As filed with the Securities and Exchange Commission on June
4, 1999
Registration Nos. 33-11716
811-5018
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 23
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 23
CONCERT INVESTMENT SERIES (Formerly Common Sense Trust)
(Exact Name of Registrant as Specified in Declaration of
Trust)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices)(Zip Code)
(212) 816-6474
(Registrant's Telephone Number, Including Area Code)
CHRISTINA T. SYDOR, ESQ.
Secretary
Concert Investment Series
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[X] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) 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.
CONCERT INVESTMENT SERIES
SELECT PORTFOLIOS
EMERGING GROWTH PORTFOLIO
MID CAP PORTFOLIO
GROWTH PORTFOLIO
GROWTH AND INCOME PORTFOLIO
GOVERNMENT PORTFOLIO
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and
Documents:
Front Cover
Contents Page
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
Part A
<PAGE>
Emerging Growth Portfolio
Mid Cap Portfolio
Growth Portfolio
Growth and Income Portfolio
Government Portfolio
Concert Investment Series
Prospectus
_________, 1999
SELECT PORTFOLIOS
Shares of each portfolio are offered to insurance company separate
accounts which fund certain variable annuity and variable life insurance
contracts and to qualified retirement and pension plans. This prospectus
should be read together with the prospectus for the contracts.
The Securities and Exchange Commission has not approved or disapproved these
Securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
[LOGO] Smith Barney
Mutual Funds
Investing for your future.
Every day.(R)
<PAGE>
Contents
<TABLE>
<S> <C>
Things you should know before investing
- --------------------------------------------
Portfolio goals, strategies and risks:
- --------------------------------------------
Select Emerging Growth Portfolio 2
- --------------------------------------------
Select Mid Cap Portfolio 4
- --------------------------------------------
Select Growth Portfolio 6
- --------------------------------------------
Select Growth and Income Portfolio 8
- --------------------------------------------
Select Government Portfolio 10
- --------------------------------------------
More on the portfolios' investments 12
- --------------------------------------------
Management 13
- --------------------------------------------
Share transactions 14
- --------------------------------------------
Distributions, dividends and taxes 15
- --------------------------------------------
Share price 16
- --------------------------------------------
</TABLE>
About the manager
The funds' investment manager is SSBC Fund Management Inc., an affiliate of
Salomon Smith Barney Inc. The manager selects the funds' investments
and oversees their operations. The manager and Salomon Smith Barney are subsid-
iaries of Citigroup Inc. Citigroup businesses produce a broad range of finan-
cial services.
1
Concert Investment Series--Select Portfolios
<PAGE>
Select Emerging Growth Portfolio
Investment objective
The fund seeks capital appreciation.
Key investments
The fund invests in common stocks of small and medium sized companies consid-
ered by the manager to be "emerging growth" companies. These are primarily do-
mestic companies, in the early stages of their life cycles, characterized by
relatively high earnings growth. The manager selects investments from among
companies that have market capitalizations in the lowest 25% of all publicly
traded U.S. companies.
How the manager selects the fund's investments
The manager emphasizes individual security selection while spreading invest-
ments among many industries and sectors. The manager uses quantitative analysis
to identify individual companies that it believes offer exceptionally high
prospects for growth. The manager purchases these companies' stocks when it be-
lieves they are reasonably priced. This style of stock selection is commonly
known as "growth at a reasonable price." Quantitative methods are also used to
control portfolio risk related to broad macroeconomic factors, such as interest
rate changes. The manager selects investments for their potential capital ap-
preciation; any ordinary income is incidental. In selecting individual compa-
nies for investment, the manager looks for:
. Above average earnings growth
. A pattern of reported earnings that exceed market expectations
. Rising earnings estimates over the next several quarters
. High relative return on invested capital
. Reasonable price/earnings multiple
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if any of the following occurs:
. Stock prices decline generally
. Emerging growth companies fall out of favor with investors
. The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock proves to be incorrect
. A particular product or service developed by an emerging growth company is
unsuccessful, the company does not meet earnings expectations or other events
depress the value of the company's stock
Compared to large, established companies, emerging growth companies are more
likely to have limited product lines, limited capital resources and less expe-
rienced management. In addition, securities of emerging growth companies are
more likely to:
. Experience sharper swings in market value
. Be harder to sell at times and prices the manager believes appropriate
. Offer greater potential for gains and losses
Who may want to invest in the fund
The fund may be an appropriate investment if you:
. Are seeking to participate in the long term growth potential of emerging
growth companies
. Currently have exposure to fixed income investments and less volatile equity
investments and wish to broaden your investment portfolio
. Are willing to accept the risks of investing in the stock market and the spe-
cial risks of investing in emerging growth companies with limited track rec-
ords
2
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Select Emerging Growth Portfolio, continued
Total return and performance
- --------------------------------------------------------------------------------
The fund's total return will vary from year to year, and its performance will
vary compared with that of unmanaged indices. Although variations in the fund's
performance are an indication of the risks of investing in the fund, past per-
formance does not necessarily indicate how the fund will perform in the future.
Fees and expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your investment)
------------------------------------------------------------
<S> <C>
Maximum sales charge on purchases (as a % of offering
price) None
------------------------------------------------------------
Maximum deferred sales charge on redemptions
(as a % of the lower of net asset value at purchase or
redemption) None
------------------------------------------------------------
Annual fund operating expenses (paid by the portfolio as
a % of net assets)
------------------------------------------------------------
Management fee 0.75%
------------------------------------------------------------
Distribution and service (12b-1) fees None
------------------------------------------------------------
Other expenses 0.25
------------------------------------------------------------
Total annual fund operating expenses 1.00%
------------------------------------------------------------
</TABLE>
The table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
portfolio.
Example
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of
years
you
own
your
shares 1 year* 3 years* 5 years* 10 years*
-----------------------------------------
<S> <C> <C> <C> <C>
$ $ $ $
-----------------------------------------
</TABLE>
The example
helps you com-
pare the costs
of investing in
the portfolio
with other mu-
tual funds.
Your actual
costs may be
higher or low-
er.
*The example assumes:
.You invest $10,000 for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a
sales charge
.The portfolio's operating expenses remain the same
3
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Selecyt Mid Cap Portfolio
Investment objective
The fund seeks long-term growth of capital.
Key investments
The fund invests primarily in equity securities of medium sized companies,
which are companies with market capitalizations within the range of capitaliza-
tions of the companies included in the Standard & Poors MidCap 400 Index at the
time of investment. Equity securities include exchange traded and over-the-
counter common stocks, preferred stocks, debt securities convertible into eq-
uity securities and warrants and rights relating to equity securities. The fund
also may invest up to 35% of its assets in equity securities of companies with
market capitalizations smaller or larger than those of medium sized companies
(i.e., companies considered to be small or large capitalization companies), and
up to 25% of its assets in securities of foreign issuers both directly and
through depositary receipts for those securities.
How the manager selects the fund's investments
The manager focuses on medium capitalization companies that exhibit either at-
tractive growth characteristics or attractive value characteristics. The man-
ager selects individual "growth" stocks for investment in two ways: by identi-
fying those companies which exhibit the most favorable growth prospects and by
identifying those companies which have favorable valuations relative to their
growth characteristics. This strategy is commonly known as "growth at a reason-
able price" and offers investors style diversification within a single mutual
fund. In selecting companies for investment, the manager looks for:
. Growth characteristics, including high historic growth rates and high rela-
tive growth compared with companies in the same industry or sector
. Value characteristics, including low price/earnings ratios and other statis-
tics indicating that a security is undervalued
. Increasing profits and sales
. Competitive advantages that could be more fully exploited by a company
. Skilled management that is committed to long-term growth
. Potential for a long-term investment by the fund
The manager uses fundamental research to find stocks with strong growth poten-
tial and also uses quantitative
analysis to determine whether these stocks are relatively undervalued or over-
valued compared to stocks with similar fundamental characteristics. The manag-
er's quantitative valuations determine whether and when the fund will purchase
and sell stocks that it identifies through fundamental research.
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, because of the following:
. U.S. stock markets go down, or perform poorly relative to other types of in-
vestments
. An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of a company in which the fund invests
. Medium capitalization stocks fall out of favor with investors
. The manager's judgment about the attractiveness, growth prospects, value or
potential appreciation of a particular stock proves to be incorrect
Because the fund invests primarily in medium capitalization companies, an in-
vestment in the fund may be more volatile and more susceptible to loss than an
investment in a fund which invests primarily in large capitalization companies.
Medium capitalization companies may have more limited product lines, markets
and financial resources than large capitalization companies. They may have
shorter operating histories and more erratic businesses, although they gener-
ally have more established businesses than small capitalization companies. The
prices of medium capitalization company stocks tend to be more volatile than
the prices of large capitalization company stocks.
Who may want to invest in the fund
The fund may be an appropriate investment if you:
. Are seeking to participate in the long term growth potential of the U.S.
stock market
. Are looking for an investment with potentially greater return but higher risk
than a fund that invests primarily in large cap companies
. Are willing to accept the risks of investing in the stock market
4
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Select Mid Cap Portfolio, continued
Total return and performance
- --------------------------------------------------------------------------------
The fund's total return will vary from year to year, and its performance will
vary compared with that of unmanaged indices. Although variations in the fund's
performance are an indication of the risks of investing in the fund, past per-
formance does not necessarily indicate how the fund will perform in the future.
Fees and expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your investment)
------------------------------------------------------------
<S> <C>
Maximum sales charge on purchases (as a % of offering
price) None
------------------------------------------------------------
Maximum deferred sales charge on redemptions
(as a % of the lower of net asset value at purchase or
redemption) None
------------------------------------------------------------
Annual fund operating expenses (paid by the portfolio as
a % of net assets)
------------------------------------------------------------
Management fee 0.75%
------------------------------------------------------------
Distribution and service (12b-1) fees None
------------------------------------------------------------
Other expenses 0.20
------------------------------------------------------------
Total annual fund operating expenses 0.95%
------------------------------------------------------------
</TABLE>
The table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
portfolio.
Example
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of
years
you
own
your
shares 1 year* 3 years* 5 years* 10 years*
-----------------------------------------
<S> <C> <C> <C> <C>
$ $ $ $
-----------------------------------------
</TABLE>
The example
helps you com-
pare the costs
of investing in
the portfolio
with other mu-
tual funds.
Your actual
costs may be
higher or low-
er.
*The example assumes:
.You invest $10,000 for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a
sales charge
.The portfolio's operating expenses remain the same
5
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Select Growth Portfolio
Investment objective
The fund seeks capital appreciation.
Key investments
The fund invests principally in U.S. common stocks and other equity securities,
typically of established companies with large market capitalizations.
How the manager selects the fund's investments
The manager uses a "bottom-up" strategy, primarily focusing on individual secu-
rity selection, with less emphasis on industry and sector allocation. The man-
ager selects investments for their capital appreciation; any ordinary income is
incidental. In selecting individual companies for investment, the manager looks
for:
. Growth characteristics, including high historic growth rates and high rela-
tive growth compared with companies in the same industry or sector
. Value characteristics, including low price/earnings ratios and other statis-
tics indicating that a security is undervalued
. Increasing profits and sales
. Competitive advantages that could be more fully exploited by a company
. Skilled management that is committed to long-term growth
. Potential for a long-term investment by the fund
The manager uses fundamental research to find stocks with strong growth poten-
tial, and then uses quantitative analysis to determine whether these stocks are
relatively undervalued or overvalued compared to stocks with similar fun-
damental characteristics. The manager's quantitative valuations determine
whether and when the fund will purchase or sell the stocks that it identifies
through fundamental research. This style of stock selection is commonly known
as "growth at a reasonable price."
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if any of the following occurs:
. Stock prices decline generally
. Large capitalization companies fall out of favor with investors
. The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock proves to be incorrect
. The company does not meet earnings expectations or other events depress the
value of the company's stock
The fund may engage in active and frequent trading, resulting in high portfolio
turnover. This may lead to the realization and distribution to shareholders of
higher capital gains, increasing their tax liability. Frequent trading also in-
creases transaction costs, which could detract from the fund's performance.
Who may want to invest in the fund
The fund may be an appropriate investment if you:
. Are an aggressive investor seeking to participate in the long term growth po-
tential of the stock market
. Are willing to accept the risks of investing in common stocks
6
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Select Growth Portfolio, continued
Total return and performance
- --------------------------------------------------------------------------------
The fund's total return will vary from year to year, and its performance will
vary compared with that of unmanaged indices. Although variations in the fund's
performance are an indication of the risks of investing in the fund, past per-
formance does not necessarily indicate how the fund will perform in the future.
Fees and expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your investment)
------------------------------------------------------------
<S> <C>
Maximum sales charge on purchases (as a % of offering
price) None
------------------------------------------------------------
Maximum deferred sales charge on redemptions
(as a % of the lower of net asset value at purchase or
redemption) None
------------------------------------------------------------
Annual fund operating expenses (paid by the portfolio as
a % of net assets)
------------------------------------------------------------
Management fee 0.75%
------------------------------------------------------------
Distribution and service (12b-1) fees None
------------------------------------------------------------
Other expenses 0.20%
------------------------------------------------------------
Total annual fund operating expenses 0.95%
------------------------------------------------------------
</TABLE>
The table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
portfolio.
Example
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of
years
you
own
your
shares 1 year* 3 years* 5 years* 10 years*
-----------------------------------------
<S> <C> <C> <C> <C>
$ $ $ $
-----------------------------------------
</TABLE>
The example
helps you com-
pare the costs
of investing in
the portfolio
with other mu-
tual funds.
Your actual
costs may be
higher or low-
er.
*The example assumes:
.You invest $10,000 for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a
sales charge
.The portfolio's operating expenses remain the same
Concert Investment Series--Select Portfolios Prospectus
7
<PAGE>
Select Growth and Income Portfolio
Investment objective
The fund seeks reasonable growth and income.
Key investments
The fund invests in a portfolio consisting principally of equity securities,
including convertible securities, that provide dividend or interest income.
However, it may also invest in non-income producing investments for potential
appreciation in value. The fund emphasizes U.S. stocks with large market capi-
talizations. The fund's convertible securities may be of any credit quality and
may include below investment grade securities (commonly known as "junk bonds").
How the manager selects the fund's investments
The manager emphasizes individual security selection while spreading the fund's
investments among industries and sectors. The manager uses a two-step selection
process commonly known as "growth at a reasonable price."
First, the manager uses quantitative analysis to find stocks with strong growth
potential, and to determine whether these securities are relatively undervalued
or overvalued. Quantitative factors include:
. Growth characteristics, including high historic growth rates and high rela-
tive growth compared with companies in the same industry or sector
. Value characteristics, including low price/earnings ratios and other statis-
tics indicating that a security is undervalued
Then, the manager uses fundamental qualitative research to verify these equity
securities' growth potential. Qualitative factors include:
. Management with established track records, or favorable changes in current
management
. Improvement in a company's competitive position
. Positive changes in corporate strategy
These quantitative and qualitative factors, as well as the expected dividends
and income, influence the fund's purchases and sales of securities.
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if any of the following occurs:
. Stock prices decline generally
. Large capitalization companies fall out of favor with investors
. Companies in which the fund invests suffer unexpected losses or lower than
expected earnings
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
. The issuer of a debt security owned by the fund defaults on its obligation to
pay principal and/or interest or has its credit rating downgraded. This risk
is higher for below investment grade securities. These securities are consid-
ered speculative because they have a higher risk of issuer default, are sub-
ject to greater price volatility and may be illiquid
The fund may engage in active and frequent trading, resulting in high portfolio
turnover. This may lead to the realization and distribution to shareholders of
higher capital gains, increasing their tax liability. Frequent trading also in-
creases transaction costs, which could detract from the fund's performance.
Who may want to invest in the fund
The fund may be an appropriate investment if you:
. Are seeking reasonable long term growth and current income
. Are willing to accept the risks of investing in the stock market
8
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Select Growth and Income Portfolio, continued
Total return and performance
- --------------------------------------------------------------------------------
The fund's total return will vary from year to year, and its performance will
vary compared with that of unmanaged indices. Although variations in the fund's
performance are an indication of the risks of investing in the fund, past per-
formance does not necessarily indicate how the fund will perform in the future.
Fees and expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your investment)
------------------------------------------------------------
<S> <C>
Maximum sales charge on purchases (as a % of offering
price) None
------------------------------------------------------------
Maximum deferred sales charge on redemptions
(as a % of the lower of net asset value at purchase or
redemption) None
------------------------------------------------------------
Annual fund operating expenses (paid by the portfolio as
a % of net assets)
------------------------------------------------------------
Management fee 0.75%
------------------------------------------------------------
Distribution and service (12b-1) fees None
------------------------------------------------------------
Other expenses 0.20%
------------------------------------------------------------
Total annual fund operating expenses 0.95%
------------------------------------------------------------
</TABLE>
The table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
portfolio.
Example
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of
years
you
own
your
shares 1 year* 3 years* 5 years* 10 years*
-----------------------------------------
<S> <C> <C> <C> <C>
$ $ $ $
-----------------------------------------
</TABLE>
The example
helps you com-
pare the costs
of investing in
the portfolio
with other mu-
tual funds.
Your actual
costs may be
higher or low-
er.
*The example assumes:
.You invest $10,000 for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a
sales charge
.The portfolio's operating expenses remain the same
9
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Select Government Portfolio
Investment objective
The fund seeks high current return consistent with preservation of capital.
Key investments
The fund invests primarily in government debt issued or guaranteed by the U.S.
government, its agencies or instrumentalities. These securities include U.S.
Treasury securities, mortgage-related and asset-backed securities. Some govern-
ment guaranteed mortgage-related securities are backed by the full faith and
credit of the U.S. Treasury, some are supported by the right of the issuer to
borrow from the U.S. government and some are backed only by the credit of the
issuer itself.
In order to hedge against changes in interest rates, the fund also may purchase
or sell options on U.S. government securities and enter into interest rate
futures contracts and options on these contracts.
How the manager selects the fund's investments
The manager focuses on identifying undervalued sectors and securities. Specifi-
cally, the manager:
. Determines sector and maturity weightings based on intermediate and long-term
assessments of the economic environment and relative value factors based on
interest rate outlook
. Uses research to uncover inefficient sectors of the government and mortgage
markets and adjusts portfolio positions to take advantage of new information
. Measures the potential impact of supply/demand imbalances, yield curve shifts
and changing prepayment patterns to identify individual securities that bal-
ance potential return and risk
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if any of the following occurs:
. Interest rates increase, causing the prices of fixed income securities to de-
cline and reducing the value of the fund's portfolio
. Prepayment risk (or call risk). As interest rates decline, the issuers of se-
curities held by the fund may prepay principal earlier than scheduled, forc-
ing the fund to reinvest in lower yielding securities
. Extension risk. As interest rates increase, slower than expected principal
payments may extend the average life of fixed income securities, locking in
below-market interest rates and reducing the value of these securities
. The manager's judgment about interest rates or the attractiveness, value or
income potential of a particular security proves incorrect
. Changes in interest rates or the value of securities cause the value of op-
tions or futures contracts held by the fund to decline, resulting in dispro-
portionate losses to the fund's portfolio
Who may want to invest in the fund
The fund may be an appropriate investment if you:
. Are seeking income consistent with preservation of capital
. Are willing to accept the interest rate risks and market risks of investing
in government bonds and mortgage-related securities
10
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Select Government Portfolio, continued
Total return and performance
- --------------------------------------------------------------------------------
The fund's total return will vary from year to year, and its performance will
vary compared with that of unmanaged indices. Although variations in the fund's
performance are an indication of the risks of investing in the fund, past per-
formance does not necessarily indicate how the fund will perform in the future.
