.

5. BB - Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.

6. B - Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflect the obligor's limited margin
of safety and the need for reasonable business and economic activity through
out the life of the issue.

PLUS (+) MINUS (-) - Plus and minus signs are used (except in "AAA" category)
with a rating symbol to indicate the relative position of a credit within the
rating category.

28
<PAGE> 42

CAPITAL APPRECIATION FUND

STATEMENT OF ADDITIONAL INFORMATION

L-11171S
<PAGE> 43

PART C

OTHER INFORMATION

Item 23. Exhibits

(a) 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.)

(b) 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.)

(d)(1) Investment Advisory Agreement between the Registrant and The Travelers
Investment Management Company. (Incorporated herein by reference to
Exhibit 5(A) to Post-Effective Amendment No. 25 to the Registration
Statement on Form N-1A filed on February 20, 1997.)

(d)(2) Sub-Advisory Agreement between The Travelers Investment Management
Company and Janus Capital Corporation. (Incorporated herein by
reference to Exhibit 5(B) to Post-Effective Amendment No. 25 to the
Registration Statement on Form N-1A filed on February 20, 1997.)

(g)(1) Form of Custody Agreement between the Registrant and PNC Bank, N.A.
(Incorporated hereby by reference to Exhibit 8(A) to Post-Effective
Amendment No. 27 to the Registration Statement on Form N-1A filed on
April 22, 1998.)

(g)(2) Form of Subcustody Agreement between Morgan Stanley Trust Company and
Subcustodians. (Incorporated hereby by reference to Exhibit 8(B) to
Post-Effective Amendment No. 27 to the Registration Statement on Form
N-1A filed on April 22, 1998.)

(g)(3) Global Custody Agreement between The Chase Manhattan Bank as
Subcustodian and the PNC Bank. To be provided in a subsequent
amendment.

(h)(1) Administrative Services Agreement between the Registrant and The
Travelers Insurance Company. (Incorporated herein by reference to
Exhibit 9 to Post-Effective Amendment No. 25 to the Registration
Statement on Form N-1A filed on February 20, 1997.)

(h)(2) Form of Transfer Agency and Registrar Agreement between the Trust and
First Data Investor Services Group, Inc (Incorporated hereby by
reference to Exhibit 9(b) to Post-Effective Amendment No. 27 to the
Registration Statement on Form N-1A filed on April 22, 1998.)

(h)(3) Agency Agreement between Smith Barney Private Trust Company and the
Registrant. To be provided in a subsequent amendment.

(h)(4) Sub-Transfer Agency and Services Agreement between Smith Barney
Private Trust Company First Data Investor Services Group. To be
provided in a subsequent amendment.

(i) An opinion and consent of counsel as to the legality of the securities
registered by the Registrant. (Incorporated herein by reference to the
Registrant's most-recent Rule 24f-2 Notice filing on March 25, 1998.)

(j)(1) Consent of KPMG LLP, Independent Certified Public Accountants.

(j)(2) 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

<PAGE> 44

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.)

(j)(3) Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for Lewis E. Daidone. (Incorporated herein by reference to
Exhibit 11(B) to Post-Effective Amendment No. 25 to the Registration
Statement on Form N-1A filed on February 20, 1997.)

(p) Code of Ethics. To be provided in a subsequent amendment.

Item 24. Persons Controlled By or Under Common Control With the Fund

Not Applicable.

Item 25. 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> 45

Item 26. Business and Other Connections of Investment Adviser

Officers and Directors of Travelers Asset Management International Company LLC
(TAMIC), the Investment Adviser for Capital Appreciation Fund, are set forth in
the following table:

<TABLE>
<CAPTION>
Name Position with TAMIC Citigroup Investments Inc*
- ---- ------------------- --------------------------
<S> <C> <C>
Marc P. Weill Director and Chairman Executive President
Chief Investment Officer
David A. Tyson Director, President and Executive Vice President
Chief Investment Officer
Joseph E. Rueli, Jr. Director, Senior Vice President Senior Vice President
and Chief Financial Officer and Chief Financial Officer
F. Denney Voss Director and Senior Vice Executive Vice President
President
John R. Britt Director and Secretary Senior Counsel
Eugene Collins Senior Vice President Senior Vice President/
Thomas Hajdukiewicz Senior Vice President Senior Vice President/High Yield
Kathryn D. Karlic Senior Vice President Senior Vice President/Credit
Glenn N. Marchak Senior Vice President Vice President
David R. Miller Senior Vice President First Vice President
Emil J. Molinaro Senior Vice President First Vice President
Joseph M. Mullally Senior Vice President Senior Vice President
Jordan M. Stitzer Senior Vice President Senior Vice President
David Amaral Vice President Trader
Roy Augsberger Vice President First Vice President
John R. Calcagni, Jr. Senior Vice President First Vice President
Gilbert G. Campbell Vice President VP Senior Credit Analyst
Allen R. Cantrell Vice President Vice President-Portfolio Manager
Arthur William Carnduff Vice President Vice President-Portfolio Manager
Richard Davis Vice President Senior Financial Analyst
Angela Pellegrini Degis Vice President Vice President/Credit Analyst
Denise Duffee Vice President Vice President Portfolio Mgr.
Bruce E. Fox Vice President Vice President/Derivatives
Carl Franzetti Vice President Vice President/Sr. Credit Analyst
Kimerly Guerrero Vice President Vice President
John F. Green Vice President Vice President
Edward Hinchliffe III Vice President and Cashier First Vice President-Securities
Jeremy C. Hughes Vice President Trader
Paul Jablansky Vice President 2nd Vice President-Securities
Richard E. John Vice President Frist Vice President
Kurt Lin Vice President Trader
David R. Martin Vice President Vice President/Credit Analyst
Paul A. Mataras Vice President Vice President/Analyst High Yield
Robert Mills Vice President Assistant Vice President/Port. Mgr.
David Nadeau Vice President Senior Analyst
John W. Petchler Vice President First Vice President/Portfolio Mgr.
Steven A. Rosen Vice President Vice President/Sr. Credti Analyst
</TABLE>