Fees and expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shareholder fees (paid directly from your investment)
------------------------------------------------------------
<S> <C>
Maximum sales charge on purchases (as a % of offering
price) None
------------------------------------------------------------
Maximum deferred sales charge on redemptions
(as a % of the lower of net asset value at purchase or
redemption) None
------------------------------------------------------------
Annual fund operating expenses (paid by the portfolio as
a % of net assets)
------------------------------------------------------------
Management fee 0.60%
------------------------------------------------------------
Distribution and service (12b-1) fees None
------------------------------------------------------------
Other expenses 0.20%
------------------------------------------------------------
Total annual fund operating expenses 0.80%
------------------------------------------------------------
</TABLE>
The table sets
forth the fees
and expenses
you will pay if
you invest in
shares of the
portfolio.
Example
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of
years
you
own
your
shares 1 year* 3 years* 5 years* 10 years*
-----------------------------------------
<S> <C> <C> <C> <C>
$ $ $ $
-----------------------------------------
</TABLE>
The example
helps you com-
pare the costs
of investing in
the portfolio
with other mu-
tual funds.
Your actual
costs may be
higher or low-
er.
*The example assumes:
.You invest $10,000 for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a
sales charge
.The portfolio's operating expenses remain the same
11
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
More on the Portfolios' Investments
Equity securities
Equity securities include exchange traded and over-the-counter common and pre-
ferred stocks, debt securities convertible into equity securities, and warrants
and rights relating to equity securities.
Securities of foreign issuers
all Portfolios except Government Portfolio
Emerging Growth Fund, Growth Fund and Growth and Income Fund may invest up to
20% of their assets, and Mid Cap Fund up to 25% of its assets, in foreign secu-
rities, including those of issuers in emerging market countries.
Investments in securities of foreign entities and securities denominated in
foreign currencies involve special risks. These include possible political and
economic instability and the possible imposition of exchange controls or other
restrictions on investments. Since each fund may invest in securities denomi-
nated 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. Emerging market investments offer the potential for signifi-
cant gains but also involve greater risks than investing in more developed
countries. Political or economic stability, lack of market liquidity and gov-
ernment actions such as currency controls or seizure of private business or
property may be more likely in emerging markets.
Derivative transactions
All Portfolios
The funds may, but need not, use derivative contracts, such as futures and op-
tions on securities, securities indices or currencies; options on these
futures; forward currency contracts; and interest rate or currency swaps for
any of the following purposes:
. To hedge against the economic impact of adverse changes in the market value
of portfolio securities because of changes in stock market prices, currency
exchange rates or interest rates
. As a substitute for buying or selling securities
. To enhance a fund's return
A derivative contract will obligate or entitle a fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities,
currencies or indices. 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 gains when stock prices, currency rates or interest rates are
changing. A fund may not fully benefit from or may lose money on derivatives if
changes in their value do not correspond accurately to changes in the value of
the fund's holdings. The other parties to certain derivative contracts present
the same types of default risk as issuers of fixed income securities. Deriva-
tives can also make a fund less liquid and harder to value, especially in de-
clining markets.
Temporary defensive investments
All Portfolios
Each of the funds may depart from its principal investment strategies in re-
sponse to adverse market, economic or political conditions by taking temporary
defensive positions in all types of money market and short-term debt securi-
ties. If the fund takes a temporary defensive position, it may be unable to
achieve its investment objective.
Special restrictions
All Portfolios Except Mid Cap Portfolio
Each fund, except Mid Cap Portfolio, will not purchase any securities issued by
a company primarily engaged in the manufacture of alcohol or tobacco.
Goals/Policies
All Portfolios
Each fund's goal and investment policies generally may be changed by the
trustees without shareholder approval.
12
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Management
The Concert Investment Series offers a family of fund choices to help meet the
varying needs of investors. The manager and Salomon Smith Barney are
subsidiaries of Citigroup Inc. Citigroup businesses provide a broad range of
financial services--asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading--and use
diverse channels to make them available to consumer and corporate customers
around the world.
The portfolio managers
The portfolio managers are primarily responsible for the day-to-day operation
of the funds indicated below. The table also shows the business experience of
each portfolio manager.
<TABLE>
<CAPTION>
Portfolio
Fund Manager(s) Since Past 5 Years' Business Experience
- -------------------------------------------------------------------------------------
<C> <C> <C> <S>
Emerging Growth Sandip Bhagat 1997 investment officer of the manager and pres-
ident of
Travelers Investment Management Company, an
affiliate of the manager
- -------------------------------------------------------------------------------------
Mid Cap and Growth Larry Weissman 1997 investment officer of the manager and man-
aging director of Salomon Smith Barney
since October, 1997; portfolio manager of
Neuberger & Berman, LLC, 1995-97; portfolio
manager of College Retirement Equities Fund
prior thereto
- -------------------------------------------------------------------------------------
Growth and Income R. Jay Gerken 1997 investment officer of the manager and man-
aging director of Salomon Smith Barney
- -------------------------------------------------------------------------------------
Government James E. Conroy 1997 investment officer of the manager and man-
aging director of Salomon Smith Barney
- -------------------------------------------------------------------------------------
</TABLE>
Management fees
No Management fees have been paid yet, as the Portfolios have not commenced op-
erations.
Distributor
The portfolios have entered into an agreement with CFBDS, Inc. to distribute
the portfolios' shares.
Year 2000 issue
Information technology experts are concerned about computer systems' ability to
process date-related information on and after January 1, 2000. This situation,
commonly known as the "Year 2000" issue, could have an adverse impact on the
portfolios. The cost of addressing the Year 2000 issue, if substantial, could
adversely affect companies and governments that issue securities held by the
underlying funds. The manager and distributor are addressing the Year 2000 is-
sue for their systems. Each portfolio has been informed by its other service
providers that they are taking similar measures. Although the portfolios do not
expect the Year 2000 issue to adversely affect them, the portfolios cannot
guarantee that the efforts of each portfolio or its service providers to cor-
rect the problem will be successful.
13
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Share Transactions
Availability of shares
Individuals may not purchase shares directly from the portfolios. You should
read the prospectus for your insurance company's variable contract to learn how
to purchase a variable contract based on the portfolios.
Each portfolio may sell its shares directly to separate accounts established
and maintained by insurance companies for the purpose of funding variable annu-
ity and variable life insurance contracts and to certain qualified pension and
retirement plans. The variable insurance products and qualified plans may or
may not make investments in all the portfolios described in this prospectus.
Shares of the portfolios are sold at net asset value.
The interests of different variable insurance products and qualified plans in-
vesting in a portfolio could conflict due to differences of tax treatment and
other considerations. The portfolios currently do not foresee any disadvantages
to investors arising from the fact that each portfolio may offer its shares to
different insurance company separate accounts that serve as the investment me-
dium for their variable annuity and variable life products and to qualified
plans. Nevertheless, the board of trustees intends to monitor events to iden-
tify any material irreconcilable conflicts which may arise, and to determine
what action, if any, should be taken in response to these conflicts. If a con-
flict were to occur, one or more insurance companies' separate accounts or
qualified plans might be required to withdraw their investments in one or more
portfolios and shares of another portfolio may be substituted.
The sale of shares may be suspended or terminated if required by law or regula-
tory authority or if it is in the best interests of the portfolios' sharehold-
ers. Each portfolio reserves the right to reject any specific purchase order.
Redemption of shares
Redemption requests may be placed by separate accounts of participating insur-
ance companies and by qualified plans. The redemption price of the shares of
each portfolio will be the net asset value next determined after receipt by the
portfolio of a redemption request in good order. The value of redeemed shares
may be more or less than the price paid for the shares. Sales proceeds will
normally be forwarded to the selling insurance company or qualified plan on the
next business day after receipt of a redemption request in good order but in no
event later than 3 days following receipt of instructions. Each portfolio may
suspend sales or postpone payment dates during any period in which any of the
following conditions exist:
. the New York Stock Exchange is closed;
. trading on the New York Stock Exchange is restricted;
. an emergency exists as a result of which disposal by the portfolio of securi-
ties is not reasonably practicable or it is not reasonably practicable for a
fund to fairly determine the value of its net assets; or
. as permitted by SEC order in extraordinary circumstances.
14
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Distributions, Dividends and Taxes
Taxes
Each portfolio intends to qualify and be taxed as a "regulated investment com-
pany" under Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as
amended. In order to qualify to be taxed as a regulated investment company,
each portfolio must meet certain income and diversification tests and distribu-
tion requirements. As a regulated investment company meeting these require-
ments, a portfolio will not be subject to federal income tax on its net invest-
ment income and net capital gains that it distributes to its shareholders. All
income and capital gain distributions are automatically reinvested in addi-
tional shares of the portfolio at net asset value and are includable in gross
income of the separate accounts holding such shares. See the accompanying con-
tract prospectus for information regarding the federal income tax treatment of
distributions to the separate accounts and to holders of the contracts.
Dividends and distributions
Annual distributions of income and capital gain normally take place at the end
of the year in which the income or gain is realized or the beginning of the
next year.
The portfolios normally pay dividends and distribute capital gains, if any, as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income Capital Distributions
Dividend Gain Mostly
Fund Distributions Distributions From
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Emerging Growth Annually Annually Gain
- -------------------------------------------------------------------------------------
Mid Cap Annually Annually Gain
- -------------------------------------------------------------------------------------
Growth Annually Annually Gain
- -------------------------------------------------------------------------------------
Growth and Income Quarterly Annually Both
- -------------------------------------------------------------------------------------
Government Monthly Annually Income
- -------------------------------------------------------------------------------------
</TABLE>
Each portfolio is also subject to asset diversification regulations promulgated
by the U.S. Treasury Department under the Code. The regulations generally pro-
vide that, as of the end of each calendar quarter or within 30 days thereafter,
no more than 55% of the total assets of each portfolio may be represented by
any one investment, no more than 70% by any two investments, no more than 80%
by any three investments, and no more than 90% by any four investments. For
this purpose all securities of the same issuer are considered a single invest-
ment. An alternative diversification test may be satisfied under certain cir-
cumstances. If a portfolio should fail to comply with these regulations or
fails to qualify for the special tax treatment afforded regulated investment
companies under the Code, contracts invested in that portfolio would not be
treated as annuity, endowment or life insurance contracts under the Code.
15
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Share Price
Each portfolio's net asset value is the value of its assets minus its liabili-
ties. Each portfolio calculates its net asset value every day the New York
Stock Exchange is open. The Exchange is closed on certain holidays listed in
the Statement of Additional Information. This calculation is done when regular
trading closes on the Exchange (normally 4:00 p.m., Eastern time). The value of
each underlying fund is the fund's net asset value at the time of computation.
Short-term investments that have a maturity of more than 60 days are generally
valued based on market prices or quotations. Short-term investments that have a
maturity of 60 days or less are value at amortized cost. Using this method, a
portfolio constantly amortizes over the remaining life of a security the dif-
ference between the principal amount due at maturity and the cost of the secu-
rity to the portfolio.
In order to buy, redeem or exchange shares at that day's price, an insurance
company separate account or a qualified plan must place its order with the
transfer agent before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, the order must be placed prior to the actual closing
time. Otherwise, the investor will receive the next business day's price.
16
Concert Investment Series--Select Portfolios Prospectus
<PAGE>
Concert Investment Series
Select Portfolios
Emerging Growth Portfolio Growth and Income Portfolio
Mid Cap Portfolio Government Portfolio
Growth Portfolio
- --------------------------------------------------------------------------------
Additional Information About the
Portfolios
Shareholder Reports
Annual and semiannual reports to shareholders provide additional information
about the portfolios' investments. These reports discuss the market conditions
and investment strategies that affected each portfolio's performance.
Statement of Additional Information
The statement of additional information provides more detailed information
about each portfolio. It is incorporated by reference into (is legally part of)
this prospectus.
You can make inquiries about the portfolios or obtain shareholder reports or
the statement of additional information (without charge), by contacting your
Salomon Smith Barney Financial Consultant or dealer representative, by calling
the portfolios at 1-800-451-2010, or by writing to the portfolios at Smith Bar-
ney Mutual Funds, 388 Greenwich Street, MF2, New York, New York 10013.
Visit Our Web Site
Our web site is located at www.smithbarney.com
You can also review the portfolios' shareholder reports, prospectus and state-
ment of additional information at the Securities and Exchange Commission's Pub-
lic Reference Room in Washington, D.C. You can get copies of these materials
for a fee by writing to the Public Reference Section of the Commission, Wash-
ington, D.C. 20549-6009. Information about the public reference room may be ob-
tained by calling 1-800-SEC-0330. You can get the same reports and information
free from the Commission's Internet web site--http://www.sec.gov
If someone makes a statement about the portfolios that is not in this prospec-
tus, you should not rely upon that information. Neither the portfolios nor the
distributor is offering to sell shares of the portfolios to any person to whom
the portfolios may not lawfully sell their shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-05018)
[FD 01659 6/99]
Part B
___________, 1999
Statement of Additional Information
Concert Investment Series
388 Greenwich Street
New York, NY 10013
Select Emerging Growth
Portfolio
Select Growth and Income
Portfolio
Select Mid Cap Portfolio
Select Government
Portfolio
Select Growth Portfolio
Concert Investment Series (the "Trust") currently offers twelve separate
investment portfolios, five of which are described in this Statement of
Additional Information ("SAI") (the investment portfolios described
herein are individually referred to as a "Portfolio," and collectively,
the "Portfolios"). This SAI expands upon and supplements the
information contained in the prospectus dated ___________, 1999 for the
Portfolios, as amended or supplemented from time to time, and should be
read in conjunction therewith.
The prospectus may be obtained from designated insurance companies
offering separate accounts ("separate accounts") which fund certain
variable annuity and variable life insurance contracts (each, a
"contract") and qualified pension and retirement plans or by writing or
calling the Concert Series at the address or telephone number listed
above. This SAI, although not in itself a prospectus, is incorporated
by reference into the prospectus in its entirety.
TABLE OF CONTENTS
Page
General Information 2
Goals and Investment Policies 2
Investment Practices 8
Risk Factors 20
Investment Restrictions 30
Trustees and Officers 32
Investment Advisory Agreements 31
Distributor 33
Portfolio Turnover 33
Portfolio Transactions and Brokerage 33
Determination of Net Asset Value 34
Taxes 40
Performance 42
Additional Information about Portfolios 43
Financial Statements 44
Appendix A - Ratings of Bonds, Notes and Commercial Paper 45
GENERAL INFORMATION
SSBC Fund Management, Inc., formerly Mutual Management Corp. ("SSBC" or
the "manager"), 388 Greenwich Street, New York, NY 10013 was
incorporated on March 12, 1968 and renders investment management advice
to investment companies with aggregate assets under management in excess
of $115 billion as of January 31, 1999. The manager is an affiliate of
Salomon Smith Barney Inc. ("Salomon Smith Barney"). The manager and
Salomon Smith Barney are subsidiaries of Citigroup Inc., a financial
services company that uses diverse channels to offer a broad range of
financial services to consumer and corporate customers around the world.
Among these businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSB Citi Asset Management,
Travelers Life & Annuity, and Travelers Property Casualty.
CFBDS, Inc. (the "Distributor") is the distributor of the Portfolios'
shares.
GOALS AND INVESTMENT POLICIES
The following disclosures supplement disclosures set forth in the
Prospectus and do not, standing alone, present a complete and accurate
explanation of the matters disclosed.
The differences in goals and investment policies among the Portfolios
can be expected to affect the return of each Portfolio and the degree of
market and financial risk to which each Portfolio is subject. The goal
and investment policies, the percentage limitations, and the kinds of
securities in which each Portfolio may invest are generally not
fundamental policies and therefore may be changed by the Trustees
without shareholder approval. Although each Portfolio has a different
goal which it pursues through separate investment policies, each
Portfolio, except the International Equity Portfolio and the Mid Cap
Portfolio, will not purchase any securities issued by any company
primarily engaged in the manufacture of alcohol or tobacco.
Each of the Portfolios may depart from its principal investment
strategies in response to adverse market, economic or political
conditions by taking temporary defensive positions in all types of money
market and short-term debt securities. If a Portfolio takes a temporary
defensive position, it may be unable to achieve its investment
objective.
Select Emerging Growth Portfolio
Select Emerging Growth Portfolio seeks capital appreciation by investing
in a portfolio of securities consisting principally of common stocks of
small and medium sized companies considered by the manager to be
emerging growth companies. Any ordinary income received from portfolio
securities is entirely incidental. There can be no assurance that the
objective of capital appreciation will be realized; therefore, full
consideration should be given to the risks inherent in the investment
techniques that the manager may use to achieve such objective.
Under normal conditions, the Portfolio invests at least 65% of its total
assets in common stocks of small and medium sized companies, both
domestic and foreign, in the early stages of their life cycle that the
manager believes have the potential to become major enterprises.
Investments in such companies may offer greater opportunities for growth
of capital than larger, more established companies, but also may involve
certain special risks. Emerging growth companies often have limited
product lines, markets, or financial resources, and they may be
dependent upon one or a few key people for management. The securities of
such companies may be subject to more abrupt or erratic market movements
than securities of larger, more established companies or the market
averages in general. While the portfolio will invest primarily in common
stocks, to a limited extent, it may invest in other securities such as
preferred stocks, convertible securities and warrants.
The Portfolio may also invest in special situations involving new
management, special products and techniques, unusual developments,
mergers or liquidations. Investments in unseasoned companies and special
situations often involve much greater risks than are inherent in
ordinary investments, because securities of such companies may be more
likely to experience unexpected fluctuations in price.
The Portfolio may hold a portion of its assets in high grade short-term
debt securities and high grade corporate or government bonds in order to
provide liquidity. Short-term investments may include repurchase
agreements with banks or broker-dealers. The Portfolio may invest up to
20% of its total assets in securities of foreign issuers.
Select Mid Cap Portfolio
Select Mid Cap Portfolio seeks long-term growth of capital. The
Portfolio attempts to achieve its investment objective by investing,
under normal market conditions, substantially all of its assets in
equity securities and at least 65% of its total assets in equity
securities of medium-sized companies. Medium sized companies are those
whose market capitalization is within the market capitalization range of
companies in the S&P MidCap Index at the time of the Portfolio's
investment. The size of the companies in the Index changes with market
conditions and the composition of the Index. As of January 29, 1999,
the largest market capitalization of a company in the Index was $11.4
billion and the smallest market capitalization was $0.24 billion.
Companies whose capitalization falls outside this range after purchase
continue to be considered medium-sized companies for purposes of the 65%
policy. Investing in medium-capitalization stocks may involve greater
risk than investing in large capitalization stocks since they can be
subject to more abrupt or erratic movements. However, they tend to
involve less risk than stocks of small capitalization companies. The
Portfolio may invest up to 35% of its assets in equity securities of
companies with market capitalizations that do not qualify them as medium
sized at the time of the Portfolio's investment.
The Portfolio will normally invest in all types of equity securities,
including common stocks, preferred stocks, securities that are
convertible into common or preferred stocks, such as warrants and
convertible bonds, and depository receipts for those securities. The
Portfolio may maintain a portion of its assets, which will usually not
exceed 10%, in U.S. Government securities, money market obligations, and
in cash to provide for payment of the Portfolio's expenses and to meet
redemption requests. It is the policy of the Portfolio to be as fully
invested in equity securities as practicable at all times.
Consistent with its investment objective and policies described above,
the Portfolio may invest up to 25% of its total assets in foreign
securities, including both direct investments and investments made
through depository receipts. The Portfolio may also invest in real
estate investment trusts; purchase or sell securities on a when-issued
or delayed-delivery basis; enter into forward commitments to purchase
securities; lend portfolio securities; purchase and sell put and call
options; and enter into interest rate futures contracts, stock index
futures contracts and related options.
Select Growth Portfolio
Select Growth Portfolio seeks capital appreciation through investments
in common stocks and options on common stocks. Any income realized on
its investments will be purely incidental to its goal of capital
appreciation.
The Portfolio also may hold a portion of its assets in high grade short-
term debt securities and high grade corporate or government bonds in
order to provide liquidity. The amount of assets the Portfolio may hold
for liquidity purposes is based on market conditions and the need to
meet redemption requests. A description of the ratings of commercial
paper and bonds is contained in the Appendix. Short-term investments
may include repurchase agreements with banks or broker-dealers.
Certain policies of the Portfolio, such as purchasing and selling
options on stocks, purchasing options on stock indices and purchasing
stock index futures contracts and options thereon involve inherently
greater investment risk and could result in more volatile price
fluctuations. The Portfolio may also invest up to 20% of its total
assets in securities of foreign issuers and in investment companies.
Since the Portfolio may take substantial risks in seeking its goal of
capital appreciation, it is not suitable for investors unable or
unwilling to assume such risks.
Select Growth and Income Portfolio
Select Growth and Income Portfolio seeks reasonable growth and income
through investments in equity securities that provide dividend or
interest income, including common and preferred stocks and securities
convertible into common and preferred stocks.
Convertible securities rank senior to common stocks in a corporation's
capital structure. They are consequently of higher quality and entail
less risk than the corporation's common stock, although the extent to
which such risk is reduced depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income
security. The Portfolio may purchase convertible securities rated Ba or
lower by Moody's Investors Service, Inc. ("Moody's") or BB or lower by
Standard & Poor's Ratings Group ("S&P") and may also purchase non-rated
securities considered by the manager to be of comparable quality.
Although the Portfolio selects these securities primarily on the basis
of their equity characteristics, investors should be aware that debt
securities rated in these categories are considered high risk
securities; the rating agencies consider them speculative, and payment
of interest and principal is not considered well assured. To the extent
that such convertible securities are acquired by the Portfolio, there is
a greater risk as to the timely payment of the principal of, and timely
payment of interest or dividends on, such securities than in the case of
higher rated convertible securities.
Although the portfolio turnover rate will not be considered a limiting
factor, the Portfolio does not intend to engage in trading directed at
realizing short-term profits. Nevertheless, changes in the portfolio
will be made promptly when determined to be advisable by reason of
developments not foreseen at the time of the investment decision, and
usually without reference to the length of time the security has been
held.
The Portfolio may hold a portion of its assets in high grade short-term
debt securities and high grade corporate or government bonds in order to
provide liquidity. The amount of assets the Portfolio may hold for
liquidity purposes is based on market conditions and the need to meet
redemption requests. Short-term investments may include repurchase
agreements with banks or broker-dealers. The Portfolio may also invest
up to 20% of its total assets in securities of foreign issuers and in
investment companies. The Portfolio may engage in portfolio management
strategies and techniques involving options, futures contracts and
options on futures.
Select Government Portfolio
Select Government Portfolio seeks high current return consistent with
preservation of capital. The Portfolio intends to invest at least 80%
of its assets in debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
include: (1) U.S. Treasury obligations, which differ in their interest
rates, maturities and times of issuance: U.S. Treasury bills (maturity
of one year or less), U.S. Treasury notes (maturity of one to ten
years), and U.S. Treasury bonds (generally maturities of greater than
ten years), including the principal components or the interest
components issued by the U.S. Government under the Separate Trading of
Registered Interest and Principal of Securities program (i.e.
''STRIPS''), all of which are backed by the full faith and credit of the
United States; and (2) obligations issued or guaranteed by U.S.
Government agencies or instrumentalities, including government
guaranteed mortgage-related securities, some of which are backed by the
full faith and credit of the U.S. Treasury, some of which are supported
by the right of the issuer to borrow from the U.S. Government and some
of which are backed only by the credit of the issuer itself.
The Portfolio may enter into repurchase agreements with domestic banks
or broker-dealers deemed creditworthy by the manager solely for purposes
of investing the Portfolio's cash reserves or when the Portfolio is in a
temporary defensive posture. The Portfolio may write covered or fully
collateralized call options on U.S. Government securities and enter into
closing or offsetting purchase transactions with respect to certain of
such options. The Portfolio may also write secured put options and
enter into closing or offsetting purchase transactions with respect to
such options. The Portfolio may write both listed and over-the-counter
options.
The Portfolio seeks to obtain a high current return from the following
sources:
? interest paid on the Portfolio's portfolio securities;
? premiums earned upon the expiration of options written;
? net profits from closing transactions; and
? net gains from the sale of portfolio securities on the exercise of
options or otherwise.
The Portfolio is not designed for investors seeking long-term capital
appreciation. Moreover, varying economic and market conditions may
affect the value of and yields on U.S. Government securities.
Accordingly, there is no assurance that the Portfolio's investment
objective will be achieved.
The Portfolio may engage in transactions involving obligations issued or
guaranteed by U.S. Government agencies and instrumentalities which are
supported by any of the following: (a) the full faith and credit of the
U.S. Government (such as Government National Mortgage Association
("GNMA") Certificates), (b) the right of the issuer to borrow an amount
limited to a specific line of credit from the U.S. Government, (c)
discretionary authority of the U.S. Government agency or
instrumentality, or (d) the credit of the instrumentality. Agencies and
instrumentalities include, but are not limited to: Federal Land Banks,
Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks and Federal National
Mortgage Association ("FNMA").
While the Portfolio has no policy limiting the maturities of the debt
securities in which it may invest, the manager seeks to moderate market
risk by generally maintaining a portfolio duration within a range of
approximately four to six years. Duration is a measure of the expected
life of a debt security that was developed as a more precise alternative
to the concept of "term to maturity." Duration incorporates a debt
security's yield, coupon interest payments, final maturity and call
features into one measure. Traditionally, a debt security's "term to
maturity" has been used as a proxy for the sensitivity of the security's
price to changes in interest rates (which is the "interest rate risk" or
"price volatility" of the security). However, "term to maturity"
measures only the time until a debt security provides its final payment
taking no account of the pattern of the security's payments of interest
or principal prior to maturity. Duration measures the length of the
time interval between the present and the time when the interest and
principal payments are scheduled to be received (or in the case of a
callable bond, expected to be received), weighing them by the present
value of the cash to be received at each future point in time. In
general, the lower the coupon rate of interest or the longer the
maturity, or the lower the yield-to-maturity of a debt security, the
longer its duration; conversely, the higher the coupon rate of interest,
the shorter the maturity or the higher the yield-to-maturity of a debt
security, the shorter its duration.
With respect to some securities, there may be some situations where even
the standard duration calculation does not properly reflect the interest
rate exposure of a security. In these and other similar situations, the
manager will use more sophisticated analytical techniques that
incorporate the economic life of a security into the determination of
its interest rate exposure. The duration is likely to vary from time to
time as the manager pursues its strategy of striving to maintain an
active balance between seeking to maximize income and endeavoring to
maintain the value of the Portfolio's capital. Thus, the objective of
providing high current return consistent with preservation of capital to
shareholders is tempered by seeking to avoid undue market risk and thus
provide reasonable total return as well as high distributed return.
There is, of course, no assurance that the manager will be successful in
achieving such results for the Portfolio.
The Portfolio generally purchases debt securities at a premium over the
principal or face value in order to obtain higher current income. The
amount of any premium declines during the term of the security to zero
at maturity. Such decline generally is reflected in the market price of
the security and thus in the Portfolio's net asset value. Any such
decline is realized for accounting purposes as a capital loss at
maturity or upon resale. Prior to maturity or resale, such decline in
value could be offset, in whole or part, or increased by changes in the
value of the security due to changes in interest rate levels.
The principal reason for selling call or put options is to obtain,
through the receipt of premiums, a greater return than would be realized
on the underlying securities alone. By selling options, the Portfolio
reduces its potential for capital appreciation on debt securities if
interest rates decline. Thus, if market prices of debt securities
increase, the Portfolio would receive a lower total return from its
optioned positions than it would have received if the options had not
been sold. The purpose of selling options is intended to improve the
Portfolio's total return and not to "enhance" monthly distributions.
During periods when the Portfolio has capital loss carryforwards, any
capital gains generated from such transactions will be retained in the
Portfolio. The purchase and sale of options may result in a high
portfolio turnover rate.
INVESTMENT PRACTICES
This section contains a discussion of certain investment practices. The
Portfolios indicated may engage in these and any other practices not
prohibited by their investment restrictions. For further information
about risks associated with these practices, see "Risk Factors" below.
EQUITY SECURITIES
Common Stocks (All Portfolios except Government Portfolio). Each
Portfolio may purchase common stocks. Common stocks are shares of a
corporation or other entity that entitle the holder to a pro rata share
of the profits of the corporation, if any, without preference over any
other shareholder or class of shareholders, including holders of the
entity's preferred stock and other senior equity. Common stock usually
carries with it the right to vote and frequently an exclusive right to
do so.
Preferred Stocks and Convertible Securities (All Portfolios except
Government Portfolio). Each Portfolio may invest in convertible debt
and preferred stocks. Convertible debt securities and preferred stock
entitle the holder to acquire the issuer's stock by exchange or purchase
for a predetermined rate. Convertible securities are subject both to
the credit and interest rate risks associated with fixed income
securities and to the stock market risk associated with equity
securities.
Warrants (All Portfolios except Government Portfolio). Each Portfolio
may purchase warrants. Warrants acquired by a Portfolio entitle it to
buy common stock from the issuer at a specified price and time.
Warrants are subject to the same market risks as stocks, but may be more
volatile in price. A Portfolio's investment in warrants will not
entitle it to receive dividends or exercise voting rights and will
become worthless if the warrants cannot be profitably exercised before
the expiration dates.
REITs (All Portfolios except Government Portfolio). Each Portfolio may
invest in shares of real estate investment trusts (REITs), which are
pooled investment vehicles that invest in real estate or real estate
loans or interests. Investing in REITs involves risks similar to those
associated with investing in equity securities of small capitalization
companies. REITs are dependent upon management skills, are not
diversified, and are subject to risks of project financing, default by
borrowers, self-liquidation, and the possibility of failing to qualify
for the exemption from taxation on distributed amounts under the
Internal Revenue Code of 1986, as amended (the "Code").
Illiquid and Restricted Securities. The Portfolios each invest in
restricted securities and illiquid assets. As used herein, restricted
securities are those that have been sold in the United States without
registration under the Securities Act of 1933 and are thus subject to
restrictions on resale. Excluded from the limitation, however, are any
restricted securities which are eligible for resale pursuant to Rule
144A under the Securities Act of 1933 and which have been determined to
be liquid by the Trustees or by the manager pursuant to board-approved
guidelines. The determination of liquidity is based on the volume of
reported trading in the institutional secondary market for each
security. This investment practice could have the effect of increasing
the level of illiquidity in each Portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. These difficulties and delays could result in a
Portfolio's inability to realize a favorable price upon disposition of
restricted securities, and in some cases might make disposition of such
securities at the time desired by the Portfolio impossible. Since market
quotations are not readily available for restricted securities, such
securities will be valued by a method that the Trustees believe
accurately reflects fair value.
Securities of Foreign Issuers (All Portfolios except Government
Portfolio). The Emerging Growth Portfolio, the Growth Portfolio and the
Growth and Income Portfolio may invest up to 20% of the value of their
total assets and the Mid Cap Portfolio may invest up to 25% of the value
of its total assets in securities of foreign governments and companies
of developed and emerging markets countries.
Each Portfolio may also purchase foreign securities in the form of
American Depositary Receipts (''ADRs'') and European Depositary Receipts
(''EDRs'') or other securities representing underlying shares of foreign
companies. ADRs are publicly traded on exchanges or over-the-counter in
the United States and are issued through ''sponsored'' or
''unsponsored'' arrangements. In a sponsored ADR arrangement, the
foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement,
the foreign issuer assumes no obligation and the depositary's
transaction fees are paid by the ADR holders. In addition, less
information is available in the United States about an unsponsored ADR
than about a sponsored ADR, and the financial information about a
company may not be as reliable for an unsponsored ADR as it is for a
sponsored ADR. Each Portfolio may invest in ADRs through both sponsored
and unsponsored arrangements.
The Emerging Growth Portfolio, the Mid Cap Portfolio, the Growth
Portfolio and the Growth and Income Portfolio may invest in the
securities of developing countries, commonly known as "emerging markets"
countries. See "Risk Factors Securities of Developing /Emerging Market
Countries".
FIXED INCOME SECURITIES
Corporate Debt Obligations (All Portfolios). Each Portfolio may invest
in corporate debt obligations and zero coupon securities issued by
financial institutions and corporations. Corporate debt obligations are
subject to the risk of an issuer's inability to meet principal and
interest payments on the obligations and may also be subject to price
volatility due to such factors as market interest rates, market
perception of the creditworthiness of the issuer and general market
liquidity. Zero coupon securities are securities sold at a discount to
par value and on which interest payments are not made during the life of
the security.
U.S. Government Securities (All Portfolios). The U.S. Government
securities in which the Portfolios may invest include: bills,
certificates of indebtedness, and notes and bonds issued by the U.S.
Treasury or by agencies or instrumentalities of the U.S. Government.
Some U.S. Government securities, such as U.S. Treasury bills and bonds,
are supported by the full faith and credit of the U.S. Treasury; others
are supported by the right of the issuer to borrow from the U.S.
Treasury; others are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others are
supported only by the credit of the instrumentality.
Mortgage Related Securities (Government Portfolio). The Government
Portfolio may invest in mortgage-related securities, including those
representing an undivided ownership interest in a pool of mortgage
loans, e.g., GNMA, FNMA, FHLMC Certificates. Mortgage loans made by
banks, savings and loan institutions, and other lenders are often
assembled into pools, which are issued or guaranteed by an agency or
instrumentality of the U.S. Government, though not necessarily by the
U.S. Government itself. Interests in such pools are collectively
referred to as ''mortgage-related securities.''
Mortgage-related securities are characterized by monthly payments to the
holder, reflecting the monthly payments made by the borrowers who
received the underlying mortgage loans. The payments to the
securityholders (such as the Portfolio), like the payments on the
underlying loans, represent both principal and interest. Although the
underlying mortgage loans are for specified periods of time, such as 20
or 30 years, the borrowers can, and typically do, pay them off sooner.
Thus, the securityholders frequently receive prepayments of principal,
in addition to the principal which is part of the regular monthly
payment. A borrower is more likely to prepay a mortgage which bears a
relatively high rate of interest. This means that in times of declining
interest rates, some of the Portfolio's higher yielding securities might
be converted to cash, and the Portfolio will be forced to accept lower
interest rates when that cash is used to purchase additional securities.
The increased likelihood of prepayment when interest rates decline also
limits market price appreciation of mortgage-related securities. If the
Portfolio buys mortgage-related securities at a premium, mortgage
foreclosures or mortgage prepayments may result in a loss to the
Portfolio of up to the amount of the premium paid since only timely
payment of principal and interest is guaranteed.
The Government National Mortgage Association ("GNMA") is a wholly owned
corporate instrumentality of the United States within the U.S.
Department of Housing and Urban Development. GNMA's principal programs
involve its guarantees of privately issued securities backed by pools of
mortgages. Certificates of the Government National Mortgage Association
("GNMA Certificates") are mortgage-backed securities, which evidence an
undivided interest in a pool of mortgage loans. GNMA Certificates
differ from bonds in that principal is paid back monthly by the borrower
over the term of the loan rather than returned in a lump sum at
maturity. GNMA Certificates that the Portfolio purchases are the
"modified pass-through" type. "Modified pass-through" GNMA Certificates
entitle the holder to receive a share of all interest and principal
payments paid and owned on the mortgage pool net of fees paid to the
"issuer" and GNMA, regardless of whether or not the mortgagor actually
makes the payment. The National Housing Act authorizes GNMA to
guarantee the timely payment of principal and interest on securities
backed by a pool of mortgages insured by the Federal Housing
Administration ("FHA") or the Farmers' Home Administration ("FMHA"), or
guaranteed by the Veterans Administration ("VA"). Once a pool of such
mortgages is assembled and approved by GNMA, the GNMA guarantee is
backed by the full faith and credit of the U.S. Government. GNMA is
also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
less than the original maturity of the mortgage pools underlying the
securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of
principal investment long before maturity of the mortgages in the pool.
The Portfolio normally will not distribute principal payments (whether
regular or prepaid) to its shareholders. Rather, it will invest such
payments in additional mortgage-related securities of the types
described above or other U.S. Government securities. Interest received
by the Portfolio will, however, be distributed to shareholders.
Foreclosures impose no risk to principal investment because of the GNMA
guarantee.
As prepayment rates of the individual mortgage pools vary widely, it is
not possible to predict accurately the average life of a particular
issue of GNMA Certificates. However, statistics published by the FHA
indicate that the average life of single-family dwelling mortgages with
25-to 30-year maturities, the type of mortgages backing the vast
majority of GNMA Certificates, is approximately 12 years. Therefore, it
is customary to treat GNMA Certificates as 30-year mortgage-backed
securities which prepay fully in the twelfth year.
The coupon rate of interest of GNMA Certificates is lower than the
interest rate paid on the VA-guaranteed or FHA-insured mortgages
underlying the GNMA Certificates, but only by the amount of the fees
paid to GNMA and the GNMA Certificate issuer. For the most common type
of mortgage pool, containing single-family dwelling mortgages, GNMA
receives an annual fee of 0.06 of one percent of the outstanding
principal for providing its guarantee, and the GNMA Certificate issuer
is paid an annual servicing fee of 0.44 of one percent for assembling
the mortgage pool and for passing through monthly payments of interest
and principal to Certificate holders. The coupon rate by itself,
however, does not indicate the yield which will be earned on the GNMA
Certificates for the following reasons:
1. Certificates are usually issued at a premium or discount, rather
than at par.