<PAGE> 46

<TABLE>
<S> <C> <C>
Ebru Salomoni Vice President Sales/Marketing Representative
Andrew Sanford Vice President Vice President/Senior Trader
Charles H. Silverstein Vice President First Vice President/Portfolio Mgr.
Robert Simmons Vice President Vice President/Senior Trade
Lisa A. Thomas Vice President Assistant Vice President/Port. Mgr.
Teresa M. Torrey Vice President First Vice President/Portfolio Mgr
Pamela D. Westmoreland Vice President Vice President/Portfolio Manager
Matthew Anavy Assistant Vice President Trader
Paul Bryan Assistant Vice President Vice President-Securities
Eric Clapprood Assistant Vice President Financial Analyst
Bonnie Crisco Assistant Vice President Trader
Steve Diacos Assistant Vice President Vice President-Credit Analyst
William M. Gardner Assistant Vice President Private Placement Officer
Laura Horan Assistant Vice President Assistant Compliance Officer
Kevin Hwang Assistant Vice President Trading Analyst
Cristina Lucci Assistant Vice President Financial Analyst
Matthew J. McInerny Assistant Vice President Assistant Vice President
Linnea Morrow Assistant Vice President Vice President-Finance
Robert O'Brien Assistant Vice President Assistant Trader
Michael Plage Assistant Vice President Trading Analyst
Caroline Platt Assistant Vice President Trading Analyst
Andrew Feldman Assistant Secretary Senior Counsel, Corporate Staff
Millie Kim Assistant Secretary General Counsel
Daniel Scudder Assistant Secretary Counsel
Andrew Spring Assistant Secretary Counsel
Patricia A. Uzzel Compliance Officer Assistant Vice President and
Investment Compliance Officer
Frank J. Fazzina Controller First Vice President-Securities
</TABLE>

* Positions held with Citigroup Investments Inc. 388 Greenwich Street, New
York, N.Y.

Information as to the Directors and Officers of Janus Capital Corporation, the
Subadviser to the Fund, is in included in its Form ADV (File No. 801-13991)
filed with the Commission, which is incorporated herein by reference thereto.

Item 27. Principal Underwriter

Not Applicable.

<PAGE> 47

Item 28. Location of Accounts and Records
<TABLE>
<S> <C>
(1) SSB Citi Fund Management LLC
388 Greenwich Street
New York, NY 10013

(2) PNC Bank, N.A.
17th and Chestnut Streets
Philadelphia, PA 19103

(3) The Chase Manhattan Bank
4 Chase Metro Tech Center
Brooklyn, NY 11245

(4) PFPC Global Fund Services (formerly First Data Investor Services Group, Inc.)
101 Federal Street
Boston, MA 02110

(5) Smith Barney Private Trust Company
388 Greenwich Street
New York, NY 10013
</TABLE>

Item 29. Management Services

Not Applicable.

Item 30. Undertakings

The undersigned Registrant hereby undertakes to provide to each person to whom
a prospectus is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.

<PAGE> 48

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Fund, Capital Appreciation Fund, certifies that it
meets all of the requirements for effectiveness of this post-effective
amendment to this registration statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, and state of Connecticut, on the 17th day
of April, 2000.

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 the 17th day of April 2000.

*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: /s/Ernest J. Wright, Attorney-in-Fact
Secretary, Board of Trustees

<PAGE> 49

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- --------- ----------- ----------------
<S> <C> <C>
(j)(1) Consent of KPMG LLP, Independent Certified Public Electronically
Accountants.
</TABLE>

<PAGE> 1

Exhibit (j)(1)

INDEPENDENT AUDITORS' CONSENT

To the Shareholders and Board of Trustees of
Capital Appreciation Fund:

We consent to the incorporation by reference, in this Prospectus and Statement
of Additional Information, of our report dated February 11, 2000, on the
statement of assets and liabilities for the Capital Appreciation Fund as of
December 31, 1999 and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years
in the three-year period then ended. These financial statements and financial
highlights and our report thereon are included in the Annual Report of the Fund
as filed on Form N-30D.

We also consent to the references to our firm under the headings "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information.

/s/KPMG LLP

New York, New York
April 12, 2000