2. After issuance, Certificates usually trade in the secondary market
at a premium or discount.
3. Interest is paid monthly rather than semi-annually as is the case
for traditional bonds. Monthly compounding has the effect of raising the
effective yield earned on GNMA Certificates.
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate.
If mortgagors prepay their mortgages, the principal returned to
Certificate holders may be reinvested at higher or lower rates.
In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a 12 year life. Compared on this
basis, GNMA Certificates have historically yielded roughly 1/4 of 1.00%
more than high grade corporate bonds and 1/2 of 1.00% more than
U.S. Government and U.S. Government agency bonds.
Since the inception of the GNMA mortgage-backed securities program in
1970, the amount of GNMA Certificates outstanding has grown rapidly. The
size of the market and the active participation in the secondary market
by securities dealers and many types of investors make GNMA Certificates
highly liquid instruments. Quotes for GNMA Certificates are readily
available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate.
The Federal Home Loan Mortgage Corporation ("FHLMC") was created in 1970
to promote development of a nationwide secondary market in conventional
residential mortgages. FHLMC issues two types of mortgage pass-through
securities, mortgage participation certificates ("PCs") and guaranteed
mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in that
each PC represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. Like GNMA Certificates,
PCs are assumed to be prepaid fully in their twelfth year. FHLMC
guarantees timely monthly payment of interest of PCs and the ultimate
payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semiannually and return
principal once a year in guaranteed minimum payments. The expected
average life of these securities is approximately 10 years.
The Federal National Mortgage Association ("FNMA") creates a secondary
market in mortgages insured by the FHA. FNMA issues guarantee mortgage
pass-through certificates ("FNMA Certificates"). FNMA Certificates
resemble GNMA Certificates in that each Certificate represents a pro
rata share of all interest and principal payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest on FNMA
Certificates and the full return of principal. Like GNMA Certificates,
FNMA Certificates are assumed to be prepaid fully in their twelfth year.
Risk of foreclosure of the underlying mortgages is greater with FHLMC
and FNMA securities because, unlike GNMA securities, FHLMC and FNMA
securities are not guaranteed by the full faith and credit of the U.S.
Government.
Forward Commitments (Government Portfolio). The Portfolio may purchase
or sell U.S. Government securities on a ''when-issued'' or ''delayed
delivery'' basis (''Forward Commitments''). These transactions occur
when securities are purchased or sold by the Portfolio with payment and
delivery taking place in the future, frequently a month or more after
such transactions. The price is fixed on the date of the commitment, and
the seller continues to accrue interest on the securities covered by the
Forward Commitment until delivery and payment take place. At the time of
settlement, the market value of the securities may be more or less than
the purchase or sale price.
A Forward Commitment sale is covered if the Portfolio owns or has the
right to acquire the underlying securities subject to the Forward
Commitment. A Forward Commitment sale is for cross-hedging purposes if
it is not covered, but is designed to provide a hedge against a decline
in value of a security which the Portfolio owns or has the right to
acquire. In either circumstance, the Portfolio maintains in a
segregated account (which is marked to market daily) either the security
covered by the Forward Commitment or appropriate securities as required
by the Investment Company Act of 1940, as amended (the "1940 Act")
(which may have maturities which are longer than the term of the Forward
Commitment) with the Portfolio's custodian in an aggregate amount equal
to the amount of its commitment as long as the obligation to sell
continues. By entering into a Forward Commitment sale transaction, the
Portfolio forgoes or reduces the potential for both gain and loss in the
security which is being hedged by the Forward Commitment sale.
The Portfolio may either settle a Forward Commitment by taking delivery
of the securities or may either resell or repurchase a Forward
Commitment on or before the settlement date in which event the Portfolio
may reinvest the proceeds in another Forward Commitment. The Portfolio's
use of Forward Commitments may increase its overall investment exposure
and thus its potential for gain or loss. When engaging in Forward
Commitments, the Portfolio relies on the other party to complete the
transaction; should the other party fail to do so, the Portfolio might
lose a purchase or sale opportunity that could be more advantageous than
alternative opportunities at the time of the failure.
The Portfolio maintains a segregated account (which is marked to market
daily) of appropriate securities as required by the 1940 Act covered by
the Forward Commitment with the Portfolio's custodian in an aggregate
amount equal to the amount of its commitment as long as the obligation
to purchase or sell continues.
Short-Term Investments (All Portfolios). In certain circumstances the
Portfolios may invest without limitation in all types of short-term
money market instruments, including U.S. Government securities;
certificates of deposit, time deposits and bankers' acceptances issued
by domestic banks (including their branches located outside the United
States and subsidiaries located in Canada), domestic branches of foreign
banks, savings and loan associations and similar institutions; high
grade commercial paper; and repurchase agreements. To the extent a
Portfolio is investing in short-term investments as a temporary
defensive posture, the applicable Portfolio's investment objective may
not be achieved.
Commercial Paper (All Portfolios). Commercial paper consists of
short-term (usually 1 to 270 days) unsecured promissory notes issued by
corporations in order to finance their current operations. A variable
amount master demand note (which is a type of commercial paper)
represents a direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender, such as one of the
Portfolios pursuant to which the lender may determine to invest varying
amounts. Transfer of such notes is usually restricted by the issuer,
and there is no secondary trading market for such notes.
DERIVATIVE CONTRACTS
Options, Futures Contracts and Related Options (All Portfolios)
Selling Call and Put Options (Emerging Growth Portfolio, Mid Cap
Portfolio, Growth Portfolio, Growth and Income Portfolio and Government
Portfolio). The principal reason for selling options is to obtain,
through receipt of premiums, a greater current return than would be
realized on the underlying securities alone. A Portfolio's current
return can be expected to fluctuate because premiums earned from writing
options and dividend or interest income yields on portfolio securities
vary as economic and market conditions change. Writing options on
portfolio securities also results in a higher portfolio turnover. The
purchaser of a call option pays a premium to the writer (i.e., the
seller) for the right to buy the underlying security from the writer at
a specified price during a certain period. Emerging Growth Portfolio,
Growth Portfolio and Growth and Income Portfolio sell call options only
on a covered basis. Government Portfolio sells call options either on a
covered basis, or for cross-hedging purposes. A call option is covered
if the Portfolio owns or has the right to acquire the underlying
securities subject to the call option at all times during the option
period. Thus, Government Portfolio may sell options on U.S. Government
securities or forward commitments of such securities. An option is for
cross-hedging purposes (relative to Government Portfolio only) to hedge
against a security which the Portfolio owns or has the right to acquire.
In such circumstances, Government Portfolio maintains in a segregated
account with the Portfolio's Custodian, cash or U.S. Government
securities in an amount not less than the market value of the underlying
security, marked to market daily, while the option is outstanding. The
purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. A Portfolio sells put options
only on a secured basis, which means that, at all times during the
option period, the Portfolio would maintain in a segregated account with
its Custodian cash, cash equivalents or liquid securities in an amount
of not less than the exercise price of the option, or will hold a put on
the same underlying security at an equal or greater exercise price. A
Portfolio generally sells put options when the manager wishes to
purchase the underlying security for the Portfolio's portfolio at a
price lower than the current market price of the security.
In order to terminate its position as writer of a call or put option, a
Portfolio may enter into a "closing purchase transaction," which is the
purchase of a call (put) on the same underlying security and having the
same exercise price and expiration date as the call (put) previously
sold by the Portfolio. The Portfolio will realize a gain (loss) if the
premium plus commission paid in the closing purchase transaction is less
(greater) than the premium it received on the sale of the option. A
Portfolio would also realize a gain if an option it has sold lapses
unexercised. A Portfolio may sell options that are listed on an
exchange as well as options that are traded over-the-counter. A
Portfolio may close out its position as writer of an option only if a
liquid secondary market exists for options of that series, but there is
no assurance that such a market will exist, particularly in the case of
over-the-counter options, since they can be closed out only with the
other party to the transaction. Alternatively, a Portfolio may purchase
an offsetting option, which does not close out its position as a writer,
but provides an asset of equal value to its obligation under the option
sold. If a Portfolio is not able to enter into a closing purchase
transaction or to purchase an offsetting option with respect to an
option it has sold, it will be required to maintain the securities
subject to the call or the collateral securing the put until a closing
purchase transaction can be entered into (or the option is exercised or
expires), even though it might not be advantageous to do so.
By selling a call option, a Portfolio loses the potential for gain on
the underlying security above the exercise price while the option is
outstanding; by writing a put option a Portfolio might become obligated
to purchase the underlying security at an exercise price that exceeds
the then current market price.
Each of the United States exchanges has established limitations
governing the maximum number of call or put options on the same
underlying security (whether or not covered) that may be written by a
single investor, whether acting alone or in concert with others,
regardless of whether such options are written on one or more accounts
or through one or more brokers. An exchange may order the liquidation
of positions found to be in violation of those limits, and it may impose
other sanctions or restrictions. These position limits may restrict the
number of options the Portfolio may be able to write.
Purchasing Call and Put Options (All Portfolios). A Portfolio may
purchase call options to protect (e.g., hedge) against anticipated
increases in the prices of securities it wishes to acquire.
Alternatively, call options may be purchased for their leverage
potential. Since the premium paid for a call option is typically a
small fraction of the price of the underlying security, a given amount
of fund s will purchase call options covering a much larger quantity of
such security than could be purchased directly. By purchasing call
options, a Portfolio can benefit from any significant increase in the
price of the underlying security to a greater extent than had it
invested the same amount in the security directly. However, because of
the very high volatility of option premiums, a Portfolio could bear a
significant risk of losing the entire premium if the price of the
underlying security did not rise sufficiently, or if it did not do so
before the option expired. Conversely, put options may be purchased to
protect (e.g., hedge) against anticipated declines in the market value
of either specific portfolio securities or of a Portfolio's assets
generally. Alternatively, put options may be purchased for capital
appreciation in anticipation of a price decline in the underlying
security and a corresponding increase in the value of the put option.
The purchase of put options for capital appreciation involves the same
significant risk of loss as described above for call options. In any
case, the purchase of options for capital appreciation would increase
the Portfolio's volatility by increasing the impact of changes in the
market price of the underlying securities on the Portfolio's net asset
value. The Portfolios may purchase either listed or over-the-counter
options.
Options on Stock Indexes (All Portfolios except Government Portfolio).
Options on stock indices are similar to options on stock, but the
delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive an amount of cash upon
exercise of the option. Receipt of this cash amount will depend upon
the closing level of the stock index upon which the option is based
being greater than (in the case of a call) or less than (in the case of
a put) the exercise price of the option. The amount of cash received
will be the difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar multiple.
The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Some stock index options are
based on a broad market index such as the Standard & Poor's 500 or the
New York Stock Exchange Composite Index, or a narrower index such as the
Standard & Poor's 100. Indexes are also based on an industry or market
segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index. Options are currently traded on The Chicago Board
Options Exchange, the New York Stock Exchange, the American Stock
Exchange and other exchanges. Gain or loss to a Portfolio on
transactions in stock index options will depend on price movements in
the stock market generally (or in a particular industry or segment of
the market) rather than price movements of individual securities. As
with stock options, the Portfolio may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
Exchange, or it may let the option expire unexercised.
Foreign Currency Options (Mid Cap Portfolio). The Portfolio may
purchase put and call options on foreign currencies to reduce the risk
of currency exchange fluctuation. Premiums paid for such put and call
options will be limited to no more than 5% of the Portfolio's net assets
at any given time. Options on foreign currencies operate similarly to
options on securities, and are traded primarily in the over-the-counter
market, although options on foreign currencies are traded on United
States and foreign exchanges. Exchange-traded options are expected to
be purchased by the Portfolio from time to time and over-the-counter
options may also be purchased, but only when the manager believes that a
liquid secondary market exists for such options, although there can be
no assurance that a liquid secondary market will exist for a particular
option at any specific time. Options on foreign currencies are affected
by all of those factors which influence foreign exchange rates and
investment generally.
The value of a foreign currency option is dependent upon the value of
the underlying foreign currency relative to the U.S. dollar. As a
result, the price of the option position may vary with changes in the
value of either or both currencies and has no relationship to the
investment merits of a foreign security. Because foreign currency
transactions occurring in the interbank market (conducted directly
between currency traders, usually large commercial banks, and their
customers) involve substantially larger amounts than those that may be
involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying
foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on
a timely basis. Quotation information available is generally
representative of very large transactions in the interbank market and
thus may not reflect relatively smaller transactions (i.e., less than
$1 million) where rates may be less favorable. The interbank market in
foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements
may take place in the underlying markets that cannot be reflected in the
options markets.
Futures Contracts (All Portfolios). Each Portfolio may engage in
transactions involving futures contracts and related options in
accordance with rules and interpretations of the Commodity Futures
Trading Commission ("CFTC") under which the Portfolios are exempt from
registration as a "commodity pool".
An interest rate futures contract is a bilateral agreement pursuant to
which two parties agree to take or make delivery of a specific type of
debt security at a specified future time and at a specified price.
Although interest rate futures contracts call for delivery of specified
securities, in most cases the contracts are closed out (by an offsetting
purchase or sale) prior to actual delivery, with the difference between
the contract price and the offsetting price paid in cash.
A stock index futures contract is a bilateral agreement pursuant to
which two parties agree to take or make delivery of cash equal to a
specified dollar amount times the difference between the stock index
value at a specified time and the price at which the futures contract is
originally struck. A stock index fluctuates with changes in the market
values of the stocks included. No physical delivery of the underlying
stocks in the index is made.
Currently, stock index futures contracts can be purchased with respect
to the Standard & Poor's 500 Stock Index on the Chicago Mercantile
Exchange ("CME"), the New York Stock Exchange Composite Index on the New
York Futures Exchange and the Value Line Stock Index on the Kansas City
Board of Trade. Differences in the stocks included in the indexes may
result in differences in correlation of the futures contracts with
movements in the value of the securities being hedged.
Foreign stock index futures traded outside the United States include the
Nikkei Index of 225 Japanese stocks traded on the Singapore
International Monetary Exchange ("Nikkei Index"), Osaka Index of
50 Japanese stocks traded on the Osaka Exchange, Financial Times Stock
Exchange Index of the 100 largest stocks on the London Stock Exchange,
the All Ordinaries Share Price Index of 307 stocks on the Sydney,
Melbourne Exchanges, Hang Seng Index of 33 stocks on the Hong Kong Stock
Exchange, Barclays Share Price Index of 40 stocks on the New Zealand
Stock Exchange and Toronto Index of 35 stocks on the Toronto Stock
Exchange. Futures and futures options on the Nikkei Index are traded on
the CME and United States commodity exchanges may develop futures and
futures options on other indices of foreign securities. Futures and
options on United States devised index of foreign stocks are also being
developed. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved
in domestic investment, including fluctuations in foreign exchange
rates, future foreign political and economic developments, and the
possible imposition of exchange controls or other foreign or United
States governmental laws or restrictions applicable to such investments.
In contrast to the purchase or sale of a security, no price is paid or
received upon the purchase or sale of a futures contract. Initially, a
Portfolio is required to deposit with its Custodian in an account in the
broker's name an amount of appropriate securities as required by the
1940 Act equal to a percentage (which will normally range between 2% and
10%) of the contract amount. This amount is known as initial margin.
The nature of initial margin in futures transactions is different from
that of margin in securities transactions in that futures contract
margin does not involve the borrowing of fund s by the customer to
finance the transaction. Rather, the initial margin is in the nature of
a performance bond or good faith deposit on the contract, which is
returned to the Portfolio upon termination of the futures contract and
satisfaction of its contractual obligations. Subsequent payments to and
from the broker, called variation margin, are made on a daily basis as
the price of the underlying securities or index fluctuates, making the
long and short positions in the futures contract more or less valuable,
a process known as marking to market.
For example, when a Portfolio purchases a futures contract and the price
of the underlying security or index rises, that position increases in
value, and the Portfolio receives from the broker a variation margin
payment equal to that increase in value. Conversely, where the
Portfolio purchases a futures contract and the value of the underlying
security or index declines, the position is less valuable, and the
Portfolio is required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Portfolio
may elect to terminate the position by taking an opposite position. A
final determination of variation margin is then made, additional cash is
required to be paid by or released to the Portfolio, and the Portfolio
realizes a loss or a gain.
When a Portfolio anticipates a significant market or market sector
advance, the purchase of a futures contract affords a hedge against not
participating in the advance at a time when the Portfolio is otherwise
fully invested ("anticipatory hedge"). Such purchase of a futures
contract serves as a temporary substitute for the purchase of individual
securities, which may be purchased in an orderly fashion once the market
has stabilized. As individual securities are purchased, an equivalent
amount of futures contracts could be terminated by offsetting sales. A
Portfolio may sell futures contracts in anticipation of or in a general
market or market sector decline that may adversely affect the market
value of the Portfolio's securities ("defensive hedge"). To the extent
that the Portfolio's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures
contracts substantially reduces the risk to the Portfolio of a market
decline and, by so doing, provides an alternative to the liquidation of
securities positions in the Portfolio with attendant transaction costs.
For example, if Government Portfolio holds long-term U.S. Government
securities, and a rise in long-term interest rates is anticipated, it
could, in lieu of selling its portfolio securities, sell futures
contracts for similar long-term securities. If interest rates increased
and the value of the Portfolio's securities declined during the period
the contracts were outstanding, the value of the Portfolio's futures
contracts should increase, thereby protecting the Portfolio by
preventing net asset value from declining as much as it otherwise would
have.
In the event of the bankruptcy of a broker through which a Portfolio
engages in transactions in listed options, futures or related options,
the Portfolio could experience delays and/or losses in liquidating open
positions purchased incur a loss of all or part of its margin deposits
with the broker. Similarly, in the event of the bankruptcy of the
writer of an over-the-counter option purchased by Government Portfolio,
the Portfolio could experience a loss of all or part of the value of the
option. Transactions are entered into by a Portfolio only with brokers
or financial institutions deemed creditworthy by the manager.
Each Portfolio's futures transactions will be entered into for
traditional hedging purposes; that is, futures contracts will be sold to
protect against a decline in the price of securities or currencies that
the Portfolio owns, or futures contracts will be purchased to protect a
Portfolio against an increase in the price of securities of currencies
it has committed to purchase or expects to purchase. A Portfolio pays
commissions on futures contracts and options transactions.
Options on Futures Contracts (All Portfolios). A Portfolio may also
purchase and sell options on futures contracts which are traded on an
Exchange. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position
if the option is a put), at a specified exercise price at any time
during the option period. As a seller of an option on a futures
contract, a Portfolio is subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In
addition, net option premiums received by a Portfolio are required to be
included as initial margin deposits. When an option on a futures
contract is exercised, delivery of the futures position is accompanied
by cash representing the difference between the current market price of
the futures contract and the exercise price of the option. A Portfolio
may purchase put options on futures contracts in lieu of, and for the
same purposes as, the sale of a futures contract. The purchase of call
options on futures contracts in intended to serve the same purpose as
the actual purchase of the futures contract.
Forward Currency Contracts and Options on Currency (Mid Cap Portfolio).
A forward currency contract is an obligation to purchase or sell a
currency against another currency at a future date and price as agreed
upon by the parties. The Portfolio may either accept or make delivery
of the currency at the maturity of the forward contract or, prior to
maturity, enter into a closing transaction involving the purchase or
sale or an offsetting contract. The Portfolio engages in forward
currency transactions in anticipation of, or to protect itself against
fluctuations in exchange rates. The Portfolio might sell a particular
foreign currency forward, for example, when it holds bonds denominated
in that currency but anticipates, and seeks to be protected against,
decline in the currency against the U.S. dollar. Similarly, the
Portfolio might sell the U.S. dollar forward when it holds bonds
denominated in U.S. dollars but anticipates, and seeks to be protected
against, a decline in the U.S. dollar relative to other currencies.
Further, the Portfolio might purchase a currency forward to "lock in"
the price of securities denominated in that currency which it
anticipates purchasing.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency
denominated asset, that is the subject of the hedge, generally will not
be precise. In addition, the Portfolio may not always be able to enter
into foreign currency forward contracts at attractive prices and this
will limit the Portfolio's ability to use such contract to hedge or
cross-hedge its assets. Also, with regard to the Portfolio's use of
cross-hedges, there can be no assurance that historical correlations
between the movement of certain foreign currencies relative to the U.S.
dollar will continue. Thus, at any time poor correlation may exist
between movements in the exchange rates of the foreign currencies
underlying the Portfolio's cross-hedges and the movements in the
exchange rates of foreign currencies in which the Portfolio's assets
that are the subject of such cross-hedges are denominated.
Forward contracts are traded in an interbank market conducted directly
between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement and
is consummated without payment of any commission. The Portfolio,
however, may enter into forward contracts with deposit requirements or
commissions.
A put option on currency gives the Portfolio, as purchaser, the right
(but not the obligation) to sell a specified amount of currency at the
exercise price until the expiration of the option. A call option gives
the Portfolio, as purchaser, the right (but not the obligation) to
purchase a specified amount of currency at the exercise price until its
expiration. The Portfolio might purchase a currency put option, for
example, to protect itself during the contract period against a decline
in the value of a currency in which it holds or anticipates holding
securities. If the currency's value should decline, the loss in
currency value should be offset, in whole or in part, by an increase in
the value of the put. If the value of the currency instead should rise,
any gain to the Portfolio would be reduced by the premium it had paid
for the put option. A currency call option might be purchased, for
example, in anticipation of, or to protect against, a rise in the value
of a currency in which the Portfolio anticipates purchasing securities.
The Portfolio's ability to establish and close out positions in foreign
currency options is subject to the existence of a liquid market. There
can be no assurance that a liquid market will exist for a particular
option at any specific time. In addition, options on foreign currencies
are affected by all of those factors that influence foreign exchange
rates and investment generally.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options.
Exchange markets for options on foreign currencies exist but are
relatively new, and the ability to establish and close out positions on
the exchanges is subject to maintenance of a liquid secondary market.
Closing transactions may be effected with respect to options traded in
the over-the-counter ("OTC") markets (currently the primary markets for
options on foreign currencies) only by negotiating directly with the
other party to the option contract or in a secondary market for the
option if such market exists. Although the Portfolio intends to
purchase only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market
will exist for any particular option at any specific time. In such
event, it may not be possible to effect closing transactions with
respect to certain options, with the result that the Portfolio would
have to exercise those options which it has purchased in order to
realize any profit. The staff of the Securities and Exchange Commission
("SEC") has taken the position that, in general, purchased OTC options
and the underlying securities used to cover written OTC options are
illiquid securities. However, the Portfolio may treat as liquid the
underlying securities used to cover written OTC options, provided it has
arrangements with certain qualified dealers who agree that the Portfolio
may repurchase any option it writes for a maximum price to be calculated
by a predetermined formula. In these cases, the OTC option itself would
only be considered illiquid to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
Use of Segregated and Other Special Accounts (All Portfolios). Use of
many hedging and other strategic transactions including currency and
market index transactions by the Portfolio will require, among other
things, that the Portfolio segregate cash, liquid securities or other
assets with its Custodian, or a designated sub-custodian, to the extent
the Portfolio's obligations are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency.
In general, either the full amount of any obligation by the Portfolio to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or,
subject to any regulatory restrictions, appropriate securities as
required by the 1940 Act at least equal to the current amount of the
obligation must be segregated with the custodian or sub-custodian. The
segregated assets cannot be sold or transferred unless equivalent assets
are substituted in their place or it is no longer necessary to segregate
them. A call option on securities written by the Portfolio, for
example, will require the Portfolio to hold the securities subject to
the call (or securities convertible into the needed securities without
additional consideration) or to segregate liquid securities sufficient
to purchase and deliver the securities if the call is exercised. A call
option sold by the Portfolio on an index will require the Portfolio to
own portfolio securities that correlate with the index or to segregate
liquid securities equal to the excess of the index value over the
exercise price on a current basis. A put option on securities written
by the Portfolio will require the Portfolio to segregate liquid
securities equal to the exercise price. Except when the Portfolio
enters into a forward contract in connection with the purchase or sale
of a security denominated in a foreign currency or for other
non-speculative purposes, which requires no segregation, a currency
contract that obligates the Portfolio to buy or sell a foreign currency
will generally require the Portfolio to hold an amount of that currency,
liquid securities denominated in that currency equal to the Portfolio's
obligations or to segregate liquid securities equal to the amount of the
Portfolio's obligations.
OTC options entered into by the Portfolio, including those on
securities, currency, financial instruments or indices, and OCC-issued
and exchange-listed index options will generally provide for cash
settlement, although the Portfolio will not be required to do so. As a
result, when the Portfolio sells these instruments it will segregate an
amount of assets equal to its obligations under the options. OCC-issued
and exchange-listed options sold by the Portfolio other than those
described above generally settle with physical delivery, and the
Portfolio will segregate an amount of assets equal to the full value of
the option. OTC options settling with physical delivery or with an
election of either physical delivery or cash settlement will be treated
the same as other options settling with physical delivery.
In the case of a futures contract or an option on a futures contract,
the Portfolio must deposit initial margin and, in some instances, daily
variation margin in addition to segregating assets sufficient to meet
its obligations to purchase or provide securities or currencies, or to
pay the amount owed at the expiration of an index-based futures
contract. These assets may consist of cash, cash equivalents, liquid
securities or other acceptable assets. The Portfolio will accrue the
net amount of the excess, if any, of its obligations relating to swaps
over its entitlements with respect to each swap on a daily basis and
will segregate with its custodian, or designated sub-custodian, an
amount of cash or liquid securities having an aggregate value equal to
at least the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Portfolio's net
obligation, if any.
Hedging and other strategic transactions may be covered by means other
than those described above when consistent with applicable regulatory
policies. The Portfolio may also enter into offsetting transactions so
that its combined position, coupled with any segregated assets, equals
its net outstanding obligation in related options and hedging and other
strategic transactions. The Portfolio could purchase a put option, for
example, if the strike price of that option is the same or higher than
the strike price of a put option sold by the Portfolio. Moreover,
instead of segregating assets if it holds a futures contract or forward
contract, the Portfolio could purchase a put option on the same futures
contract or forward contract with a strike price as high or higher than
the price of the contract held. Other hedging and other strategic
transactions may also be offset in combinations. If the offsetting
transaction terminates at the time of or after the primary transaction,
no segregation is required, but if it terminates prior to that time,
assets equal to any remaining obligation would need to be segregated.
OTHER PRACTICES
Repurchase Agreements (All Portfolios). Each Portfolio may enter into
repurchase agreements with broker-dealers or domestic banks. A
repurchase agreement is a short-term investment in which the purchaser
(i.e., the Portfolio) acquires ownership of a debt security and the
seller agrees to repurchase the obligation at a future time and set
price, usually not more than seven days from the date of purchase,
thereby determining the yield during the purchaser's holding period.
Repurchase agreements are collateralized by the underlying debt
securities and may be considered to be loans under the 1940 Act. The
Portfolio will make payment for such securities only upon physical
delivery or evidence of book entry transfer to the account of a
custodian or bank acting as agent. The seller under a repurchase
agreement is required to maintain the value of the underlying securities
marked to market daily at not less than the repurchase price. The
underlying securities (normally securities of the U.S. Government, or
its agencies and instrumentalities), may have maturity dates exceeding
one year. The Portfolio does not bear the risk of a decline in value of
the underlying security unless the seller defaults under its repurchase
obligation. In the event of a bankruptcy or other default of a seller
of a repurchase agreement, the Portfolio could experience both delays in
liquidating the underlying securities and loss including: (a) possible
decline in the value of the underlying security during the period while
the Portfolio seeks to enforce its rights thereto, (b) possible lack of
access to income on the underlying security during this period, and
(c) expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the manager may
aggregate the cash that certain funds or accounts that are advised or
subadvised by the manager or its affiliates would otherwise invest
separately into a joint account. The cash in the joint account is then
invested in repurchase agreements and the Portfolios, funds or accounts
that contributed to the joint account share pro rata in the net revenue
generated. The manager believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced
transaction costs, higher returns, higher quality investments and
greater diversity of investments for a Portfolio than would be available
to a Portfolio investing separately. The manner in which the joint
account is managed is subject to conditions set forth in an SEC
exemptive order authorizing this practice, which conditions are designed
to ensure the fair administration of the joint account and to protect
the amounts in that account.
Reverse Repurchase Agreements (Mid Cap and Government Portfolios). Mid
Cap Portfolio and Government Portfolio may invest in reverse repurchase
agreements with broker/dealers and other financial institutions. Such
agreements involve the sale of portfolio securities with an agreement to
repurchase the securities at an agreed-upon price, date and interest
payment. Any securities purchased with the funds obtained from the
agreement and securities collateralizing the agreement will have a
maturity date no later than the repayment date. Generally, the
Portfolio will be able to keep the interest income associated with the
"coupon" on those securities, subject to the payment of a fee to the
dealer. Such transactions are generally advantageous because the
Portfolio attempts to lock-in a greater rate of interest on the cash
derived from the transaction than the interest cost of obtaining that
cash. Opportunities to realize earnings from the use of the proceeds
equal to or greater than the interest required to be paid may not always
be available, and the Portfolio intends to use the reverse repurchase
technique only when the manager believes it will be advantageous to the
Portfolio. The use of reverse repurchase agreements may exaggerate any
interim increase or decrease in the value of the Portfolio's assets.
The Portfolio's custodian bank will maintain a separate account for the
Portfolio with securities having a value equal to or greater than such
commitments.
Short Sales against the Box (Emerging Growth Portfolio, Mid Cap
Portfolio, Growth Portfolio and Growth and Income Portfolio). Each
Portfolio may from time to time make short sales of securities it owns
or has the right to acquire through conversion or exchange of other
securities it owns. A short sale is ''against the box'' to the extent
that the Portfolio contemporaneously owns or has the right to obtain at
no added cost securities identical to those sold short. In a short sale,
the Portfolio does not immediately deliver the securities sold and does
not receive the proceeds from the sale. The Portfolio is said to have a
short position in the securities sold until it delivers the securities
sold, at which time it receives the proceeds of the sale.
To secure its obligation to deliver the securities sold short, the
Portfolio will deposit in escrow in a separate account with its
custodian an equal amount of the securities sold short or securities
convertible into or exchangeable for such securities. The Portfolio may
close out a short position by purchasing and delivering an equal amount
of the securities sold short, rather than by delivering securities
already held by the Portfolio, because the Portfolio may want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
Loans of Portfolio Securities (All Portfolios). Each of the Portfolios
may lend portfolio securities to unaffiliated brokers, dealers and
financial institutions provided that cash equal to 100% of the market
value of the securities loaned is deposited by the borrower with the
particular Portfolio and is marked to market daily. While such
securities are on loan, the borrower is required to pay the Portfolio
any income accruing thereon. Furthermore, the Portfolio may invest the
cash collateral in portfolio securities thereby increasing the return to
the Portfolio as well as increasing the market risk to the Portfolio. A
Portfolio will not lend its portfolio securities if such loans are not
permitted by the laws or regulations of any state in which its shares
are qualified for sale. However, should the Portfolio believe that
lending securities is in the best interests of the Portfolio's
shareholders, it would consider withdrawing its shares from sale in any
such state.
Loans would be made for short-term purposes and subject to termination
by the Portfolio in the normal settlement time, currently five business
days after notice, or by the borrower on one day's notice. Borrowed
securities must be returned when the loan is terminated. Any gain or
loss in the market price of the borrowed securities which occurs during
the term of the loan inures to the Portfolio and its shareholders, but
any gain can be realized only if the borrower does not default. Each
Portfolio may pay reasonable finders', administrative and custodial fees
in connection with a loan.
RISK FACTORS
General. Investors should realize that risk of loss is inherent in the
ownership of any securities and that each Portfolio's net asset value
will fluctuate, reflecting fluctuations in the market value of its
portfolio positions.
Fixed Income Securities. Investments in fixed income securities may
subject the Portfolios to risks, including the following:
Interest Rate Risk. When interest rates decline, the market value
of fixed income securities tends to increase. Conversely, when interest
rates increase, the market value of fixed income securities tends to
decline. The volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of
instrument.
Default Risk/Credit Risk. Investments in fixed income securities
are subject to the risk that the issuer of the security could default on
its obligations, causing a Portfolio to sustain losses on such
investments. A default could impact both interest and principal
payments.
Call Risk and Extension Risk. Fixed income securities may be
subject to both call risk and extension risk. Call risk exists when the
issuer may exercise its right to pay principal on an obligation earlier
than scheduled, which would cause cash flows to be returned earlier than
expected. This typically results when interest rates have declined and
a Portfolio will suffer from having to reinvest in lower yielding
securities. Extension risk exists when the issuer may exercise its
right to pay principal on an obligation later than scheduled, which
would cause cash flows to be returned later than expected. This
typically results when interest rates have increased, and a Portfolio
will suffer from the inability to invest in higher yield securities.
Below Investment Grade Fixed-Income Securities. Securities rated in the
fourth highest ratings category by an NRSRO, such as those rated BBB by
S&P or Baa by Moody's, are generally regarded as having adequate
capacity to pay interest and repay principal, but may have some
speculative characteristics. Securities rated below the fourth highest
ratings category by an NRSRO, including those rated below Baa by Moody's
or BBB by S&P, are not "investment grade," and may have more speculative
characteristics, including the possibility of default or bankruptcy of
the issuers of such securities, market price volatility based upon
interest rate sensitivity, questionable creditworthiness and relative
liquidity of the secondary trading market. Because high yield bonds
have been found to be more sensitive to adverse economic changes or
individual corporate developments and less sensitive to interest rate
changes than higher-rated investments, an economic downturn could
disrupt the market for high yield bonds and adversely affect the value
of outstanding bonds and the ability of issuers to repay principal and
interest. In addition, in a declining interest rate market, issuers of
high yield bonds may exercise redemption or call provisions, which may
force a Portfolio, to the extent it owns such securities, to replace
those securities with lower yielding securities. This could result in a
decreased return.
Small Capitalization Companies. Small companies may (i) be subject to
more volatile market movements than securities of larger, more
established companies; (ii) have limited product lines, markets or
financial resources; and (iii) depend upon a limited or less experienced
management group. The securities of small companies may be traded only
on the over-the-counter market or on a regional securities exchange and
may not be traded daily or in the volume typical of trading on a
national securities exchange. Disposition by the Portfolio of small
company securities in order to meet redemptions may require the
Portfolio to sell these securities at a discount from market prices,
over a longer period of time or during periods when disposition is not
desirable.
Foreign Securities. Investments in securities of foreign issuers
involve certain risks not ordinarily associated with investments in
securities of domestic issuers. Such risks include fluctuations in
foreign exchange rates, future political and economic developments, and
the possible imposition of exchange controls or other foreign
governmental laws or restrictions. Since each Portfolio will invest
heavily in securities denominated or quoted in currencies other than the
U.S. dollar, changes in foreign currency exchange rates will, to the
extent the Portfolio does not adequately hedge against such
fluctuations, affect the value of securities in its portfolio and the
unrealized appreciation or depreciation of investments so far as U.S.
investors are concerned. In addition, with respect to certain
countries, there is the possibility of expropriation of assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those
countries.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could affect investment in
those countries. There may be less publicly available information about
a foreign security than about a security issued by a U.S. company, and
foreign entities may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those of
United States entities. In addition, certain foreign investments made by
the Portfolio may be subject to foreign withholding taxes, which would
reduce the Portfolio's total return on such investments and the amounts
available for distributions by the Portfolio to its shareholders. See
''Dividends, Distributions and Taxes.'' Foreign financial markets, while
growing in volume, have, for the most part, substantially less volume
than United States markets, and securities of many foreign companies are
less liquid and their prices more volatile than securities of comparable
domestic companies. The foreign markets also have different clearance
and settlement procedures, and in certain markets there have been times
when settlements have been unable to keep pace with the volume of
securities transactions making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods
when assets of the Portfolio are not invested and no return is earned
thereon. The inability of each Portfolio to make intended security
purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to
the Portfolio due to subsequent declines in value of the portfolio
security or, if the Portfolio has entered into a contract to sell the
security, could result in possible liability to the purchaser. Costs
associated with transactions in foreign securities, including custodial
costs and foreign brokerage commissions, are generally higher than with
transactions in United States securities. In addition, each Portfolio
will incur cost in connection with conversions between various
currencies. There is generally less government supervision and
regulation of exchanges, financial institutions and issuers in foreign
countries than there are in the United States. These risks may be
intensified in the case of investments in developing or emerging
markets. In many developing markets, there is less government
supervision and regulation of business and industry practices, stock
exchanges, brokers and listed companies than in the United States. The
foreign securities markets of many of the countries in which the
Portfolio may invest may also be smaller, less liquid, and subject to
greater price volatility than those in the United States. Finally, in
the event of a default on any such foreign debt obligations, it may be
more difficult for the Portfolio to obtain or to enforce a judgment
against the issuers of such securities.
Currency Risks. The U.S. dollar value of securities denominated in a
foreign currency will vary with changes in currency exchange rates,
which can be volatile. Accordingly, changes in the value of the
currency in which a Portfolio's investments are denominated relative to
the U.S. dollar will affect the Portfolio's net asset value. Exchange
rates are generally affected by the forces of supply and demand in the
international currency markets, the relative merits of investing in
different countries and the intervention or failure to intervene of U.S.
or foreign governments and central banks. However, currency exchange
rates may fluctuate based on factors intrinsic to a country's economy.
Some emerging market countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, emerging
markets are subject to the risk of restrictions upon the free conversion
of their currencies into other currencies. Any devaluations relative to
the U.S. dollar in the currencies in which a Portfolio's securities are
quoted would reduce the Portfolio's net asset value per share.
Special Risks of Countries in the Asia Pacific Region. Certain of the
risks associated with international investments are heightened for
investments in these countries. For example, some of the currencies of
these countries have experienced devaluations relative to the U.S.
dollar, and adjustments have been made periodically in certain of such
currencies. Certain countries, such as Indonesia, face serious exchange
constraints. Jurisdictional disputes also exist. In addition, Hong
Kong reverted to Chinese administration on July 1, 1997. The long-term
effects of this reversion are not known at this time.
Securities of Developing/Emerging Markets Countries. A developing or
emerging markets country generally is considered to be a country that is
in the initial stages of its industrialization cycle. Investing in the
equity markets of developing countries involves exposure to economic
structures that are generally less diverse and mature, and to political
systems that can be expected to have less stability, than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of the
more mature economies of developed countries; however, such markets
often have provided higher rates of return to investors.
One or more of the risks discussed above could affect adversely the
economy of a developing market or a Portfolio's investments in such a
market. In Eastern Europe, for example, upon the accession to power of
Communist regimes in the past, the governments of a number of Eastern
European countries expropriated a large amount of property. The claims
of many property owners against those of governments may remain
unsettled. There can be no assurance that any investments that a
Portfolio might make in such emerging markets would not be expropriated,
nationalized or otherwise confiscated at some time in the future. In
such an event, the Portfolio could lose its entire investment in the
market involved. Moreover, changes in the leadership or policies of
such markets could halt the expansion or reverse the liberalization of
foreign investment policies now occurring in certain of these markets
and adversely affect existing investment opportunities.
Many of a Portfolio's investments in the securities of emerging markets
may be unrated or rated below investment grade. Securities rated below
investment grade (and comparable unrated securities) are the equivalent
of high yield, high risk bonds, commonly known as "junk bonds." Such
securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligations and involve major risk exposure to adverse
business, financial, economic, or political conditions.
Derivative Instruments. In accordance with its investment policies,
each Portfolio may invest in certain derivative instruments which are
securities or contracts that provide for payments based on or "derived"
from the performance of an underlying asset, index or other economic
benchmark. Essentially, a derivative instrument is a financial
arrangement or a contract between two parties (and not a true security
like a stock or a bond). Transactions in derivative instruments can be,
but are not necessarily, riskier than investments in conventional
stocks, bonds and money market instruments. A derivative instrument is
more accurately viewed as a way of reallocating risk among different
parties or substituting one type of risk for another. Every investment
by a Portfolio, including an investment in conventional securities,
reflects an implicit prediction about future changes in the value of
that investment. Every Portfolio investment also involves a risk that
the portfolio manager's expectations will be wrong. Transactions in
derivative instruments often enable a Portfolio to take investment
positions that more precisely reflect the portfolio manager's
expectations concerning the future performance of the various
investments available to the Portfolio. Derivative instruments can be a
legitimate and often cost-effective method of accomplishing the same
investment goals as could be achieved through other investment in
conventional securities.
Derivative contracts include options, futures contracts, forward
contracts, forward commitment and when-issued securities transactions,
forward foreign currency exchange contracts and interest rate, mortgage
and currency swaps. The following are the principal risks associated
with derivative instruments:
Market risk: The instrument will decline in value or that an
alternative investment would have appreciated more, but this is no
different from the risk of investing in conventional securities.
Leverage and associated price volatility: Leverage causes
increased volatility in the price and magnifies the impact of adverse
market changes, but this risk may be consistent with the investment
objective of even a conservative Portfolio in order to achieve an
average portfolio volatility that is within the expected range for that
type of Portfolio.
Credit risk: The issuer of the instrument may default on its
obligation to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are
traded in institutional markets rather than on an exchange.
Nevertheless, many derivative instruments are actively traded and can be
priced with as much accuracy as conventional securities. Derivative
instruments that are custom designed to meet the specialized investment
needs of a relatively narrow group of institutional investors such as
the Portfolios are not readily marketable and are subject to a
Portfolio's restrictions on illiquid investments.
Correlation risk: There may be imperfect correlation between the
price of the derivative and the underlying asset. For example, there
may be price disparities between the trading markets for the derivative
contract and the underlying asset.
Each derivative instrument purchased for a Portfolio's portfolio is
reviewed and analyzed by the Portfolio's portfolio manager to assess the
risk and reward of each such instrument in relation the Portfolio's
portfolio investment strategy. The decision to invest in derivative
instruments or conventional securities is made by measuring the
respective instrument's ability to provide value to the Portfolio and
its shareholders.
Special Risks of Using Futures Contracts. The prices of Futures
Contracts are volatile and are influenced by, among other things, actual
and anticipated changes in interest rates, which in turn are affected by
fiscal and monetary policies and national and international political
and economic events.
At best, the correlation between changes in prices of Futures Contracts
and of the securities or currencies being hedged can be only
approximate. The degree of imperfection of correlation depends upon
circumstances such as: variations in speculative market demand for
Futures and for debt securities or currencies, including technical
influences in Futures trading; and differences between the financial
instruments being hedged and the instruments underlying the standard
Futures Contracts available for trading, with respect to interest rate
levels, maturities, and creditworthiness of issuers. A decision of
whether, when, and how to hedge involves skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or interest rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small
price movement in a Futures Contract may result in immediate and
substantial loss, as well as gain, to the investor. For example, if at
the time of purchase, 10% of the value of the Futures Contract is
deposited as margin, a subsequent 10% decrease in the value of the
Futures Contract would result in a total loss of the margin deposit,
before any deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the Futures Contract were closed out. Thus,
a purchase or sale of a Futures Contract may result in losses in excess
of the amount invested in the Futures Contract. A Portfolio, however,
would presumably have sustained comparable losses if, instead of the
Futures Contract, it had invested in the underlying financial instrument
and sold it after the decline. Where a Portfolio enters into Futures
transactions for non-hedging purposes, it will be subject to greater
risks and could sustain losses which are not offset by gains on other
Portfolio assets.
Furthermore, in the case of a Futures Contract purchase, in order to be
certain that each Portfolio has sufficient assets to satisfy its
obligations under a Futures Contract, the Portfolio segregates and
commits to back the Futures Contract an amount of cash and liquid
securities equal in value to the current value of the underlying
instrument less the margin deposit.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a Futures Contract may
vary either up or down from the previous day's settlement price at the
end of a trading session. Once the daily limit has been reached in a
particular type of Futures Contract, no trades may be made on that day
at a price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures Contract prices have occasionally moved
to the daily limit for several consecutive trading days with little or
no trading, thereby preventing prompt liquidation of Futures positions
and subjecting some Futures traders to substantial losses.
Economic and Monetary Union (EMU). EMU occurred on January 1, 1999,
when 11 European countries adopted a single currency - the euro. For
participating countries, EMU means sharing a single currency and single
official interest rate and adhering to agreed upon limits on government
borrowing. Budgetary decisions remain in the hands of each
participating country, but are subject to each country's commitment to
avoid "excessive deficits" and other more specific budgetary criteria.
A European Central Bank is responsible for setting the official interest
rate to maintain price stability within the euro zone. EMU is driven by
the expectation of a number of economic benefits, including lower
transaction costs, reduced exchange risk, greater competition, and a
broadening and deepening of European financial markets. However, there
are a number of significant risks associated with EMU. Monetary and
economic union on this scale has never been attempted before. There is
a significant degree of uncertainty as to whether participating
countries will remain committed to EMU in the face of changing economic
conditions. This uncertainty may increase the volatility of European
markets and may adversely affect the prices of securities of European
issuers held by the Portfolios.
Year 2000. The investment management services provided to each
Portfolio by the manager depend on the smooth functioning of its
computer systems and those of its service providers. Many computer
software systems in use today cannot recognize the year 2000, but revert
to 1900 or some other date, due to the manner in which dates were
encoded and calculated. That failure could have a negative impact on
each Portfolio's operations, including the handling of securities
trades, pricing and account services. The manager has advised each
Portfolio that it has been reviewing all of its computer systems and
actively working on necessary changes to its systems to prepare for the
year 2000 and expect that its systems will be compliant before that
date. In addition, the manager has been advised by each Portfolio's
custodian, distributor, transfer agent sub-transfer agent and accounting
service agent that they are also in the process of modifying their
systems with the same goal. There can, however, be no assurance that the
manager or any other service provider will be successful, or that
interaction with other non-complying computer systems will not impair
Portfolio services at that time. The foregoing is a year 2000 readiness
disclosure.
Portfolio Turnover. Each Portfolio may purchase or sell securities
without regard to the length of time the security has been held and thus
may experience a high rate of portfolio turnover. A 100% turnover rate
would occur, for example, if all the securities in a portfolio were
replaced in a period of one year. Under certain market conditions, the
Growth Portfolio and the Government Portfolio may experience a high rate
of portfolio turnover. This may occur, for example, if the Portfolio
writes a substantial number of covered call options and the market
prices of the underlying securities appreciate. The rate of portfolio
turnover is not a limiting factor when the manager deems it desirable to
purchase or sell securities or to engage in options transactions. The
annual turnover rates of the Growth Portfolio, the Government Portfolio
and the Municipal Bond Portfolio are not expected to exceed 400%; and
the annual turnover rates of the Emerging Growth Portfolio, the
International Equity Portfolio and the Growth and Income Portfolio are
not expected to exceed 100%. High portfolio turnover involves
correspondingly greater transaction costs, including any brokerage
commissions, which are borne directly by the respective Portfolio and
may increase the recognition of short-term, rather than long-term,
capital gains if securities are held for one year or less and may be
subject to applicable income taxes. See ''Dividends, Distributions and
Taxes.''
INVESTMENT RESTRICTIONS
The Portfolios have adopted the following fundamental investment
restrictions for the protection of shareholders. Under the 1940 Act, a
fundamental policy of a portfolio may not be changed without the vote of
a majority, as defined in the 1940 Act, of the outstanding voting
securities of the portfolio. Such majority is defined as the lesser of
(a) 67% or more of the shares present at the meeting, if the holders of
more than 50% of the outstanding shares of the portfolio are present or
represented by proxy, or (b) more than 50% of the outstanding shares.
The percentage limitations contained in the restrictions listed below
(other than with respect to (1) below) apply at the time of purchases of
securities.
The investment policies adopted by the Portfolios prohibit each
Portfolio from:
1. Borrowing money except that (a) the Portfolio may borrow
from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests which
might otherwise require the untimely disposition of
securities, and (b) the Portfolio may, to the extent
consistent with its investment policies, enter into reverse
repurchase agreements, forward roll transactions and similar
investment strategies and techniques. To the extent that it
engages in transactions described in (a) and (b), the
Portfolio will be limited so that no more than 33-1/3% of
the value of its total assets (including the amount
borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) valued at
the time the borrowing is made, is derived from such
transactions.
2. Making loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the Portfolio may
invest consistent with its investment objectives and
policies; (b) repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent permitted under
the 1940 Act.
3. Engaging in the business of underwriting securities issued
by other persons, except to the extent that the Portfolio
may technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, in disposing of
portfolio securities.
4. Purchasing or selling real estate, real estate mortgages,
commodities or commodity contracts, but this restriction
shall not prevent the Portfolio from (a) investing in
securities of issuers engaged in the real estate business or
business of investing in real estate (including interests in
limited partnerships owning or otherwise engaging in the
real estate business or the business of investing in real
estate) and securities which are secured by real estate or
interests therein; (b) holding or selling real estate
received in connection with securities it holds or held; (c)
trading in futures contracts and options on futures
contracts (including options on currencies to the extent
consistent with the Portfolio's investment objective and
policies); or (d) investing in real estate investment trust
securities.
5. Issuing "senior securities" as defined in the 1940 Act and
the rules, regulations and orders thereunder, except as
permitted under the 1940 Act and the rules, regulations and
orders thereunder.
The Portfolios have also adopted certain nonfundamental investment
restrictions that may be changed by the Trust's Board of Trustees at any
time. Accordingly the Portfolios are prohibited from:
1. Purchasing securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and
sales of portfolio securities) or sell any securities short
(except "against the box"). For purposes of this
restriction, the deposit or payment by the Portfolio of
underlying securities and other assets in escrow and
collateral agreements with respect to initial or maintenance
margin in connection with futures contracts and related
options and options on securities, indexes or similar items
is not considered to be the purchase of a security on
margin.
2. Making short sales of securities or maintaining a short
position.
3. Pledging, hypothecating, mortgaging or otherwise encumbering
more than 33-1/3% of the value of a Portfolio's total
assets.
4. Making investments for the purpose of exercising control or
management.
5. Invest in oil, gas or other mineral exploration or
development programs.
6. Purchase or otherwise acquire any security if, as a result,
more than 15% of its net assets would be invested in
securities that are illiquid.
If any percentage restriction described above is complied with at the
time of an investment, a later increase or decrease in percentage
resulting from a change in values or assets will not constitute a
violation of such restriction.
TRUSTEES AND OFFICERS
The Trustees and executive officers and their principal occupations for
the past five years are listed below.
TRUSTEES
DONALD M. CARLTON, Trustee. Radian International L.L.C., 8501 N. Mopac
Blvd., Building No. 6, Austin, Texas 78759. President and Chief
Executive of Radian International L.L.C. (chemical engineering).
Director of National Instruments Corp. and Central and Southwest
Corporation. Formerly Director of The Hartford Steam Boiler Inspection
and Insurance Company (insurance/engineering services); 61.
A. BENTON COCANOUGHER, Trustee. Texas A & M University, 601 Blocker
Bldg., College Station, Texas 77843-4113. Dean of College of Business
Administration and Graduate School of Business of Texas A & M
University; Director of Randall's Food Markets, Inc.; Director of First
American Bank; and Director of First American Savings Bank; 60.
STEPHEN RANDOLPH GROSS, Trustee. 2625 Cumberland Parkway, Suite 400,
Atlanta, Georgia 30339. Managing Partner of Gross, Collins &
Cress, P.C. (accounting firm); Director of Charter Bank & Trust; 51.
HEATH B. McLENDON,* Trustee. Managing Director of Salomon Smith Barney;
President and Chairman of 59 investment companies associated with SSB,
President and Director of the manager and Travelers Investment Adviser,
Inc. ("TIA"); Chairman of Smith Barney Strategy Advisers Inc.; 65.
ALAN G. MERTEN, Trustee. George Mason University, 4400 University Drive,
Fairfax, Virginia 22030-4444. President of George Mason University.
Director of Comshare, Inc. (information technology), and Tompkins
County Trust Company, Ithaca, New York; formerly The Anne and Elmer
Lindseth Dean of Johnson Graduate School of Management of Cornell
University; 57.
R. RICHARDSON PETTIT, Trustee. Department of Finance, College of
Business, University of Houston, 4800 Calhoun, Houston, Texas
77204-6283. Duncan Professor of Finance of the University of Houston;
formerly Hanson Distinguished Professor of Business of the University of
Washington; 56.
_______________
* Denotes a Trustee that is an "interested person" of the Trust within
the meaning of the 1940 Act.
OFFICERS
Heath B. McLendon, President (See description under "Trustees").
Lewis E. Daidone, Senior Vice President and Treasurer (Age 41).
Managing Director of Salomon Smith Barney; Director and Senior Vice
President of the manager and TIA. Mr. Daidone serves as Senior Vice
President and Treasurer of Smith Barney Mutual Funds. His address is
388 Greenwich Street, New York, New York 10013.
Sandip A. Bhagat, Vice President and Investment Officer (Age 38).
Managing Director of Salomon Smith Barney. President of TIMCO; prior to
1995, Senior Portfolio Manager for TIMCO. His address is One Tower
Square, Hartford, Connecticut 06183-2030.
James E. Conroy, Vice President and Investment Officer (Age 47).
Managing Director of Salomon Smith Barney; Mr. Conroy serves as
Investment Officer of four Smith Barney Mutual Funds. His address is
388 Greenwich Street, New York, New York 10013.
Joseph P. Deane, Vice President and Investment Officer (Age 51).
Managing Director of Salomon Smith Barney; Mr. Deane serves as
Investment Officer of 8 Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
R. Jay Gerken, Vice President and Investment Officer (Age 47). Managing
Director of Salomon Smith Barney; Mr. Gerken is Vice President and
Investment Officer of two other Smith Barney Mutual Funds. His address
is 388 Greenwich Street, New York, New York 10013.
Jeffrey Russell, Vice President and Investment Officer (Age 41).
Managing Director of Salomon Smith Barney; Mr. Russell is Vice President
and Investment Officer of six other Smith Barney Mutual Funds. His
address is 388 Greenwich Street, New York, New York 10013.
Larry Weissman, Vice President and Investment Officer; (Age 37 ).
Managing Director of Salomon Smith Barney; Prior to October 1997,
Portfolio Manager of Newberger & Berman LLC; Prior to 1995, Portfolio
Manager of College Retirement Equities Fund. His address is 388
Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 48). Managing Director of Salomon
Smith Barney; General Counsel and Secretary of the manager and TIA.
Ms. Sydor also serves as Secretary of Smith Barney Mutual Funds. Her
address is 388 Greenwich Street, New York, New York 10013.
As of December 11, 1998, the Trustees and officers of the Trust as a
group own less than one percent of the outstanding shares of each Fund
of the Trust. As of December 11, 1998, to the knowledge of the Trust
and its Trustees, no shareholder or "group" (as the term is used in
Section 13(d) of the Securities Act of 1933) beneficially owned more
than 5% of the outstanding shares of each Fund of the Trust.
TRUSTEE COMPENSATION
Information regarding compensation paid to the Trustees of the Trust is
set forth below. Because the Portfolios are newly organized, the
compensation shown below pertains to amounts paid by the previously
established investment portfolios of the Trust (collectively, the
"Funds"), which Funds are not offered by this SAI or the related
Prospectus, for the calendar year ended December 31, 1998. Mr. McLendon
is not compensated for his service as Trustee, because of his
affiliation with the manager. With the exception of Mr. McLendon, no
Trustee serves on the Board of any other investment company in the Smith
Barney Fund Complex.
Legend:
EM = Emerging Growth Fund
INT = International Equity Fund
G = Growth Fund
G/I = Growth and Income Fund
GVT = Government Fund
MB = Municipal Bond Fund
Name
EM INT G
G/I GVT MB
Retire-
ment
Benefit
s
Accrued
as Part
of Fund
Expense
s
(1)
Total
Compen-
sation
Paid From
Trust and
Fund
Complex
Dr. Donald M.
Carlton
$2,640
$478
$36,95
4
$12,58
4
$2,26
9
$1,074
- -
$56,000
Dr. A. Benton
Cocanougher
2,640
478
36,954
12,584
2,269
1,074
- -
56,000
Stephen Randolph
Gross
2,640
478
36,954
12,584
2,269
1,074
- -
56,000
Heath B. McLendon*
- -
- -
- -
- -
- -
- -
- -
- -
Dr. Alan G. Merten
2,472
443
33,555
11,491
2,062
976
- -
51,000
Dr. Steven
Muller(2)
614
116
11,957
3,923
709
329
- -
17,649
Dr. R. Richardson
Pettit
2,640
478
36,954
12,584
2,269
1,074
- -
56,000
Alan B. Shepard,
Jr.(2)
2,100
372
26,093
9,089
1,592
754
- -
40,000
*Designates an "Interested Person" of the Trust, as defined under the
1940 Act.
(1) The Trustees instituted a retirement plan effective April 1, 1996.
For the current Trustees who are not "interested persons" of the Trust,
the retirement benefits payable thereunder are payable for a ten year
period following retirement, with the annual payment to be based upon
the highest total annual compensation received in any of the three
calendar years preceding retirement. Trustees with more than five but
less than ten years of service at retirement will receive a prorated
benefit. Total retirement benefits accrued under the plan for the 1998
calendar year were $14,481, $0, $932,542, $278,558, $88,194, and $0, for
the Emerging Growth Fund, International Equity Fund, Growth Fund, Growth
and Income Fund, Government Fund and Municipal Bond Fund, respectively.
The amount of benefits to be paid upon retirement is therefore not
currently determinable for any current Trustee.
(2) Mr. Muller and Mr. Shepard are no longer Trustees of the Trust.
INVESTMENT ADVISORY AGREEMENTS
Investment Manager. The manager provides investment advisory and
management services to the Trust, and to other investment companies
affiliated with Salomon Smith Barney.
The Trust and the manager are parties to a separate Investment Advisory
Agreement for each Portfolio (each, an "Advisory Agreement" and
together, the "Advisory Agreements"). An investment advisory agreement
with the manager and the Trust, on behalf of each Portfolio, was
approved by the Board of Trustees of the Trust at a meeting held on
________, 1999. Under the Advisory Agreements, the Trust retains the
manager to manage the investment of its assets and to place orders for
the purchase and sale of its portfolio securities. The manager is
responsible for obtaining and evaluating economic, statistical, and
financial data and for formulating and implementing investment programs
in furtherance of each Portfolio's investment objectives. The manager
also furnishes at no cost to the Trust (except as noted herein) the
services of sufficient executive and clerical personnel for the Trust as
are necessary to prepare registration statements, prospectuses,
shareholder reports, and notices and proxy solicitation materials. In
addition, the manager furnishes at no cost to the Trust the services of
a President of the Trust, one or more Vice Presidents as needed, and a
Secretary.
Under the Advisory Agreements, the Trust bears the cost of its
accounting services, which includes maintaining its financial books and
records and calculating the daily net asset value of each Portfolio.
The costs of such accounting services include the salaries and overhead
expenses of a Treasurer or other principal financial officer and the
personnel operating under his direction. The services are provided at
cost which is allocated among all investment companies advised or
subadvised by the manager. The Trust also pays transfer agency fees,
custodian fees, legal fees, the costs of reports to shareholders and all
other ordinary expenses not specifically assumed by the manager.
{NOTE: Management may wish to consider proposing a different schedule of
advisory fees for these Portfolios. The following is the schedule for
the previous Funds,}
The Trust retains the manager to manage the investment of its assets and
to place orders for the purchase and sale of its portfolio securities.
Under the relevant Advisory Agreement, the Trust pays the manager
investment management fees at the following rates, based on the
following amounts of their average daily net assets:
? For Emerging Growth Portfolio, Growth Portfolio and Growth and
Income Portfolio (calculated separately for each Portfolio), 0.65%
of the first $1 billion; 0.60% of the next $1 billion; 0.55% of the
next $1 billion; 0.50% of the next $1 billion; and 0.45% of the
average daily net assets in excess of $4 billion.
? For Mid Cap Portfolio, 0.75% of the Portfolio's average daily net
assets.
? For the Government Portfolio, 0.60% of the first $1 billion; 0.55% of
the next $1 billion; 0.50% of the next $1 billion; 0.45% of the next
$1 billion; 0.40% of the next $1 billion; and 0.35% of the
Portfolio's average daily net assets in excess of $5 billion.
The manager may, from time to time, agree to waive its investment
advisory fees or any portion thereof or elect to reimburse a Portfolio
for ordinary business expenses in excess of an agreed upon amount.
The average daily net assets of each Portfolio are determined by taking
the average of all of the determinations of net asset value of such
Portfolio for each business day during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end
of that month.
Each Portfolio's Advisory Agreement provides that the manager shall not
be liable to the Trust for any actions or omissions if it acted in good
faith without negligence or misconduct. The Advisory Agreements provide
that the manager shall not be liable to the Trust for any actions or
omissions if it acted in good faith without negligence or misconduct.
Each Advisory Agreement has an initial term of two years and thereafter
with respect to each Portfolio may be continued from year to year if
specifically approved at least annually (a)(i) by the Trustees or
(ii) by vote of a majority of the Portfolio's outstanding voting
securities, and (b) by the affirmative vote of a majority of the
Trustees who are not parties to the agreement or interested persons of
any such party by votes cast in person at a meeting called for such
purpose. The Advisory Agreements provide that they shall terminate
automatically if assigned and that they may be terminated without
penalty by either party on 60 days written notice.
DISTRIBUTOR
CFBDS, Inc., located at 21 Milk Street, Boston MA 02109-5408 (the
"Distributor"), distributes shares of the Portfolios as their principal
underwriter, and as such conducts a continuous offering pursuant to a
"best efforts" arrangement requiring the Distributor to take and pay for
only those securities sold to the public.
The Distributor may be deemed to be an underwriter for purposes of the
Securities Act of 1933.
The Distributor acts as the principal underwriter of the shares of the
Portfolios pursuant to a written agreement for the Portfolios
("Underwriting Agreement"). The Distributor's obligation is an agency
or "best efforts" arrangement under which the Distributor is required to
take and pay only for such shares of each Portfolio as may be sold to
the public. The Distributor is not obligated to sell any stated number
of shares. The Underwriting Agreement is renewable from year to year if
approved (a) by the Trustees or by a vote of a majority of the Trust's
outstanding voting securities, and (b) by the affirmative vote of a
majority of Trustees who are not parties to the Agreement or interested
persons of any party by votes cast in person at a meeting called for
such purpose. The Underwriting Agreement provides that it will
terminate if assigned, and that it may be terminated without penalty by
either party on 60 days' written notice.
PORTFOLIO TURNOVER
The portfolio turnover rate may vary greatly from year to year as well
as within a year. Each Portfolio's portfolio turnover rate for prior
years is shown under the "Financial Highlights" in the Prospectus.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The manager is responsible for decisions to buy and sell securities for
the Trust and for the placement of its portfolio transactions and the
negotiation of any commissions paid on such transactions. It is the
policy of the manager to seek the best security price available with
respect to each transaction. In over-the-counter transactions, orders
are placed directly with a principal market maker unless it is believed
that a better price and execution can be obtained by using a broker.
Except to the extent that the Trust may pay higher brokerage commissions
for brokerage and research services (as described below) on a portion of
its transactions executed on securities exchanges, the manager seeks the
best security price at the most favorable commission rate. From time to
time, the Portfolio may place brokerage transactions with affiliated
persons of the manager. In selecting broker/dealers and in negotiating
commissions, the manager considers the firm's reliability, the quality
of its execution services on a continuing basis and its financial
condition. When more than one firm is believed to meet these criteria,
preference may be given to firms that also provide research services to
the Trust or the manager.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an
account to pay a broker or dealer who supplies brokerage and research
services a commission for effecting a securities transaction in excess
of the amount of commission another broker or dealer would have charged
for effecting the transaction. Brokerage and research services include
(a) furnishing advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, (b) furnishing
analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts, (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody), and
(d) furnishing other products or services that assist the manager or the
Subadviser in fulfilling their investment-decision making
responsibilities.
Pursuant to provisions of the relevant Advisory Agreement, the Trustees
have authorized the manager to cause the Trust to incur brokerage
commissions in an amount higher than the lowest available rate in return
for research services provided to the manager. The manager is of the
opinion that the continued receipt of supplemental investment research
services from dealers is essential to its provision of high quality
portfolio management services to the Trust. The manager undertakes that
such higher commissions will not be paid by the Trust unless (a) the
manager determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in
terms of the manager's overall responsibilities with respect to the
accounts as to which it exercises investment discretion, (b) such
payment is made in compliance with the provisions of Section 28(e) and
other applicable state and federal laws, and (c) in the opinion of the
manager, the total commissions paid by the Trust are reasonable in
relation to the expected benefits to the Trust over the long term. The
investment advisory fees paid by the Trust under the Advisory Agreements
are not reduced as a result of the manager's receipt of research
services. During the fiscal year ended October 31, 1998, the Trust
directed the payment of $519,062 in brokerage commissions to brokers
because of research services provided.
To the extent consistent with the NASD Rules, and subject to seeking
best execution and such other policies as the Trustees may determine,
the manager may consider sales of shares of the Trust as a factor in the
selection of firms to execute portfolio transactions for the Trust.
The manager places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by
firms through which the Portfolios effect their securities transactions
may be used by the manager in servicing all of its accounts; not all of
such services may be used by the manager in connection with the
Portfolios. In the opinion of the manager, the benefits from research
services to the Portfolios of the Trust and to the accounts managed by
the manager cannot be measured separately. Because the volume and
nature of the trading activities of the accounts are not uniform, the
amount of commissions in excess of the lowest available rate paid by
each account for brokerage and research services will vary. However, in
the opinion of the manager, such costs to the Portfolios will not be
disproportionate to the benefits received by the Portfolios on a
continuing basis.
The manager will seek to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by
the Portfolios and other accounts that the manager may establish in the
future. In some cases, this procedure could have an adverse effect on
the price or the amount of securities available to the Portfolios. In
making such allocations among the Trust and other advisory accounts, the
main factors considered by the manager over the respective investment
objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, and the
size of investment commitments generally held.
The following table summarizes for each Portfolio (except Mid Cap
Portfolio, which had not commenced operations during the relevant
periods) the total brokerage commissions paid.
The Portfolios may from time to time place brokerage transactions with
brokers that may be considered affiliated persons of the manager or the
Distributor. Such affiliated persons currently include Salomon Smith
Barney (successor to Smith Barney Inc. "Smith Barney") and Robinson
Humphrey, Inc. ("Robinson Humphrey"), because they are affiliated with
the manager.
DETERMINATION OF NET ASSET VALUE
The assets attributable to each Portfolio reflect the value of separate
interests in a single portfolio of securities. The net asset value of
the shares will be determined separately by subtracting the expenses and
liabilities. The net asset value of the shares of each Portfolio is
determined at 4:00 p.m., New York time (or at the close of the New York
Stock Exchange (the "Exchange"), if earlier, on each business day on
which the Exchange is open.
The value of equity securities is computed by (i) valuing listed or
unlisted securities for market quotations are readily available at the
prices reported by an independent pricing services, or as supplied by
the National Association of Securities Dealers Automated Quotations
(NASDAQ) or by broker-dealers, and (ii) valuing any securities for which
market quotations are not readily available and any other assets at fair
value as determined in good faith by the Board of Trustees. Options on
stocks, options on stock indexes and stock index futures contracts and
options thereon, which are traded on exchanges, are valued (at their
last sales or settlement price as of the close of such exchanges, or, if
no sales are reported, at the mean between the last reported bid and
asked prices).
Foreign securities trading may not take place on all days on which the
Exchange is open. Further, trading takes place in various foreign
markets on days on which the Exchange is not open. Events affecting the
values of investments that occur between the time their prices are
determined and 4:00 p.m. Eastern time on each day that the Exchange is
open will not be reflected in a Portfolio's net asset value unless the
manager, under the supervision of the Board of Trustees, determines that
the particular event would materially affect net asset value. As a
result, a Portfolio's net asset value may be significantly affected by
such trading on days when a shareholder has no access to the Portfolios.
U.S. Government securities are traded in the over-the-counter market and
valuations are based on quotations of one of more dealers that make
markets in the securities as obtained from such dealers or from a
pricing service. Options and interest rate futures contracts and
options thereon, which are traded on exchanges, are valued at their last
sales or settlement price as of the close of such exchanges, or, if no
sales are reported, at the mean between the last reported bid and asked
prices. Debt securities having a remaining maturity of 60 days or less
are valued on an amortized cost basis to the extent this approximates
market value.
TAXES
General. The following is a summary of certain federal income tax
considerations that may affect the Portfolios and their shareholders.
The discussion relates only to Federal income tax law as applicable to
U.S. citizens. Distributions by the Portfolios also may be subject to
state, local and foreign taxes, and their treatment under state, local
and foreign income tax laws may differ from the Federal income tax
treatment. The summary is not intended as a substitute for individual
tax advice, and investors are urged to consult their tax advisors as to
the tax consequences of an investment in any Portfolio of the Trust.
Tax Status of the Portfolios.
Each Portfolio will be treated as a separate taxable entity for Federal
income tax purposes.
Each Portfolio intends to qualify separately each year as a "regulated
investment company" under the Code. A qualified Portfolio will not be
liable for Federal income taxes to the extent that its taxable net
investment income and net realized capital gains are distributed to its
shareholders, provided that each Portfolio distributes at least 90% of
the sum of its net investment income and any excess of its net short-
term capital gain over its net long-term capital loss.
Each Portfolio intends to accrue dividend income for Federal income tax
purposes in accordance with the rules applicable to regulated investment
companies. In some cases, these rules may have the effect of
accelerating (in comparison to other recipients of the dividend) the
time at which the dividend is taken into account by a Portfolio as
taxable income.
Each intends at least annually to declare and make distributions of
substantially all of its taxable income and net taxable capital gains to
its shareowners (i.e., the Separate Accounts). Such distributions are
automatically reinvested in additional shares of the Portfolio at net
asset value and are includable in gross income of the separate accounts
holding such shares. See the accompanying contract prospectus for
information regarding the federal income tax treatment of distributions
to the separate accounts and to holders of the contracts.
Tax treatment of shareholders. The Trust has been informed that certain
of the life insurance companies offering contracts intend to qualify
each of the subaccounts as a "segregated asset account" within the
meaning of the Code. For a subaccount to qualify as a segregated asset
account, the Portfolio in which such subaccount hold shares must meet
the diversification requirements of Section 817(h) of the Code and the
regulations promulgated thereunder. To meet those requirements, a
Portfolio generally may not invest more than certain specified
percentages of its assets in the securities of any one, two, three or
four issuers. For these purposes, all obligations of the United States
Treasury and each governmental instrumentality are treated as securities
of separate issuers.
Income on assets of a subaccount qualified as a segregated asset account
whose underlying investments are adequately diversified will not be
taxable to contract owners. However, in the event a subaccount is not
so qualified, all annuities allocating any amount of premiums to such
subaccount will not qualify as annuities for federal income tax purposes
and the holders of such annuities would be taxed on any income on the
annuities for any taxable year.
The Trust has undertaken to meet the diversification requirements of
Section 817(h) of the Code. This undertaking may limit the ability of a
particular Portfolio to make certain otherwise permitted investments.
PERFORMANCE
From time to time, the Portfolios may quote a yield or total return in
advertisements or in reports and other communications to shareholders.
The Trust may include comparative performance information in advertising
or marketing the Portfolio's shares. Such performance information may
include data from the following industry and financial publications:
Barron's, Business Week, CDA Investment Technologies Inc., Changing
Times, Forbes, Fortune, Institutional Investor, Investors Daily, Money,
Morningstar Mutual Fund Values, The New York Times, USA Today and The
Wall Street Journal.
Yield
A Portfolio's 30-day yield figure described below is calculated
according to a formula prescribed by the SEC. The formula can be
expressed as follows: YIELD = 2[( [(a-b/(c*d))/l] + 1)6 - 1], where
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations purchased by the Portfolio at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect
changes in the market values of the debt obligations.
Investors should recognize that in periods of declining interest rates a
Portfolio's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates, the Portfolio's yield
will tend to be somewhat lower. In addition, when interest rates are
falling, the inflow of net new money to the Portfolio from the
continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of the Portfolio's
investments, thereby reducing the current yield of the Portfolio. In
periods of rising interest rates, the opposite can be expected to occur.
Average Annual Total Return
"Average annual total return" figures, as described below, are computed
according to a formula prescribed by the SEC. The formula can be
expressed as follows: P(l+T)/n = ERV, where:
P = a hypothetical initial payment of $ 1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a Hypothetical $ 1,000
investment made at the beginning of a 1-, 5- or
10-year period at the end of the 1-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
Each Portfolio is newly organized and therefore has no performance
history.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS
Voting. The Trust offers shares of the Portfolios only for purchase by
insurance company separate accounts. Thus, the insurance company is
technically the shareholder of the Portfolios, and under the 1940 Act,
is deemed to be in control of the Portfolios. Nevertheless, with
respect to any Concert Series shareholder meeting, an insurance company
will solicit and accept timely voting instructions from its contract
owners who own units in a separate account investment division which
corresponds to shares in the Portfolios in accordance with the
procedures set forth in the accompanying prospectus of the applicable
contract issued by the insurance company and to the extent required by
law. Shares of the Trust attributable to contract owner interests for
which no voting instructions are received will be voted by an insurance
company in proportion to the shares for which voting instructions are
received.
Transfer Agent
First Data Investor Services Group, Inc. is located at Exchange Place,
Boston, Massachusetts 02109.
Custody of Assets
Securities owned by the Trust and all cash, including proceeds from the
sale of shares of the Trust and of securities in the Trust's investment
portfolio, are held by PNC Bank, National Association, located at 17th
and Chestnut Streets, Philadelphia, PA 19103, as Custodian for each
Portfolio.
Shareholder Reports
Semi-annual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.
Independent Auditors
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, the
independent auditors for the Trust, perform annual examinations of the
Trust's financial statements.
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington,
D.C. 20036
Shareholder and Trustee Responsibility
Under the laws of certain states, including Massachusetts where the
Trust was organized, shareholders of a Massachusetts business trust may,
under certain circumstances, be held personally liable as partners for
the obligations of the Trust. However, the risk of a shareholder
incurring any financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to
meet its obligations. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust
and provides that notice of the disclaimer may be given in each
agreement, obligation, or instrument which is entered into or executed
by the Trust or Trustees. The Declaration of Trust provides for
indemnification out of Trust property to any shareholder held personally
liable for the obligations of the Trust and also provides for the Trust
to reimburse such shareholder for all legal and other expenses
reasonably incurred in connection with any such claim or liability.
Under the Declaration of Trust, the Trustees and Officers are not liable
for actions or failure to act; however, they are not protected from
liability by reason of their willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of their office. The Trust will provide indemnification to its Trustees
and Officers as authorized by its By-Laws and by the 1940 Act and the
rules and regulations thereunder.
About the Trust
The Trust was organized on January 29, 1987 under the laws of The
Commonwealth of Massachusetts and is a business entity commonly known as
a ''Massachusetts business trust.'' It is a diversified, open-end
management investment company authorized to issue an unlimited number of
shares of beneficial interest of $.01 par value, in the Portfolios.
Shares issued are fully paid, non-assessable and have no preemptive or
conversion rights. In the event of liquidation of any Portfolio,
shareholders of such Portfolio are entitled to share pro rata in the net
assets of the Portfolio available for distribution to shareholders.
As of December 31, 1997, the name of the Trust was changed from the
Common Sense Funds Trust to Concert Investment Series.
Shareholders are entitled to one vote for each full share held and to
fractional votes for fractional shares held in the election of Trustees
(to the extent hereafter provided) and on other matters submitted to the
vote of shareholders. Each class of shares represents interest in the
assets of each Portfolio and has identical voting, dividend, liquidation
and other rights on the same terms and conditions, except that the
distribution fees and service fees and any incremental transfer agency
fees related to each class of shares of each Portfolio are borne solely
by that class, and each class of shares of each Portfolio has exclusive
voting rights with respect to provisions of the Plan which pertains to
that class of each Portfolio. All shares have equal voting rights,
except that only shares of the respective Portfolio are entitled to vote
on matters concerning only that Portfolio. There will normally be no
meetings of shareholders for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office
have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees.
Shareholders may, in accordance with the Declaration of Trust, cause a
meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Except as set forth above, the Trustees shall
continue to hold office and appoint successor Trustees.
As of ___________, 1999, no person was known to own beneficially or of
record as much as five percent of the outstanding shares of any
Portfolio of the Trust.
Other Information about Certain Banking Laws
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies,
such as the Trust. Citibank believes that its services under the
Management Agreements and the activities performed by it or its
affiliates as Service Agents are not under-writing and are consistent
with the Glass-Steagall Act and other relevant federal and state laws.
However, there is no controlling precedent regarding the performance of
the combination of investment advisory, share-holder servicing and
administrative activities by banks. State laws on this issue may differ
from applicable federal law, and banks and financial institutions may be
required to register as dealers pursuant to state securities laws.
Changes in either federal or state statutes or regulations, or in their
interpretations, could prevent Citibank or its affiliates from
continuing to perform these services. If Citibank or its affiliates were
to be prevented from acting as the Manager or Service Agent, the Trust
would seek alternative means for obtaining these services. The Trust
does not expect that shareholders would suffer any adverse financial
consequences as a result of any such occurrence.
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal year ended October 31, 1998 is
incorporated herein by reference in its entirety.
APPENDIX A
RATINGS OF BONDS, NOTES AND COMMERCIAL PAPER
Moody's Investors Service, Inc.
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 edged." 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 most unlikely to impair the fundamentally strong position
of such issues.
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. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or 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. 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 that suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which 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.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C - Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Standard & Poor's
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small
degree.
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.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas 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.
BB, B, CCC, CC, C - Debt rated 'BB', 'B', 'CCC', 'CC' or 'C' is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. 'BB' indicates the lowest degree of speculation
and 'C' the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from 'AA' to 'B' may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the debt being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise judgment
with respect to such likelihood and risk.
L - The letter "L" indicates that the rating pertains to the principal
amount of those bonds where the underlying deposit collateral is fully
insured by the Federal Savings & Loan Insurance Corp. or the Federal
Deposit Insurance Corp.
+ - Continuance of the rating is contingent upon S&P's receipt of
closing documentation confirming investments and cash flow.
* - Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement.
NR - Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Fitch IBCA, Inc.
AAA - Bonds rated AAA by Fitch have the lowest expectation of credit
risk. The obligor has an exceptionally strong capacity for timely
payment of financial commitments which is highly unlikely to be
adversely affected by foreseeable events.
AA - Bonds rated AA by Fitch have a very low expectation of credit risk.
They indicate very strong capacity for timely payment of financial
commitment. This capacity is not significantly vulnerable to foreseeable
events.
A - Bonds rated A by Fitch are considered to have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be strong, but may be more vulnerable to changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds rated BBB by Fitch currently have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to impair this capacity. This is
the lowest investment grade category assigned by Fitch.
BB - Bonds rated BB by Fitch carry the possibility of credit risk
developing, particularly as the result of adverse economic change over
time. Business or financial alternatives may, however, be available to
allow financial commitments to be met. Securities rated in this category
are not considered by Fitch to be investment grade.
B - Bonds rated B by Fitch carry significant credit risk, however, a
limited margin of safety remains. Although financial commitments are
currently being met, capacity for continued payment depends upon a
sustained, favorable business and economic environment.
CCC, CC, C - Default on bonds rated CCC, CC, and C by Fitch is a real
possibility. The capacity to meet financial commitments depends solely
on a sustained, favorable business and economic environment. Default of
some kind on bonds rated CC appears probable, a C rating indicates
imminent default.
Plus and minus signs are used by Fitch to indicate the relative position
of a credit within a rating category. Plus and minus signs however, are
not used in the AAA category.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment will normally be evidenced by the following
characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial
changes and high internal cash generation; well-established access to a
range of financial markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's
A-1 - This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issuers
determined to possess overwhelming safety characteristics will be
denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch IBCA, Inc.
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes
and municipal and investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet financial commitment in a
timely manner.
Fitch's short-term ratings are as follows:
F1+ - Issues assigned this rating are regarded as having the strongest
capacity for timely payments of financial commitments. The "+" denotes
an exceptionally strong credit feature.
F1 - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments.
F2 - Issues assigned this rating have a satisfactory capacity for timely
payment of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.
F3 - The capacity for the timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction
to non investment grade.
Duff & Phelps Inc.
Duff 1+ - Indicates the highest certainty of timely payment: short-term
liquidity is clearly outstanding, and safety is just below risk-free
United States Treasury short-term obligations.
Duff 1 - Indicates a high certainty of timely payment.
Duff 2 - Indicates a good certainty of timely payment: liquidity factors
and company fundamentals are sound. The Thomson BankWatch ("TBW")
TBW-1 - Indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
TBW-2 - While the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is not
as high as for issues rated TBW-1.
3
Part C. Other Information
Item 23. Exhibits.
(a)(1) Agreement and Declaration of
Trust dated
January 29, 1987. (Incorporated herein by
reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
(2) Certificate of Designation of Common
Sense
Money Market Fund dated September 30, 1987.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
(3) Certificate of Designation Common
Sense
Municipal Bond Fund dated April 4, 1988.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
(4) Certificate of Resolution dated
January 8,
1992. (Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
(5) Certificate of Amendment dated January
20,
1994. (Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
(6) Certificate of Designation of Common
Sense II
Aggressive Opportunity Fund dated January 27,
1994. (Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
(7) Certificate of Designation of Common
Sense II
Government Fund dated January 27, 1994.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
(8) Certificate of Designation of Common
Sense II
Growth Fund dated January 27, 1994.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
(9) Certificate of Designation of Common
Sense II
Growth and Income Fund dated January 27,
1994. (Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
(10) Certificate of Amendment of the
Agreement and
Declaration of Trust dated May 10, 1996.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
(11) Amended and Restated Certificate of
Designation of Common Sense II Emerging
Growth Fund dated May 10, 1996. (Incorporated
herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 18,
filed on February 28, 1997.)
(12) Amended and Restated Certificate of
Designation of Common Sense II International
Equity Fund dated May 10, 1996. (Incorporated
herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 18,
filed on February 28, 1997.)
(13) Amended and Restated Certificate of
Designation of Common Sense Money Market Fund
dated May 10, 1996. (Incorporated herein by
reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
(14) Amended and Restated Certificate of
Designation of Common Sense Municipal Bond
Fund dated May 10, 1996. (Incorporated herein
by reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
(15) Certificate of Amendment Amending the
Amended
and Restated Certificate of Designation of
Common Sense Emerging Growth Fund dated
July 2, 1996. (Incorporated herein by
reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
(16) Certificate of Amendment Amending the
Amended
and Restated Certificate of Designation of
Common Sense International Equity Fund dated
July 2, 1996. (Incorporated herein by
reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
(17) Certificate of Amendment of the
Agreement and Declaration of Trust dated December 30, 1997
incorporated by reference to Registrant's Amendment No. 21,
filed on December 15, 1998.
(18) Form of Certificate of Designation of Mid
Cap Fund dated February 17, 1999 is incorporated by reference
to Registrant's Amendment No. 22, filed on February 26, 1999.
(b) Bylaws as amended July 10, 1996.
(Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28,
1997.)
(c)(1) Specimen copy of certificate for
Share of Beneficial Interest in Common Sense Trust for Class A
shares.
(Incorporated herein by reference to Form
N-1A of Registrant's Post-Effective Amendment
No. 17, filed on March 21, 1996.)
(2) Specimen copy of certificate for Share
of Beneficial Interest
in Common Sense Trust for Class B shares.
(Incorporated herein by reference to Form
N-1A of Registrant's Post-Effective Amendment
No. 17, filed on March 21, 1996.)
(3) Specimen copy of certificate for Share
of Beneficial Interest
in Common Sense Trust for Class 1 shares.
(Incorporated herein by reference to Form
N-1A of Registrant's Post-Effective Amendment
No. 17, filed on March 21, 1996.)
(d) Form of Investment Advisory Agreement
for Concert Investment Series (Incorporated herein by
reference
to Form N-1A of Registrant's Post-Effective
Amendment No. 20, filed on February 27, 1998).
(e)(1) Distribution Agreement with
CFBDS, Inc. is incorporated by reference to Registrant's
Amendment No. 21, filed on December 15, 1998.
(2) Form of Dealer Agreement is
incorporated by reference to Registrant's Post-Effective
Amendment No. 22, filed on February 26, 1999.
(f) Retirement Plan for Directors is
incorporated by reference to Registrant's Post-Effective
Amendment No. 22, filed on February 26, 1999.
(g) Form of Custodian Agreements
(Incorporated herein by reference to Form N-1A of Registrant's
Post-Effective
Amendment No. 20, filed on February 27, 1998).
(h)(1) Form of Transfer Agency Agreement
(Incorporated herein by reference to Form N-1A of Registrant's
Post-Effective
Amendment No. 20, filed on February 27, 1998).
(h)(2) Form of Sub-Transfer Agency
Agreement (Incorporated herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 20, filed on
February 27, 1998).
(i) Previously filed.
(j) Consent of Independent Auditors to be
filed by further amendment.
(k) Not applicable.
(l)(1) Investment Letter for Common
Sense Funds.
(Incorporated by reference to Exhibit 13
filed with Pre-Effective Amendment No. 2,
filed March 31, 1987.)
(l)(2) Investment Letter for Common
Sense II Funds dated May 2, 1994. (Incorporated herein by
reference to Exhibit 13.2 filed with
Post-Effective Amendment No. 12, filed
October 28, 1994.)
(l)(3) Investment Letter for Common
Sense II
Emerging Growth Fund and Common Sense II
International Equity Fund (Incorporated
herein by reference to Exhibit 13.3 filed
with Post-Effective Amendment No. 15, filed
August 11, 1995).
(m)(1) Form of Amended and Restated
Class A Distribution Plan is incorporated by reference to
Registrant's Post-Effective Amendment No. 22, filed on
February 26, 1999.
(m)(2) Form of Amended and Restated
Class B Distribution Plan is incorporated by reference to
Registrant's Post-Effective Amendment No. 22, filed on
February 26, 1999.
(m)(3) Form of Amended and Restated
Servicing Agreement for Class A shares is incorporated by
reference to Registrant's Post-Effective Amendment No. 22,
filed on February 26, 1999.
(m)(4) Form of Amended and Restated
Servicing Agreement for Class B shares is incorporated by
reference to Registrant's Post-Effective Amendment No. 22,
filed on February 26, 1999.
(n) Financial Data Schedule to be filed by
further amendment.
(o) Rule 18f-3 Plan. (Incorporated herein
by
reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on
February 28, 1997.)
Item 24. Persons Controlled by or under Common Control with
Registrant.
None
Item 25. Indemnification.
Item 25 is incorporated herein by reference to Form N-1A
of
Registrants Registration No. 33-11716, Post Effective
Amendment
No. 11, filed on March 2, 1994.
Item 26. Business and Other Connections of Investment Adviser
Investment Adviser - SSBC Funds Management Inc., formerly
Mutual Management Corp. ("SSBC"), and also formerly known as
Smith Barney Mutual Funds Management Inc.)
SSBC, through its predecessors, has been in the investment
counseling business since 1934 and was incorporated in
December 1968 under the laws of the State of Delaware. SSBC
is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc., which in turn is a wholly owned subsidiary
of Citigroup Inc. SSBC is registered as an
investment adviser under the Investment Advisers Act of 1940
(the "Advisers Act").
The list required by this Item 26 of the officer and
directors of SSBC together with information as to any other
business, profession, vocation or employment of a
substantial nature engaged in by such officer and directors
during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by SSBC
pursuant to the Advisers Act (SEC File No. 801-8314).
Item 27. Principal Underwriters.
CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is
also the distributor for the following Smith Barney funds:
Concert Investment Series, Consulting Group Capital Markets
Funds, Greenwich Street Series Fund, Smith Barney Adjustable
Rate Government Income Fund, Smith Barney Aggressive Growth
Fund Inc., Smith Barney Appreciation Fund Inc., Smith Barney
Arizona Municipals Fund Inc., Smith Barney California
Municipals Fund Inc., Smith Barney Concert Allocation Series
Inc., Smith Barney Equity Funds, Smith Barney Fundamental
Value Fund Inc., Smith Barney Funds, Inc., Smith Barney Income
Funds, Smith Barney Institutional Cash Management Fund, Inc.,
Smith Barney Investment Funds Inc., Smith Barney Investment
Trust, Smith Barney Managed Governments Fund Inc., Smith
Barney Managed Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Money Funds, Inc.,
Smith Barney Muni Funds, Smith Barney Municipal Money Market
Fund, Inc., Smith Barney New Jersey Municipals Fund Inc.,
Smith Barney Oregon Municipals Fund Inc., Smith Barney
Principal Return Fund, Smith Barney Small Cap Blend Fund,
Inc., Smith Barney Telecommunications Trust, Smith Barney
Variable Account Funds, Smith Barney World Funds, Inc.,
Travelers Series Fund Inc., and various series of unit
investment trusts.
CFBDS also serves as the distributor for the following funds:
The Travelers Fund UL for Variable Annuities, The Travelers
Fund VA for Variable Annuities, The Travelers Fund BD for
Variable Annuities, The Travelers Fund BD II for Variable
Annuities, The Travelers Fund BD III for Variable Annuities,
The Travelers Fund BD IV for Variable Annuities, The Travelers
Fund ABD for Variable Annuities, The Travelers Fund ABD II for
Variable Annuities, The Travelers Separate Account PF for
Variable Annuities, The Travelers Separate Account PF II for
Variable Annuities, The Travelers Separate Account QP for
Variable Annuities, The Travelers Separate Account TM for
Variable Annuities, The Travelers Separate Account TM II for
Variable Annuities, The Travelers Separate Account Five for
Variable Annuities, The Travelers Separate Account Six for
Variable Annuities, The Travelers Separate Account Seven for
Variable Annuities, The Travelers Separate Account Eight for
Variable Annuities, The Travelers Fund UL for Variable
Annuities, The Travelers Fund UL II for Variable Annuities,
The Travelers Variable Life Insurance Separate Account One,
The Travelers Variable Life Insurance Separate Account Two,
The Travelers Variable Life Insurance Separate Account Three,
The Travelers Variable Life Insurance Separate Account Four,
The Travelers Separate Account MGA, The Travelers Separate
Account MGA II, 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, The
Travelers Timed Bond Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the
distributor for CitiFunds Multi-State Tax Free Trust,
CitiFunds Premium Trust, CitiFunds Institutional Trust,
CitiFunds Tax Free Reserves, CitiFunds Trust I, CitiFunds
Trust II, CitiFunds Trust III, CitiFunds International Trust,
CitiFunds Fixed Income Trust, CitiSelect VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect
VIP Folio 500, CitiFunds Small Cap Growth VIP Portfolio.
CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio,
Foreign Bond Portfolio, Intermediate Income Portfolio, Short-
Term Portfolio, Growth & Income Portfolio, U.S. Fixed Income
Portfolio, Large Cap Growth Portfolio, Small Cap Growth
Portfolio, International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves Portfolio, Cash
Reserves Portfolio and U.S. Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following
Salomon Brothers funds: Salomon Brothers Opportunity Fund
Inc., Salomon Brothers Investors Fund Inc., Salomon Brothers
Capital Fund Inc., Salomon Brothers Series Funds Inc., Salomon
Brothers Institutional Series Funds Inc., Salomon Brothers
Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the Centurion
Funds, Inc.
(b) The information required by this Item 27 with respect to
each director and officer of CFBDS is incorporated by
reference to Schedule A of Form BD filed by CFBDS pursuant to
the Securities and Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Books and Records.
All accounts, books and other documents required by
Section 31(a) of the Investment Company Act of 1940 and the
Rules
thereunder to be maintained (i) by Registrant will be
maintained at
its offices, located at 388 Greenwich Street, 22nd Floor, New
York, NY 10013, PFS Shareholder Services,
3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia 30199-
0062, or at
PNC Bank,National Association, 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103 or Chase Manhattan Bank,
Chase
Metrotech Center, Brooklyn, New York 11245; (ii) by SSBC as
the Adviser, will be maintained at its offices, located at 388
Greenwich Street, 22nd Floor, New York, NY 10013; and (iii) by
the Distributor, the principal underwriter, will be maintained
at its
offices located at CFBDS Inc, 21 Milk Street, Boston, MA
02109-5408.
Item 29. Management Services.
There are no management related services contracts not
discussed in Part A or Part B.
Item 30. Undertakings.
None.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as
amended, and the Investment Company Act of 1940, as amended,
the Registrant, CONCERT INVESTMENT SERIES, certifies that it
meets all requirements for effectiveness of this registration
statement under Rule 485(b) under the Securities Act and has
duly caused this Post-Effective Amendment No. 23 to its
Registration Statement on Form N-1A to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of
New York, on the 4th day of June, 1999.
CONCERT INVESTMENT SERIES
By /s/ HEATH B.
MCLENDON
Heath B. McLendon
Chairman of the
Board and
Chief Executive
Officer
Pursuant to the requirements of the Securities Act of
1933, as
amended, this Amendment to the Registration Statement and the
above
Power of Attorney has been signed below by the following
persons in
the capacities and as of the dates indicated.
Signature: Title: Date:
/s/Heath B. McLendon Chairman of the Board June 4, 1999
Heath B. McLendon (Chief Executive
Officer)
/s/ Lewis E. Daidone Senior Vice President June 4, 1999
Lewis E. Daidone and Treasurer (Chief
Financial and
Accounting Officer)
/s/ Donald M. Carlton* Trustee June 4, 1999
Donald M. Carlton
/s/ A. Benton Cocanougher* Trustee June 4, 1999
A. Benton Cocanougher
/s/ Stephen R. Gross* Trustee June 4, 1999
Stephen R. Gross
/s/ Alan G. Merten* Trustee June 4, 1999
Alan G. Merten
/s/ R. Richardson Pettit* Trustee June 4, 1999
R. Richardson Pettit
*Signed by Heath B. McLendon, their duly authorized attorney-
in-fact, pursuant to power of attorney dated February 27,
1998.
EXHIBIT INDEX
None.
